Benross Pty Ltd and Anor and Commissioner of Taxation

[2005] AATA 63

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 63

ADMINISTRATIVE APPEALS TRIBUNAL        Nº VT2004/40‑41

TAXATION         APPEALS     DIVISION

Re:       BENROSS PTY LTD AND

LIORA PTY LTD

Applicant

And:     COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal:       Dr Gordon Hughes, Member

Date:21 January 2005

Place:Melbourne

Decision:The Tribunal affirms the decision under review.

(sgd) Gordon Hughes

Member

SUPERANNUATION - Superannuation Guarantee Charge - shortfall – calculation of shortfall – discretion to remit nominal interest and administration components – reasonableness of penalty under Part 7 – whether overpayments can be carried forward – whether contributions can be calculated on an aggregate basis

Superannuation Guarantee (Administration) Act 1992 (Cth)

Superannuation Guarantee Charge Act 1992 (Cth)

Jarra Hills Pty Ltd v Federal Commissioner of Taxation 97 ATC 2132

Kancroft Pty Ltd (acting as trustee for the Robertson Family Trust) v FC of T 2004 ATC 2126

Pye v FC of T 2004 ATC 2029

Re Truelove and Commissioner of Taxation [2000] AATA 276

REASONS FOR DECISION

21 January 2005  Dr Gordon Hughes, Member

1. This is an application by Benross Pty Ltd and Liora Pty Ltd for review of a decision dated 18 December 2003 by the Commissioner of Taxation (the respondent) in relation to the imposition of Superannuation Guarantee Charge assessments and Part 7 penalty assessments under the Superannuation Guarantee (Administration) Act 1992 (the SGA Act) for the years ending 30 June 2001 and 30 June 2002.

2.      At the hearing on 13 December 2004 Mr Mark Saltzman, chartered accountant with Lowe Lippmann, appeared for the applicant and Ms Virginia Rands, a solicitor with the Australian Taxation Office, appeared for the respondent.  The Tribunal had before it the documents (“the T documents”) lodged under s 37 of the Administrative Appeals Act 1975 5 (T1-T18)

3.      The taxpayers Benross Pty Ltd and Liora Pty Ltd are, whilst distinct legal entities, treated for the purposes of this application as one and are described as the applicant.  The two entities discharged separate roles in respect of the same business.  Benross Pty Ltd (formerly Josephine La Gourmet Pty Ltd) was responsible for manufacturing gourmet dips and cheeses whilst Liora Pty Ltd (formerly Classique Fine Foods Pty Ltd) was the selling entity for the sale of goods to supermarkets.  Some employees performed tasks covering both companies.  There are historical reasons for the applicant's corporate structure which I do not consider have any material bearing on these proceedings.

4.      In respect of the 2000/2001 income year, a default Superannuation Guarantee Charge assessment was issued as follows:

Lodgement/Issue date:  23.12.2002
Date of Effect:  14.08.2001
Number of Employees:  54
Total Shortfall  $20,642.27
Nominal Interest  $  2,315.87
Administration charge  $  1,670.00
Superannuation Guarantee Charge                  $24,628.14
Late payment penalty  00.00

General interest charge  $  3,544.30

On 31 December 2002, an additional Superannuation Guarantee Charge assessment, imposed under Part 7 of the SGA Act, was issued for the financial year ending 30 June 2001.

5.      In respect of the 2001/2002 income year, a default Superannuation Guarantee Charge assessment was issued as follows:

Lodgement/Issue date:  05.05.2003
Date of Effect:  05.05.2003
Number of Employees:  39
Total Shortfall  $5,105.85
Nominal Interest  $942.83
Administration charge  $1,220.00
Superannuation Guarantee Charge  $7,268.68
Late payment penalty  00.00

General interest charge  00.00

6.      The following issues were brought to the Tribunal's attention in respect of these assessments:

·   whether there was in fact a shortfall for the years in question;

·   whether it was possible to reduce or remit the nominal interest and administration components;

·   whether the 10 per cent penalty imposed for the 2001 year could be remitted; and

·   whether "excessive" contributions made to the superannuation fund in one year could offset obligations for superannuation guarantee purposes in the following year. 

7. An employer's obligation to provide superannuation support for its employees is prescribed by the SGC Act. The administration of this obligation is set out in the SGA Act and supporting regulations. The respondent contended that the applicant failed to meet this minimum level of superannuation support in both 2001 and 2002.

8.      The respondent contended that in respect of the year ending 30 June 2001, the applicant made contributions of $31,434.25 against a required contribution of $52,076, leaving a total shortfall of $20,642.27 (subsequently recalculated by the respondent to be $19,904.48). 

9.      In respect of the year ending 30 June 2002, the applicant sought to offset excess payments from the previous year in a manner which the respondent considered was precluded by s 23(10) of the SGA Act. After recalculating the shortfall component by not including these amounts, the respondent contended there was a total shortfall of $5210.48 (subsequently reassessed by the respondent as $5105.85).

10.     The applicant concluded in 2003 that the correct shortfall calculation was $14,112.92 for 2001 and $3345.80 for 2002.  It accordingly forwarded a cheque to the respondent in the sum of $17,458.28 in May 2003.  The applicant objects to the assessment in excess of the sum and, given that payment of what it contends to be the correct amount was made in 2003, any penalties and interests subsequently accruing.

11.     Under s 5 of the SGA Act, the Superannuation Guarantee Charge is imposed upon any Superannuation Guarantee Shortfall of an employer in a year, and under s 6 the amount of the Superannuation Guarantee Charge is an amount equal to the amount of the shortfall. Under s 17 of the SGA Act, the Superannuation Guarantee Shortfall is defined as, in effect, the amount of the actual shortfall together with nominal interest and an administration component for each year in question. The actual shortfall is calculated by applying to an employee's salary and wages the percentage difference between the minimum level of superannuation support and the actual employer support. Recognised as the "charge percentage", this was 8 per cent for the years in question less any reduction (which may vary from employee to employee) to reflect the percentage level of actual contributions made by the employer in respect of each employee. The nominal 10per cent interest and the administration component are not expressed as penalties – they are intended to represent the actual flow-on costs arising from the failure to pay as required by the SGA Act.

12. In addition to the Superannuation Guarantee Charge, Part 7 of the SGA Act provides for an "…additional superannuation guarantee charge". Under s 59, an employer can be levied an additional Superannuation Guarantee Charge equal to 200 per cent of the amount of the Superannuation Guarantee Charge otherwise payable by the employer. Under s 62(1), the respondent must make an assessment of this additional Superannuation Guarantee Charge, but under s 62(3) the respondent has the power to remit all or part of the penalty, depending upon the facts of the case. In this instance, the respondent imposed a 10 per cent penalty in respect of the 2001 year.

13.     Since the initial decisions giving rise to these proceedings, some relatively minor discrepancies have emerged in relation to the figures in question.  For example:

·   there is a small discrepancy regarding the actual amount of payments made by the applicant to the Australian Retirement Fund in respect of the 2001 income year, and the origin of this difference is unknown;

·   the respondent considers the applicant incorrectly included in its calculations in 2001 three employees whose earnings were less than $450 per week;

·   the respondent now concedes that in respect of the 2001 year, sufficient contributions were made in respect of two employees to another complying fund, thereby necessitating an adjustment to the calculation of the 2001 shortfall;

·   in respect of the 2002 year, the respondent exercised its discretion not to include shortfalls of less than $20 in its assessment; and

·   in the course of the hearing, Mr Saltzman asserted that there may be instances of misallocation of contributions by the Australian Retirement Fund in relation to certain employees.

It is not my intention to recalculate or rationalise the figures in this ruling.  My ruling will be confined to points of principle only.  Ms Rands conceded that a ruling by the Tribunal on a point of principle would not prevent the subsequent issuing of an amended assessment by the respondent if evidence emerged of a misallocation of contributions.

14.     The dispute stems from the fact that the applicant, acknowledging the existence of a shortfall, calculated the amount of that shortfall in a manner which the respondent regards as invalid.  There is no dispute that in the years in question, the minimum required level of employer contributions for relevant employees was 8 per cent.  The applicant calculated 8 per cent of the entire wage bill, rather than calculating 8 per cent of each individual employee.  The respondent contended that, the total shortfall for a year cannot be calculated on an aggregate basis in this manner.  Rather than deducting the total actual employer contributions from the total contributions which should have been made, it is necessary to add all the individual shortfalls – this can produce a very different figure.

15.     A further source of dispute is that, in respect of 2002, the applicant included amounts which the respondent describes as negative shortfalls, seeking to offset earlier overpayments against subsequent underpayments. The respondent asserted that this practice is precluded by s 23(10) of the SGA Act, which states that "The charge percentage for an employer for a quarter cannot be reduced below 0".

16.     The other source of dispute is that in May 2003, the applicant paid the sum of $17,458.28 to the respondent, being its calculation of the amount of the shortfall which it was then prepared to acknowledge. This sum represented $14,112.92 payment towards the 2001 shortfall, and $3345.80 payment towards the 2002 shortfall. However, the respondent contended that s 23(6A) of the SGA Act prevents it recognising the contribution for these purposes as the funds were received later than 28 July 2001 and 28 July 2002 respectively.

17.     On the basis of the material before the Tribunal, the respondent's original decision must be affirmed.  The fact that a miscalculation or misunderstanding by the applicant or its advisors occurred in good faith is not sufficient to defeat the plain requirements of the legislative scheme.

18.     Of particular relevance is the following:

· pursuant to s 19 of the SGA Act, the applicant was required to contribute 8 per cent of the relevant employees' salary and wages, less the amount of employer contributions actually made for each employee. The amount can therefore differ for each individual. The calculation cannot be made on an aggregate basis;

· by virtue of s 23(10) of the SGA Act, a credit cannot arise in respect of any individual who is overpaid for a quarter;

·   the applicant's calculation that its 2001 shortfall amounted to $14,112.92, and that its 2002 shortfall amounted to $3345.80, was therefore made on an incorrect premise;

· the amount of $17,458.28 paid on 5 May 2003 cannot affect the shortfall assessed for either 2001 or 2002. The respondent is correct in contending that the payments for those years should have been made by 28 July 2001 and 28 July 2002 respectively. This is made expressly clear by s 23(6A) of the SGA Act, and this interpretation has been affirmed in the decisions of Jarra Hills Pty Ltd v FC of T 97 ATC 2132 and Re Truelove and Commissioner of Taxation [2000] AATA 276.

19. Accepting that there was a shortfall in 2001 and 2002, and putting aside the precise quantification of the amount, it becomes necessary to consider whether the respondent correctly calculated the Superannuation Guarantee Charge and whether the law was correctly applied in relation to the Part 7 penalty. In this regard, the Tribunal makes the following observations:

· under s 17 of the SGA Act, there is no discretion for the respondent to refrain from imposing nominal interest and administration charge components.  Specifically, Senior Member McCabe held in Kancroft Pty Ltd (acting as trustee for the Robertson Family Trust) v FC of T 2004 ATC 2126 that (at 2128):

…There is no provision in the Act which provides discretion to remit or waive payment of the SGC…More specifically there is no discretion in the Act to allow the remittal or waiver of the nominal interest or administration component of the SGC…;

and

· the respondent has already exercised its discretion to impose a 10 per cent penalty under Part 7, compared with a possible maximum 200 per cent. The respondent considered the penalty to be justified in view of the applicant's tardiness in providing requested information. The applicant had a Superannuation Guarantee shortfall for 2001 and failed to lodge a Superannuation Guarantee Statement for that year. Paragraph 24 of the Superannuation Guarantee Ruling SGR 94/3 states that the non‑lodger component of the penalty, applied under Part 7 of the SGA Act, is a flat 10 per cent where such failure is discovered by Australian Taxation Office actions. The penalty in this instance is consistent with that ruling. The Tribunal notes that the respondent's decision in relation to the penalty is supported by the decision in Pye v FC of T 2004 ATC 2029.

20.     The Tribunal affirms the decision under review.

I certify that the twenty [20] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr D. Hughes, Member

(sgd)     Catherine Thomas

Clerk

Date of Hearing:  13 December 2004

Date of Decision:  21 January 2005
Advocate for the applicant:        Mr M. Saltzman, Chartered Accountant

Solicitor for respondent:            Ms V Rands, Australian Taxation Office Legal Services