Assessments and Amended Assessments
Australia’s income tax system is based on self-assessment. This means that the information a taxpayer lodges with the ATO in a taxation return (or other forms) is initially taken to be true and correct. It is the taxpayer’s responsibility to ensure that the information lodged with the ATO in fact complies with the taxation laws.
S166 of the ITA Act grants the Commissioner power to assesses a taxpayer’s taxable income, tax payable thereon and any tax offset refunds based on information provided from taxation returns and any other information in his possession. Once the Commissioner conducts this assessment, he issues the taxpayer with a ‘notice of assessment’.
Pursuant to s170 of the ITA Act, the Commissioner has powers to amend an assessment. This section generally provides a limited period of time for the Commissioner to amend income tax assessments. For example, for an assessment of an individual and a company that is a small or medium business entity, the Commissioner may amend an assessment within two (2) years after the Commissioner has notified the individual or company of the assessment. For a company that is not a small or medium business entity, the Commissioner may amend an assessment within four (4) years after notifying the company of the assessment. The purpose of these time limitations is to provide a taxpayer with more certainty and finality as to decisions made by the Commissioner.
However, if the Commissioner forms an opinion that there is ‘fraud’ or ‘evasion,’ he is granted with an unlimited period to amend an assessment.
What is ‘fraud?’
Tax legislation does not define the term ‘fraud.’ However, circumstances in which the Commissioner would consider forming an opinion of ‘fraud’ include:
- an avoidance of tax in the sense that less tax has been paid than ought to have been paid (i.e. there is a tax shortfall); and
- false representations made to the commissioner that resulted in the tax shortfall which the taxpayer knew were incorrect, held no genuine belief in their truth, or was reckless or careless as to whether such representations were true.
What is ‘evasion?’
While the courts have been reluctant to define the term ‘evasion,’ it has been found to generally involve a sufficiently blameworthy act or omission on the part of the taxpayer. The threshold for an opinion of evasion is generally not as high as the threshold for an opinion of fraud.
Circumstances in which the Commissioner may consider forming an opinion of evasion may involve:
- an avoidance of tax by paying less than what ought to have been paid; and
- ‘a blameworthy act or omission’ on the part of the taxpayer (or its agent or trustee) which resulted in the tax shortfall.
How can I challenge a ‘fraud’ or ‘evasion’ assessment?
A taxpayer can lodge an objection to a decision about their taxation affairs, including a finding of ‘fraud’ or ‘evasion’ made by the Commissioner. However, a taxpayer has the burden of proof and must provide evidence to disprove such a finding.
A taxation objection is made pursuant to s14ZU of the Taxation Administration Act 1953 (Cth) (TA Act). A person making a taxation objection must:
- make it in the approved form;
- lodge it with the Commissioner within the period set out in s14ZW of the TA Act (in this case, 4 years after notice of the assessment concerned is given to the person); and
- state the grounds that the person relies on fully and in detail.
If the Commissioner disallows a taxpayer’s objection, a taxpayer may then seek a review of the Commissioner’s objection decision under s14ZZ of the TAA Act. For further information about the procedure to challenge a taxation decision, please see our articles titled ‘Challenging your tax assessments’ and ‘Choosing the appropriate forum to commence proceedings under Part IVC of the Taxation Administration Act 1953 (Cth).‘
If you are seeking advice in relation to a finding of fraud or evasion made against you by the Commissioner, please do not hesitate to contact Lionheart Lawyers on (02) 9299 0112.