A Company and E Company and the Federal Commissioner of Taxation
[2004] AATA 987
•13 September 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 987
ADMINISTRATIVE APPEALS TRIBUNAL ) A COMPANY
)
TAXATION APPEALS DIVISION ) NT2003/27
First Applicant
And E COMPANY
NT2001/646, NT2003/14, NT2003/24,
NT2003/25, NT2003/26Second Applicant
And
THE FEDERAL COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr J Block, Deputy President
Ms Geri Ettinger, Senior Member
Date 13 September 2004
PlaceSydney
Decision The objection decisions under review are affirmed.
[Sgd] Mr J Block, Deputy President
CATCHWORDS
Surchargeable contributions – defined benefit and accumulation schemes – meaning of the word “holder” – onus of proof and distinction between Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 and McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 – whether compliance with section 8 and Ruling mandatory – whether Commissioner’s function is part of the assessment process – Commissioner’s entitlements to rely on information provided by superannuation provider – effect of Acts Interpretation Act 1901 – failure to comply strictly with section 8 and the Ruling does not affect validity of the assessments – onus of proof not discharged – the objection decisions under review are affirmed.
Superannuation Contributions Tax (Assessment and Collection) Act 1997 sections 7A (3), 8(2), 8(3), 8(4), 8(5), 8A (1), 8A (2), 10(1), 10(2), 13(1), 13(2), 13(7), 15(1), 15(13), 24(1), 24(3), 37(1), 43.
Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) section 9(4), 9(5), 14(7)
Income Tax Assessment Act 1936 sections 175 and 177(1)
Acts Interpretation Act 1901
Superannuation Contributions Ruling SCR 97/1
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263
Trautwein v Commissioner of Taxation (Cth) (1936) 56 CLR 63
Federal Commissioner of Taxation v Richard Walter Pty Ltd (1996) 183 CLR 168
Ivan Brown v Deputy Commissioner of Taxation [2002[ AATA 376
Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Commissioner of Taxation [2003] FCA 794
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 35 ALR 151
R v Deputy Federal Commissioner of Taxation (SA); Ex parte Hooper (1926) 37 CLR 368
Austin v Commonwealth of Australia (2003) 195 ALR 321
F.J. Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360
Union Fidelity Trustee Co v Federal Commissioner of Taxation (1969) 119 CLR 177
REASONS FOR DECISION
13 September 2004 Mr J Block, Deputy President
Ms G Ettinger, Senior Member
PART A - INTRODUCTION
1. The First Applicant (referred to in these reasons as “A company”) is the trustee of a superannuation fund or scheme (“the A fund”) which was a defined benefit fund in the respect of the year ending 30 June 1999 (“1999 year”); matter number NT 2003/27 relates to the First Applicant in respect of the 1999 year which is the only relevant year for the First Applicant.
2. The Second Applicant (referred to in these reasons as “E company”) is the trustee of a superannuation or scheme (“the E fund”), which was:
(a)An accumulation fund in respect of the years ending 30 June 1997 (“1997 year”) and 30 June 1998 (“1998 year”), (matter numbers NT 2003/24, 2001/646 and NT 2003/25 respectively); and
(b)A defined benefit fund in respect of the 1999 year and the year ending 30 June 2000 (“2000 year”), (matters numbers NT2003/26 and NT2003/14 respectively).
3. It may be noted by way of introduction that:
(a) In respect of the 1999 and 2000 years and in relation to the E fund, some members had accumulation benefits only and others had both accumulation benefits and defined benefits.
(b) In the 2000 year, some defined benefit members of the E fund switched to accumulation benefits; in consequence the actuary for the E fund calculated additional surcharge contributions (as dollar amounts) arising from the switch.
(c)In respect of the A fund, and in relation to the 1999 year, some members had accumulation benefits, some had defined benefits, and some had benefits of both types.
4. The objection decisions under review are the disallowance by the Respondent of objections by the Applicants against superannuation surcharge contributions assessments in respect of the financial years referred to in clauses 1 and 2. It may be mentioned also by way of introduction that at a late stage of the hearings (on the third hearing day) the Second Applicant withdrew its applications in respect of the 1997 year and 1998 year (NT 2003/24; NT2003/25 and NT2001/646) and being years when the E fund was an accumulation fund. Those two applications withdrawn by the Second Applicant are referred to in these reasons as the “withdrawn applications”. It may be noted, so as to avoid confusion, that matter numbers NT2001/646 and NT2003/24 relate to the same application.
5. During the course of the hearings and (apart from the withdrawal of the withdrawn applications) the Applicants abandoned or elected not to proceed with three significant contentions:-
(a)It was originally contended in respect of the Surcharge Act as a whole that it was so vague and uncertain that it could not be enforced. Mr Davis expressly rejected a suggestion that this contention might constitute a constitutional argument. At all events he gave notice that he did not intend to proceed with it. That it may not have been disposed of finally (and Mr Davis intimated that it might be raised in the event of an appeal) appears from clauses 196 to 198 of AS which read as follows:
“EIGHTH SUBMISSION - UNCERTAINTY UNDER THE ACT
196.The taxpayers formally submit that there was insufficient certainty under the Act for a tax burden to be imposed on the taxpayers for the 1999 and 2000 income years, with the consequence that there were not surchargeable contributions for those two income years.
197. The applicants do not make any further submission on this point other than to say that, in terms of the decided cases, it is not a constitutional issue. Rather, it is a question of the proper construction of taxing legislation - Oriental Bank v Wright (1880) 5 AC 842 at p856, The Commissioner of Taxation v McComas (1923) 31 CLR 479 at p487, Ormond Investment Co v Betts (1928) AC 143, Anderson v Commissioner of Taxes (Vic) (1937) 57 CLR 233, Symington v Port Adelaide Corporation [1974] 8 SASR 209, Commissioner of Taxation v Westraders Pty Ltd (1980) 144 CLR 55, Norfolk Estates Limited v Cadiz Corporation Pty Ltd 78 ATC 4656, Western Australian Trustee Executor & Agency Co. Ltd and Commissioner of Sate Taxation (W.A.) (1980) 147 CLR 119, Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297, Hepples v Federal Commissioner of Taxation (1991-1992) 173 CLR 492 and Re Brown and Deputy Commissioner of Taxation [2002] AATA 376, 50 ATR 101.
198. The applicants do not require the Tribunal to deal with this submission”.
(b)The Applicants had contended that a trustee of a fund could not be a holder in respect of an accumulation fund member, and in relation to any amount which was invested or disbursed. That contention was withdrawn; however the Applicants did not withdraw, and indeed persisted with an allegation that a trustee could not, in respect of a defined benefits member be a holder of amounts which are notional rather than actual.
(c)The Applicants had contended that the relevant assessments were not properly served. A notice to produce (the terms of which are not now relevant) resulted in a withdrawal of this contention. This had the effect that much evidence (some of it complex and technical,) by Mr Haine both in writing and verbal as to the electronic method by which and on whom assessments were issued and served, became irrelevant.
6. Mr Noel Davis appeared for the Applicant throughout the four days of the hearings and being 15 and 16 April 2004 and 16 and 17 August 2004. On the first two days he appeared in his capacity as a partner in Mallesons; on the last two days he appeared as a barrister instructed by Mallesons. Ms Jennifer Batrouney SC and Mr Ian Young of counsel instructed by the Australian Government Solicitor appeared for the Respondent. The term “first hearing day” refers to 15 April 2004 and the other hearing days are referred to correspondingly.
7. The Tribunal had before it in respect of each of the Applicants, the T-documents furnished in accordance with section 37 of the Administrative Appeals Tribunal Act 1975. It was furnished when the hearings commenced with a volume (“the Volume”), and containing a large number of witness statements (and including attachments or annexures) by the four persons (three of them actuaries) who gave oral evidence before the Tribunal; those persons are Mr. Shallue and Dr Knox called by the Applicant and Ms Moran and Mr Haine called by the Respondent; of the witnesses, Mr Haine alone is not an actuary. It was common cause that the Volume contained all of the written evidence (aside from Exhibit A1 referred to below) submitted to the Tribunal. The numerous statements included in the Volume were not allotted individual exhibit numbers; the contents of the Volume were referred to by reference to the numbers of the tab (and there were 31 tabs in all) in accordance with which it was included in the Volume.
8. The Tribunal accepted into evidence as Exhibit A1, a letter addressed to Mallesons by Mellon dated 14 April 2004; Exhibit A1 proved in the event of little, if any relevance. The Tribunal was furnished moreover, and by both parties, with large volumes containing, inter alia reports of decided cases and extracts from relevant legislation.
9. The Tribunal was furnished in addition with a considerable number of written submissions some of which were lengthy. The written submissions consist of the following:
(a) Applicants’ outline of argument filed in the Tribunal on 16 April 2004.
(b) Respondent’s outline of argument in respect of the First Applicant and also his outline of argument in respect of Second Applicant dated 15 April 2004.
(c) Applicant’s analysis of evidence filed in the Tribunal on 27 May 2004.
(d)Respondent’s summary of evidence filed in the Tribunal on 16 June 2004.
(e)Applicants’ submissions (separately referred to as “AS”) filed in the Tribunal on 27 June 2004.
(f)Respondent’s submissions in reply (separately referred to as “RS”) dated 11 August 2004.
(g) Applicant’s reply to Respondent’s submissions in reply lodged shortly before the resumption of the hearings in August 2004.
10. On the third hearing day Mr Davis dealt at some length with the contentions in AS. It is convenient accordingly to include in these reasons the manner in which AS is set out and divided as to sections:
(a)An introduction is contained in clauses 1 to 4.
(b)The legislation is summarised in clauses 5 to 28.
(c)Clauses 29 to 49 contain the first submission.
(d)Clauses 50 to 67 contain the second submission.
(e)Clauses 66 to 79 contain the third submission.
(f)Clauses 80 to 85 contain the fourth submission.
(g)Clauses 86 to 137 contain the fifth submission.
(h)Clauses 138 to 179 contain the sixth submission.
(i)Clauses 180 to 195 contain the seventh submission which is referable to the evidence before the Tribunal.
(j)Clauses 196 to 198 contain the eighth submission; clause 198 makes it clear that the Tribunal was not expected to deal with the eighth submission.
(k)Clauses 199 to 208 are entitled “Summary of Submissions”.
11. This is a convenient point at which to note that the relevant statute in respect of the surcharge with which these matters are concerned is the Superannuation Contributions Tax (Assessment and Collection) Act 1997 which is referred to in these reasons as “Surcharge Act” and sometimes and in particular, in quoted material, as the “SCTA Act” or in a manner which is similar.
12. References to the transcript contained in these reasons refer to the transcript (as TS) for the first hearing day and on which oral evidence was heard.
13. On the first hearing day, and in opening, Mr Davis (TS 4 and 5) described the difference between an accumulation fund and a defined benefits fund in the following manner:
“An accumulation fund operates on the basis that there is
an account for each member of the fund. So credited to the account is
contributions made by and for the member, earnings on those
contributions and from the account is deducted expenses and taxes and
insurance premiums that are paid on behalf of the member. So it
operates in a manner like a bank account and the benefit payable to the
member on retirement is the accumulated amount in the members
account.
A defined benefit fund on the other hand promises but doesn't
necessarily guarantee a benefit that is defined usually by reference to the
salary of the member and an example is that a retirement benefit of three
times salary is payable. Usually an account is not maintained for each
member in respect of employer contributions but sometimes an account
is maintained in relation to member contributions in a defined benefit fund.”
PART B – EXTRACTS FROM RELEVANT LEGISLATION
14.It is convenient to gather in this part B those sections of the Surcharge Act, and also certain sections of the Income Tax Assessment Act 1936 (“the Tax Act”), and certain other legislative material which were referred to during the hearing:-
(a) Section 7A (3) of the Surcharge Act reads as follows:
(3) “The adjusted taxable income of the member for the financial year is the sum of:
(a) the member's taxable income of the year of income comprising the financial year less any amounts included in the member's assessable income of that year of income:
(i) that were eligible termination payments for the purposes of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act (other than amounts that were such payments because of paragraph (a) of the definition of eligible termination payment in subsection 27A(1) of that Act); or
(ii) that were so included under section 26AC or under subsection 26AD(2), (3) or (4) of the Income Tax Assessment Act in respect of a bona fide redundancy amount, an early retirement scheme amount or an invalidity amount as defined in section 159S of that Act; and
(b) in respect of the financial year beginning on 1 July 1996 or the following financial year—the amount (if any) by which the amount worked out under paragraph (a) would be increased if it were instead worked out ignoring subsection 271-105(1) of Schedule 2F to the Income Tax Assessment Act; and
(c) in respect of the financial year beginning on 1 July 1998 or a later financial year—the amount (if any) by which the amount worked out under paragraph (a) would be increased if it were instead worked out ignoring paragraphs 102UK(2)(b) and 102UM(2)(b) of, and subsection 271-105(1) of Schedule 2F to, the Income Tax Assessment Act; and
(d) the member's surchargeable contributions for the financial year, worked out ignoring subsection 8(8) of this Act and subsection 9(9) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 ; and
(e) in respect of a financial year beginning on or after 1 July 1999—if the member is an employee (within the meaning of the Fringe Benefits TaxAssessment Act 1986 ) who has a reportable fringe benefits total (as defined in that Act) for the year of income comprising the financial year—the reportable fringe benefits total for the year of income.
(b)Sections 8 (2) to section 8 (5) of the Surcharge Act read as follows:
Member other than a member of a defined benefits superannuation scheme
(2) If:
(a)there are any contributed amounts for a financial year in relation to a member other than a member of a defined benefits superannuation scheme; and
(b) where the relevant superannuation provider is the trustee of a superannuation fund or of an approved deposit fund—the superannuation fund is a complying superannuation fund or the approved deposit fund is a complying approved deposit fund, as the case may be, for the purposes of the year of income comprising the financial year;
the surchargeable contributions of the member for the financial year are the sum of:
(c) so much of the amounts referred to in subparagraph (a)(i) of the definition of contributed amounts in section 43 as:
(i) are taxable contributions under subparagraph 274(1)(a)(i), (b)(ii), (ba)(i) or (ba)(iv) or paragraph 274(1)(d) or (e) of the Income Tax Assessment Act; or
(ii) are allowed as deductions to the member under section 82AAT of that Act; or
(iii) subject to subsection (2A), constitute amounts accrued after 20 August 1996 that are eligible termination payments under paragraph (a) of the definition of eligible termination payment in subsection 27A(1) of that Act and are rolled-over on or after 1 July 1997; and
(d) any amounts referred to in subparagraph (a)(ii) or (iii) of the definition of contributed amounts in section 43.(2A) If an eligible termination payment within the meaning of subparagraph (2)(c)(iii) has been made or is made to or for a taxpayer after 20 August 1996, surcharge is payable only on the part of the reduced amount of the eligible termination payment that is worked out using the formula:
where:
post-20 August 1996 period means the number of days in the period of the taxpayer's employment for which the eligible termination payment was made that occurred after 20 August 1996.
reduced amount of an eligible termination payment is the amount remaining after deducting from the amount of the payment any post-June 1994 invalidity component or CGT exempt component of the payment or any part of the payment that was made from an employee share acquisition scheme.
"total period" means the number of days in the period of the taxpayer's employment for which the eligible termination payment was made.
Member of defined benefits superannuation scheme
(3)The surchargeable contributions for a financial year of a member of a defined benefits superannuation scheme are the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year.
Value of benefits and expenses—financial year earlier than 1999-2000 financial year
(4) The actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme for the 1996-97 financial year or for either of the next 2 financial years is the amount worked out using the formula:
where:
"annual salary" means:
(a)if paragraph (b) does not apply—the amount that is the member's annual salary for the financial year; or
(b) if another amount is taken to be the member's annual salary for the purposes of the scheme as it applies to the member for the financial year—that other amount.
"notional surchargeable contributions factor" means the factor applying to the member for the financial year worked out by an eligible actuary in accordance with:
(a) the method set out in Superannuation Contributions Ruling SCR 97/1; or
(b) if the Commissioner approves in writing another method as being appropriate in relation to the member for the financial year, being a method that excludes contributions made by the member for which the member is not entitled to an income tax deduction under the Income Tax Assessment Act or under the Income Tax Assessment Act 1997 —the method so approved.Value of benefits and expenses—1999-2000 financial year or a later financial year
(5) The actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme for the 1999-2000 financial year or a later financial year is an amount worked out using:
(a) the method set out in the regulations, being a method that excludes Government co-contributions made under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 and contributions made by the member for which the member is not entitled to an income tax deduction under the Income Tax Assessment Act or under the Income Tax Assessment Act 1997 ; or
(b) if the Commissioner approves in writing another method as being appropriate in relation to the member for the financial year, being a method that excludes Government co-contributions made under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 and contributions made by the member for which the member is not entitled to an income tax deduction under the Income Tax Assessment Act or under the Income Tax Assessment Act 1997 —the method so approved.”
(c)Sections 8A (1) and 8A (2) of the Surcharge Act read as follows:
Application
(1)
This section explains who is to be regarded as the holder of the surchargeable contributions of a member for a particular financial year in respect of which surcharge is payable on those contributions.
Where there are contributed amounts and no payment of benefit has been made
(2) Subject to subsection (3), if:
(a) there were any contributed amounts in respect of a member for a financial year; and
(b) a lump sum has not been paid, and a pension or annuity has not begun to be paid, to or in respect of the member by the relevant superannuation provider;a reference in this Act to the holder of the surchargeable contributions of the member for the financial year is a reference to:
(c) if only one superannuation provider holds the contributed amountsreferred to in paragraph (a) at the time when an assessment is made of the surcharge payable on the surchargeable contributions of the member for the financial year—that superannuation provider; or
(d) otherwise—each superannuation provider who holds any of those contributed amounts at that time, to the extent to which the surchargeable contributions of the member for the financial year are included in the contributed amounts held by that provider.
(d)Sections 10 (1) and (2) of the Surcharge Act read as follows:
“Liability to pay surcharge
Application
(1)This section identifies the person liable to pay the superannuation contributions surcharge on a member's surchargeable contributions for a financial year.
Superannuation provider who holds surchargeable contributions liable to pay surcharge
(2) If a superannuation provider is the holder of the surchargeable contributions when an assessment of the surcharge on those contributions is made, the provider is liable to pay the surcharge.
(e)Sections 13 (1), 13 (2) and 13 (7) of the Surcharge Act read as follows:
“Superannuation providers to give statements
Application
(1) This section applies in respect of every member.
Superannuation provider to give statement to Commissioner at end of financial year
(2) Each superannuation provider other than a self-assessing superannuation provider must, after the end of each financial year but not later than the notification date for the financial year or such later date (if any) as the Commissioner allows, give the Commissioner, in respect of each member in relation to whom the provider was a superannuation provider at the end of the financial year, a statement setting out:
(a) the member's name, the address of the member's place of residence or place of business or employment, the date of the member's birth and, if given to the provider in connection with the operation or the possible future operation of this Act, the member's tax file number; and
(b) the particulars referred to in subsection (7); and
(c) any other matters required by the regulations.
Particulars to be included in statements
(7) The particulars that are required to be given in a statement under this section are the total of the contributed amounts (if any) in relation to the member for the financial year or the total of the part of those amounts that has been transferred, as the case may be, and:
(a) if the statement is given by a superannuation (accumulated benefits) provider:
(i) if any of those amounts are amounts referred to in subparagraph (a)(i) of the definition of contributed amounts in section 43—the total of so much of those amounts as are taxable contributions referred to in subparagraph 8(2)(c)(i); and
(ii) the total of any of those amounts that are amounts referred to in subparagraph (a)(ii) or (iii) of that definition; and
(b) if the statement is given by a superannuation (defined benefits) provider—the amount of the surchargeable contributions of the member for the financial year.”
(f) Sections 15 (1) and 15 (13) of the Surcharge Act read as follows:
“(1) For each financial year for which there are surchargeable contributions for a member, the Commissioner must make an assessment that:
(a) calculates the member's adjusted taxable income; and
(b) if the adjusted taxable income is greater than the surcharge threshold:
(i) calculates the surchargeable contributions; and
(ii) calculates the rate of surcharge that applies to the member; and
(iii) specifies the amount of the surcharge payable or, if no surcharge is p payable, states that a nil amount of surcharge is payable; and
(c) if the adjusted taxable income is equal to or less than the surcharge threshold—states that a nil amount of surcharge is payable.
Non-compliance not to affect validity of assessment
(13) The validity of any assessment or determination is not affected by any non-compliance with a provision of this Act.”
(g) Sections 24 (1) and 24 (3) of the Surcharge Act read as follows:
“Objections against assessments
Member or superannuation provider may object against assessment
(1) If:
(a)an assessment of surcharge on a member's surchargeable contributions is made; and
(b) the member, or a superannuation provider who is the holder of the contributions, is dissatisfied with the assessment;
the member or provider may object against the assessment in the way set out in Part IVC of the Taxation Administration Act 1953 .
Matters on which Commissioner may rely in deciding an objection
(3) In making a decision on the objection in so far as the objection relates to the calculation of the member's adjusted taxable income, the Commissioner is entitled to rely on:
(a) the latest assessment of the member's taxable income under the Income Tax Assessment Act; and
(b) the latest statement of the member's surchargeable contributions given to the Commissioner by the superannuation provider.Note: If a member is dissatisfied with an assessment in so far as it relates to the calculation of the member's surchargeable contributions, as based on an amount or amounts set out in a statement given to the Commissioner by a superannuation provider under section 13, the member may make a complaint to the Superannuation Complaints Tribunal under section 15CA of the Superannuation (Resolution of Complaints) Act 1993 about the unfairness or unreasonableness of the superannuation provider's decision to set out the amount or any of the amounts in the statement.”
(h) Section 37 (1) of the Surcharge Act reads as follows:
“Evidence
Assessment or determination to be evidence of correctness of calculations
(1) The mere production of:
(a) an assessment or determination; or
(b) a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of an assessment or determination;
is conclusive evidence of the due making of the assessment or determination and, except in proceedings under Part IVC of the TaxationAdministration Act 1953 on a review or appeal relating to the assessment, that the amounts and all of the particulars of the assessment or determination are correct.”
(i)The definitions contained in section 43 of the Surcharge Act provide that a defined benefits superannuation scheme is one which has at least one defined benefits member. The definition of Superannuation Contributions Ruling SCR97-1 (“the Ruling”) reads as follows:
“Superannuation Contributions Ruling SCR 97/1 means:
(a)the instrument known as Superannuation Contributions Ruling SCR 97/1 that was made available by the Commissioner before the commencement of this definition as that instrument existed immediately before that commencement; or
(b) if that instrument has been modified by the regulations after that commencement—that instrument as so modified. :
(j) Sections 175 and 177 (1) of the Tax Act read as follows:
“175. Validity of assessment The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.
177. Evidence
(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.”
(k) In respect of the Ruling we include clauses 1 to 6 of the preamble and clauses 3.6.1 and 7.2.1 of the Ruling proper as follows:
“1. This Ruling provides guidance to actuaries in relation to the preparation of actuarial certificates which deal with the notional surchargeable contributions factor required under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (the Act).
Class of person/arrangement
2. This Ruling is relevant to actuaries who have been asked to prepare an actuarial certificate which advises a defined benefits superannuation provider of the notional surchargeable contributions factor(s) for a defined benefits superannuation scheme. Such advice is required for the purposes of the Surcharge Act.
Background
3. Subsection 8(3) of the Surcharge Act provides that the surchargeable contributions for a member of a defined benefits superannuation scheme are worked out using the formula:
annual salary x notional surchargeable contributions factor.4. Section 43 of the Surcharge Act defines the notional surchargeable contributions factor as the factor applying to a member of a superannuation (defined benefits) provider for that year as certified by an eligible actuary according to Australian actuarial practice.
5. The Australian Government Actuary has prepared a method to assist actuaries who have been asked to prepare an actuarial certificate which advises a defined benefits superannuation provider of the notional surchargeable contributions factor(s) for a scheme.
Ruling
6. The approach contained in the Australian Government Actuary's method (in the Attachment) is an acceptable approach for an actuary to adopt in the preparation of an actuarial certificate dealing with the notional surchargeable contributions factor.
3.6 Accumulation only benefits
3.6.1 Members of defined benefits superannuation schemes for whom there are separately defined and allocated contributions and who are entitled to receive an accumulation benefit only should be treated consistently with members of accumulation schemes
7.2 Content of the certificate
7.2.1 The certificate should set out:
* the commencement and expiry dates of the certificate;
* the actuary can determine these dates but the duration of the certificate cannot exceed five years. The certificate cannot be signed and dated by the actuary more than 12 months ahead of commencement of the first reporting period to which it is to be applied; * the name and qualifications of the certifying actuary;
* the name of the superannuation scheme;
* the identification of non-accruing and accruing categories for NSCF purposes (see section 3.3 of this Attachment);
* the definition of salary for the purposes of the certificate, including the treatment of members whose salary for the purposes of the certificate is adjusted during the reporting period if applicable (see section 5.1 of this Attachment);
* the treatment of members who join the scheme part way through the reporting period, if applicable;
*the treatment of members who become eligible to leave the scheme, and for members who receive their benefits during the reporting period;
*the treatment of members who change from one category to another during the reporting period (particularly from an accruing category to a non-accruing category - see section 3.3 of this Attachment);
* the assumptions adopted in calculating the NSCF;
*the notifiable events which require specified action or replacement of the certificate; and
the table of NSCF in which:
*rates should be expressed as percentages and rounded to the nearer 1/10th of one per cent; and
*all periods should be expressed in whole years rather than any shorter period.”
(l) Section 8 (5) of the Surcharge Act (relevant for the 2000 year) refers to the regulations; regulation 2L which in turn refer to the Ruling is described in Ms. Moran’s report as follows:
“Regulation 2L of the Superannuation Contributions Tax (Assessment and Collection) Regulations (the Regulations) describes the method to be used to determine ‘the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the 1999-2000 financial year’ as:
‘Annual salary × Notional surchargeable contributions factor
where: annual salary means:
(a) if paragraph (b) does not apply - the amount that is the member's annual salary for the financial year; or
(b) if another amount is taken to be the member's annual salary for the purposes of the scheme as it applies to the member for the financial year - that other amount.
notional surchargeable contributions factor means the factor applying to the member for the financial year worked out by an eligible actuary in accordance with:
(a) the method set out in Superannuation Contributions Ruling SCR 97/1; or(b) if the Commissioner approves in writing another method as being appropriate in relation to the member for the financial year, being a method that excludes contributions made by the member for which the member is not entitled to an income tax deduction under the Income Tax Assessment Act or under the Income Tax Assessment Act 1997 - the method so approved.
PART C – THE FIRST, SECOND AND FOURTH SUBMISSION
15. Pursuant to the first submission, the Applicants contend (in clauses 31 and 32 of AS) that compliance with the Surcharge Act requires the determination of a factor by an eligible actuary, that the factor for accumulation members was zero or alternatively that the factor determined by the actuary was the employer contribution paid for that member. The Applicants contend furthermore (clause 34) that to multiply the annual salary by zero or by employer contributions gives rise to nonsensical results, that (clause 35) the actuary has not determined an NSCF factor, and that there are thus no surchargeable contributions for accumulation fund members. The Applicants contend in addition (in the alternative) in clause 36 that the NSCF must, in accordance with the Ruling, be expressed as a percentage, and the fact that it has not has the effect that it has not been calculated in accordance with section 8 of the Surcharge Act.
16. The second submission is referable to those members of the E fund who switched from defined benefits to accumulation benefits. The Applicants contend that Mr Shallue calculated dollar amounts where the Ruling requires that they be expressed as percentages. Moreover and in addition, so the Applicants contend, the calculation was made pursuant to a letter issued by the Australian Government Actuary which was not part of the Ruling and was thus not calculated in accordance with the Ruling.
17. The Applicants contend in accordance with the fourth submission that Mr Shallue did not produce an individual NSCF for each and every member and that he produced NSCF’s for categories of members in tabular form and grouping together for this purpose, members with like profiles.
18. Mr Shallue’s evidence was that in respect of accumulation members the NSCF was zero; and the surchargeable contribution (broadly) was the employer contribution.
19. It may be noted that insofar as Mr Shallue reflected an amount rather than a percentage for defined benefit members, that amount was the result obtained by multiplying annual salary by the NSCF. As mentioned during the hearing, this calculation could be expressed by the formula:
A = B x C
Where:
A is the value of the benefit
B is the annual salary and
C is the NSCF.
This being so, C is as a matter of simple arithmetic A divided by B and so that NSCF is readily ascertainable by dividing the amount reflected by the relevant annual salary. It must be remembered that the relevant calculations were made by Mr Shallue as the eligible actuary appointed by the Applicants and that he did not at any stage retract or depart from or seek to amend the certificates issued by him. Ms Moran considered that Mr Shallue had issued certificates in a manner which was acceptable. We will revert to the evidence later in these reasons.
20. Section 8 of the Surcharge Act makes it clear that the NSCF is to be worked out in accordance with the method set out in the Ruling or any other approved method. The Ruling moreover makes it clear that it was issued as guidance and that it was not intended to be mandatory.
21. In relation to accumulation benefit members, Mr Shallue calculated the NSCF as zero because of the manner in which sections 8(4) and 8(5) of the Surcharge Act are framed although, in relation to accumulation fund members an NSCF is not apposite. For accumulation benefit members, the correct methodology might be thought to be that contained in section 8(2) of the Surcharge Act, which is apposite for accumulation benefit members. When read with the Ruling, and in particular clause 3.6.1, it can be seen that the intent is that accumulation benefit members of defined benefits schemes are to be treated consistently with members of accumulation schemes. Accordingly, the result achieved was that intended under the legislation.
22. Mr Davis conceded that he was attacking the certificates issued by Mr Shallue, on grounds which were purely technical. He repeatedly insisted that any failure to comply strictly with the requirements of section 8 of the Surcharge Act must have the effect that the certificates fail, and that in consequence of that failure the assessments which result from those certificates must also and ipso facto be excessive, simply because no assessments at all pursuant to any such certificate were competent.
23. It is equally important to remember that, again as Mr Davis conceded, the Applicants made no attempt to show that the assessments were excessive. Some brief evidence as to Mr I (referred to in particular in the evidence of Dr Knox) dealt with amounts of a hypothetical nature and did not seek to establish that any assessment in respect of Mr I was excessive. In respect of Mr I we use the abbreviation because this hearing was confidential and he was a fund member. Mr Davis agreed that it would not be necessary to disguise the names of any of the witnesses.
24. It can thus be seen that the Applicants contend that certificates issued by Mr Shallue fail because they did not comply strictly with the terms of section 8 of the Surcharge Act, so that, as a consequence, the assessments resulting from those certificates are fatally flawed and thus of necessity excessive as to the whole amount of the assessments. We note however, that the procedural methodology under the Act is that the actuary issues his or her certificate to the trustee who is the superannuation provider. In that capacity, the trustee provides the Respondent with, in relation to each member, an amount. Put in other words the superannuation provider having received in respect of that member, a certificate from the eligible actuary, (appointed by itself), calculates the amount of surchargeable contributions and furnishes the Respondent with that amount. The Respondent then, (and this is his function), assesses the surcharge in accordance with section 15 of the Surcharge Act. We note that although the Respondent’s calculation is arithmetical in nature, it is by no means a mere formality, because it requires the Respondent to have regard, inter alia, to that member’s return of income, and also to the fact that he or she may be a member of more funds than one.
25. Mr Davis contended that the calculation made by the superannuation provider (of surchargeable contributions) is the same as that performed by the Respondent. On this basis, so he argued, it was necessary for the Respondent to have regard to the actuary’s certificate, and to make the same calculation, and thus in effect to check that the superannuation provider made its calculation correctly. As we understood Mr Davis it is not incumbent on the Respondent to make the same calculations as the actuary made, but it is necessary for the Respondent to ensure that the actuary complied strictly with the requirements of the Surcharge Act. Mr Davis did not furnish the Tribunal with any authority supporting this contention. We are satisfied that it is clear, having regard to section 24 of the Surcharge Act, that the assessment by the Respondent is a separate and distinct function.
26. We thus find that the Respondent was entitled to rely on the information provided to him by the superannuation provider, and that it was not incumbent on him, to, in effect, “second-guess” or check the superannuation provider’s calculations. That this must be so is borne out by the express provisions of section 24 of the Surcharge Act, and in particular the note to section 24. Moreover, this is so even if there had been errors in Mr. Shallue’s calculations, although there was no evidence that he made any errors, and notwithstanding the fact that Mr. Shallue did not comply strictly with the Ruling, the terms of which were not, in any event, mandatory.
27. As set out previously in these reasons the Applicants contend that they cannot be holders of notional amounts (relevant only for defined benefit members) and that accordingly, and at least so far as all defined benefit members are concerned, the legislation is ineffective. We deal with this contention in Part D.
28. It is relevant to consider whether the calculations made by the superannuation provider are part of the assessment process; we deal with this aspect in Part E.
29. The decisions in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 , and other relevant cases, were referred to in detail during submissions, and will accordingly be dealt with in Part F.
PART D - HOLDER
30. We commence this Part D by including clauses 70 to 78 of AS which effectively set out the case for the Applicants as to this contention:
“70 In section 8A, there is a reference to who is to be regarded as the holder of surchargeable contributions. If only one provider holds the contributed amounts when the assessment is made, that provider is to be regarded as the holder of the surchargeable contributions. If there is more than one provider who holds the contributed amounts, each of them is to be regarded as a holder.
71. Section 8A does not define who a “holder” is or what “holds” means. Rather, it describes who is to be regarded as a holder when there is only one provider who holds contributions and when two or more providers hold contributions.
72. In section 43, it is stated that “holder” of the surchargeable contributions of a member for a financial year has the meaning given by sections 8A and 10A. Section 10A is not presently relevant and section 8A explains who is to be regarded as the holder, and for how much money, when there is one or more holders.
73. What is said in The Union‑Fidelity Trustee Company of Australia Limited and The Commissioner of Taxation (1969) 119 CLR 177 by Kitto J at p 187 is not apposite because he was referring to the words “as if” which are not the same as “is to be regarded as” which appear in section 8A. The applicants, therefore, disagree with the submissions of the respondent on this point.
74. In the case of In Re Bennet [1957] VR 113, Lowe J considered the meaning of the word “hold” and said at p 116:
“The word ‘hold’ is not a word of art. The word must be construed in its ordinary English meaning. In my opinion it is a normal use of English to say that one holds shares when one possesses or owns them and that this is true whether the ownership is by means of a legal or an equitable title. Reference to any standard English dictionary will show this. By way of example I cite from the Universal English Dictionary by Wyld ‘hold 4 to have and keep, enjoy possession of, have in keeping or possession; to own: to hold land, to hold shares in a company’.”
75. Lowe J, therefore, describes holding something as referring to possessing or owning it. A trustee cannot possess or own an artificial or notional calculation of a taxable contribution, which is not something tangible.
76. Because the word “holder” is not defined in the Act, it has its ordinary meaning.
77. In the Macquarie Dictionary “holder” is relevantly described as “one who has the ownership, possession, or use of something.” To have ownership or possession or use of something, there has to be something tangible of which you can be the holder.
78. It is submitted, therefore, that a trustee cannot be the holder of a notional amount. Under section 10(2) a trustee is only liable to pay the surcharge if it is the holder of the surchargeable contributions when an assessment is made. Under section 8(3), (4) and (5) the calculation of the surchargeable contributions in a defined benefits fund is a calculation of a notional amount. In Austin v Commonwealth [2003] 77 ALJR 491, Gaudron, Gummow and Hayne JJ said, in paragraph [99] that the use of the concept of notional surchargeable contributions factor indicates “that the legislature had in mind the imposition of taxation partly by reference to notional or fictional constructs.” The amount calculated in accordance with section 8(3), (4) and (5) bears no relationship to the actual contributions made to the fund. There can be surchargeable contributions in a defined benefits fund even if there were no actual contributions. In A fund, there were no employer contributions for the first 6 months of the 1999 income year - paragraph 11 of Mr Shallue’s affidavit of 11 December 2003 - tab 1.”
31. The Respondent dealt with this allegation at some length in his original submissions and did so again, but more briefly in RS. Before dealing with the Respondent’s submissions, (with which we agree), we note that we also accept in line with Cooper Brookes (Wollongong) (referred to below) and having regard to section 15AA (1) of the Acts Interpretations Act 1901, we should not lightly find that a statute fails totally in its intended effect. Clauses 12 to 16, 36 and 37 of RS, with all of which we agree, read as follows:
“12. What the Applicants are urging the Tribunal to adopt is a literal interpretation of the SCTAC Act. However, such an approach is tempered by s. 15AA (1) of the Acts Interpretation Act 1901 which provides for a purposive approach:
“In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.”
It is submitted that the Applicants’ construction does not promote the purpose or object of the SCTAC Act.
13. The legislative intent is expressed in s. 5 of the SCTAC Act as follows:
“The object of this Act is to provide for the assessment and collection of the superannuation contributions surcharge payable on surchargeable contributions for high-income individuals.”
Thus, (broadly speaking) members of all superannuation funds, be they funded or unfunded, defined benefit or accumulation funds, are to be subject to surcharge on their surchargeable contributions (be they real or notional) above a certain threshold. It is absurd to suggest that a member should escape the operation of the SCTAC Act because the Actuary to their fund expressed their NSCF as a dollar amount instead of a percentage.
14. Further, the High Court has warned against the adoption of the literal approach where it would thwart the legislative intent. In Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 35 ALR 151 at 169-70 Mason and Wilson JJ held that:
“… when the judge labels the operation of the statute as ‘absurd’, ‘extraordinary’, ‘capricious’, ‘irrational’ or ‘obscure’ he assigns a ground for concluding that the Legislature could not have intended such an operation and that an alternative interpretation must be preferred. But the propriety of departing from the literal interpretation is not confined to situations described by these labels. It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions.
Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention.”
See also the comments of the High Court in Austin set out in paragraphs 36 and 37 below.
Thus, assuming that the literal approach requires that the Applicants’ Actuary specify a percentage as distinct from a dollar amount, it is proper for the Tribunal to depart from the literal interpretation where the situation can be described as one in which for good reason the operation of the SCTAC Act on a literal reading does not conform to the legislative intent as ascertained from the provisions of the SCTAC Act (including s. 5, s. 24(3) and the note to s. 24), including the policy which may be discerned from those provisions.
15. It is also extremely important to bear in mind exactly what requirement is specified in the SCTAC Act. The definition of notional surchargeable contributions factor in s.8(4) is defined to mean the factor applying to the member for the financial year worked out by an eligible actuary in accordance with “the method set out in Superannuation Contributions Ruling SCR 97/1.” The introduction to the Ruling is as follows:
“1. This Ruling provides guidance to actuaries in relation to the preparation of actuarial certificates which deal with the notional surchargeable contributions factor required under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (the Act).” (our emphasis)
The entire “ruling” part of SCR 97/1 is as follows:
“6. The approach contained in the Australian Government Actuary's method (in the Attachment) is an acceptable approach for an actuary to adopt in the preparation of an actuarial certificate dealing with the notional surchargeable contributions factor. “ (our emphasis)
It is difficult to imagine more discretionary (as distinct from mandatory) language (see FCT v Richard Walter Pty Ltd (1996) 183 CLR 168 at 223 per Dawson J). The Respondent submits that it is absurd to interpret the “guidance” and “acceptable approach” in accordance with the literal rule so that if an amount is expressed as a dollar figure instead of as a percentage it is invalid.
16.It is submitted that (if there has been any non-compliance) this is a situation where some degree of non-compliance can be seen as not necessarily prejudicing the substantial carrying into effect of the general object of the SCTAC Act: Victoria v Commonwealth and Connor (1975) 7 ALR 1 at 60.2
36. In Austin the first plaintiff argued many points of construction in relation to the similar legislation to the SCTAC Act. He argued, for example, that upon a proper construction of the legislation he was not a member of a “constitutionally protected fund” (see paras 92-103). In their joint judgment, Gaudron, Gummow and Hayne JJ acknowledged that the phrase cannot have the meaning as defined, but refused to apply a literal meaning to the phrase. They looked at the legislative purpose of the legislation and noted (at para 99) that “the legislature had in mind the imposition of taxation partly by reference to notional or fictional constructs.” They concluded (at para 101-102) that:
“To read the definition [in the manner contended for by the plaintiff] would not conform to the scheme of the [legislation similar to the SCTAC]. The definition is not to be given the same literal application as it has in [another statute] if to do so would cause to miscarry the hypothesis upon which it is adopted by the [SCTAC].Further, in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation, Mason and Wilson JJ remarked:
“The fact that the Act is a taxing statute does not make it immune to the general principles governing the interpretation of statutes. The courts are as much concerned in the interpretation of revenue statutes as in the case of other statutes to ascertain the legislative intention from the terms of the instrument viewed as a whole. Thus, the High Court refused to apply a literal interpretation to legislation similar to the SCTAC Act. It is submitted that the Tribunal ought similarly to eschew such an approach when considering the meaning of the term “holder”.
37. In Austin the first plaintiff also argued that the formula in the equivalent to s. 8 of the SCTAC, when it refers to “the actuarial value of benefits that accrued to … the member”, could not apply to him as no “benefit” could be said to “accrue” to him in respect of any financial year before his retirement or termination of service (because he was in an unfunded scheme). Again, the High Court rejected this literal construction. At paragraph. 109 of the joint judgment, the fact that the method stipulated in SCR 97/1 “involves notional or fictional elements” was again referred to. In refusing to apply a literal construction the Court noted that “the content of the expression in question in [s. 8(4)] is found in the succeeding provisions of that section.”
32. The reference in clause 37 to Austin’s case is a reference to Austin v Commonwealth of Australia (2003) 195 ALR 321. Clause 109 (at page 354) of the joint judgments of Gleeson, Gaudron, McHugh, Gummow, Kirby and Hayne JJ reads as follows:
“Finally, the first plaintiff fixes upon the specification in the definition of “surchargeable contributions” in s 9(4) of the Protected Funds Assessment Act of “amounts that constitute the actuarial value of the benefits that accrued to … the member for the financial year”. It is submitted that no “benefit” can be said to “accrue” to him in respect of any financial year before his retirement or termination of service. However, the content of the expression in question in s 9(4) is found in succeeding provisions of that section. The phrase “the benefits that accrued to … the member for the financial year” had no independent operation. Rather, there is in s 9(4) a composite expression “actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year”. The content of that composite expression is detailed in s 9(5) in such a fashion as to bring into operation the method stipulated in SCR 97/1. It may be, as the first plaintiff contends, that the application of this method involves notional or fictional elements. But this circumstance does not make good the construction point respecting s 9(4).”
It may be noted that the High Court was there concerned with the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (“the Constitutionally Protected Act”).
33. Section 8A (1) of the Surcharge Act states that “this section explains who is to be regarded as the holder of the surchargeable contributions …”. The holder under section 8A of the Surcharge Act is one or more (if relevant) superannuation providers, and which necessarily has a bearing on the use of the word “holder”. We consider that the words in section 8A (1) “is to be regarded as” are equivalent to “is taken to be” or “deemed to be”. There is thus a deeming which displaces any general law meaning of the word “holder”. The legislation in question is comparable with the language “as if the trustee were a taxpayer” contained in section 94 of the Tax Act. That expression was considered in Union Fidelity Trustee Co v Federal Commissioner ofTaxation (1969) 119 CLR 177 at 187 and where Kitto J said “as if” shows “beyond question that the basis of the calculation is to be hypothesis different from the actual fact. Section 8A (2) of the Surcharge Act then proceeds to deal with the question of who is to be regarded as the holder of surchargeable contributions. Thus section 8A must be construed in such manner that where no lump sum pension or annuity has begun to be paid and where there is only one superannuation provider, that superannuation provider is the holder.
34. In any event, the word “holds” is not limited to “ownership, possession or use of something tangible”. The verb “hold” is defined in the dictionary cited by the Applicants in clause 77 of AS so as to include “to reserve”; “to retain”, “set aside”, “to keep in a specified state, relation etc”.
35. It follows then that the word “holds” can convey notions of retain, reserve or keep in specified state or relation. Within section 8A(2) of the Surcharge Act the holder is the person who retains, keeps or controls; the superannuation provider is therefore the holder
36. In clause 78 of AS, the Applicants refer to the fact that in relation to the A fund there was a contributions holiday for the first half of the 1999 year.
37. The expression “Holder” was originally defined in section 43 as follows:
“holder of surchargeable contributions of a member means:
. . .
(c) if there are any contributed amounts paid for or by a member:
(i)that have been paid to a person other than a superannuation provider. . .
the person to whom the amounts were paid.”
38. In the context of the definition of “Holder” as it then stood, the Explanatory Memorandum stated:
“Background to the legislation
4.2 The definition in section 43 of the SCT(A&C) Act identifies the holder of surchargeable contributions of a member. However, where:
* there are no actual contributions (for example, contributions holiday);
* contributions have been expended in full (for example, to pay for death and/or disability insurance);
* contributions have been expended in part (for example, invested or used to pay expenses); or
* a member dies;
the law is not clear who holds the contributions when an assessment of a surcharge liability is made.”
39. Section 8A was enacted, and with retrospective effect to 5 June 1997 in order to ensure that the provider remains the holder during a contributions holiday. To treat a contributions holiday in the manner for which the Applicants contend would be contrary to the legislative intent and there is in our view no reason why a finding to this effect would be justified
PART E − THE ASSESSMENT PROCESS
40. The Applicant’s right of objection to an assessment of superannuation contributions surcharge is conferred by section 24(1) of the Surcharge Act.
41. The term “assessment” must thus be construed so that objections are competent only in respect of such decisions as form part of the assessment process. We have previously noted that the function of the Respondent under section 15 (1) (b) (1) of the Surcharge Act is not the same as that performed by the superannuation provider; we again refer to section 24 and the note in section 24 of the Surcharge Act. In Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Commissioner of Taxation [2003] FCA 794, which binds this Tribunal, Branson J was obliged to consider whether a decision as to the approval of a different actuarial method fell within the process. At paragraphs 28 and 29 her Honour said:
“The language of s 15(1) of the SCTAC Act suggests that, within the meaning of the SCTAC Act, the assessment of the surcharge payable in respect of a member is conducted wholly under that subsection. Section 15(1) requires the respondent, for each financial year for which there are surchargeable contributions for a member, to make an assessment by the process specified by the subsection. That process assumes that identification of the surchargeable contributions is a matter of calculation only (s 15(1)(b)). For the identification of the surchargeable contributions to be a mere matter of calculation, the determination of the method of calculation of the surchargeable contributions must have been determined independently from, and ahead of, the assessment process. I conclude that the intended meaning of the words `an assessment of surcharge on a member's surchargeable contributions' in s 24(1)(a) of the SCTAC Act is an assessment made under s 15(1) of that Act. So understood, an approval given by the respondent under s 8(5)(b) effects the method whereby the calculation required by s 15(1)(b)(i) is made but does not itself form part of the assessment of surcharge against which s24(1)(a) allows an objection to be taken.
Accordingly a challenge by a member as to the calculation of his or her surchargeable contributions (as calculated by the superannuation provider under section 8 of the SCTAC Act) should be made by application to the Superannuation Complaints Tribunal.”
42. We refer also to the decision of this Tribunal (Senior Member Fayle) in Ivan Brown v Deputy Commissioner of Taxation (2002) 50 ATR 1001, [2002] AATA 376, which dealt with the Constitutionally Protected Act. Some sections of that Act are (relevantly) very similar to corresponding provisions of the Surcharge Act. In Ivan Brown the superannuation provider provided, in relation to a member of a defined benefit fund, an aggregate amount as the surchargeable contribution under section 9(4) of the Constitutionally Protected Act. The Tribunal in clause 43 of its decision, found that this method did not calculate "as a separate matter, the NCSF but rather the result of “Annual salary multiplied by the NSCF' as that formula appears in section 9(5)" of the Constitutionally Protected Act.
43. The Applicants' contentions in these matters are similar to the taxpayer's contentions in Ivan Brown. We note that the decision in Ivan Brown appears to us to be correct. It should be noted also that in RS the Respondent expressly stated that any concession previously made by him as to the correctness of that decision has been withdrawn.
44. The Tribunal held in clause 58:
“With respect, in the tribunal's opinion, the applicant is not so much challenging the substantive liability for superannuation contributions tax but rather the mechanism by which that liability was derived. That s 9 (5)is flawed or that in arriving at the quantum of surchargeable contributions the GESB has not applied s 9(5) in its strict sense, does not seem to bear on the actual assessment process conducted by the respondent and required by the provisions of section14 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth). It is noted that in relation to the respondent (and therefore this tribunal) making a decision about an objection, that s 20 (2) provides:
20(2) Matters on which Commissioner may rely in deciding an objection
In making a decision on the objection in so far as the objection relates to the calculation of the member's adjusted taxable income, the Commissioner is entitled to rely on:
(a) the latest assessment of the member's taxable income under the Income
Tax Assessment Act 1936 (Cth); and
(b) the latest statement of the member's surchargeable contributions given
to the Commissioner by the superannuation provider.
Clearly, the tribunal can (and does) rely on both of those sources of important information in considering the application before it. In terms
of s 20(2)(b) and coupled with s 14(7), the tribunal takes these as a licence for it not to be required to look behind that information in making and reviewing the assessment.”
45. The effect of section 175 of the Tax Act (equivalent to section 14(7) of the Constitutionally Protected Act and section 15(13) of the Surcharge Act is that the validity of any assessment raised by the Commissioner under section 15 of the Surcharge Act is not affected by any failure to comply with strict literal mechanistic requirements. (Richard Walter referred to below)
PART F – DALCO, McANDREW and other relevant cases; the contention by the Applicants that the assessments were excessive
46. We commence this Part F by including the Applicants’ contentions as contained in clauses 128 to 131 of AS as follows:
“128.To satisfy the burden of proof, the applicants have to show that the civil standard of proof on the balance of probabilities has been satisfied -
“…. A taxpayer who seeks to challenge it (an assessment) bears the onus of showing from the evidence that it is excessive, but he does so by disproving, on ordinary civil standards of proof, the basis of assessment adopted by the Commissioner” - Macmine Pty Ltd v Commissioner of Taxation 79 ATC 4133 per Stephen J at p 4146.
129. The burden of showing that an assessment is excessive can be satisfied by attacking not only the calculation of the amount of the assessment but, also, by taking issue with the authority of the Commissioner to make the assessment - Dalco’s case, (1990) 168 CLR 614, per Brennan J at p621.
In a similar vein, Toohey J said, in the same case, at p 631 that a taxpayer’s burden of showing that the taxable income is less than that appearing in the assessment can be satisfied by showing non-compliance with statutory conditions precedent to the imposition of liability.
130. In applying those principles to this case, it is submitted that, on the balance of probabilities, the evidence shows:
(a) for the members with accumulation benefits in the defined benefits funds, an essential requirement of the Surcharge Act for a liability for superannuation surcharge to exist has not been satisfied in that a notional surchargeable contributions factor which could be multiplied by salary was not produced (tabs 1 and 8, paragraphs 7 to 9) and it was not, therefore, possible to calculate an amount of surcharge that could be included in an assessment and the assessments were excessive to the extent that they included surchargeable contributions which were not calculated in the manner the Act requires;
(b) for the members who switched from defined benefits to accumulation benefits in 2000, that the surchargeable contributions were not calculated in the manner the Act requires as firstly, a notional surchargeable contributions factor which could be multiplied by salary was not produced (tab 8, paragraph 10) and, secondly, the surchargeable contributions were calculated in accordance with a clarification of the Ruling which was issued by the Australian Government Actuary rather than the Commissioner of Taxation and which does not form part of the Ruling (tab 8, paragraph 11);
(c) for the members described in paragraphs (a) and (b), the notional surchargeable contributions factors determined by the actuary (if there were any) were not expressed as percentages as required by paragraph 7.2 in the attachment to the Ruling. The factors were not, therefore, calculated in the manner the Act requires and the assessments were, consequentially, excessive;
(d) for the members of a defined benefits fund, a liability for surcharge only arises if the trustees were the “holders” of surchargeable contributions and, for the reasons given in paragraphs 68 to 79 above, the trustees are not the holders of the notional contributions calculated for tax purposes. Furthermore, a notional surchargeable contributions factor was not determined for each member, contrary to the requirements of s 8(4) and (5).
131. For each of these contentions, the applicants have shown, on the balance of probabilities, that the requirements of the Surcharge Act have not been satisfied with the consequence that the assessments are excessive to the extent to which they include surchargeable contributions that have not been calced (sic) in the manner the Act requires.”
47. The Applicants contend in effect that because they have referred to (alleged) errors in the calculation of the amount of the surchargeable contributions (within section 8 of the Surcharge Act) there were no surchargeable contributions and so that the assessments were excessive and should be reduced to nil.
48. The Respondent contends (and his contention is correct) that the Applicants have not understood or appreciated the significance of the decisions in Dalco and McAndrew.
49. The relevant facts in Dalco are stated in the decision of Toohey J. at pages 628 and 629. In effect the Respondent “attributed” the income of certain entities (derived by those entities) to Dalco personally. At page 618 Brennan J said that the Respondent “treated the income of companies or trusts which the taxpayer or his family company acquired or controlled as assessable income of the taxpayer.”
50. The issue in the High Court concerned the proper interpretation of the term “excessive”. Separate judgments were given by Brennan J and Toohey J. with whom Mason CJ, Dawson Gaudron and McHugh JJ agreed, and a short concurring judgment was given by Deane J. Brennan J at page 618 referred to the question of whether an assessment is “excessive” if the taxpayer “does not prove that the amount assessed exceeds his taxable income”, or alternatively, the taxpayer only “shows that the Commissioner formed a judgment as to the amount of his taxable income on a wrong basis”.
51. Both judges qualified their observations by reference to McAndrew. Brennan J. said at page 621 – 622:
“It is therefore open to a taxpayer to attack not only the calculation of the amount of an assessment but the authority of the Commissioner to make the assessment. Thus it was held in McAndrew's case that it was open to a taxpayer on appeal to challenge the fulfilment of the conditions mentioned in s 170(2) governing the power of the Commissioner to impose a tax liability by amendment of an assessment: see p 271.”
Brennan J at page 622 referred to the decision of Taylor J in McAndrew and the distinction between whether a ground of objection "merely touches the accuracy of the assessment or assails its validity as an assessment". Brennan J then noted in Dalco that McAndrew was distinguishable, and concluded that McAndrew was a case where there were conditions precedent, and in particular that an amended assessment was competent if made outside the statutory period, only if there were fraud or evasion.
52. Toohey J said:
“He or she may also do so by pointing to some error of computation or, as suggested by McAndrew, by showing non-compliance with statutory conditions precedent to the imposition of liability, in that case arising by reason of an amended assessment. A taxpayer does not necessarily discharge the onus of showing that an assessment is excessive, merely by showing that moneys treated by the Commissioner as income are in truth not the income of the taxpayer, though that may be a step in demonstrating his or her taxable income to be less than the assessment.”
53. McAndrew concerned section 170(2) and (3) of the Tax At as then enacted. The Court held that without fulfilment of the relevant conditions the Respondent would not have had the power to issue the amended assessment. Sections 8(3), 8(4) and 8(5) of the Surcharge Act are not in our view conditions precedent to the power of the Respondent to assess in the sense in which that expression was used in McAndrew and Dalco.
54. In respect of the term “excessive”, it is now well settled that the taxpayer must show not only that the assessment was incorrect but must also establish the correct amount which should have been assessed. In Dalco, Deane J. at page 626 said:
“In the circumstances of the present case, the respondent taxpayer discharged the onus imposed upon him by the Income Tax Assessment Act 1936 (Cth) (in particular, s 190(b)) only if he proved, on the balance of probabilities, that his actual assessable income during the period to which a particular assessment related was less than the amount included as assessable income in that assessment.”
55. Brennan J. said in this context:
“The ground of objection on which the taxpayer here relies is error in the formation of a judgment as to the amount on which tax ought to be levied. But mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment under s 167(b), the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous.”
56. Both Brennan and Toohey JJ, at pages 623 and 631 respectively referred with approval to a passage from the dissenting judgment of Wilcox J in the full Court below to the effect:
“the task for the taxpayer, upon an appeal or a review under Pt V of the
Act, is to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer.”
57. Section 37 of the Surcharge Act (equivalent to section 177 of the Tax Act) has been set out previously in these reasons. Pursuant to section 37 (2) of the Surcharge Act the production of an assessment is prima facie evidence that the assessment was issued; under section 14 ZZK of the Taxation Assessment Act 1953 (“TAA”) the Applicants bear the onus of showing that the assessments were excessive. (Mr. Davis contended that section 37 of the Surcharge Act and section 177 of the Tax Act are significantly different in that the former section refers to an “assessment” whereas the latter refers to a “notice of assessment”; that there is in fact no relevant difference is demonstrated inter alia by the judgment of Brennan J in Richard Walter at pages 191 and 192.)
58. Dalco establishes also that the taxpayer must establish both that the assessed amount exceeds his proper liability, and also the amount of the excess. In Trautwein v Commissioner of Taxation (Cth) (1936) 56 CLR 63 Latham CJ said:”If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right.”
59. In Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 involved assessments relying on section 260 of the ITAA and Part IVA in the alternative, the court said at page 258– 259:
“Once a taxpayer has appealed to this Court the Act contemplates that the Commissioner will tender the assessment or a copy under s 177 of the Surcharge Act. The consequence of that tender will be to preclude, at least for most practical purposes, challenge to the validity of the assessment or its due making. The issue will then be the excessiveness of the assessment. That term relates, as Brennan J points out in Dalco at 620, to the "amount" of the assessment.
In this Court the burden of proving the assessment to be excessive lies upon the taxpayer. The procedure of assessment, objection and appeal has as its purpose the ascertainment of the true taxation liability of a taxpayer (Dalco at 621 per Brennan J). For the taxpayer to succeed he, she or it must show not merely that the assessment is wrong but the extent to which it is wrong, except in a case such as McAndrew v Commissioner of Taxation (Cth) (1956) 98 CLR 263 where the taxpayer may succeed by demonstrating that a precondition to the making of an assessment was not satisfied. In a case such as the present, to adapt the words of Deane J in Dalco at 626, the taxpayer must show on the balance of probabilities that " ... his actual assessable income during the period to which a particular assessment related was less than the amount included as assessable income in that assessment"
60. The question of whether and when there is a condition precedent is by no means easy. The Respondent referred us to an article by Mr. G. T. Pagone (1990 ATR 88) an extract from which is reads as follows:
“At one level of analysis, George’s case supports the view that matters going to the preconditions of assessment under s.167 are not challengeable whilst McAndrew’s case supports the view that matters going to the precondition of amended assessments under s.170 are challengeable. The difficulty is in knowing which matters fall within each of the two categories. It is plain that not all procedural preconditions to assessments are immune from challenge. Where the power is one to permit amended assessments, it is likely that an express statutory stipulation will be seen as a condition precedent, and hence opens to challenge.
Some matters involving the Commissioner’s judgment, opinion or discretion may be challenged in proceedings on appeal, but it may be difficult to identify them precisely.”
Sections 8(3) 8(4) and 8(5) of the Surcharge Act are not in our view conditions precedent to the power of the Respondent to make the assessments; McAndrew is distinguishable. As we have indicated the Applicants made no attempt to establish that the assessments were excessive and thus must fail the onus.
61. Notwithstanding the previous clause it seems to us that we should make mention of the possibility that the contentions of the Applicants as to “Holder” might, if they were correct, constitute a condition precedent within McAndrew, but only in relation to defined benefit members. It seems to us that it is at least arguable that if a trustee is not a holder of all of notional amounts thus striking at the very basis of the assessments the assessments might fail ab initio. However we have found that the contentions of the Applicants as to “Holder” are without substance, and it is unnecessary for us to deal with this aspect further.
62. The Respondent contends that the calculation made by the superannuation provider is not part of the assessment process and we agree. The Respondent however went on in RS to consider that he (and we) might be wrong in this regard. We agree with clauses 20 to 22 of RS and in particular with clause 22 in answer to clause 135 of AS; clauses 20 to 22 of RS read as follows:
“20. As set out above, the Commissioner’s primary position is that the Superannuation Provider’s Calculation is not part of the assessment process. If this proposition is not accepted, the Commissioner submits that there are two important statutory provisions protecting the validity of assessments in s.15 (13) and s. 37(1) of the SCTAC Act. These sections are identical to those in ss 175 and 177 of the Income Tax Assessment Act 1936 (“the 1936 Act”). The effect of these provisions was discussed by Toohey J in Dalco (168 CLR 614 at 630):
“Section 175 provides that the validity of any assessment ‘shall not be affected by reason that any of the provision of this Act have not been complied with’. The section ‘does not relieve the Commissioner from the necessity of performing his duty to make an assessment’ but it does protect ‘the validity of an assessment, once made, from the consequences which might otherwise flow from the Commissioner’s failure to comply with any provisions of the Surcharge Act’: Bloemen at CLR p.371. (our emphasis)
…
He then referred (168 CLR 614 at 632) to what the High Court had said in relation to s.177 in George v FCT (1952) 86 CLR 184 at pp. 206-207:
“The clear policy of s.177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. … Obviously the ‘due making of the assessment’ was intended to cover all procedural steps, other than those if any going to the substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal.” (our emphasis)
21.Sections 175 and 177 [s.15 (13) and 37(1)] are directed toward protecting an assessment despite the failure of the Commissioner to comply with all the provisions of the Surcharge Act and despite any error in the procedure or mechanism by which the amount of surchargeable contributions is ascertained. These provisions, in our submission, apply a fortiori to protect assessments which have been made despite the failure to comply with the provisions of a Ruling referred to within the Act. As Brennan J noted in Dalco (168 CLR 614 at 626.3):
“Since McAndrew’s case it has been generally accepted that “excessive” refers to the amount of the assessment, not to any unauthorised step in the process of its calculation.”
22. In paragraph 135 of their submissions, the Applicants claim that the Commissioner is not entitled to rely upon s.37 of the SCTAC Act because he “has not produced an assessment, or a copy of an assessment signed by the Commissioner or a Second or Deputy Commissioner, for the members.” The Applicants submit that “an assessment is not the same as a notice of assessment.” This argument is nonsensical. In this regard, the Respondent notes the comments of Isaacs J in R. v FCT ex parte Hooper (1926) 37 CLR 368 at 373 that:
“An ‘assessment’ is not a piece of paper; it is an official act or operation; it is the Commissioner’s ascertainment, or consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification therefore called ‘a notice of assessment’. … But neither the paper sent nor the notification it gives is the ‘assessment’. That is and remains the act or operation of the Commissioner.”
Thus, an “assessment” is an act or operation of the Commissioner. It cannot be produced. The result of the Surcharge Act or operation of the Commissioner is a notice of assessment. This has been produced in a form which calls into operation the conclusive evidence provisions in s. 37(1) of the SCTAC Act.”
PART G - EVIDENCE
63. Mr. Shallue’s evidence was not in our view open to criticism. His evidence was that as the appointed actuary he did indeed prepare certificates in which:
(a)defined benefit members with similar profiles were indeed grouped and reflected in tabular form;
(b)he calculated benefits for accumulation members by reference to their employer contributions and by assigning to them a zero NSCF;
(c)he reflected in respect of members’ amounts rather than percentages.
64. Mr. Shallue did not retract any of his certificates and contended that they and his calculations for them were correct.
65. Ms Moran is also an actuary, and employed by the Respondent. (The Applicants in AS suggest that her evidence might be questionable on this basis). We consider that her evidence indicated that she is highly qualified, competent, honest and fair. Her evidence was that the manner in which Mr. Shallue prepared certificates was proper and reasonable. A report attached to her witness statement contains an admirable summary of the purpose served by the actuary’s certificate. Her report contains a section dealing with the purpose of the Surcharge Actuary’s report.
66. Dr. Knox, who is also an actuary, was much less impressive. He was initially dogmatic in his view that strict compliance with the Surcharge Act is necessary. He was firm as to the fact that the NSCF must be expressed as a percentage. His evidence was that rounding off could result in additional cost to a member. But he agreed in cross-examination that rounding off could work both ways, and that in any event, the consequences would be insignificant. The following extract is taken from TS 49 and 50:
Deputy President Block: “Dr Knox, you will forgive me, to show percentages not dollars but would you agree that on any rational example it makes a very tiny difference?”
Dr Knox: “ I agree that the amount we are talking about is not - is
generally small but I would - - - I think small is perhaps a euphemism for minute, we're talking about $15 for the most part.”
Deputy President Block: “Even for the 250,000 person and there can't be
all that many of those 250,000 works out to $250 and 15 per cent of that is, Mr Young?”
Mr Young: ”$37.50.”
Deputy President Block: “It's still not money, is it?”
Ms Batrouney: “I think it's what auditors would call immaterial.”
Dr Knox: “It's - I mean I'm not going to disagree with you.”
PART H - SUMMARY
67. We consider that the contention of the Applicants that a superannuation provider cannot be the holder of a notional amount (in relation to a defined benefit member) is untenable.
68. The fact that Mr. Shallue prepared certificates which did not comply strictly with section 8 of the Surcharge Act read with the Ruling does not mean either that his calculations were incorrect or that the assessments resulting from the amounts provided by the superannuation providers were in any way flawed; the evidence of Ms Moran (which we accept) indicates in clear terms that strict compliance is not necessary. (This applies also to use of the letter in respect of which the Applicants complained that it did not form part of the Ruling.) And in any event the assessments arose from a calculation which occurs in point of time after the amounts for the members (referable to the certificate provided by the actuary) have been provided by the superannuation providers and which do not form part of the assessments; moreover and in any event the assessments are protected under the Surcharge Act.
69. We do not think (as indicated previously that there is any relevant distinction to be drawn between section 37 of the Surcharge Act and section 177 of the Tax Act; we agree with the submissions of the Respondent that an assessment is a process and that when formulated the assessment is set out in a notice.
70. At the risk of labouring the point the Applicants sought to rely on points of a purely technical nature when they challenged certificates by their own actuary, which were not part of the assessment process, and in respect of which there was no suggestion that the calculations by their own actuary were in any way incorrect. The Applicants contended only that their actuary did not comply strictly with the requirements of section 8 and the Ruling, with the consequence that the assessments failed.71. Other and significant contentions were abandoned during the proceedings. The contention (originally made but subsequently abandoned) that a superannuation provider cannot be the holder of amounts invested was always a contention without substance. The contention that the assessments were not properly served falls into the same category, and was abandoned after occasioning a considerable quantity of written and oral evidence.
72. In relation to the remaining “Holder” contention, the Applicants were seeking to attack the effectiveness of the Surcharge Act itself. Legislation in this difficult area does sometimes fall short of perfection. However, the contention that a holder cannot fit that description in relation to an amount held notionally is not on analysis impressive. Nor are the Applicants’ contentions as to Dalco and the onus well-founded; the detailed analysis in these Reasons demonstrates the misconception of the ratios in Dalco and McAndrew.
73. In respect of the actuary’s certificate, and in relation to section 8 of the Surcharge Act, and the Ruling (and having regard to the manner in which the Ruling is framed), we conclude that strict compliance in the manner for which the Applicants contend is not mandatory. There was no evidence as to erroneous calculations by Mr. Shallue; the most that can be said is that he did not comply strictly with section 8 of the Surcharge Act and the Ruling. But in any event, and even if either there were errors or there was not strict compliance, the Respondent in relation to the assessments in question, was not affected. He relied upon, and is entitled to rely on the information provided by the superannuation provider. Errors, if errors there were prior thereto, (and the probabilities strongly favour the proposition that there were not), are not part of the assessment process. The Applicants nevertheless contended that they had discharged their onus; the true position is that they have not and indeed have made no attempt to do so. The “Holder” contention cannot stand for reasons set out previously. We note also that mere submissions in other proceedings as referred to by Mr. Davis cannot be treated as authority.
74. The result is that the objection decisions under review are affirmed.
DECISION
75. The objection decisions under review are affirmed.
I certify that the 75 preceding paragraphs are a true copy of the reasons for the decision herein of
Signed Neil Glaser
Associate
Dates of Hearing 15 and 16 April 2004; 16 and 17 August 2004
Date of Decision 13 September 2004
Counsel for the Applicant Mr Noel Davis
Counsel for the Respondent Ms Jennifer Batrouney SC and Mr Ian Young
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