Issue
Does paragraph 171A(2)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) give the Commissioner an unlimited period in which to make an original assessment for the taxpayer's 2003-04 income year, so as to give effect to a transfer pricing determination under section 136AD of the ITAA 1936?
Decision
Yes, the Commissioner has an unlimited period in which to make an original assessment for the taxpayer's 2003-04 income year. A transfer pricing determination under section 136AD of the ITAA 1936 triggers the application of subsection 170(9B) and paragraph 171A(2)(b) of the ITAA 1936 to give the Commissioner an unlimited period in which to make an original assessment.
Facts
Companies X and Y were part of a wholly owned group for the purposes of the loss transfer provisions under Subdivision 170-A of the Income Tax Assessment Act (ITAA 1997).
Company X incurred a tax loss and transferred part of it to Company Y. The transfer of the tax loss resulted in both companies having a 'nil year' in the 2003-04 income year for the purposes of section 171A of the ITAA 1936. As a result of a transfer pricing determination under section 136AD of the ITAA 1936 in respect of Company X, that company was not entitled to the tax loss transferred to Company Y and has taxable income for the 2003-04 income year.
Reasons for Decision
Subsection 170(9B) of the ITAA 1936 gives the Commissioner the power to amend an assessment at any time for the purpose of giving effect to a prescribed provision. The expression 'prescribed provision' is relevantly defined in subsection 170(14) of the ITAA 1936 and includes section 136AD of the ITAA 1936. Subsection 170(9B) of the ITAA 1936 applies where the Commissioner determines that subsections 136AD(1), 136AD(2) or 136AD(3) of the ITAA 1936 should apply to the taxpayer.
For the 2003-04 and earlier income years, there was no assessment in respect of a nil liability income tax return. Subsection 171A(1) of the ITAA 1936 provides for limited periods within which the Commissioner can make an original assessment for a nil liability income tax return for the 2003-04 and earlier income years (nil years). Paragraph 171A(2)(b) of the ITAA 1936 provides in effect that subsection 171A(1) of the ITAA 1936 does not apply where, if the Commissioner had made an assessment for a nil year, the ITAA 1936 or the ITAA 1997 would not have prevented the Commissioner amending that assessment at any time. Under these circumstances the Commissioner has an unlimited period to issue an original assessment for the 2003-04 or earlier nil year.
Accordingly, the Commissioner is able to issue Company X an original assessment for the 2003-04 income year at any time for the purpose of giving effect to the transfer pricing determination under section 136AD of the ITAA 1936. Note: similarly paragraph 171A(2)(b) of the ITAA 1936, in conjunction with section 170-70 of the ITAA 1997, gives the Commissioner an unlimited period to make an original assessment for Company Y's 2003-04 income year. Section 170-70 of the ITAA 1997 gives the Commissioner an unlimited period to amend an assessment to disallow a deduction for a transferred amount of a tax loss, if the agreement to transfer the tax loss is ineffective because the loss company (in this case Company X) did not actually incur the loss. The term 'this Act' in paragraph 171A(2)(b) of the ITAA 1936 includes the ITAA 1997: see the definition of the term 'this Act' in subsection 6(1) of the ITAA 1936.
Amendment History
Date of amendment Part Comment 22 February 2013 Reasons for decision Minor changes to improve readability. Amendment to clarify that the Commissioner can issue an original assessment in this situation as no assessment has previously been made.
Date of amendment | Part | Comment
22 February 2013 | Reasons for decision | Minor changes to improve readability. Amendment to clarify that the Commissioner can issue an original assessment in this situation as no assessment has previously been made.