The AAT has held that amended assessments issued to a taxpayer outside of the standard 2-year amendment period to include foreign employment income were unlawful.
The matter concerned the 2006 and 2007 income tax returns of the taxpayer, a pilot, who had disclosed exempt foreign employment income for both years. The Commissioner issued assessments for the subject years on 21 May 2007 and 28 April 2008, respectively and then in May 2010, issued amended assessments to include foreign employment income in place of previous claims for exempt employment income.
The amended assessments followed the Federal Court’s decision in Overseas Aircrew Basing Ltd v FCT (2009) 74 ATR 850, which held the income derived by aircrew from the services they provided to OABL was not exempt from tax under s 23AG of the ITAA 1936. The taxpayer’s employer was related to OABL. The taxpayer objected to the amended assessments, submitting they were not authorised under s 170 of the ITAA 1936, should have allowed a dependant spouse rebate for both years, and should have eliminated, reduced or remitted the Medicare levy and Medicare levy surcharge imposed.
Before the AAT, the Commissioner relied on item 5 of the table in reg 20 of the Income Tax Regulations 1936, which extends the standard 2-year period to amend assessments under s 170(1)(f) to 4-years. The Commissioner contended the taxpayer’s foreign employment income needed to be entered under the correct label in the returns in order for him to avoid extension of the period for amending an assessment as provided for in reg 20. The AAT disagreed with the Commissioner’s interpretation of reg 20. In addition, the AAT was of the view that there was “no obvious reason” why the Commissioner needed a 4-year period to amend the taxpayer’s assessments in the circumstances where he was aware of the taxpayer’s receipt of foreign employment income prior to the expiration of the 2-year period.
In conclusion, the AAT held the amended assessments were “unlawful”. It also held the taxpayer was entitled to the private health insurance tax offset from 26 May 2006. The Commissioner also conceded the taxpayer was entitled to the dependent spouse rebate. Accordingly, the AAT remitted the assessments to the Commissioner for recalculation.
(AAT Case [2012] AATA 428, Re Elliott and FCT, AAT, Ref Nos: 2011/3225 & 2011/3226, Fice SM, 9 July 2012.)
[LTN 132, 11/7]