Amending an individual income tax return in Australia

Amending an individual income tax return in Australia

When an individual lodges an income tax return the ATO issues an original assessment showing the tax liability for that income year; an amended assessment issues either because the taxpayer requests an amendment (for example to include a forgotten deduction) or because the ATO reviews the return and amends it (for example disallowing a deduction that cannot be claimed under the law). A statutory time limit applies to amending an assessment and to amending an amended assessment, and the ATO states that the limit gives certainty because it means the ATO cannot amend the assessment outside that limit. Where an amendment produces a shortfall amount, administrative penalties may apply, including the penalty for treating an income tax law as applying in a way that is not reasonably arguable. Figures are for tax year 2026. The ATO pages relied on below state these time limits, penalty percentages and penalty thresholds without tying them to a particular income year, so the same figures are used here for tax year 2026.

Who this is for

Individuals, including sole traders, who need to correct an already-assessed income tax return, and their agents. The ATO's individuals time-limit page directs businesses and super entities to its separate "Time limits for business and super amendments" material instead, so entity amendments are outside this Guide. Partnerships and trusts are covered here only to the extent that the reasonably arguable position threshold in the table below is quoted for them; their own lodgement and amendment processes are not covered.

Rates, thresholds and deadlines

Amendment time limits table (https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments)

What	Value	Note
Source	all figures below	https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments
Time individuals have to amend an assessment	2 years	Page states "Individuals generally have 2 years to amend an assessment."
ATO-initiated amendment where the taxpayer has not requested it	Not more than 2 years after the assessment was issued	Page states the ATO generally "can't amend your assessment more than 2 years after it was issued unless you request it"
Amendment outside the time limit	Permitted in exceptional circumstances	Page gives "when evasion or fraud has occurred" as an example of exceptional circumstances
Out of time to amend	Objection may be required instead	Page states that if you are out of time to amend your assessment "you may need to lodge an objection instead", and that an extension of time to lodge an objection may be available in some circumstances

Reasonably arguable penalty, thresholds and voluntary disclosure table (https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements)

What	Value	Note
Source	all figures below	https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements
Base penalty amount (BPA) — position on an income tax law that is not reasonably arguable	25% of the shortfall amount	Applies where the resulting shortfall amount exceeds the threshold below
Reasonably arguable threshold — taxpayers other than partnerships and trusts	Greater of $10,000 or 1% of income tax payable worked out based on their tax return	Page's own wording for "other taxpayers"; the same 1% test is applied to PRRT payable and to Australian IIR/UTPR tax payable where relevant
Reasonably arguable threshold — partnerships and trusts	Greater of $20,000 or 2% of the entity's net income (if any) worked out based on its return	Page's own wording
Voluntary disclosure reduction to the BPA	BPA may be reduced by 20%, 80% or, in some cases, to nil	Page states the BPA "will generally be reduced if you voluntarily tell us about the error" and that the reduction depends on when you tell the ATO and the shortfall amount
Adjustment for aggravating circumstances	BPA can be increased	Page lists having "attempted to prevent or obstruct" the ATO from finding out about the shortfall amount or the false or misleading nature of the statement

PS LA 2012/5 base penalty amounts by behaviour table (https://www.ato.gov.au/law/view/pdf?DocId=PSR%2FPS20125%2FNAT%2FATO%2F00001&filename=law%2Fview%2Fpdf%2Fpsr%2Fps2012-005c5.pdf&PiT=20191025000001)

What	Value	Note
Source	all figures below	https://www.ato.gov.au/law/view/pdf?DocId=PSR%2FPS20125%2FNAT%2FATO%2F00001&filename=law%2Fview%2Fpdf%2Fpsr%2Fps2012-005c5.pdf&PiT=20191025000001
BPA — intentional disregard of a taxation law by the entity or their agent	75% of the shortfall amount or part	Practice statement PS LA 2012/5 table of base penalty amounts
BPA — recklessness by the entity or their agent as to the operation of a taxation law	50% of the shortfall amount or part	Practice statement PS LA 2012/5 table of base penalty amounts
BPA — failure by the entity or their agent to take reasonable care to comply with a taxation law	25% of the shortfall amount or part	Practice statement PS LA 2012/5 table of base penalty amounts; the behaviours considered are those exhibited at the time of, or in connection to the making of, the statement

MT 2008/2 base penalty amount and threshold example table (https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001)

What	Value	Note
Source	all figures below	https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001
BPA under subsection 284-90(1) for a penalty imposed under subsection 284-75(2)	25% of the shortfall amount, or the part of it, that resulted from taking a position on the law that was not reasonably arguable	MT 2008/2 paragraphs 24 and 57
Threshold worked through in MT 2008/2 Example 1	Greater of $10,000 or 1% of the income tax payable	On the example's facts (tax payable of $50,000) the 1% figure is $500, so the $10,000 limb applied and a $7,000 shortfall did not meet the threshold

Four-year business amendment period table (https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/What-you-should-know/Tailored-engagement/Assessments-and-amendment-periods/)

What	Value	Note
Source	all figures below	https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/What-you-should-know/Tailored-engagement/Assessments-and-amendment-periods/
Standard ATO amendment period for most businesses in privately owned and wealthy groups	Four years	Page states the exception is where evidence of fraud or evasion is found, in which case there is no time limit; it also notes different amendment-period rules can apply in some transfer pricing, research and development and capital gains tax cases

Sole trader four-year amendment period table (https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments; https://www.ato.gov.au/law/view/document?docid=PAC/19360027/170)

What	Value	Note
Source	all figures below	https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments and https://www.ato.gov.au/law/view/document?docid=PAC/19360027/170
Sole traders, 2024-25 and later income years	4 years	Taxpayer-requested amendment under item 3A of subsection 170(1) ITAA 1936: an application in the approved form within four years, after the ordinary two-year period has ended; applies to assessments issued after 1 January 2025 for income years starting on or after 1 July 2024. It is not an unrestricted four-year ATO review period
Sole traders, 2023-24 and earlier income years	2 years	The ordinary individual period
Start of the period	The date the ATO gave notice of the assessment	Not the end of the income year and not the lodgement date
Further amendments after an amended assessment	Restricted	Subsections 170(2) to (4) limit later amendments and allow particular matters to be revisited only in specified circumstances; business, partnership, trust and avoidance circumstances can take an individual outside the two-year category

The method, step by step

1. Identify what the correct assessment should be and quantify the difference between the correct tax liability or credit entitlement and the amount calculated on the information already given — this difference is the "shortfall amount" as defined on the ATO false or misleading statements page (https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements).
2. Check the amendment time limit against the date the assessment (or amended assessment) was issued, using the time limits in the first table above (https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments). Establish whether the client is within the individuals period or out of time.
3. If within the limit, request the amendment through the ATO's amend your tax return process (https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return). The individuals pages read for this draft do not set out the lodgement channels or name the amendment form, so confirm the current channel and form name on that ATO page before lodging; nothing is assumed here.
4. Treat the amendment request itself as a statement to the ATO. The false or misleading statements page states that the penalty can arise from a statement made in a tax return, activity statement or amendment request that results in a shortfall amount, so the request must be complete and correct (https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements).
5. Test whether penalty exposure arises. The same page states that generally there is no penalty where the taxpayer or agent took reasonable care in making the statement, or where the tax law was applied in a way that agrees with ATO advice, published statements or general administrative practices — but notes that reasonable care does not prevent a separate penalty for taking a position that is not reasonably arguable.
6. Where the position depended on an arguable view of the law, work the two-limb test in the tables: the position must fail the reasonably arguable standard and the shortfall amount must exceed the threshold for the taxpayer type, as MT 2008/2 works through in its examples (https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001).
7. Prepare the supporting argument and evidence for the position. MT 2008/2 states at paragraph 52 that the general administrative penalty provisions do not require an entity to document their reasonably arguable position at the time the statement is made, and that although the position is determined as at the time the statement was made, the entity has the opportunity to demonstrate its position when a shortfall amount is identified (https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001).
8. Make the disclosure voluntarily rather than waiting for ATO contact, because the false or misleading statements page states the BPA will generally be reduced if the taxpayer voluntarily tells the ATO about the error, with the reduction depending on timing and the shortfall amount (https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements).
9. On receipt of a penalty, check the notice. MT 2008/2 states the Commissioner is required under section 298-10 to give written notice of any liability for an administrative penalty and the reasons for it, except where a decision is made to remit all of the penalty (https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001).
10. If the client is out of time to amend, or is dissatisfied with a penalty assessment, use the objection route: the individuals time-limit page directs out-of-time taxpayers to lodge an objection (https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments), and MT 2008/2 notes that under subsection 298-30(2) an entity dissatisfied with an assessment of penalty may object in the manner set out in Part IVC of the TAA (https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001).
11. Recalculate every related item before submitting: taxable income, offsets, capital losses, Medicare levy and study loan repayment income can all move. A deduction added to a return does not produce a refund equal to the deduction multiplied by one marginal rate.
12. Separate a favourable correction from a tax shortfall. An understated liability or overstated entitlement can create a shortfall amount; a correction that reduces tax is not a shortfall. Do not invent missing expenses, dates or valuations; mark incomplete items for resolution before submission.
13. Choose the channel: ATO online services (in myGov linked to the ATO, select Manage tax returns, then Amend beside the income year), a registered tax agent, the paper amendment form, or a letter containing the required information. Enter the correct totals for the affected labels rather than replacing a total with the adjustment. A paper request must be signed by the taxpayer, the ATO charges no fee, and processing times are estimates, not a guarantee that a request completes before a deadline. Retain the submitted request and its acknowledgement (https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/how-to-request-an-amendment-to-your-tax-return).
14. When the amended assessment issues, compare it with the reconciliation prepared at step 1: the tax difference, interest, penalties, credits, payment date and any effect on later returns. Retain the assessment and the evidence behind each corrected figure.

Ask the client first

• What is the exact date of issue of the notice of assessment (or the most recent amended assessment) for the year in question, and is that within the individuals time limit in the table above?
• Does the amendment increase or decrease the tax liability, and does it create a shortfall amount as the ATO defines it?
• What is the income tax payable on the return as lodged, so the greater-of threshold for a not reasonably arguable position can be worked out?
• Was the original position based on a view of the law, ATO advice, a published ATO statement or a general administrative practice, and can that be produced?
• Has the ATO already contacted the client about this year (review, audit or information request), which affects whether a disclosure is voluntary and the level of reduction?
• Is the client also a partner in a partnership or a beneficiary of a trust whose return would need amending, which brings the higher partnership and trust threshold into play?

When to refuse or refer

• Amendments for companies, trusts, partnerships, superannuation funds and other business or super entities — the ATO's individuals page directs these to its separate business and super amendment time limits material.
• Cases where fraud or evasion is in issue, where the individuals page states the ATO may amend outside the ordinary time limit; these need specialist and often legal advice.
• Objections, extension-of-time requests to object, and Part IVC proceedings, including objections against penalty assessments — the process and lodgement periods are not covered by the pages relied on here.
• Requests for remission of penalty and for penalty relief, and the calculation of interest charges on a shortfall — the pages read for this draft state that penalty can be remitted where fair and reasonable but no remission figures or interest rates were taken from an allowed host for this Guide.
• Significant global entities and entities in an Applicable MNE Group, where the ATO pages describe a different base penalty and a penalty multiplier for IIR/UTPR or DMT statements.
• Amendments involving transfer pricing, research and development or capital gains tax where the ATO states different amendment-period rules can apply.
• The choice of lodgement channel and the correct amendment form name and number: the individuals pages read for this draft do not set these out, so confirm on the ATO amend your tax return page before advising.

Sources

• https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/time-limits-on-amendments (amendment time limits table)
• https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements (reasonably arguable penalty, thresholds and voluntary disclosure table)
• https://www.ato.gov.au/law/view/pdf?DocId=PSR%2FPS20125%2FNAT%2FATO%2F00001&filename=law%2Fview%2Fpdf%2Fpsr%2Fps2012-005c5.pdf&PiT=20191025000001 (PS LA 2012/5 base penalty amounts by behaviour table)
• https://www.ato.gov.au/law/view/document?docid=MXR%2FMT20082%2FNAT%2FATO%2F00001 (MT 2008/2 base penalty amount and threshold example table)
• https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/What-you-should-know/Tailored-engagement/Assessments-and-amendment-periods/ (four-year business amendment period table)
• https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return (amendment process entry point, cited in the method)
• https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return/how-to-request-an-amendment-to-your-tax-return (channels, signature and fee rules, cited at step 13)
• https://www.ato.gov.au/law/view/document?docid=PAC/19360027/170 (section 170 ITAA 1936: amendment periods, item 3A four-year sole trader period, subsections 170(2) to (4))

Drafted by OpenAccountants. Not yet reviewed or approved by a named accountant.

Contributed by Ryan Duguid.