In a recent case decided in the Federal Court, the Australian Taxation Office (ATO) successfully ran an argument over an apparently irrelevant procedural issue to win a bigger argument.

The ATO was seeking to amend a taxpayers return and wished to do so more than two years after the relevant year.  It argued that if the taxpayer was a beneficiary of a trust, that the time limit was not two years, but four years.  Then it would be within time to issue the amended assessments for adjustments unrelated to the interest in the family trust.

The taxpayer argued that if that interpretation was correct, then all 126 beneficiary of this trust would also be subject to the same four year rule, rather than the expected two year rule.  The taxpayer had not received a distribution in the year.

The tribunal and then the court above it, agreed with the Commissioner and so the four year opportunity for amended assessments to issue to any potential beneficiary of a family trust will now apply.  This is regardless of whether that beneficiary has received any distribution from the trust.

This particular family trust did not qualify as a small business entity. It therefore did not meet the two year amendment criteria, which meant that the beneficiaries of the trust were subject to the four year amendment rule.

Somewhere in Australia there will be a family trust that does not qualify as a small business entity.  If that trust has a clause that says any resident of Australia is an eligible beneficiary...... Does that seem to be an unintended consequence?