The net is cast wider: Four-year time limit for ATO amendments for potentially all taxpayers

Key message

The Federal Court has ruled that taxpayers who are objects (potential beneficiaries) of discretionary trusts are subject to a four-year amendment period whether or not they have ever received a distribution from a trust or are even aware that they are an object of a trust.

Amendment periods

The standard period in which the Commissioner can amend assessments of taxpayers with simple tax affairs (individual taxpayers or qualifying small business taxpayers) is two years. Taxpayers with more complex tax affairs (business taxpayers that are not small business entities and others specified in the legislation) have an amendment period of four years.  One specified class of taxpayers that are subject to a four-year amendment period are taxpayers who are ‘beneficiaries’ of trusts.


In Yazbek v Commissioner of Taxation1 the Taxpayer was a member of an ‘eligible class’ of persons who could benefit under the terms of a trust estate (Trust).

The Taxpayer prepared and lodged his 2005 tax return in April 2006 and showed ‘nil’ for distributions from trusts. An original assessment was issued on 18 April 2006 by the Commissioner. In the 2005 income year, the Trust allocated $60,000 of the distributable income to the Taxpayer’s wife, and the balance to a company. No distributable income was allocated to the Taxpayer.

On 12 April 2010, the Commissioner issued an amended assessment to the Taxpayer including additional income of $2,144,843. The additional income was not from the Trust.

As part of the objection, the Taxpayer claimed the Commissioner had exceeded the time limits allowed for amending an assessment. The Commissioner disallowed the objection and in doing so determined that the Taxpayer was subject to a four-year amendment period on the basis that he was a beneficiary of a trust.

A single judge of the Federal Court confirmed an Administrative Appeals Tribunal decision that taxpayers who are objects (potential beneficiaries) of discretionary trusts are ‘beneficiaries’ and therefore are subject to a four-year amendment period.

This decision significantly expands the number of taxpayers who are subject to a four-year amendment period and gives the Commissioner more time to review and audit these taxpayers’ affairs. The decision also provides these taxpayers with more time to request amendments and object to the Commissioner’s assessments.

In the case, the Taxpayer made the point that a mischievous taxpayer could include all residents of Australia as a beneficiary of its discretionary trust and deny every resident of Australia the benefit of a two-year amendment period. Despite this the Federal Court held that the words of the legislation were to be given their ordinary meaning and that Parliament had not intended otherwise. It is now left for Parliament to intervene through legislation to reverse this decision and return to a common sense position.

Our recent experience

Despite limitation periods, we note that amendment periods can be extended by:

  • requesting the Commissioner exercise his discretion to accept an objection out of time; or
  • the Commissioner applying to the Federal Court for an order extending the amendment period.

Hall & Wilcox has recently had success applying to have a client’s amendment request processed out of time through the objection process.

In another matter, the Commissioner requested an extension of time to an amendment period on the basis that he required further time to complete an audit. We made the strategic decision to refuse an extension on the basis that the Commissioner was not entitled to an extension because:

  • the ATO left it too late to start its examination of the taxpayer; and
  • the Commissioner had been put on notice about the issue and had a significant time to review it as we had previously requested a private binding ruling.

Our refusal to consent to an extension meant that the Commissioner had to make an application to the Federal Court for an extension of the amendment period under section 170(7) of Income Tax Assessment Act 1936 if he wanted to continue the audit. For the Commissioner to succeed with an application under this section he must show that the taxpayer contributed to the delays which resulted in him needing more time. In our matter, the Commissioner declined to make such an application and the matter was finalised.

The message here is not to feel pressured if the Commissioner requests that you consent to an extension of a limitation period. In some circumstances, it may be appropriate to refuse and force the Commissioner to seek the extension by making an application to the Federal Court. Of course, the Commissioner will in many cases be able to issue a ‘default assessment’ in anticipation of an amendment limitation period expiring (which means that you move straight to the objection phase), so from a tactical point of view it may be preferable to consent to an extension of the amendment period as doing so gives the taxpayer more time to negotiate with the ATO or furnish them with more information by way of a voluntary disclosure. The appropriate approach should be determined on a case-by-case basis.

1[2013] FCA 39


Andrew O’Bryan

Andrew specialises in taxation law. He is a CPA Australia Fellow and Chairman of its Taxation Centre of Excellence.

Frank Hinoporos

Frank Hinoporos the Hall & Wilcox Tax team. He advises on direct taxes, international structuring and taxation disputes.

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