Amending Past Years’ Tax Returns

So what do you do if you realise, after reading the amazing information on our web site or facebook page, that you have missed something in a previous tax return? Don’t worry, you can amend that return and don’t let the ATO fob you off with the 2 year limit as there are many ways around this.

Most individual taxpayers are only entitled to amend their income tax return dating back 2 years from the date the assessment notice was issued. Certainly, if you lodge an amendment request after the 2 years has lapsed you will receive an automated letter from the ATO saying it is too late to amend despite the fact it is not true in many cases. Here are some of the ways around it:

  1. Owning an investment property with someone else. Section 170(1) 1936 ITAA allows you a 4 year amendment period if you are
    “A partner in a partnership that is not a small business”
    Merely investing in a few properties is not a small business. According to section 995 ITAA 1997.“
    Partnership means:
    (a) an association of persons (other than a company or a *limited partnership) carrying on business as partners or in receipt of *ordinary income or *statutory income jointly; “
  2. Section 170(1) also allows a beneficiary of a trust a 4-year amendment period. The ATO has used this when it suited them, arguing in Yazbek v Commissioner of Taxation 2013 AAT, that to be a beneficiary of a trust you did not need to have received income from a trust, it was sufficient that the trustee had the ability to distribute to you if it decided to do so. This means just about everyone is a potential beneficiary because discretionary trusts have very wide beneficiary clauses such as the siblings, children, spouses etc of the named beneficiary. Most of us are linked to a trust somewhere. Effectively the ATO went behind the intent of the legislation to destroy the 2-year amendment period and they only use it when it suits them so when you want some of your money back you get the pro-forma letter!
  3. Failing all of the above you could object to your assessment notice, at the same time applying for the ATO to extend the period of time you have to object. This is a bit more complex than the first two options because you have to justify why you are actually claiming the deduction. Effectively what you are doing is objecting to your assessment saying it is wrong, so you have to set out why.
    The ATO can’t just deny you an extension of time to object, there are guidelines on how they must behave in PS LA 2003/1
    in particular the last point of item 4;
    “any other relevant matters the case may bring up, such as prejudice to the Commissioner, or injustice to the taxpayer because of the negligent failure of their
    adviser to follow instructions.”
    Item 5 has some good points at the end, it looks like they can’t let the 2 year limit work against you;
    “ an individual or small business with a two-year time limit has lodged, within four years, an objection that discloses an arguable case for the objection to be allowed in full or in part.”
    If the ATO deny you the right to object it may be worth talking to the taxation ombudsman.

Don’t feel concerned that it might put a black mark against your name. The ATO has to justify its audit activities by producing results so when it decides to allocate its scarce resources to further look into a taxpayer’s affairs it will be looking for people who are trying to slip under the radar, are careless or who don’t know the law. Amending your tax return shows that none of these characteristics apply to you.