SMEs now have 4 years to request amendment of income tax returns

What has changed?

Small and medium businesses generally have an amendment period of 2 years. That is, the ATO has a 2 year period in which to amend these taxpayers’ income tax returns, whether it be an ATO driven amendment, for example post an ATO audit, or an amendment requested by the taxpayer.

The 2 year amendment period was originally intended to provide such taxpayers with certainty regarding their income tax liabilities. However, it has also led to an increased number of taxpayers seeking extensions of time and pursuing appeals, resulting in increased administrative burdens for both the ATO and taxpayers.

Changes enacted in December 2024 allow small and medium businesses to request amendments of tax returns up to a period of 4 years for income years starting on or after 1 July 2024.

Who is eligible to use the extended amendment period?

To be eligible for the extended amendment period, the taxpayer must be:

• an individual, a company, or a trustee of a trust estate;
• carrying on a business; and
• have an aggregated turnover for the prior income year, or a projected aggregated turnover for the current year of less than $50 million.

What is the impact of the changes?

If eligible, the taxpayer must apply for an amendment before the end of the 4 year period from the date the Commissioner issued the original assessment. If the Commissioner could amend the assessment within the ordinary 2 year period, these amendments allow the Commissioner to amend the assessment. However, the Commissioner may still decline to make the amendment if he is of the view that the request would mean the amended assessment would not correctly reflect the taxpayer’s taxable income. 

The additional 2 year period only applies to the specific items requested to be amended by the taxpayer and does not therefore open the entire return to amendment by the ATO, ensuring these taxpayers have sufficient certainty on the other aspects of their returns. 

It is also only applicable to requests by the taxpayer, and therefore does not give the ATO the ability to amend assessments beyond the normal 2 year amendment period. However, in practice, where the ATO has initiated a review or audit and the 2 year amendment period is approaching, the ATO will request that the taxpayer allow an extension of the amendment period. The taxpayer can then decide if its best to allow or refuse the extension, although a refusal will likely result in the ATO amending the relevant assessments based on its view at that time, requiring the taxpayer to then consider its objection rights rather than work with the audit team. 

It is important to note the ATO can still amend returns beyond the 2 year amendment period where it is permitted under legislation, for example, to give effect to an objection decision or where there has been fraud or evasion. 

The changes do not apply to the tax objection process meaning that small and medium businesses still only have a 2 year period in which to object.

Please contact your MGI DC advisor if you would like to discuss amendment periods, requests for amendment of assessments, or your objection rights.