A taxpayer has a four-year period in which to claim an ITC/FTC to which they are entitled.
The ATO takes a strict application of this four-year rule emphasising that there is no scope or discretion to extend this entitlement period. Once expired, the entitlement to ITC/FTC ceases and cannot be extended, so it is critical to be across these rules so that ITCs/FTCs are not unduly relinquished.
Essentially, an ITC/FTC must be “taken into account” during the entitlement period. The limiting provisions provide that your entitlement to an ITC/FTC ceases (unless an exception applies) to the extent that the tax credit has not been “taken into account” in an assessment during the 4-year entitlement period.
The ATO has recently issued MT 2024/1- Miscellaneous tax: time limits for claiming an input tax or fuel tax credit (MT 2024/1) which provides the Commissioner’s view on how the four-year entitlement period rules operate. MT 2024/1 incorporates the Federal Court decisions in the Linfox[1] and Coles Supermarkets[2] cases and substantially updates the Commissioner’s view on:
- when a credit is ‘taken into account’ in an assessment;
- whether that occurs within the four-year entitlement period; and
- how the rules relate to GST credits subject to an objection, amendment request and private ruling application.
The entitlement period commences from the original due date of the BAS and not the actual lodgement date/date of assessment. Importantly, there is no corresponding four-year expiry on GST liability. There have been cases where BASs were not lodged by the due date and ITC entitlements on purchases were denied on the basis that the entitlement period has expired. However, the taxpayer remains liable for any GST payable on sales included in the BAS.
The ATO states that only a valid objection lodged within the four-year entitlement period will preserve and extend a taxpayer’s entitlement to the ITC/FTC. To the extent that the objection decision or any subsequent review or appeal process finds that you were entitled to that tax credit and it is attributable to the period in dispute, your entitlement will not cease.
Significantly, at paragraph 69 the ATO states:
‘Other processes such as requesting an amendment to an assessment or applying for a private ruling do not provide the protections that exist for the objection process.’
The ATO’s approach appears quite restrictive from the examples provided in MT 2024/1. For example, the ATO considers that the non-claimed portion of an ITC has not been ‘taken into account’. This is of significance where there has been a conscious decision to exclude an amount because full ITCs may not available. In these instances, the Commissioner takes the view that these types of ITCs have not been “taken into account”.
Crucially, where ITC/FTC claims have been held off due to uncertainty on entitlement issues, it would be best to review these decisions in light of the limitations and requirements of the four-year rule so that these claims are not inadvertently abandoned due to the passage of time and the technicalities of these rules.
If you would like assistance in these matters, please contact Mimi Ngo.
[1] Linfox Australia Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCAFC 131 (Linfox)
[2] Coles Supermarkets Australia Pty Ltd v Commissioner of Taxation [2019] FCA 1582 (Coles)