Confidential and Commissioner of Taxation
[2013] AATA 110
[2013] AATA 110
Division TAXATION APPEALS DIVISION File Number
2012/1051
Re
Confidential
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member F D O'Loughlin
Date 28 February 2013 Place Melbourne The Tribunal affirms the decision under review.
[sgd]........................................................................
Senior Member F D O'Loughlin
EXCESS CONTRIBUTIONS TAX - concessional superannuation contributions – non concessional superannuation contributions – valid notice of intention to claim deductions for contributions – discretion to disregard excess contributions – discretion to treat contributions as attributable to another year
Legislation
Income Tax Assessment Act 1997 (Cth): ss 26-55, s 280-15, 292-20, 292-25, 292-85, 290‑150, 290-170, 292-90, 292-465, 295-190, 307-125
Cases
Baker v The Queen (2004) 223 CLR 513
Minister for Community Services and Health v Chee Keong Thoo, (1988) 8 AAR 245
Tefonu Pty Ltd v Commissioner for Insurance and Superannuation (1993) 44 FCR 361
Beadle v Director General of Social Security (1985) 60 ALR 225 also
Secretary, Department of Social Security v (D A) Smith (1991) 23 ALD 277
Re Ivovic and Director-General of Social Services (1981) 3 ALN No 61 at n96-97.
Secondary Materials
Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (Cth)
REASONS FOR DECISION
Senior Member FD O'Loughlin
28 February 2013
In 2008 the Applicant contributed $32,135.85 to a superannuation fund in excess of the applicable non-concessional contribution limit. As a consequence the Applicant was assessed for $14,973.14 excess contributions tax liability. To remove that liability the Applicant sought a written determination from the Commissioner under s 292-465(1)[1] that the excess contributions be allocated to a different year or be ignored. The Commissioner refused.
[1]All statutory references are references to the Income Tax Assessment Act 1997 (Cth) (1997 Assessment Act).
The Applicant now seeks a review of the Commissioner’s decision to refuse to make the s 292-465(1) determination.
Section 292-465, which lies at the heart of this matter, provides as follows:
Commissioner's discretion to disregard contributions etc. in relation to a 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.
(7) The Commissioner must give you a copy of the determination.
(8) A determination under this section may be included in a notice of assessment.
....
The contributions made and tax returns lodged
In the 2008 financial year the Applicant, who was under 65 years of age throughout the year, was a member of the SuperWrap Superannuation Fund (“SuperWrap”).
On 2 August 2007 and 4 September 2007 the Applicant made two personal superannuation fund contributions totalling $482,135.85 to SuperWrap. She did not claim a deduction for any of this amount in her 2008 income tax return which was lodged on 12 February 2009.
Each of the contributions made in the 2008 year was accompanied by an application to commence a pension income stream from the fund. After the 2 August 2007 contribution of $360,000, that amount became the capital supporting an income stream that commenced on 16 August 2007. After the 4 September 2007 contribution of $122,135.85, that amount became the capital supporting an income stream that commenced on 20 September 2007.
The Applicant claims to have given SuperWrap a notice pursuant to s 290-170 (“s 290‑170 notice”) to the effect that she intended to deduct $32,135.85 of the contributions she had made to it for the 2008 financial year. The notice bears the date 9 September 2011. It is accepted that this notice was not received by SuperWrap and that it was not acknowledged by SuperWrap within the time required.
Effect of the steps taken in making contributions and not claiming tax deductions.
Not claiming a deduction for the contributions made in the 2008 financial year meant that they were non-concessional contributions for the 2008 financial year. Given the amount involved, the terms of s 292-85(3) and (4) were engaged with the effect that the Applicant’s non-concessional contributions cap for the 2008 financial year was $450,000. It followed that the Applicant had made contributions of $32,135.85 in excess of her non-concessional contributions cap of $450,000 for the 2008 financial year.
Unless:
(a)part of the contributions made to SuperWrap in the 2008 financial year are to be treated as concessional contributions; or
(b)the excess non-concessional contributions are to be ignored or treated as non-concessional contributions of and for another year,
the Applicant’s non-concessional contributions for the 2008 financial year are properly calculated and excess contributions tax has been properly levied.
Was any part of the 2008 financial year contributions total capable of being a concessional contribution?
For the 2008 financial year the Applicant’s concessional contributions cap was $50,000.[2] Theoretically, therefore, if the conditions necessary for a part of the 2008 year contributions to be concessional contributions were satisfied there was a potential that the excess contribution of $32,135.85 could have been absorbed within that cap.
[2]See s 292-20(2)(a).
Any contributions included in the assessable income of the fund to which they were made would be concessional contributions.[3]
[3]See s 292-25(2)(b).
For any part of the contributions of $482,135.85 to have been included in the assessable income of the relevant fund it would have been necessary:
(a)for the Applicant not to have been prevented from claiming a deduction in respect of that part of the contribution, for example by operation of s 26‑55;
(b)for that contribution to have been the subject of a valid s 290-170 notice; and
(c)for the s 290-170 notice to have been acknowledged by the fund.[4]
[4]See Table item 1, s 295-190.
All three conditions need to be satisfied. Even if a valid s 290-170 notice is given to and acknowledged by a superannuation fund, to the extent the contribution referred to in the s 290-170 notice is not allowable as a deduction for the person making the contribution, it remains a non-concessional contribution.[5]
[5]See s 292-90(4)(b).
A s 290-170 notice is not valid if given after the superannuation fund has commenced paying a superannuation pension or income stream based, wholly or partly, or part on the contribution.[6] This feature of the system of taxing superannuation funds and allowing tax deductions for contributions made to those funds enables trustees to determine the tax-free and taxable components of any superannuation benefits accurately and in a timely manner (in this case the superannuation income stream benefits) payable from the superannuation interest into which the contribution was made as required by s 307-125.
[6]See s 290-170(2)(c)(iii).
Discretionary relief permitted by the legislation
Section 292-465 allows the Commissioner, and the Tribunal on review, to make a determination to the effect that some or all of a contribution made to a superannuation fund can be ignored for excess contributions related purposes or can be treated as having been made in another year.
Two threshold conditions must be satisfied before a determination provided for in s 292‑465 can be made either by the Commissioner or the Tribunal on review:
(a)that there are special circumstances;[7] and
(b)that making such a determination would be consistent with the objects of Division 292.[8]
[7]See s 292-465(3)(a).
[8]See s 292-465(3)(b).
The following matters are to be considered in the process of making a Division 292 determination:
(a)whether a contribution would more appropriately be allocated to a year other than the one in which it was made;[9]
(b)at the time the offending contribution was made whether it was reasonably foreseeable that there would be excess contributions for the year in which the contribution was made;[10]
(c)if the offending contribution was made by a third party, the terms of any agreement or arrangement between the third party and the taxpayer concerning the amount and timing of superannuation fund contributions[11];
(d)the extent of the taxpayer’s control over the contribution;[12] and
(e)any other relevant matters.[13]
[9]See s 292-465(5).
[10]See s 292-465(6).
[11]See s 292-465(6)(a).
[12]See s 292-465(6)(b).
[13]See s 292-465(4).
The Applicant’s contentions
The Applicant contends that she intended to claim a deduction for $32,135.85 of the 2008 financial year superannuation contribution she made and would have been eligible for a deduction for contributions to her superannuation fund had the requisite processes been attended to in the proper way.
This contention is advanced in support of contentions that mistakes can be reversed and that some contributions can be excused or treated as other years’ contributions, presumably on the foundation that through discretionary relief the Applicant ought be taxed in a manner and on a basis that she would have been taxed had the s 290-170 notice been given and acknowledged.
The Applicant also contends that:
(a)the level of taxable income was low due to the effect of the global economic downturn;
(b)there were numerous attempts made to fix the Applicant’s situation;
(c)the Commissioner did not advise the Applicant in a timely manner that there were excess contributions;
(d)there are examples of other taxpayers’ affairs being adjusted by the Commissioner whereby contributions made to superannuation funds have been reversed or treated as having been made in later years;
(e)continuing to treat the $32,135.85 as an excess contribution is at odds with the object and purpose of the law which is to encourage people to provide for their retirement; and
(f)imposing excess contributions tax will reduce the Applicant’s net worth and income entitlements in a manner that will allow or lead to greater access to Centrelink benefits that will in turn cost the community as much as or more than the amount of tax levied.
Was the Applicant potentially entitled to deduct part of her 2008 financial year contributions?
Section 290-150 allows a deduction for superannuation fund contributions if the conditions in s 290-170 are satisfied and there is sufficient taxable income, as modified by s 26-55, against which a deduction might be allowed.
Section 290-170 establishes a threshold condition that must be satisfied for contributions to superannuation funds to be deductible. A valid notice must be given to the fund and acknowledged by the fund.
It is accepted that a valid notice was not given to the fund nor was it acknowledged.
In circumstances where the offending contributions were used almost immediately to become the capital base for an income stream, a notice would have been required to have been given upon making the contributions or a very short time thereafter for the notice to have been a valid notice.[14] There is no evidence of any attempt being made to give a valid notice within this period. The attempt made to give a notice was too late to have allowed a valid notice to have been given even if it had been received by the fund and acknowledged which it was not. Moreover the Applicant’s income tax return was prepared and lodged on a basis consistent with such a notice was not having been given nor intended to be given. Accordingly, the Applicant could not give a valid notice once income streams began and any contention that she was entitled to a deduction must be rejected.
[14]See s 290-170(2)(c)(iii).
Had a valid notice had been possible notwithstanding s 290-170(2)(c)(iii), the Applicant still would not have been entitled to deduct $32,185.85 in full in any event. Section 26‑55 limited the amount of any allowable deduction to the amount of her taxable income which was only $5,600 for the 2008 year.
The follow on effect of not being entitled to deduct contributions to a superannuation fund is that the Applicant would not have been able to secure a different classification of the superannuation contributions in the 2008 financial year and the excess non‑concessional contribution would still have arisen.
Any contention that the s 292-465 relief is available to produce the situation that would have ensued had formalities been attended to must, therefore, fail.
Discretionary relief on other grounds
It remains necessary to consider whether s 292-465 relief is available on other grounds.
What makes circumstances special in a particular case might be the weight of a particular factor on its own or the aggregate weight of a number of factors that individually might not be enough but in aggregate are sufficient to make the circumstances special.[15] It is necessary for the circumstances to be out of the ordinary such that the ordinary operation of the Act would be unfair[16] and thus it is relevant to make such an enquiry.[17] That enquiry however, must be informed, and possibly tempered, by the factors to which regard must be had before exercising the discretion. The discretion presently under review requires consideration of, among other factors, whether its exercise is consistent with the object of Division 292.[18] This stipulation is probably little, if at all, different to the general requirement that in exercising any discretionary power it is necessary to have regard to whether its exercise in a particular instance will achieve or frustrate the ends, objects or purposes of the legislation under consideration.[19]
[15] Baker v The Queen (2004) 223 CLR 513 at p 523 per Gleeson CJ.
[16] Minister for Community Services and Health v Chee Keong Thoo, (1988) 8 AAR 245 at 262 per Burchett J; cited in Tefonu Pty Ltd v Commissioner for Insurance and Superannuation (1993) 44 FCR 361 at 372 (Beazley J).
[17] Beadle v Director General of Social Security (1985) 60 ALR 225 at 228 (Bowen CJ, Fisher and Lockhart JJ. The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 and related legislation at [1.117] makes it clear that these general principles are to apply.
[18]See s 292-465(3)(b).
[19]See Secretary, Department of Social Security v (D A) Smith (1991) 23 ALD 277 at 280 per von Doussa J and the reference there to Re Ivovic and Director-General of Social Services (1981) 3 ALN No 61 at n96-97.
Each of the factors referred to in paragraph 17 above with the exception of the involvement of a third party contributor (paragraph 17(c) above) also has a part to play in determining whether, and if so to what extent, the offending contribution might be disregarded or attributed to another year.
Consistency with the object of Division 292
The object of Division 292 is stated in 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.[20]
[20]See also Division 280, the Guide to superannuation provisions, in particular s 280-15(1) and the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 and related legislation at [1.09], [1.11], [1.12].
The word gradually needs to be considered in the context of the statutory framework that existed in 2008 which temporarily allowed large cash injections to superannuation funds by bringing forward three years of non-concessional contribution caps for taxpayers under 65 years of age.
Nevertheless, the object of the regime was to encourage contributions over the course of participants’ working lives and to impose a limit on the rate of contributions to concessionally taxed superannuation funds.
It is manifestly clear that there were to be limits to the amounts that could be contributed to superannuation funds while enjoying concessional treatment. To ignore those limits would be to ignore the scheme of Division 292, which is one of the factors to which regard must be had, and would frustrate its operation.
Should the offending contributions be attributed to another year?[21]
[21]See s 292-465(3)(a).
This is not a case where errors were made in one year that were corrected in another nor was it an advance payment. The present case is not one where a contribution would more appropriately be allocated towards another financial year instead, pursuant to s 292‑465(5). This weighs against discretionary relief being allowed.
Third Party involvement[22]
[22]See s 292-465(6)(a).
The offending contributions were not made by a third party pursuant to an agreement or arrangement. Accordingly s 292-465(6)(a) considerations are not relevant.
Foreseeability[23]
[23]See s 292-465(6).
This is not a case where excess contributions were not foreseeable. Even if it was intended that deductions be taken, the inability to claim them and the impact of that inability were readily apparent. The rules were clear. To the contrary, this is a case where the prospect of excess contributions was foreseeable. This weighs against discretionary relief being allowed.
Control[24]
[24]See s 292-465(6)(a).
Control over the contributions is a factor. Steps taken that are within a person’s control, which produce excess contributions weigh against exercise of the discretion to disregard or re-allocate the excess contributions. Here all relevant steps were within the Applicant’s control.
Other relevant matters[25]
[25]See s 292-465(4)
The Applicant’s contention that her earnings were adversely affected by the global economic conditions can be addressed as an other matter. Evidence was not led to support the contention that the Applicant’s earnings were adversely affected as contended. The only evidence led was given by an officer of the Applicant’s advisory organisation, who was also the Applicant’s advocate at the hearing of the application. What was said about global economic conditions was at its highest a submission not supported by evidence on which a finding of fact could be made.
CONCLUSION
The application of the law in the Applicant’s circumstances does not produce an unusual or out of the ordinary outcome. To the contrary, it is precisely how the law is meant to apply.
The contention that the Applicant’s circumstances are special because the Commissioner did not notify her of the excess until after the period for giving the s 290-170 notice had expired cannot be accepted. It does not amount to a special circumstance. The system is one of self-regulation.
The contention that the Commissioner has exercised his discretion favourably in other cases does not assist. Without suggesting that this is a relevant matter, insufficient details of other cases were provided to allow this contention to carry any weight.
What the Applicant seeks is exercise of a discretion to relieve her from the burden of taxation liability incurred through ignorance of the applicable rules. This is not a case where discretion ought be exercised.
The Tribunal affirms the decision under review is affirmed.
I certify that the preceding 44 (forty‑four) paragraphs are a true copy of the reasons for the decision herein of:
Senior Member F D O’Loughlin.[sgd].......................................................................
Associate
Dated 28 February 2013
Dates of hearing 10 & 11 December 2012 Advocate for the Applicant Ms Deborah Rognlien, FinancialCare Accounting
Counsel for the Respondent Mr Sam Ure Solicitors for the Respondent Mr Nathan Henderson, Australian Taxation Office Legal Services Branch
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