Date posted: 26/09/2022

Submission on exclusions from shorter period of review

Small businesses face a doubling of exclusions from their 2-year period of review. CA ANZ calls for reconsideration of the proposal.

A proposal to make it harder for over two million small businesses to access a two-year period of review for income tax assessments (as opposed to the standard four-year period) is an unwelcome surprise.  

Draft legislation will approximately double the number of reasons why a small business cannot access a two-year amendment period.  The additional reasons include:

  • They have transactions between related parties that relate to assets or non-cash benefits that have a market value of at least $50,000 – this is regardless of whether the transaction is at arm’s length or not.
  • The entity, its affiliates and connected entities have $200,000 or more of foreign sourced income for the year.  
  • The entity is a foreign controlled Australian entity or a non-resident.
  • The total number of entities that are connected with or an affiliate of the assessed entity is 10 or more.  
  • If the entity is entitled to a R&D tax offset or certain related deductions, recoupments and adjustments.
  • The entity has accessed CGT rollover relief for: Division 125, subdivision 126-B and Division 615 of the Income Tax Assessment Act 1997.

This situation has arisen due to the increase in the small business entity threshold from $10 million to $50 million.  The budget announcement regarding this change indicated that the two-year amendment period would have integrity measures introduced into it, but the way it was included under dot points that were talking about entities that were between $10 million to $50 million in turnover gave the impression that it should only apply to those entities.

The Australian Taxation Office (ATO)’s tax gap reports indicate that the additional reasons relate to medium sized businesses rather than small businesses.  

CA ANZ argues that the Government should reconsider this draft legislation and explain why small businesses should face additional compliance hurdles to access the two-year amendment period.

Treasury consultation

Proposed exclusions from shorter period of review for small and medium entities.

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