At the start of the COVID-19 pandemic in 2020, the previous government passed a measure to increase the small business threshold from $10m to $50m for the purposes of most of the small business exemptions. This was part of a Bill to implement various Budget measures for economic recovery.

Among other things, this legislation meant that the Commissioner was only able to amend an income tax assessment of “medium businesses” (those with a turnover between $10m and less than $50m) for a limited period of 2 years. The Commissioner was still able to amend an assessment at any time if fraud or evasion was expected or to give effect to an objection made by the taxpayer or a decision on review or appeal.

While the current government is not seeking to disturb a majority of the measures contained in the legislation, it has recently introduced a proposal to exclude certain small and medium entities (SMEs), with particularly complex tax affairs or significant international tax dealings, from the shorter 2-year amendment period and revert those entities back to the standard 4-year period.

Entities which would be subject to a longer period of review should the Draft Regulation be registered include:

• those with related-party dealings in relation to assets or non-cash benefits with a market value of at least $50,000;
• entities that derive an assessable income of at least $200,000 from any source that is not an Australian source. To prevent structuring arrangements being undertaken to avoid this, the $200,000 threshold is assessed as a combined threshold including the assessable income from the relevant assessed entity and any entity affiliated with or connected with the entity;
• foreign controlled Australian entities (including Australian companies, trusts and partnerships) and non-resident entities at any time during the income year;
• any entities that engage in schemes captured by either the Diverted Profits Tax (DPT) or Multinational Anti-avoidance Law (MAAL);
• certain entities with at least 10 other entities connected with or affiliated with the entity at any time during the assessment year;
• entities that may be entitled to the R&D tax offset or certain related deductions, recoupments and adjustments; and
• entities that claim the following CGT relief:
  • restructure rollover relief;
  • demerger relief;
  • rollovers relating to CGT asset transfers between 2 companies or the creation of a CGT asset between companies within the same wholly owned group, where one company is a non-resident; and
  • entities subject to Div 855 (where a foreign resident can disregard a capital gain or loss in certain circumstances).

The Draft Regulations also seek to remove the current requirement that a 4-year period of review only applies where at least one of the related parties already has a 4-year period of review in relation to related party dealings. This means that even if all related parties have a 2-year assessment period, if all other conditions are satisfied, a 4-year period of review may apply to a relevant assessed entity. The above amendments will apply to assessments made after the Regulations commence for income years starting on or after 1 July 2021.