Amending assessments outside the usual time limits

I am regularly asked by tax agents whether they should amend prior year returns to take up adjustments, or just put the same amount in the current year return. It is sometimes a simple error such as a forgotten dividend or deduction, but the query mostly arises in relation to CGT.

In the CGT space, the issue arises most commonly with earnouts. When a business is sold with an earnout involved, the timing of when the earnout is paid is often at say the 12 and 24 month mark.  In this case the original return must be amended to bring in the additional capital proceeds. It has to be done promptly to access the concession regarding the ATO accepting that there is no interest it should impose on this type of amendment (time will tell whether the new requirement to ask for GIC remissions via a standardised way will accommodate this easily).

In contrast, if the small business CGT concessions apply and the small business rollover is chosen then the deferred gain does arise again two years later.  This may cause some confusion.

In some situations, tax agents are concerned that they are out of time to amend the prior year return, but genuinely wish to declare the gain and aren’t sure what to do. This might arise for a taxpayer who is subject to the 2 year time limit on amending assessments, and so an earnout which is only determined and paid more than two years after the sale can sometimes be received too late under the normal two year amendment limit.

The same issue arises where taxpayers or tax agents just make honest mistakes as to which year a capital gain is earned. For simple transactions taxed by CGT event A1, the actual legal transaction occurs when the title to the asset passes. However, the CGT rules deliberately change this to the date of the contract. In a situation where the contract is signed in one tax year and settled in the next, errors are made in relation to which tax return the capital gain is declared in.

This was the case in Sunna v C of T [2025] FCA. Mr Sunna sold a CGT asset, signing the contract late in FY2019 and receiving a large deposit early in FY2020. The contract settled in August 2022, with the balance of the sale proceeds being received then.

Mr Sunna declared the capital gain in line with when he received the proceeds i.e. some in FY2020 when the deposit was paid to him, and the balance in FY2023 i.e. the year of settlement. When the ATO reviewed the 2023 tax return and became aware of the full details of the transaction it issued a 2023 assessment without the purported capital gain, and also amended Mr Sunna’s 2019 assessment to include the full capital gain. Shortly thereafter the ATO amended the 2020 assessment to exclude the incorrect capital gain previously assessed in that year.

Mr Sunna challenged the ATO’s ability to amend the 2019 and 2020 assessments on a number of grounds. In the course of the case, the ability of the ATO to amend the 2019 and 2020 assessments was considered, as the amended assessments for 2019 and 2020 were both issued after the two year time limit had expired.

The two and four year time limits have a significant number of exceptions. Leaving the unlimited liability for Family Trust Distributions Tax aside (as it arises from a different Act), the list of the types of income for which the ATO can amend at any time has 19 items relating to the ITAA 1936 and 34 items in the ITAA 1997. The one which related to Mr Sunna is unusual in that it applies to CGT Events A1, C2, D3, E8, F1, K1, K5 and K6. For all eight of these CGT events (plus the other 52 sections across both Acts) the ATO can amend an assessment at any time, but only if, in doing so, it is amended ‘for the purpose of giving effect’ to the relevant section.

One of those other sections happens to be section 100A, which is an area of current ATO focus.  Other instances which might be more likely to arise would include employee share scheme income and various CGT rollovers.

Going back to Mr Sunna’s situation, the Court agreed that the amendment of the 2019 assessment was for the purposes of giving effect to section 104-10 i.e. CGT event A1. However, it came to the view that any out of time amendment of the 2020 assessment to remove the incorrectly disclosed capital gain was not for the purpose of giving effect to CGT event A1, as amending to remove the gain would not be for the purpose of bringing a capital gain in to be correctly assessed to income tax in the year the gain was made. Instead the Commissioner’s purpose in undertaking any such amendment was to try to prevent Mr Sunna from being subject to double taxation on the gain. So, the unlimited time rule is not available in such a situation (even where the ATO wishes to do so, as it did here). From this, it appears that there is a real risk of double-taxation where any type of income under any of the 53 types which these rules apply to is declared in the wrong income year. In theory at least, the only technical way forward would be for the taxpayer to object and ask the ATO to treat that objection as having been made in time as is allowed to be done by section 14ZW(2) of the TAA. As a practical observation, that can be hard to do when you have already been to the Federal Court – you are well past objection stage by then!

In closing, I recommend that tax agents seek to amend the return or assessment to change the taxpayer’s taxable income for the year in which the change should be declared in, as it may be the case that the Commissioner has no time limit on amending that assessment in any event. This is to remove the situation like the one which in theory Mr Sunna faces where the ATO has no power to remove the incorrectly declared income and prevent double-taxation.

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