Brady and Commissioner of Taxation (Taxation)
[2016] AATA 97
•23 February 2016
Brady and Commissioner of Taxation (Taxation) [2016] AATA 97 (23 February 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2014/2957; 2015/0370
Re
Laurence Brady
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms G Lazanas, Senior Member
Date 23 February 2016 Place Sydney The decision under review is affirmed.
.............................[sgd]...........................................
Ms G Lazanas, Senior Member
CATCHWORDS
TAXATION –– superannuation – excess contributions tax – whether non-concessional excess contributions can be disregarded or allocated to another financial year – whether special circumstances - decision under review affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth), ss 290-160, 292-85, 292-465
CASES
Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25; 44 AAR 436
Commissioner of Taxation v Dowling [2014] FCA 252
Groth v Secretary, Department of Social Security [1995] FCA 1708; 40 ALD 541
Liwszyc v Commissioner of Taxation [2014] FCA 112
Minister for Community Services and Health v Chee Keong Thoo (1988) 78 ALR 307
Re Bornstein and Commissioner of Taxaion [2012] AATA 424
Re Chantrell and Commissioner of Taxation [2012] AATA 179
Re Davenport and Commissioner of Taxation [2012] AATA 760
ReHamad and Commissioner of Taxation [2012] AATA 530
Re Lynton and Commissioner of Taxation [2012] AATA 667
Re Longcake and Commissioner of Taxation [2012] AATA 576
Re McMennemin and Commissioner of Taxation [2010] AATA 573
Re Schuurmans-Stekhoven and Commissioner of Taxation [2012] AATA 62
Re Tran and Federal Commissioner of Taxation [2012] AATA 123; 2012 ATC 10-236
Re Topp and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 99
Re Verschuer and Commissioner of Taxation [2013] AATA 12
Re Ward and Commissioner of Taxation [2015] AATA 919SECONDARY MATERIALS
Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006
REASONS FOR DECISION
Ms G Lazanas, Senior Member
23 February 2016
INTRODUCTION
These proceedings are concerned with the application of the excess contributions tax (ECT) provisions in the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). It is uncontroversial that Professor Laurence Brady’s personal non-concessional contributions to his superannuation funds in the financial year ended 30 June 2011 exceeded his non-concessional cap by $179,392.16 leading to a liability for ECT of $83,417.35.
Professor Brady made an application to the Commissioner of Taxation pursuant to ss 292-465(1)(b) and (2) of the ITAA 1997 for a determination that all or part of his non-concessional contributions for the 2011 financial year be disregarded or allocated to another financial year so that he could be relieved of his liability to the ECT.
The Commissioner declined to do so on the basis that Professor Brady’s circumstances did not constitute “special circumstances” and that it would not be consistent with the object of Division 292 of the ITAA 1997 to exercise the discretion to disregard or allocate to another financial year any or all of Professor Brady’s non-concessional contributions for the 2011 financial year.
Professor Brady has applied to the Tribunal for review of that decision. I have decided that the Commissioner was correct and that there were no “special circumstances”, as contemplated by the legislative framework.
THE FACTUAL BACKGROUND
The following findings of fact are based on the evidence of Professor Brady, including his oral evidence at the hearing. I also took into account the T-Documents filed and served by the Commissioner.
Professor Brady was born in 1947 and was therefore under 65 years of age during the 2010 and 2011 financial years. He was a Professor of Education teaching at the University of Technology Sydney. In or about 2007 he retired and then worked as an adjunct professor and, consequently, had significantly reduced work commitments. For example, in the 2010 financial year, he was working at the university approximately 4 to 6 hours, on average, per week.
Professor Brady was a member of three superannuation funds, namely, (1) the Colonial First State – First Choice Superannuation Fund (Colonial), (2) the Retirement Portfolio Services Superannuation Fund (Retirement Portfolio) and (3) the Unisuper Superannuation Fund (Unisuper).
In the 2010 financial year, his salary was $13,005 which he salary sacrificed as superannuation contributions. Accordingly, regular employer contributions were made on behalf of Professor Brady. Employer contributions of $12,989.31 were made to Colonial and $1,188.10 were made to Unisuper. These contributions were concessional contributions, that is, his employer claimed income tax deductions for these and they were taxed at the rate of 15% on entry into the superannuation funds.
Professor Brady also made personal contributions in the 2010 financial year to a total of $175,600. These contributions were non-concessional contributions, that is, he did not claim deductions for these contributions in his income tax return. However, on or around 11 June 2010, Professor Brady notified Colonial, one of the superannuation funds to which he made personal contributions, that he intended to claim a personal superannuation contribution deduction (PSCD) of $26,000 in his tax return for the 2010 financial year. This is corroborated by a member statement issued by Colonial indicating that income tax at the rate of 15% was deducted by Colonial on 11 June 2010 in respect of the amount of $26,000 on entry into the fund, on the premise that it was considered a concessional contribution.
Professor Brady did not actually claim a PSCD in respect of the amount of $26,000 in his tax return for the 2010 financial year and, moreover, at no stage was Professor Brady eligible to claim a PSCD. As a consequence, this amount was treated as a non-concessional contribution in the 2010 financial year. At one stage, Professor Brady had challenged the Commissioner’s decision that he was not entitled to claim a deduction for the personal contribution amount of $26,000 in the 2010 financial year. However, Professor Brady had abandoned that issue in the hearing of this matter.
The reason that Professor Brady was not entitled to claim the amount as a deduction is due to him breaching the “10% rule” in s 290-160 of the ITAA 1997. That section broadly provides that an individual may only deduct personal contributions if less than 10% of his or her total assessable income and reportable employer superannuation contributions are attributable to activities as an employee. This innocent breach, which apparently neither Professor Brady nor his financial adviser were aware of at that time, had more serious fiscal consequences in the 2011 financial year, to which I will come shortly.
In summary, in the 2010 financial year, Professor Brady made a total of $175,600 in non-concessional contributions to superannuation funds. In that year, the non-concessional contributions cap was $150,000. Therefore, the cap was exceeded by $25,600.
Because he was under 65 years of age in 2010, and his non-concessional contributions for that year exceeded $150,000, the provisions of s 292-85 of the ITAA 1997 were automatically triggered with the effect that Professor Brady’s cap was increased from $150,000 to $450,000 over a three year period (the 2010, 2011 and 2012 financial years). This rule is often referred to as the “bring forward rule”. Therefore, Professor Brady’s remaining non-concessional contributions cap for the 2011 and 2012 financial years was $274,400 (being $450,000 less $175,600).
On 5 July 2010, Professor Brady made a personal contribution of $450,000 to Retirement Portfolio for the 2011 financial year, on the advice of his financial adviser. This was a non-concessional contribution. Professor Brady’s financial adviser likely considered that that contribution, albeit large, was optimal and compliant on the basis that it would trigger the “bring forward rule” permitted under the legislation, namely, s 292-85 of the ITAA 1997 referred to above - but in respect to the 2011, 2012 and 2013 financial years. That is to say, his financial adviser would have likely advised him to make the maximum contribution permitted under the legislation. But the financial adviser was unfortunately unaware, as was Professor Brady, that the “bring forward rule” had already been triggered in the 2010 financial year because of the inadvertent breach of the “10% rule” in the 2010 financial year, as explained in [11] above. Consequently, the $450,000 contribution in July 2010 led to an assessment for ECT in the 2011 financial year.
On 10 May 2011, Professor Brady lodged his income tax return for the 2010 financial year. A few days earlier, on 6 May 2011, Professor Brady had lodged a ‘Notice of Intent to Claim a Tax Deduction’ form with Colonial advising that he was varying the previous notice of intent to claim a deduction in respect of the amount of $26,000 (referred to above in [9]) and that the PSCD being claimed for the 2010 financial year would now be nil. Professor Brady said he cannot recall why this was done but that he would have done so based on advice from his tax agent at that time. I accept Professor Brady’s explanation and I infer, based on the chronology of events and the likelihood that the tax agent would have been provided with information about Professor Brady’s income, that the tax agent was alerted to the breach of the “10% rule” problem in the course of compiling Professor Brady’s 2010 income tax return.
It is unclear whether the former tax agent also spotted the more serious problem which by that stage had already ensued, namely, the breach of the non-concessional cap in the 2011 financial year. He would have only been in a position to do so if he had been told about the $450,000 non-concessional contribution made in July 2010.
Professor Brady also made additional personal contributions, in the form of concessional contributions, to Retirement Portfolio of $17,592.16 and to Colonial of $18,900 during the 2011 financial year. In summary, Professor Brady made concessional contributions totalling $32,700 in the 2011 financial year and non-concessional contributions totalling $453,792.16.
The $453,792.16 non-concessional contributions made during the 2011 financial year exceeded the cap remaining in this year of $274,400 (referred to at [13] above). Therefore, Professor Brady had excess non-concessional contributions of $179,392.16 for the 2011 financial year and he was subsequently assessed to excess non-concessional contributions tax of $83,417.35. That is to say, although Professor Brady’s personal contributions were planned with a view to optimising his superannuation position, instead his large contribution on 5 July 2010 inadvertently triggered a significant liability to ECT in the 2011 financial year.
Professor Brady does not dispute that he is prima facie liable to the tax. However, on the advice of his tax agent, Professor Brady made an application on 25 August 2014 requesting the Commissioner to make a written determination under s 292-465(1)(b) of the ITAA 1997 to disregard or allocate to another year all or part of his non-concessional contributions for the year ended 30 June 2011.
On 30 September 2014, the Commissioner advised that he would not make such a written determination. On 21 October 2014, Professor Brady objected to the assessment of the ECT on the ground that he was dissatisfied with the Commissioner’s refusal to make a written determination under s 292-465(1)(b).
On 7 January 2015 the objection was disallowed by the Commissioner. Professor Brady now seeks a review of that decision in these proceedings.
THE EVIDENCE
Professor Brady was the only person to give evidence. He stated that he had a very basic understanding of the superannuation and tax rules and that he retained professional advisers to advise him. In particular, he retained his former tax agent for the preparation of his tax return and he retained financial advisers for investment and superannuation advice and planning. Professor Brady stated that he would meet with his financial advisers at least twice a year, usually at the beginning and towards the end of each financial year, to review his superannuation. He had additional meetings with the financial advisers in relation to his other investments. He stated that he always acted on the advice given to him as he considered them to be the experts. He said that all of the personal contributions that he made to his superannuation funds, including the $450,000 on 5 July 2010, were prompted by advice given by his financial advisers as to the optimal position for him. In relation to member statements and similar correspondence from the superannuation funds, Professor Brady stated that he would have glanced at these on a cursory basis but not understood their significance or efficacy.
Professor Brady was asked whether the financial adviser who advised him to make the $450,000 contribution was aware of the resulting ECT liability. Professor Brady stated that he had “no grievance with his financial adviser”, that his adviser “was a man of great integrity” and was “remorseful” about his tax predicament. Professor Brady also candidly offered that it is possible that there were misunderstandings and communication difficulties due to the advice being given to him by the respective advisers and his role in relaying advice from his financial adviser to his former tax agent and vice versa, without necessarily understanding the significance of the information. He said that his new tax agent, who he engaged in or about 2012, has a direct working relationship with his financial adviser.
I accept that Professor Brady was genuine and gave a truthful account of the relevant factual circumstances. Accordingly, I find that he and his advisers were unaware of the breach of the “10% rule”. It follows, that I also find that they were unaware when he made the $26,000 contribution in June 2010, that it would be treated as a non-concessional contribution and, in addition, that it would, in turn, cause him to exceed the non-concessional contributions cap initially in the 2010 financial year (but for the application of the “bring forward rule”) and, and more significantly, cause him to ultimately exceed the non-concessional contributions cap in the 2011 financial year. That is to say, Professor Brady and his financial adviser did not know, on or about 5 July 2010, when the optimal non-concessional contribution of $450,000 was made, that this would actually cause him to have a liability to ECT. I accept that Professor Brady was completely reliant on his advisers and acted in accordance with their advice and, furthermore, that the errors were innocent.
THE ISSUE
At issue is whether the Commissioner’s decision not to make a written determination under s 292-465(1)(b) disregarding or allocating to another financial year all or part of the non-concessional contributions made in the 2011 financial year should have been made differently. The resolution of that issue, in the present case, critically depends on whether there were “special circumstances”. This is because there have to be “special circumstances” as one of the two pre-conditions for discretionary relief: s 292-465(3).
THE LEGISLATIVE FRAMEWORK AND PRINCIPLES
The object of Division 292, which is a mandated precondition to the exercise of the discretion under s 292-465, is expressed at s 292-5, as follows:
The object of this Division is to ensure that the amount of concessionally taxed *superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person’s life.
Section 292-80 provides for the liability to ECT in the following terms:
Liability for excess non-concessional contributions
You are liable to pay *excess non-concessional contributions tax imposed by the Superannuation (Excess Non-Concessional Contributions Tax) Act 2007 if you have *excess non-concessional contributions for a *financial year.
Note: the amount of tax is set out in that Act.
Subsection 292-85(1) states that excess non-concessional contributions for a financial year arise where the individual’s non-concessional contributions for that particular financial year exceed the cap set out in s 292-85. The amount of the excess non-concessional contributions is the amount of the excess. Pursuant to s 292-85, the non-concessional contribution cap for the 2010 financial year is six times the amount of the concessional contributions cap. The concessional contributions cap for the 2010 financial year was $25,000. Therefore, the non-concessional contributions cap for that same year was $150,000.
In circumstances where the $150,000 cap is exceeded in one year, the amount of an individual’s non-concessional contributions cap for a financial year is affected by the operation of the “bring forward rule” in ss 292-85(3) and (4) of the ITAA 1997. This only applies to individuals under 65 years of age which, as noted above, was satisfied by Professor Brady in the 2010 and 2011 financial years. This rule effectively accommodates larger contributions by allowing persons uner the age of 65 to contribute non-concessional contributions of up to $450,000 over three financial years, without exceeding their non-concessional contributions cap. Paragraphs 1.85 and 1.86 of the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 relevantly state as follows in relation to the “bring forward rule”:
As a concession, to accommodate larger contributions, persons under age 65 in a financial year will be able to bring forward future entitlements to two years worth of non-concessional contributions...
The bring forward rule will be triggered automatically...(bolding is emphasis added)
Section 292-465, which is the core provision in this case, relevantly provided as follows in the 2011 financial year:
(1) If you make an application in accordance with subsection (2), the Commissioner may make a written determination that, for the purposes of this Division:
(a) all or part of your *concessional contributions for a *financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination; and
(b) all or part of your *non-concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination.
(2) You may apply to the Commissioner in the *approved form for a determination under subsection (1). The application can only be made:
(a) after all of the contributions sought to be disregarded or reallocated have been made; and
(b) if you receive an *excess contributions tax assessment for the *financial year--before the end of:
(i) the period of 60 days starting on the day you receive the assessment; or
(ii) if the Commissioner allows a longer period--that longer period.
(3) The Commissioner may make the determination only if he or she considers that:
(a) there are special circumstances; and
(b) making the determination is consistent with the object of this Division.
(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
(5) The Commissioner may have regard to whether a contribution made in the relevant *financial year would more appropriately be allocated towards another financial year instead.
(6) The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have *excess concessional contributions or *excess non-concessional contributions for the relevant *financial year, and in particular:
(a) if the relevant contribution is made in respect of you by another person--the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and
(b) the extent to which you had control over the making of the contribution.
In introducing the ECT, Parliament recognised that special circumstances may exist which cause the imposition of a liability to pay ECT to produce an unjust, unreasonable or inappropriate result. Accordingly, s 292-465(1)(b) of the ITAA 1997 was included as a provision with the intention of conferring on the Commissioner, where the necessary pre-conditions exist, a discretion to make a written determination disregarding all or part of a person’s non-concessional contributions, or to allocate all or part of a person’s non-concessional contributions from one financial year to another year.
Paragraph 1.117 of the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006, which relevantly amended the ITAA 1997 to insert
s 292-465, states as follows:
The courts have considered what ‘special circumstances’ means in many different contexts. It is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case-to-case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.
At the outset, I note that the exercise of the discretion conferred by s 292-465(1)(b) is not an unfettered one. As Greenwood J observed in Commissioner of Taxation v Dowling [2014] FCA 252 (Dowling) at [93]:
...The Commissioner’s power to exercise the discretion is constrained, at the threshold, by the mandatory requirement that he or she “considers” that there are “special circumstances” warranting a constructive change to the actuality of the contributions either by disregarding or re-allocating some or all of those contributions giving rise to the liability, and that he or she considers that doing so is consistent with the object of Div 292.
That is, there are necessary pre-conditions before the exercise of the discretion and they are, first, a finding that “special circumstances” exist and, second, that the making of the determination is consistent with the object of Division 292: Liwszyc v Commissioner of Taxation [2014] FCA 112 (Liwszyc) at [29].
The two-stage nature of the process under s 292-465 was also referred to in Dowling where Greenwood J held at [125] that:
...Once the Tribunal is satisfied of the pre-conditions under s. 292-465(3)(a) and (b), the question arose of whether the Tribunal ought to exercise the discretion and that matter gave rise to a consideration of the s. 292-465(5) and (6) factors and any other factor the Tribunal regarded as a relevant matter.
In making the determination, the Commissioner (and the Tribunal standing in his shoes), may have regard to the matters specified in subsections 292-465 (5) and (6) and any other relevant matters: s 292-465(4). Subsection 292-465(5) refers to whether a contribution made in the relevant financial year would more appropriately be allocated towards another financial year instead. Subsection 292-465(6) relevantly refers to whether it was reasonably foreseeable, when a relevant contribution was made, that a taxpayer would have excess non-concessional contributions for the relevant financial year and, in particular, the extent to which the taxpayer had control over the making of the contribution.
Professor Brady’s advocate and current tax agent, Mr Khakhar, and counsel for the Commissioner, Ms Gatland, helpfully referred me to various Court and Tribunal decisions which have considered the meaning of “special circumstances” both generally and, more specifically, in relation to the application of s 292-465 of the ITAA 1997. A summary of the various cases follows, based on their written submissions.
The core of the idea of “special circumstances” is that “there be something unusual or different to take the matter out of the ordinary course”: Minister for Community Services and Health v Chee Keong Thoo (1988) 78 ALR 307, 324; ReChantrell and Commissioner of Taxation [2012] AATA 179, [29].
In Re McMennemin and Commissioner of Taxation [2010] AATA 573, Deputy President Forgie cited with approval at [97], the following observations of Kiefel J in relation to the same expression considered in Groth v Secretary, Department of Social Security [1995] FCA 1708; 40 ALD 541, 545:
The phrase “special circumstances”, it has been said, although imprecise is sufficiently understood not to require judicial gloss, and for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth’s case from others, to take it out of the usual or ordinary case... It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary. (references omitted)
The conclusion that something “unfair” or “unjust” has occurred may be difficult to reach unless the circumstances reveal some “unusual, uncommon or exceptional quality”: ReTopp and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 99, [39].
In Re Tran and Commissioner of Taxation [2012] AATA 123, Member Dr Hughes stated that it is the circumstances that must be special, not the individual’s experience of them. This was put in the following way at [15]:
[W]hilst each case must turn on its own merits, circumstances will not be special unless they are out of the ordinary. The prime determinant is not the extent of the taxpayer’s misfortune but rather the uniqueness of those events which has given rise to that misfortune.
It has also been widely acknowledged that while there must be something unusual or uncommon for circumstances to be “special circumstances”, the test should not be overstated: see Angelakos v Secretary, Department of Employment and Workplace Relations. [2007] FCA 25; 44 AAR 436, 445 [33].
The context of s 292-465(3)(a) is plainly such that, as McKerracher J observed in Liwszyc at [77]:
An innocent mistake or ignorance does not itself constitute “special circumstance” nor do simple errors, albeit innocent errors or other mistakes which are made in good faith. Equally, the fact that an error was made by another person does not itself constitute “special circumstances”.
Ignorance of the law is not a “special circumstance” for the purposes of Division 292 of the ITAA 1997: Re Schuurmans-Stekhoven and Commissioner of Taxation [2012] AATA 62. The same view has also been expressed in relation to the provision of incorrect or deficient advice: Re Davenport and Commissioner of Taxation [2012] AATA 760 at [79] and ReLynton and Commissioner of Taxation [2012] AATA 667 at [17].
The cases where special circumstances have been found for the purposes of Division 292 and, therefore, the discretion enlivened, are very few. In Re Hamad and Commissioner of Taxation [2012] AATA 530, Senior Member Allen found that there were special circumstances as the taxpayer had been misled by his employer as to the timing of the employer’s contributions. In Re Bornstein and Commissioner of Taxation [2012] AATA 424, Senior Member McCabe was satisfied that there were special circumstances as there was ambiguity on the ATO’s website about the timing for the making of contributions because the time permitted for contributions by employers is different to that for employees which led to confusion. Also influential was the fact that the taxpayer “was denied the opportunity to avoid compounding the earlier error he had made because the Commissioner did not alert him to the true position before the further payment was made” (at [11]). In Re Longcake and Commissioner of Taxation [2012] AATA 576, Deputy President Groom referenced the facts that the taxpayer did not know that his employer had not made the contributions in a timely manner and that there was confusion arising from the fact that employers have additional leeway for making contributions whereas there are stricter time limits for employees and, additionally, the fact that the employer had difficulties with cash flow that may have been a cause of the delay in making the contributions.
WERE THERE SPECIAL CIRCUMSTANCES?
Professor Brady’s advocate at the hearing, Mr Khakhar, submitted that there were “special circumstances” in this case. In summary, he stated as follows:
(a)The ECT is due to the reallocation of the $26,000 from concessional to non-concessional contributions;
(b)Professor Brady was not aware of the “10% rule” and did not receive the appropriate advice;
(c)The ECT is a penalty tax and should not apply to an honest citizen such as Professor Brady;
(d)Professor Brady is a genuine taxpayer with an otherwise unblemished tax history;
(e)Professor Brady is retired from the work force and lives on his investment income;
(f)Professor Brady acted in good faith on advice from experts;
(g)The consequent ECT he incurred of $83,417 is excessive given both the relatively small amount of the excess contribution (in reference to the $26,000 contribution made in the 2010 financial year), and his innocence in relation to the transaction in question.
I do not consider that these circumstances, either alone or together, constitute special circumstances as required by s 292-465(3)(a) of the ITAA 1997.
The fact that the ECT imposed on Professor Brady was due to the $26,000 non-concessional contribution made in 2010 which, in turn, triggered the “bring forward rule” in 2010 is the result of the legislative framework. As set out above, the “bring forward rule” is automatic in its application. That is to say, once Professor Brady exceeded the non-concessional contributions cap in 2010, the “bring forward rule” was triggered. It is somewhat irrational and ironic that a rule which was described “[a]s a concession” in the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (see [29] above) would contribute to an ECT liability (especially to a larger ECT liability in a subsequent year having regard to the fact that the non-concessional contribution cap in 2010 was only exceeded by $25,600), but the reality is that it was the $450,000 contribution made on 5 July 2010 that is to blame for the ECT liability in the 2011 financial year. The ECT liability is the result of the strict operation of the “bring forward rule”: s 292-85(3) and (4).
The fact that Professor Brady was ignorant as to the application of the law, in particular the “10% rule”, is not a special circumstance. He relied, as many taxpayers do, on experts to advise him. The fact that incorrect advice was given by those experts leading to a non-concessional contribution in 2010 which, in turn, had the effect of causing him to exceed the non-concessional contributions tax in 2011 is also not a special circumstance. It is unfortunate that that occurred, but it was, on the evidence before the Tribunal, an accidental and honest mistake.
Moreover, the fiscal consequences that flow from that situation do not make those special circumstances even if the tax liability incurred may be considered to be excessive and unfair, and the application of the law irrational. As has been repeatedly stated in Court and Tribunal cases dealing with the application of the ECT, “special circumstances need to be found beyond the actual rate imposed and beyond the specific conditions which give rise to that rate being imposed”: Re Verschuer and Commissioner of Taxation [2013] AATA 12 at [61]. See also, more recently, the decision of Deputy President Humphries in Re Ward and Commissioner of Taxation [2015] AATA 919 (in respect of which an appeal has been lodged by the taxpayer with the Federal Court).
The facts that Professor Brady is a genuine taxpayer, retired, and living on his investment income also do not amount to special circumstances for the purposes of Division 292. They are part of the factual matrix but they are not unusual or unique.
Based on my conclusion that there are no special circumstances in this case, it is unnecessary for me to consider whether the making of the determination is consistent with the object of Division 292 of the ITAA 1997. It follows that it is also unnecessary for me to consider whether the discretion ought to have been exercised by the Commissioner to make the determination as both pre-conditions were not satisfied.
Finally, I note that Mr Khakhar also contended, as an alternative method of resolution, that the $26,000 should be treated as a concessional contribution in the 2010 financial year as originally intended to be the case by Professor Brady. There is no legislative provision which allows the Commissioner (or the Tribunal standing in his shoes) to treat non-concessional contributions in this way, that is, to re-characterise it, pursuant to Division 292 of the ITAA 1997 or any other legislative provision.
DECISION
Accordingly, for the reasons set out above, I affirm the decision under review.
I certify that the preceding 54 (fifty-four) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member ...................................[sgd].....................................
Associate
Dated 23 February 2016
Date of hearing 9 October 2015 Date of final submissions 3 November 2015 Advocates for the Applicant Mr S Khakhar, SK Business Services Counsel for the Respondent Ms J Gatland Solicitors for the Respondent ATO Review and Dispute Resolution
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