Coreta Pty Ltd v Federal Commissioner of Taxation

[2009] AATA 105

Payne and Commissioner of Taxation (Taxation) [2016] AATA 104 (25 February 2016)

Division	TAXATION AND COMMERCIAL DIVISION
File Number(s)	2015/1427-31
Re	James Payne
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Senior Member CR Walsh
Date	25 February 2016
Place	Perth

The Tribunal affirms the decision under review.

...........[Sgd].............................................................

Senior Member CR Walsh

CATCHWORDS

SUPERANNUATION GUARANTEE CHARGE – applicant employer’s liability for superannuation guarantee charge (SGC) for relevant quarters – whether applicant employer made superannuation guarantee contributions to complying superannuation funds for the benefit of his employees in relation to the quarters concerned - no power to remit interest component or administration component of SGC – general interest charge - decision under review affirmed

LEGISLATION

Income Tax Assessment Act 1997 – s 995-1

Superannuation Guarantee (Administration) Act 1992 – s 6 – s 7 - s 16 – s 17 - s 19 – s 23(2) – s 23(6) – s 23A(1) – s 23A(2) – s 23A(4A) – s 25 - s 31 – s 32 – s 33(1) – s 35 – s 36 - s 37(3) - s 37(4) - s 46(1) – s 49 – s 49(2)

Superannuation Guarantee Charge Act 1992 – s 5 – s 6

Superannuation Industry (Supervision) Act 1993 – s 40 - s 45

Taxation Administration Act 1953 – s14ZZK(b)(i)

CASES

005 542 512 Pty Ltd (Controller Appointed) v Commissioner of Taxation [2007] FCA 861

Coreta Pty Ltd v Federal Commissioner of Taxation [2009] AATA 105

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614

SECONDARY MATERIALS

Determination SGD 2005/2

Taxation Ruling TR 2010/1

REASONS FOR DECISION

Senior Member CR Walsh

25 February 2016

INTRODUCTION

1. This application concerns the superannuation guarantee (SG) scheme, which is governed by the Superannuation Guarantee Charge Act 1992 (SGCA) and the Superannuation Guarantee (Administration) Act 1992 (SGAA), and administered by the Australian Taxation Office (ATO).  Broadly, the SG scheme requires employers to provide a minimum level of superannuation support for each of their “employees”, based on a “charge percentage”[1] of the employee’s “notional earnings base”[2], measured quarterly.  SG contributions must be made by an employer to a “complying superannuation fund” or “retirement savings account” (RSA) for the benefit of an employee within 28 days after the end of the quarter, subject to certain exceptions.  Employers who fail to do this are liable to pay an SG charge (SGC) to the ATO, comprising the amount of the shortfall plus an interest component and administration component. 

   [1] During the quarters relevant to this application, the “charge percentage” was 9%.

   [2] From 1 July 2008, the level of SG support for an employee for each quarter is calculated as a percentage of an employee’s “ordinary time earnings” rather than as a percentage of an employee’s “notional earnings base”, as was the case during the quarters relevant to this application.

2. The Commissioner’s position is that Mr Payne is liable to a SGC (totalling $29,230.67) in respect of seven employees of his business, “Superannuation Recall Consultants” (Superannuation Recall), in relation to the quarters ended 30 June 2004 to 31 March 2008, as a result of failing to pay the minimum superannuation contributions on behalf of those employees, by the due date for the quarters concerned, to a “complying superannuation fund” or a RSA, as required by the SGAA. 

3. Mr Payne disagrees. He fervently believes he satisfied all of his SG obligations in respect of his employees in relation to the quarters concerned.

4. Approximately 65% of Mr Payne’s SGC (totalling $29,230.67) relates to Ms Carol Watson (Carol Watson), Mr Payne’s former de-facto partner and employee, and the remaining 35% relates to Mr Payne’s other employees, being Ms Kim Barnett, Ms Margaret Saunders, Ms Elaine McLaughlin, Ms Danielle Watts, Ms Julie Jenkins and Ms Melissa Lombard (Other Employees). 

   BACKGROUND

5. In 2008, following a breakdown of Mr Payne’s relationship with his de-facto partner and employee bookkeeper Ms Carol Watson (Carol Watson), Carol Watson made a complaint to the ATO regarding Mr Payne’s compliance with his SG obligations as an employer.  As a result of that complaint, the ATO commenced an audit of Mr Payne’s compliance with his SG obligations for the quarters 1 January 2005 to 31 March 2008.

6. On 9 February 2009, the Commissioner wrote to Mr Payne indicating he had finalised his audit of Mr Payne, informing him that there would be “no further action in respect of this audit” and advising him that, if new facts became available, there may be an audit of the same or other quarters.

7. On 23 March 2011, the Commissioner asked Mr Payne to complete SG statements for the same quarters that were the subject of his earlier audit (i.e. the quarters 1 January 2005 to 31 March 2008) as well as for the quarters 1 July 2004 to 31 December 2004.

8. On 25 May 2011, the Commissioner wrote to Mr Payne indicating that he had finalised his audit of Mr Payne’s SG contribution obligations and determined that Mr Payne had not satisfied his obligations under the SGAA for the relevant quarters.

9. On 9 June 2011, following the completion of the audit, the Commissioner issued Mr Payne with 15 SGC default assessments for the quarters ended 30 September 2004 to 31 March 2008.

10. On 22 March 2012, following the provision of some information from Mr Payne, the Commissioner issued Mr Payne with an amended SGC assessment for the quarter ended 30 September 2007.

11. On 11 May 2012, following the provision of some further information from Mr Payne, the Commissioner issued Mr Payne with amended SGC assessments for the quarters ended 31 December 2007 to 31 March 2008.

12. On 5 March 2014, Mr Payne objected against the SGC assessments raised against him for the quarters ended 30 September 2004 to 31 March 2008, inclusive.  

13. On 18 March 2014, Mr Payne requested an extension of time to lodge an objection to the SGC assessments raised against him.

14. On 17 June 2014, the Commissioner decided to grant Mr Payne an extension of time to lodge an abjection against his SGC assessments for the quarters ended 30 September 2004 to 31 March 2008 and to:

    ·disallow, in full, Mr Payne’s objection to the SGC default assessments for the quarters ended 30 September 2004 to 30 June 2007,

    ·allow, in part, Mr Payne’s objection to the amended SGC assessment for the quarter ended 30 September 2007; and

    ·disallow, in full, Mr Payne’s objection to the amended SGC assessments for the quarters ended 31 December 2007 to 31 March 2008 (Objection Decision).

15. On 24 March 2015, Mr Payne applied to this Tribunal for a review of the Objection Decision.[3]

    ANALYSIS

    [3] Mr Payne has the onus of proving, on the balance of probabilities, that the SGC assessments concerned are excessive and what the correct assessments should be: s 14ZZK(b)(i) of the Taxation Administration Act 1953 and Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621.

    Legislation

16. In summary, the SGC scheme (as in force at the relevant time) operated as follows:

    ·     SGC is payable by an employer who has a SG shortfall for a quarter:  s 16 of the SGAA.  The SGC is imposed by s 5 of the SGCA and the amount of the SGC is the amount of the SG shortfall for the quarter:  s 6 of the SGCA;

    ·     An employer’s SGC is calculated as the sum of: (1) the total of the employer’s individual SG shortfalls for the quarter (calculated pursuant to s 19 of the SGAA); (2) the employer’s nominal interest component for the quarter (calculated pursuant to s 31 of the SGAA); and (3) the employer’s administrative component for the quarter (calculated pursuant to s 32 of the SGAA):  s 17 of the SGAA.  The SGC charge is calculated at the end of each quarter and is based on the employer’s non-compliance for the quarter just ended;

    ·     The SG scheme is administered on a self-assessment basis, such that employers are required to self-assess their liability to the SGC.  An employer with an SG shortfall for a quarter is required to lodge a “statement”, in the approved form, with the ATO together with the payment of the SG charge by the date specified in s 33(1) of the SGAA, as in force at the relevant time[4].  The “statement” effectively acts as a self-assessment of the liability of the employer to pay a SGC to the Commissioner for the quarter concerned: s 35 of the SGAA.  The “statement” is deemed to be the employer’s notice of assessment for the quarter. Payment of the SGC is due when the “statement” is lodged:  s 46(1) of the SGAA;

    ·     If an employer fails to lodge an SG “statement” for a quarter, and the Commissioner is of the opinion that the employer is liable to pay SGC, the Commissioner may make a default assessment of the employer’s SG shortfall and of the SGC payable:  s 36 of the SGAA. The Commissioner may also amend assessments where necessary:  s 37 of the SGAA.  However, amendments must be made by the Commissioner within 4 years from the day on which the assessment was made or the SGC became payable: s 37(3) and (4) of the SGAA.

    ·     An employer’s SGC can be reduced if, in a quarter, the employer makes SG contributions for the benefit of an employee to a “complying superannuation fund” or a RSA:  s 23(2) of the SGAA;

    ·     A contribution to a “complying superannuation fund” or a RSA is taken to have been made by the employer for the benefit if an employee in a quarter if it is made within 28 days after the end of the quarter:  s 23(6) of the SGAA; and

    ·     In some cases, contributions an employer may be able to be offset a late payment against the SGC liability for the quarter:  s 23A of the SGAA  A contribution to a “complying superannuation fund” or a RSA made by an employer for the benefit of an employee may be offset against an SGC if the contribution is made after the end of the period of 28 days after the end of a quarter and the employer elects, in the approved form, that the contribution be offset:  s 23A(1) of the SGAA.  The election is irrevocable and must be made: (i) in a statement having effect under s 35 of the SGAA, as the employer’s assessment for the quarter; and (ii) within four years after the employer’s SGC for the quarter became payable:  s 23A(2) of the SGAA.  If the election is made after the SGC for the quarter has been assessed, the assessment must be amended before the employer’s liability can be reduced:  s 23A(4A) of the SGAA.

    [4] From 1 July 2003 until the quarter beginning 1 October 2005, former s 33(1) of the SGAA required an employer with a SG shortfall for a quarter to lodge a SG statement for the quarter on or before: (a) for a quarter beginning 1 January – 14 May in the next quarter; or (b) for a quarter beginning on 1 April – 14 August in the next quarter; or (c) for a quarter beginning on 1 July – 14 November in the next quarter; or (d) a quarter beginning on 1 October – 14 February in the next quarter. From 1 October 2005, former s 33(1) of the SGAA required an employer with a SG shortfall for a year to lodge a SG statement for the quarter: (a)  for a quarter beginning 1 January – 28 May in the next quarter; or (b) for a quarter beginning on 1 April – 28 August in the next quarter or (c) for a quarter beginning on 1 July – 28 November in the next quarter or (d) a quarter beginning on 1 October – 28 February in the next quarter.

    “Contributions” to a complying superannuation fund or RSA

17. As set out above, to avoid incurring a SGC, an employer’s SG contributions for the benefit of an employee must be made to a “complying superannuation fund” or a RSA.[5]

    [5] Coreta Pty Ltd v Federal Commissioner of Taxation [2009] AATA 105.

18. Section 6 of the SGAA states that the expression “complying superannuation fund” has the meaning given to it by s 7 of the SGAA.

19. Section 7 of the SGAA states:

    A superannuation fund or scheme is a complying superannuation fund or scheme (as the case may be) in relation to a period for the purposes of this Act if it is a complying superannuation fund in relation to that period for the purposes of the Income Tax Assessment Act 1997. 

20. Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines “complying superannuation fund” to mean:

    a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993.

21. Section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA) provides that a fund is a “complying superannuation fund” for the purposes of the ITAA 1997 if the Commissioner has given a notice to a trustee of the fund, under s 40 of SISA, stating that the fund is a “complying superannuation fund”. The notice can relate to the current year of income or an earlier year provided the notice has not been revoked or the decision to issue the notice has not been set aside.

22. The term “contribution” is not defined in the SGCA or the SGAA (or in the ITAA 1997 for the purposes of those Acts) and, therefore, it takes its ordinary meaning.

23. The Commissioner’s views, as at 24 October 2012, on the ordinary meaning of “contribution”, how a contribution can be made and when a contribution is made for the purposes of the ITAA 1997 are contained in Taxation Ruling TR 2010/1, which states:

    4.In the superannuation context, a “contribution” is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

    …….

    12.A superannuation fund’s capital is most commonly increased by transferring funds to the superannuation provider and, as a general rule, the contribution will be made when the funds are received by the superannuation provider.

24. At [13], TR 2010/1 provides examples of ways in which funds are typically transferred and when the contribution is made.  According to TR 2010/1, where funds are transferred by the making of a cash payment, the “contribution” is made when the cash is received by the superannuation provider and when funds are transferred by an electronic transfer of funds, a “contribution” is made when the funds are credited to the superannuation provider’s bank account.

25. Determination SGD 2005/2, dated 16 November 2005, sets out the Commissioner’s views on whether a “contribution” is made to a “complying superannuation fund” or a RSA for the benefit of an employee when the employer makes the contribution to a clearing house (other than Medicare Australia, the SGAA “approved clearing house”).  SGD 2005/2 states:

    1.….A contribution for the benefit of an employee to a superannuation fund or retirement savings account (RSA) that is made through the use of a clearing house, other than an approved clearing house [footnote omitted], is made when the contribution is received by the trustee of the complying superannuation fund or RSA.  A failure by the clearing house to forward the contributions to the fund [footnote omitted] by the required date for the quarter under the [SGAA] will result in a failure by the employer to make the contribution by the required date.

    ……….

    3.…..The contribution is still made to the fund when the trustee of the fund receives the contribution. A regulated superannuation fund is only able to accept contributions in accordance with Part 7 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations 1994). Under Part 7 of the SIS Regulations 1994, a superannuation fund is only able to accept contributions that are made in respect of a member of the fund. [Emphasis added]

26. Section 25 of the SGAA provides that certain contributions are presumed to be contributions to a complying superannuation fund. The presumption operates as follows:

    Certain contributions presumed to be contributions to complying superannuation fund

    (1)  Subject to subsection (2), a contribution by an employer for the benefit of an employee to a superannuation fund is conclusively presumed to be a contribution to a complying superannuation fund for the purposes of section 23 if, at or before the time the contribution is made, the employer has obtained a written statement, provided by or on behalf of the trustee of the fund, that the fund:

    (a)is a resident regulated superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993; and

    (b)is not subject to a direction under section 63 of that Act.

    (2)  Subsection (1) does not apply to a contribution to a superannuation fund if, at the time of the contribution is made:

    (a)  the employer:

    (i)is the trustee or the manager of the fund; or

    (ii)has an association, within the meaning of section 318 of the Income Tax Assessment Act 1936, with the trustee or the manager of the fund; and

    (b)the employer has reasonable grounds for believing that the fund is not a resident regulated superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 or is operating in contravention of a regulatory provision, as define in section 38A of that Act. [Emphasis added]

27. As set out above, approximately 65% of Mr Payne’s SGC in dispute (totalling $29,230.67) relates to Carol Watson, Mr Payne’s former de-facto partner and employee bookkeeper, and the remaining 35% relates to the Other Employees.

28. In relation to Carol Watson, Mr Payne’s primary contention is that he fulfilled his SG contribution obligations in relation to her as her employer in the quarters concerned because he paid the SG contributions to her directly, as part of her salary and wages.  Mr Payne’s view is that it was Carol Watson’s responsibility, as the trustee of her self-managed superannuation fund, “Greenfields Superannuation Fund”, not his, to ensure that the SG contributions were transferred into her fund’s bank account.  This contention is without merit.  As set out above (in paragraph 16), as an employer Mr Payne had a statutory obligation to ensure that the appropriate level of SG contributions were made on behalf of his employees to complying superannuation funds.  This obligation includes ensuring that the relevant contributions make it into the bank account of the complying superannuation fund concerned.  It is not enough that an amount is simply paid to an employee allegedly for “superannuation”.

29. Mr Payne relies on the following evidence in support of his position:

    ·a Superannuation Recall “Employment and Leave Record” for Carol Watson, dated 1 January 2006 (which was prepared and signed by Carol Watson as the company’s bookkeeper), which shows SG contributions as having been included in the salary and wages paid to Carol Watson;

    ·a Go MasterCard statement of Carol Watson, for the Statement Period 25 December 2007 to 24 January 2008, which purports to show a $100 payment from an undisclosed source; and

    ·Westpac bank statements for Mr Payne’s Westpac Business One account with hand written amendments purporting to show 5 “BPay” payments of $100 to Carol Watson’s Go MasterCard in the period from 3 September 2010 to 11 October 2010.

30. First, the payments to Carol Watson allegedly for “superannuation” were not made in the relevant quarter to which the assessment relates.  Second, the above evidence does not establish that the payments were made to a “complying superannuation fund” within the meaning and for the purposes of s 23 of the SGAA or s 25 of the SGAA.  There is no evidence that the funds Carol Watson received from Mr Payne as part of her salary and wages but for “superannuation” were ever transferred or credited to the bank account of the trustee of the Greenfields Superannuation Fund for the benefit of Carol Watson as an employee.  Further, there is no evidence that there was an increase in the capital of the Greenfields Superannuation Fund for the benefit of Carol Watson to reflect those so-called “superannuation” payments.  Consequently, Mr Payne failed in his SG obligations as an employer in relation to Carol Watson in respect of the relevant quarters.

1. Mr Payne also relies on agreement between himself and Carol Watson titled “Re: The Sale and Subdivision of funds from the sale of 14 Sherlock Rise, Carramar”, dated 10 August 2007 (Agreement).  The Agreement was drafted by Lynn and Brown Lawyers Pty Ltd, whose tax invoice for the preparation of the Agreement refers to the Agreement as a “Financial Agreement”. 

2. The Agreement states:

   There is still an amount outstanding owed to carol to the sum of 8,000 which represents superannuation etc and it is written that Carol will take the following in full payment of this debt.

   It is agreed that James will pay the sum of

   This represents the family room furniture      2,000 Go Master card

   This represents an ATO tax debt for carol     2500.00 To ATO

   Total    4500.00

3. According to Mr Payne, his payments to Carol Watson under the Agreement, up to an amount of $4,500.00 to her Go MasterCard, satisfied all of his outstanding SG contribution obligations to her.  In support of this contention, Mr Payne relies on the fact that Agreement was drafted by Lynn and Brown Lawyers Pty Ltd who Mr Payne says are experienced “financial” lawyers (being former “ANZ bank lawyers”).

4. The evidence does not show payments of SG by Mr Payne to Carol Watson to a “complying superannuation fund” within the meaning and for the purposes of s 23 of the SGAA or s 25 of the SGAA. The fact that the Agreement was prepared by lawyers with financial experience is irrelevant.  It does nothing to change the fact that Mr Payne, as Carol Watson’s employer, had a statutory obligation under the SGAA to ensure her SG contributions were paid into the bank account of the Greenfield Superannuation Fund’s trustee (as opposed to her own personal bank account).  It was not Carol Watson’s responsibility, as Mr Payne’s employee and bookkeeper, to do this. 

5. Mr Payne also argues, in support of his position, that the Agreement was prepared for Magistrate’s Court proceedings between himself and Carol Watson in 2008 and that the Agreement was somehow, to adopt Mr Payne’s language, “dictated” or “sanctioned” by the Court.  It follows, he says, that he complied with his SG contribution requirements in relation to Carol Watson.

6. The Tribunal disagrees.  The Agreement is, on its face, a private contractual arrangement between Mr Payne and Carol Watson for the payment by Mr Payne of money to Carol Watson’s Go MasterCard and to the ATO in satisfaction of Carol Watson’s debt to the ATO.  The Court is not a party to the Agreement and there is no evidence of any direction from the Court as to how the Agreement is to be enforced.  It does not follow from the fact that the Agreement refers to the payment by Mr Payne to Carol Watson under the Agreement as being for “superannuation etc.” that the money was paid to into the bank account of the trustee of a “complying superannuation fund”, as required by the SGAA.  Mr Payne, as Carol Watson’s employer, had a statutory obligation to ensure this occurred and he failed in that obligation.

7. In relation to the Other Employees, Mr Payne contends that he has paid the shortfall amount applicable to them, being approximately 35% of the total amount in dispute of $29,230.67. Mr Payne has not provided any additional evidence beyond that which has already been taken into account by the Commissioner in issuing the amended assessments to Mr Payne, as outlined above in the “Background”.

8. None of the payments by Mr Payne to Carol Watson or the Other Employees (even if they were paid to a “superannuation fund”) can be considered a deduction to his SGC as a “late payment” as they were not paid within 28 days of the relevant quarter for the purposes of s 23(6) of the SGAA.  Further, none of the payments concerned were made in the relevant quarter to which the assessments relate, the last period being the quarter ended 31 March 2008.

9. All of the payments (even if they were paid to a “superannuation fund”, made after the relevant quarter and made within the 4 year limitation period of s 23A(2) SGAA, which they were not) require an election under s 23A of the SGAA and an amendment to the relevant assessments by the Commissioner pursuant to s 37 SGAA.  Mr Payne has not made an election and has not sought an amendment to the relevant assessments.

10. To reiterate, s 37(3) and (4) of the SGAA requires amendments to be made within 4 years from the day on which the assessment was made or the SGC became payable.  In this case, the amendment period for each of the relevant assessments has passed. The assessments concerned were made and became payable, pursuant to s 36(3) of the SGAA, on 30 May 2011. Consequently, any amendment to the assessments was required to have been made by the Commissioner prior to 30 May 2015. 

    Power to remit any component of the SGC

11. Mr Payne considers that he should not be required to pay the interest component of the SGC as it was Carol Watson and “the ATO’s action that led to the delay in this [dispute] being sorted”.  According to Mr Payne, the Commissioner “could have dealt with the problem in 2008 but the claim was withdrawn” and then, in 2011, re-opened his case.

12. In short, there is no statutory power in the SGAA to remit the interest component (as calculated under s 31 of the SGAA) or the administration component (as calculated under s 32 of the SGAA) of Mr Payne’s SGC:  see 005 542 512 Pty Ltd (Controller Appointed) vCommissioner of Taxation [2007] FCA 861, where Kenny J commented at [31] that the SG scheme does not permit a remission of any component of the SGC, being the superannuation guarantee shortfall, the interest component and the administration component.

13. The general interest charge (GIC) is applied to the unpaid SGC assessment amount pursuant to s 49 of the SGAA if any of the SGC which an employer is liable to pay remains unpaid after the time by which it is due to be paid. The GIC is not paid on either the nominal interest component or on the administration component of the SGC assessment, since those amounts are deducted from the SGC assessment for the purpose of calculating the GIC: s 49(2) of the SGAA.

    DECISION

14. For the above reasons, the Tribunal affirms the decision under review.

I certify that the preceding 44 (forty -four) paragraphs are a true copy of the reasons for the decision herein of Senior Member CR Walsh

........[Sgd]................................................................

Administrative Assistant

Dated 25 February 2016

Date of hearing	10 February 2016
Applicant	In person
Counsel for the Respondent	Mr C Slater
Solicitor for the Respondent	Ms J Ding Australian Taxation Office