ANDREW FRASER and COMMISSIONER OF TAXATION
[2012] AATA 655
•28 September 2012
[2012] AATA 655
Division TAXATION APPEALS DIVISION File Number
2012/1186
Re
ANDREW FRASER
APPLICANT
And
COMMISSIONER OF TAXATION
RESPONDENT
DECISION
Tribunal Ms G Ettinger, Senior Member
Date 28 September 2012 Place Sydney The Tribunal affirms the decision under review.
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Ms G Ettinger, Senior Member
CATCHWORDS
SUPERANNUATION – whether payment of superannuation contribution by Applicant deductible in a year where he did not work the full year – Applicant not ‘eligible person’ – not deductible – decision under review affirmed.
LEGISLATION
Income Tax Assessment Act 1936 ss 82AAS, 82AAT
Acts Interpretation Act 1901 s 15AA
CASES
Newcastle City Council v GIO General Limited (1997) 191 CLR 85
Re Falson and Commissioner of Taxation [2007] AATA 1668; (2007) 68 ATR 299
Re Thornton and Federal Commissioner of Taxation (1997) 36 ATR 1109R v Young (1999) 46 NSWLR 681
SECONDARY MATERIALS
Taxation Laws Amendment Bill (No.2) 1992 Explanatory Memorandum
REASONS FOR DECISION
Ms G Ettinger, Senior Member
28 September 2012
SUMMARY
Mr Andrew Fraser is a 60 year old who took a voluntary redundancy from his position as a TAFE teacher in 2007. He has been in receipt of Disability Support Pension (DSP), since December 2008. Mr Fraser sought review of the decision of the Commissioner of Taxation (the Commissioner), the Respondent, to disallow a deduction for a superannuation contribution he made for the 2007 year. The Commissioner held that because Mr Fraser did not meet the criteria to be an eligible person pursuant to (the former) section 82AAS(2) of the Income Tax Assessment Act 1936, (the ITAA 1936), he did not have an entitlement to an allowable deduction in the relevant year, being 2007 (the former section 82AAT(1) of the ITAA 1936).
Mr Fraser made comprehensive written and oral submissions at the Tribunal, particularly with regard to section 82AAT(1) of the ITAA 1936. He said that he had only worked for part of the 2007 year, and that there were 50 days when he was unsupported by superannuation. He argued that the words for the year of income in the subsection were intended to apply, not solely to a whole year, but also, to certain parts of the year of income.
I have preferred the submissions of the Respondent, and relied on the case of Re Falson and Commissioner of Taxation [2007] AATA 1668; (2007) 68 ATR 299. I have affirmed the decision of the Respondent. My reasons follow.
ISSUES BEFORE THE TRIBUNAL
The Tribunal had to decide:
·Whether the Applicant was an eligible person pursuant to section 82AAS(2) of the ITAA 1936 in the year 2007;
·Whether the Applicant was entitled to a deduction for personal superannuation contributions made in 2007 pursuant to the former section 82AAT(1) of the ITAA 1936 in the amount of $16,686.64.
RELEVANT LEGISLATION
The relevant legislation in this matter is the Income Tax Assessment Act 1936, in particular the former sections 82AAS and 82AAT.
BACKGROUND
Mr Fraser who is now 60 years old and receives DSP, was working as a TAFE teacher in 2007. He stated that even though he had contemplated taking a voluntary redundancy and retiring at 55, back in 2007, he understood that his superannuation might not suffice for that. Accordingly, he deposited the proceeds of the sale of his owner occupied unit to the value of $150,250 into his superannuation fund in December 2006.
He was still working for part of the relevant year 2007 for which he sought deduction of $16,686.64 for personal superannuation contributions relating to the 50 day period in which he had not worked, being 12 May 2007 to 30 June 2007. Mr Fraser explained that that was a pro-rata deduction he claimed for the period that year when he was not working, and not being supported for superannuation from his employer. He explained that he had only worked from 1 July 2006 to 11 May 2007 in that financial year.
On 7 February 2012, the Commissioner of Taxation disallowed Mr Fraser’s objection to the income tax assessment. On 28 March 2012, Mr Fraser lodged an application to this Tribunal for review of the Commissioner’s decision.
MR FRASER’S EVIDENCE AND SUBMISSIONS
Mr Fraser produced comprehensive written submissions, and also gave oral evidence and made oral submissions. His main argument centred around contesting the disallowance of a deduction for a pro rata superannuation contribution he made covering the period of 50 days when he was not working in 2007.
Mr Fraser’s main contention was that a year of income as referred to in the legislation could also be held to apply to a part of a year of income. By way of explanation he referred to his house consisting of the roof, walls and floor. He said that he could refer to repairs to his house, or repairs to each of the constituent parts. The whole denotes the part and vice versa, he submitted.
In other words, he contended, the term ‘year of income’ is a synecdoche where in context and on the principle of ‘totum pro parte’ the whole comprises the part.
Mr Fraser also contended that the words of the provision were not clear, and that accordingly, resort should be had to the Explanatory Memorandum, which he submitted clarified the situation in his favour.
He also felt the deduction he sought should be allowed on public policy grounds, consistent with incentives for self funded retirement. He also submitted that the full financial circumstances of a person, including whether they were suffering financial hardship, as he claimed to be, should be taken into account.
Mr Fraser submitted in the alternative, that the 10 percent rule should apply, and noted that pursuant to section 82AAS(3) of the ITAA 1936, the $24,534.02 taken into account by the Commissioner should be allocated according to how the contributions were made, that is, only $5,534.02 was made by the employer, and the rest by Mr Fraser.
THE COMMISSIONER’S SUBMISSIONS
Ms Gatland, Principal Lawyer, Tax Resolution Practice, who appeared for the Respondent Commissioner, also made comprehensive written and oral submissions. The Respondent’s main submission was that TAFE, one of Mr Fraser’s employers at the relevant time, was obliged to make superannuation payments under the Superannuation Guarantee (Administration) Act 1992 on his behalf. Ms Gatland agreed it was not in dispute that Mr Fraser was employed for only part of 2007, his wage and salary income being $43,846. The Respondent contended that the employer contribution amounted to $24,534.02.
Ms Gatland submitted that because of the above, circumstances existed during part of the relevant year by reason of which it was reasonable to expect that superannuation benefits would be provided for the Applicant by another person, the relevant employer, which was attributable to, or was in connection with his eligible employment. The Respondent’s position was that having worked for part of 2007, Mr Fraser was supported by employer superannuation contributions in that year. She submitted that accordingly, the Applicant was not an eligible person pursuant to section 82AAS(2) of the ITAA 1936, and that he could not therefore claim the deduction for the superannuation contribution for which he thought he was eligible.
Notwithstanding the Applicant’s early submission that he did not rely upon section 82AAS(3) of the ITAA 1936, and the 10 percent rule, the Respondent considered its application in its submissions. Ms Gatland concluded that the income attributable to the Applicant’s eligible employment in 2007 was $61,030 (made up of $43,846 of salary and wages, $21 allowances from the employer, and $17,163 employer lump sum payment), which was greater than 10 percent of Mr Fraser’s assessable income of $70,364 in 2007. Accordingly, Ms Gatland submitted, the Applicant did not satisfy the conditions in section 82AAS(3)(b)(i) of the ITAA 1936 which may otherwise have been effective to render him an eligible person.
The Respondent submitted therefore that section 82AAS(3) of the ITAA 1936 did not apply to the Applicant in the 2007 year. He was not an eligible person, and did not meet all the conditions of eligibility for claiming a deduction for his personal superannuation contributions (section 82AAT(1) of the ITAA 1936). Ms Gatland submitted that public policy was not a consideration in the determination of the above matters.
THE TRIBUNAL’S CONCLUSIONS
In order to decide whether Mr Fraser was entitled to a deduction for personal superannuation contributions pursuant to the former section 82AAT(1) of the ITAA 1936 in the amount of $16,686.64 as claimed, I had first to identify whether he was an eligible person pursuant to section 82AAS(2) of the ITAA 1936 during the relevant period. That relevant period was in respect of the year ended 30 June 2007.
In 2007, Mr Fraser, was, pursuant to section 82AAS(1), in eligible employment, and qualified to be treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act. He was eligible to receive superannuation guarantee payments, and he did so. That was not in dispute.
However, Mr Fraser’s argument was that because he was not employed for 50 days in that year, he was not eligible for superannuation from the employer in that period. He argued that he could accordingly, be eligible for a deduction for his personal superannuation contributions for that period, worked out pro rata. He considered that the amount was $16,686.64.
As noted above, eligible person has the meaning given by section 82AAS(2) of the ITAA 1936 which provided that a person was an eligible person in relation to a year of income unless:
(a)during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person in the event of the retirement of the relevant person or for dependants of the relevant person in the event of the death of the relevant person (whether or not any condition other than the retirement or death of the relevant person would be required to be satisfied in order that those benefits be provided); and
(b) to the extent to which those benefits would be attributable to the year of income:
(i)the benefits would be wholly or partly attributable to contributions made, or required to be made, in relation to the year of income:
(A)to a superannuation fund of the relevant person; and
(B)by someone other than the relevant person; and
(C)in connection with the eligible employment of the relevant person in the year of income; or
(ii)the benefits would, in whole or in part, be paid in relation to the year of income:
(A)out of money (other than contributions made to a superannuation fund) of someone other than the relevant person; and
(B)in connection with the eligible employment of the person in the year of income.
In coming to a decision, I was satisfied that Mr Fraser was paid superannuation benefits for the year 2007 by his employers. FSS Trustee Corporation reported to the Commissioner that Mr Fraser had received $24,534.02 in employer contributions in the 2007 year. I noted Mr Fraser’s clarification that his employer had contributed $5,534.02, whereas he had contributed $19,000 via a salary sacrificing arrangement. Therefore Mr Fraser was, in 2007, pursuant to section 82AAS(2) of the ITAA 1936, a person who would have been an eligible person except that during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person… It is not in dispute superannuation benefits were so provided at least for part of 2007.
I have noted in that regard that at [6] in Re Thornton and Federal Commissioner of Taxation (1997) 36 ATR 1109 Senior Member Pascoe held that:
Unfortunately the applicant’s submissions are clearly answered by the provisions of s 82AAS(2). He was not an eligible person in relation to the year ended 30 June 1996 as it was reasonable to expect that superannuation benefits would be and, in fact, were provided by an employer during a part of the year of income. The section clearly contemplates that such benefit may be provided for only part of the year. It is not concerned with the position of a person at a time when superannuation contributions were made but with the year of income as a whole. There is no discretion available to not apply the clear requirements of the legislation.
In order to further comment on the situation as held by Senior Member Pascoe in Thornton, I have considered section 15AA of the Acts Interpretation Act 1901, which provided that:
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.
In Re Falson and Commissioner of Taxation [2007] AATA 1668; (2007) 68 ATR 299, the Tribunal dealt with the history and the proper construction of the relevant provisions of the ITAA 1936. At [70] in Falson, the Tribunal referred to Newcastle City Council v GIO General Limited (1997) 191 CLR 85 as follows:
However, no matter what role “context” plays, our task remains one of interpreting the language actually used in the Act. As McHugh J cautioned in Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 109, 72 ALJR 97 at 110, 149 ALR 623 at 639:
… the function of the court remains one of construction and not legislation. When the express words of a legislative provision are reasonably capable of only one construction and neither the purpose of the provision nor any other provision in the legislation throws doubt on that construction, a court cannot ignore it and substitute a different construction because it furthers the objects of the legislation.
In that regard, I have also taken into account Mr Fraser’s submissions in regard to consideration of the Explanatory Memorandum, and taken into account the Tribunal in Falson and McHugh J in Newcastle City Council v GIO General Limited.
The application of the words of an Explanatory Memorandum cannot supplant those of relevant provisions of the Act which in this case is abundantly clear, and has been held to be so in Falson and other cases. In Falson, the Tribunal noted in relation to the Explanatory Memorandum, the reference to self-employed persons, (Mr Fraser emphasised benefits intended for self-funded superannuants). At [64] in Falson, the Tribunal stated:
… Our task in this tribunal is not to interpret the words used in an explanatory memorandum. Our task is to interpret the words used in the ITAA 1936.
I am satisfied that notwithstanding Mr Fraser’s reasoning he cannot succeed in his claim because he is not an eligible person in the terms of section 82AAS(2) of the ITAA 1936.
I have however noted that the position of section 82AAS(2) was modified by section 82AAS(3) of the ITAA 1936 which provided under particular circumstances for the 10 percent rule, if satisfied, to allow the person engaged in eligible employment for a period or periods in the year of income to be an eligible person, and therefore, entitled to an allowable deduction for personal superannuation contributions.
Although Mr Fraser initially stated that he did not wish to argue the 10 percent rule, he did so subsequently in his written submissions. Ms Gatland also addressed the application of the 10 percent rule in her submissions. My findings on the application of the 10 percent rule follow.
Section 82AAS(3) of the ITAA 1936 provided as follows at the relevant time:
If:
(a)during a period, or a combination of periods, in a year of income, a person was engaged in particular eligible employment; and
(b)either:
(i)both:
(A)the person’s assessable income, or the person’s exempt income, of the year of income, or the person’s reportable fringe benefits total for the year of income, includes one or more amounts attributable to that eligible employment; and
(B)the total of the amounts mentioned in sub-subparagraph (A) is less than 10% of the total of the person’s assessable income of the year of income and reportable fringe benefits total (if any) for the year of income; or
(ii)the person’s assessable income, or the person’s exempt income, of the year of income, or the person’s reportable fringe benefits total for the year of income, does not include any amount attributable to that eligible employment;
a reference in subsection (2) to superannuation benefits does not include a reference to superannuation benefits to the extent to which:
(c)they would be attributable to, or paid out of money representing:
(i)contributions made, or required to be made, in relation to the person in connection with that eligible employment; or
(ii)income or accretions arising from such contributions; or
(d)they would otherwise be attributable to that eligible employment.
In summary, a person whose income from eligible employment from an employer who provided, or was required to provide, superannuation support was less than 10 percent of the person’s total assessable income, that person would still be an eligible person.
In that regard, I have noted that Mr Fraser’s income from his eligible employment for 2007 was $61,030 comprised of $43,846 in salary and wages, $21 in allowances from his employer, and $17,163 in the employer lump sum payment (section 82AAS(3)(b)(i)(A) of the ITAA 1936). His assessable income as reported by him was $70,364 and included interest, franked dividends and franking credits.
I have already noted above the application of section 15AA of the Acts Interpretation Act 1901, and the comments on statutory interpretation in Falson.
I accept the submission of the Respondent that the words in section 82AAT and 82AAS of the ITAA 1936 are reasonably capable of only one construction. The Respondent has also submitted that even if an expression of intention in any extrinsic material supported Mr Fraser’s views, it would not be appropriate to take such views from extrinsic material to introduce words into an Act of Parliament when such a construction was not reasonably open on the words actually used: R v Young (1999) 46 NSWLR 681 at 686.
I prefer the argument of the Respondent, noting that the income from Mr Fraser’s eligible employment was greater than 10 percent of the assessable income for the relevant year, so that even with the application of section 82AAS(3) of the ITAA 1936 he could not be held to be an eligible person. Accordingly his claim cannot succeed.
DECISION
The Tribunal affirms the decision under review.
I certify that the preceding 38 (thirty eight) paragraphs are a true copy of the reasons for the decision herein of Ms G Ettinger, Senior Member.
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Associate
Dated 28 September 2012
Date of hearing 1 August 2012 Applicant In person Solicitors for the Respondent Ms J Gatland and Mr K Khan, Australian Taxation Office
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