Chris Griffiths and Commissioner of Taxation
[2013] AATA 643
[2013] AATA 643
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/4861
Re
Chris Griffiths
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President Deutsch
Date 11 September 2013 Place Sydney Decision Summary
.......................[SGD].................................................
Deputy President Deutsch
CATCHWORDS
TAXATION AND REVENUE — Superannuation — Excess contributions tax — Whether non-concessional excess contributions tax can be waived in relation to excess concessional contributions — Special circumstances — Decision affirmed
LEGISLATION
Acts Interpretation Act 1901 (Cth) – s 15AB
Income Tax Assessment Act 1997 (Cth) – s 292 – 465;
Income Tax Assessment Regulations 1997 (Cth) - Division 292-A;
Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth)
CASES
Schuurmans-Stekhoven v the Commissioner of Taxation (2012) AATA 62
Tran v the Commissioner of Taxation (2012) AATA 667
Vershuer v Commissioner of Taxation [2013] AATA 12
SECONDARY MATERIALS
Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth)
REASONS FOR DECISION
Deputy President Deutsch
11 September 2013
FACTUAL BACKGROUND
These proceedings concern the operation of the excess contributions tax provisions in the Income Tax Assessment Act 1997 (Cth) (‘the Act’) in respect of the year of income ended 30 June 2010.
In respect of that year the applicable concessional contributions cap was $50,000 and the applicable non-concessional contributions cap was $150,000.
Mr Chris Griffiths was a New South Wales government employee who as at 30 June 2010 was 66 years old.
At that time he was the member of three superannuation funds as follows: –
·the State Authorities Superannuation Scheme (‘the SASS Fund’);
·the First State Superannuation Scheme (‘the First State Fund’); and
·the Bloggs Eleven Superannuation Fund (‘the Bloggs Eleven Fund’).
Of these three funds the first two were public sector funds to which Mr Griffiths contributed through his employer. The Bloggs Eleven Fund was a self-managed superannuation fund which had a corporate trustee. Mr Griffiths was a director of the corporate trustee and was also a member of the fund.
The Year to 30 June 2010
Each of the trustees for the three funds lodged Member Contribution Statements for the year ended 30 June 2010 in relation to Mr Griffiths, disclosing the contributions as set out in the Table below:
Concessional Contributions Non-Concessional Contributions The SASS Fund $22,978.17 $2,940.35 The First State Fund $2,149.08 Nil The Bloggs Eleven Fund $55,463.68 $156,843.40 TOTALS $80,590.93 $159,783.75
In relation to the Concessional Contributions made to the SASS Fund two points in particular should be noted.
First, the original figure was reported by the administrator of the SASS Fund as $23,015.16 but, in August 2012, this was revised to $22,978.17.
Secondly, the figure $22,978.17 was a composite figure. Included in that amount was a “notional” contribution of $16,322.27 and salary sacrifice contributions of $6,655.90. The notional contributions arose largely because the SASS Fund was a defined benefit fund and contributions to such a fund are not made by the employer directly for specific members but are made by employers as contributions to the fund generally. The amount to which such employer contributions are then applicable to a specific member each year is calculated by the SASS Fund in accordance with the Income Tax Assessment Regulations 1997 (Cth) (see especially sub-Division 292-A).
Mr Griffiths was advised in November 2011 he may have to pay excess contributions tax for the year ended 30 June 2010.
In February 2012, the Commissioner of Taxation (‘the Commissioner’) received a request from Mr Griffiths seeking to have the non-concessional excess contributions tax waived in relation to a proportion thereof consisting of excess concessional contributions. This was treated by the Commissioner of Taxations a request for a determination under s 292 – 465 of the Act.
In March 2012, the Commissioner of Taxation issued Mr Griffiths with a Notice advising it would not make a determination under s 292 – 465 of the Act and in the following month issued a Notice of Assessment for Excess Contributions Tax for the year ended 30 June 2010 to Mr Griffiths.
Mr Griffiths then objected by completing an ‘Objection to the Notice of Assessment’.
Early in June 2011, Mr Griffiths withdrew his objection to the Notice of Assessment but later in the same month he advised the Commissioner of Taxation that he no longer wished to withdraw his objection.
Accordingly, in September 2012 the Commissioner of Taxation issued a Notice of Objection decision disallowing Mr Griffiths’ objection and the Notice of Amended Assessment to Excess Contributions Tax for the year ended 30 June 2010, indicating there was $30,590.93 in excess concessional contributions and $40,374.68 in excess of non-concessional contributions.
The reason Mr Griffiths also exceeded his non-concessional contributions cap by such a large amount was due to the operation of sub-paragraph 292-90(1)(b) of the Act, which provides that excess concessional contributions also count towards the non-concessional contributions cap. Thus, tax was calculated on the basis that $40,374.68 was the excessive non-concessional amount and this amount was taxed at 46.5%, giving rise to a tax liability of $18,774.22.
The Year to 30 June 2009
For the year ended 30 June 2009, a similar assessment was raised, although in relation to that year there appears to have been only two Member Contribution Statements in relation to Mr Griffiths, the first showing a concessional contribution to the SASS Fund of $31,900.93 and the second, concessional contributions to the Bloggs Eleven Fund of $84,048.35.
In relation to the year ended 30 June 2009, the applicable concessional contributions cap was $100,000 and accordingly Mr Griffiths exceeded the concessional contributions for that year by $15,949.28.
The Commissioner of Taxation in November 2010 issued a letter to Mr Griffiths advising he may have to pay excess contributions tax for the year in 30 June 2009 and, on 24 February 2011, the Commissioner of Taxation issued a Notice of Assessment for Excess Concessional Contributions Tax for that year to Mr Griffiths in the amount of $5024.
ISSUES
It is clear and agreed between the parties that excess contributions arose in the circumstances of this case and ordinarily a liability to excess contributions tax would apply.
The point of disagreement applies in relation to the application of s 292–465(1) of the Act, which provides:
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 the 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 the financial year is to be disregarded or allocated instead the purposes of another financial year specified in the determination.
Subsection (2) provides that you may apply to the Commissioner in the approved form for a determination under subsection (1). To do so, certain timing rules need to be followed. Mr Griffiths has complied with these rules.
Subsection (3) then provides that the Commissioner may make the determination only if:
·he or she considers there are special circumstances; and
·making the determination is consistent with the object of this Division.
In making the determination, the Commissioner may have regard to the matters specified in subsections (5) and (6) and any other relevant matters.
Subsection (5) refers to whether a contribution made in the relevant financial year would more appropriately be allocated towards another financial year instead.
Subsection (6) refers, amongst other things, to whether it was reasonably foreseeable, when a relevant contribution was made, that a taxpayer would have excess concessional contributions or 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.
In this context, the Commissioner of Taxation in particular argues: –
there are no special circumstances;
it was reasonably foreseeable in the circumstances that Mr Griffiths would exceed his concessional contribution limit in respect of the year ended 30 June 2010;
the making of a determination in these circumstances would not be consistent with the object of Division 292 of the Act.
Are there special circumstances?
The expression ‘special circumstances’ is not defined in the legislation. However, its meaning has been the subject of much discussion in a number of decisions both in the Federal Court and this Tribunal. I will return to some of those decisions later.
Paragraph 1.117 of the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth), which relevantly amended the Act to include section 292 – 465, states:
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 the 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.
The relevance the Explanatory Memorandum is confirmed by s 15AB of the Acts Interpretation Act 1901 (Cth), which permits reference to such extrinsic material to confirm the ordinary meaning of words used in the text of legislation.
Thus, the concept of special circumstances requires something unusual or at the very least out of the ordinary.
While the case law is not entirely consistent on the interpretation of the concept of special circumstances in all its facets, it is accepted that ignorance of the law cannot be regarded as a special circumstance: Schuurmans-Stekhoven v the Commissioner of Taxation (2012) AATA 62 at [5], endorsed in Tran v the Commissioner of Taxation (2012) AATA 667 at [16], where it was confirmed that an innocent mistake does not constitute special circumstances.
Mr Griffiths contends that when making arrangements in respect of the superannuation contributions including salary sacrifice employer contributions in the year ended 30 June 2010, he was unaware of the requirements to take into account notional contributions relating to his defined benefit interest in the SASS Fund.
It is true many people fail to understand the subtleties of the operation of defined benefit funds and the concept of notional contributions thrown up by such entities. In particular, they operate in quite a different fashion to ordinary accumulation funds in that amounts are not physically paid in respect of an individual employee to the fund in question but rather the employee ‘entitlement’ is calculated by the fund in accordance with the regulation.
The administrator of the SASS Fund provided information on its website relating to the calculation of the notional contributions as well as the concept of a concessional contribution. This information was available at all relevant times to Mr Griffiths. He also had access to a customer call service centre in relation to the SASS Fund at the relevant times and used that service on a number of occasions for other purposes.
In addition the Commissioner of Taxation’s website contained a number of publications which confirmed in very clear and unambiguous terms that notional contributions count towards a person’s concessional contributions cap and this information could have been readily accessed with minimal effort.
Mr Griffiths also had access to his own advisers in respect of his responsibilities as trustee concerning the Blogs Eleven Superannuation Fund.
Furthermore, Mr Griffiths’ employer contributions on their own tipped Mr Griffiths into an excess contributions category and accordingly greater care should have been taken to investigate whether there were any other contributions (including the level of notional contributions) that might have contributed to the excess.
Finally, Mr Griffiths submitted the operation of the excess contribution rules was unfair and in particular they would apply unfairly in his circumstances. Mr Griffiths referred to the rate of 78% on the excess contributions.
As I have said elsewhere (see Vershuer v Commissioner of Taxation [2013] AATA 12) I do not doubt that this rate is unacceptably high but it is the rate prescribed by the Federal Parliament and there is, in my view, no basis for arguing special circumstances arise merely because the rate is unfairly high as it applies to the circumstances of Mr Griffiths. This is a matter for Federal Parliament to redress and in fact they have recently done so although not on a retrospective basis.
Accordingly, but subject to my comments below, in my view no special circumstances apply to Mr Griffiths.
Was it reasonably foreseeable in the circumstances that Mr Griffiths would exceed his concessional contribution limit in respect of the year ended 30 June 2010?
In deciding whether special circumstances apply I am directed to consider whether it was reasonably foreseeable in the circumstances that Mr Griffiths would exceed his concessional contribution limit.
I have indicated that at the time Mr Griffiths made contributions it was reasonably foreseeable that Mr Griffiths would exceed the concessional contribution limit. In particular, information was available at all relevant times and in my view a reasonable person would have sought to access such information and would have been aware or would have become aware that contributions for excess contributions tax purposes includes notional contributions to a defined benefit fund such as the SASS Fund.
Mr Griffiths contacted the trustee of the SASS Fund on a number of occasions in the year ended 30 June 2010 but on none of those occasions did he appear to seek the information required to understand the level of notional contributions for excess contributions tax purposes. In my view a reasonable person would have foreseen this problem and would have taken steps to avoid it.
These observations assist in reaching my view that special circumstances do not exist in this case.
Accordingly, it is not necessary for me to consider the object of Division 292 and whether the making of the determination in these circumstances is consistent with that object.
Other Matters
It appears Mr Griffiths has requested the excess contributions be disregarded rather than being reallocated to another year. The Tribunal has proceeded on the basis that this is Mr Griffiths’ position. However, the Tribunal notes, for the sake of completeness, that there is no basis on which to reallocate Mr Griffiths’ excess contributions to another period because Mr Griffiths has an excess contributions tax assessment for excess concessional contributions in the 2008/09 financial year and is very close to the concessional contributions cap for the 2010/11 year. Therefore, any reallocation of concessional contributions of $16,322.27 from the year ended 30 June 2010 to either of those other years would result in excess contributions in those other years.
DECISION
The decision under review is affirmed.
I certify that the preceding 48 (forty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President Deutsch.
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Associate
Dated 11 September 2013
Date(s) of hearing 19 June 2013 Applicant In person Counsel for the Respondent Richard Scruby
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