The law generally limits the ATO’s ability to go back and amend income tax returns as follows:
- two years for a small business
- two years for medium business for income years starting on or after 1 July 2021
- four year of other taxpayers
The time period starts from the day the ATO give you a notice of assessment for the income year in question. If no notice of assessment is issued then generally the date is the date the relevant return was lodged.
However while this may limit the Commissioners ability to go back (assuming no fraud or evasion) it also limits the taxpayers ability to amend an previously incorrect tax return. This could be an issue if there underreported expenses or over reported income.
If you are outside the time frame above, an alternative is to object to a previously lodged assessment. This avenue provides a gateway to object outside the period of amendment. Guidance on this can be found on PS LA 2003/7 and PS LA 2008/19.
As you will note above the time limit for small businesses is 2 years.
A small business was recently redefined in the 2021 Budget as an entity with aggregated turnover of less than $50m (previously $10m). However it appears that the Government is not overly happy with the potential for what were medium sized taxpayers escaping their net (as eluded to in the Budget announcement).
As a result the Government released an exposure draft on the 16th August 2022 whereby they will seek to exclude certain entities with particular complex tax affairs or significant international dealings from the shorter 2 year period of review/amendment.
Further information on this can be found here: https://treasury.gov.au/consultation/c2022-298165