Derrick and Commissioner of Taxation
[2005] AATA 341
•18 April 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 341
ADMINISTRATIVE APPEALS TRIBUNAL )
) No TT2004/4
TAXATION APPEALS DIVISION ) Re DAVID DERRICK Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Ms A F Cunningham (Part-time Member) Date18 April 2005
PlaceHobart
Decision The Tribunal affirms the decision under review.
..............................................
Part-Time Member
CATCHWORDS
Income Tax Assessment Act – reasonable benefit limits – non-lifetime pension – meaning of capital value – decision under review affirmed.
Income Tax Assessment Act 1936 – ss14ZZK, 140C, 140M, 140R, 140W, 140Y, 140ZA, 140ZB, 140ZD, 140ZF, 140ZK, 140ZO
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
REASONS FOR DECISION
18 April 2005 Ms A F Cunningham (Part-time Member) 1. The applicant has appealed the Reasonable Benefit Limits (RBL) Determination issued by the respondent on 7 July 2003 for the year ended 30 June 2003. The applicant’s objection dated 15 January 2004 with respect to the Determination was disallowed by the Deputy Commissioner of Taxation on 28 April 2004.
2. It is the applicant’s contention that the RBL determination was incorrect in that it was based on a capitalised value of the applicant’s Commonwealth Superannuation Scheme pension (CSS). The applicant submits that there is no justification for capitalising the value of his fortnightly pension, which is only payable during his lifetime. The applicant disputes the respondent’s RBL determination of $165,374.15 which results in him exceeding the threshold and thus ineligible to receive the rebate of 15 percent on the full amount of his Citicorp pension.
3. The applicant appeared on his own behalf at the hearing. Ms Lai appeared on behalf of the respondent. The T documents were admitted into evidence pursuant to s37 of the Administrative Appeals Tribunal Act 1975.
4. The applicant said that whilst he had been provided with a comprehensive explanation of how the sum of $165,374.15 was calculated with supporting documentation, the information was “virtually incomprehensible”. It was his contention that the RBL calculation represented a totally “artificial figure” being “based on a formula with irrelevant assumptions that cannot be supported”.
5. The applicant did not appear to be contending that the respondent had failed to apply the applicable legislation in its RBL calculation, but rather that the legislation itself is flawed in that it fails to take account of certain factors. For instance, the 7 percent index rate determined by the Commissioner for application in the particular financial year, does not in the applicant’s view, take account of “current and future annual changes”, nor is there any reference to “accepted longevity accrual tables”. The assessed figure of $165,374.15 would in the applicant’s words “have validity at only one point of time when there would actually have been a pension payout of that amount, (And perhaps that might not even occur regardless, because the pension is payed fortnightly). This, of course, would also be contingent upon my living to that one point in time.”
6. It was the applicant’s understanding that the RBL represented a capital value of his CSS pension which is paid on a fortnightly basis. He contended that the Income Tax Assessment Act 1936 (“the Act”) does not define “capital value”. He submitted that the legislation must be “fair, reasonable and defendable” and that the exercise of discretion would be appropriate in the respondent’s calculation of any “capital value of his pension entitlement”.
7. Ms Lai “walked” the Tribunal through the legislation adopted by the respondent in its calculation of the applicant’s RBL. As stated above, the applicant did not contend that the respondent had not complied with the appropriate legislative process. The Tribunal is satisfied that the legislation as outlined below was correctly applied.
Legislation
Section 140ZC:
“Benefits which are to be counted
(1) Except as provided by subsection (2), each of the following benefits are to be counted towards a person's RBLs:
(a) an ETP made in relation to the person on or after 16 February 1990;
(b)a superannuation pension where the commencement day was on or after 16 February 1990;
(c) an annuity where the commencement day was on or after 16 February 1990.
Benefits which are not to be counted
(2) None of the following benefits are to be counted towards a person's RBLs:
(a)an ETP made before 1 July 1990 by the person's employer, where the person was not an associate of the employer when the ETP was made;
(b)an ETP made in relation to the person as a result of the commutation of, or the residual capital value of, a superannuation pension or annuity where the commencement day for the pension or annuity is before 1 July 1990;
(c)a residual pension or residual annuity payable on partial commutation of another superannuation pension or annuity where the commencement day for the other pension or annuity is before 1 July 1990;
(d) a superannuation pension or annuity that:
(i) is payable to the person as the result of the death of another person; and
(ii) is a reversion of another pension or annuity that was already payable to the other person”.
8. Reasonable benefit limits are the maximum amount of retirement and termination of employment benefits that a person can receive over their lifetime at concessional tax rates. Retirement and termination of employment benefits generally comprise eligible termination payments (ETP), superannuation pensions (including allocated pensions), and immediate annuities (including allocated annuities) that have been purchased by rolling over superannuation money. These benefits are paid when a person leaves employment, retires or reaches a certain age.
9. Section 140ZC of the Act sets out the types of benefits that are accounted towards the person’s RBL.
10. Section 140ZD of the Act details how a person’s lump sum RBL and pension RBL is calculated. Ms Lai submitted that for the year of income ended 30 June 2003, the applicant’s lump sum RBL was $562,195 and pension RBL $1,124,384.00.
11. Where a taxpayer receives a lump sum benefit (ETP) that exceeds the RBL, the amount in excess is treated as an excessive component of an ETP and is taxed at the top marginal rate. Where a taxpayer receives a pension or annuity that exceeds the RBL, the excessive part does not benefit from the 15 percent pension and annuity rebate and is taxed at marginal rates.
12. Section 140M of the Act detail the circumstances in which a payer is required to notify the Commissioner of the benefits paid where the ETP, pension or annuity count towards the person’s RBL.
13. Where the Commissioner receives a notice under subsection 140M(1) from the payer regarding a benefit, the Commissioner is obliged to determine whether the ETP is in excess of the person’s RBL (s140R(1) of the Act). If the ETP, pension or annuity is in excess of the person’s RBL, then the Commissioner must determine the extent of the excess and in the case of a rebateable superannuation pension or a rebateable ETP annuity, the rebateable portion of the pension or annuity.
14. Pursuant to the provisions of s140W of the Act, the Commissioner is required to notify the person’s whose benefit is in excess of the person’s RBL by giving a copy of the determination and a written statement setting out the basis on which the determination was made.
15. Section 140Y of the Act states:
“A person to whom an interim determination or final determination relates who is dissatisfied with the interim determination or final determination may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.”
16. A person who is dissatisfied with the Commissioner’s objection decision may apply to the Administrative Appeals Tribunal for a review pursuant to the provisions of s14ZZK which states:
“On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving that:
(i) if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii) if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii) in any other case—the taxation decision concerned should not have been made or should have been made differently.”
17. Sub-section 140ZA(2) provides:
“When benefits in excess of recipient’s RBLs. If:
(a) section 140M applies to a benefit (“current benefits”); and
(b)the amount calculated in relation to the current benefit using the RBL formula in subsection (3) exceeds 0;
then:
(c)the current benefit is in excess of the recipient’s RBLs; and
(d)the amount of that excess is equal to so much of the RBL amount of the current benefit as does not exceed the amount using that formula.”
18. The RBL formula is set out in s140ZA(3) as follows:
“ (3) This is the RBL formula mentioned in subsections (1) and (2):
where:
RBL amount of current benefit means the RBL amount of the current benefit.
Sum of adjusted RBL amounts of previous benefits has the meaning given by subsection (4).
Applicable RBL means:
(a) if the current benefit is to be assessed against the recipient's lump sum RBL for the year of income in which the current benefit was paid or commenced to be paid—that lump sum RBL; or
(b) in any other case—the recipient's pension RBL for the year of income in which the current benefit was paid or commenced to be paid.”
19. For the purposes of the formula the following figures were used: RBL amount of current benefit (the Citicorp Benefit) equals $200,000; “sum of adjusted RBL amounts of previous benefits – has the meaning given by sub-section 140ZA(4) and equals $417,302.58. Applicable RBL means:
“(a)if the current benefit is to be assessed against the recipients lump sum RFL for the year of income in which the current benefit was paid or commenced to be paid - that lump sum RBL; or
(b)in any other case – the recipient’s RBL for the year of income in which the current benefit was paid or commenced to be paid.”
and equals $562,195 (i.e. the applicant’s lump sum RBL). This amount was not in dispute.
20. Annexures to the respondent’s submissions detailed the calculations applicable to the above figures. The RBL amount of current benefit which is the applicant’s Citicorp pension, being a rebateable pension is determined pursuant to the provisions of s140ZK of the Act. Sub-section (a) provides:
“if the pension is a rebateable superannuation pension – the capital value of the pension.”
21. Subdivision J sets out the relevant provisions in relation to Capital value of superannuation pension. As the Citicorp pension is not payable for life the provisions of s140ZO(2) apply which states:
“The capital value of a superannuation pension that is not payable for life is the amount calculated in accordance with a method determined by the Commissioner in relation to the pension.”
22. In Taxation Determination TD2000/29 paragraph 4 states the formula used to determine the capital value of all purchased pensions that are not payable for life which is: Capital Value = Purchase Price – (Undeducted Contributions + Concessional Component + Invalidity Component). Applying the formula to the current benefit the capital value of the pension is calculated to be $200,000. The Tribunal was informed that this figure is not in dispute between the parties.
23. The applicant does dispute the figure of $417,302.58 as representing the sum of adjusted of RBL amounts of previous benefits. The component of the calculations in dispute is the sum of $165,374.15 which has been calculated as representing the RBL amount of the applicant’s Comsuper pension. The figure is challenged by the applicant on the basis that it cannot represent the capital value and/or the RBL amount of his CSS pension.
24. The respondent submits that the calculation is in accordance with the legislation and that the Commissioner has no discretion to use another method to calculate the capital value and the RBL amount. In other respects the stated benefit amounts contained in annexure B of the respondent’s submission are not challenged by the applicant who agrees that the schedule correctly represents his entitlements.
25. It was submitted on behalf of the respondent that the provisions of s140ZK apply with respect to calculating the RBL amount of the CSS pension and in particular sub-paragraph (b) as the CSS pension is not a rebateable superannuation pension. Sub-section (b) provides the amount worked out using the formula:
The capital value is defined as “the capital value of the pension”.
26. “Pre-July 83 eligible service period” means the number of whole days in so much of the eligible service period for the pension as occurred before 1 July 1983. The figure as reported by CSS is 1,499.
27. “Post-June 83 eligible service period” means the number of whole days in so much of the eligible service period for the pension as occurred on or after 1 July 1983, as reported by CSS is 6,118 days.
28. “Total eligible service period” means the number of whole days in the eligible service period for the pension. This equals sum of the pre July 1983 and post June 1983 eligible service period, i.e. 1,499 + 6,118 days = 7,613 days.
29. The calculation for the capital value of the superannuation pension is found in sub-division J of division 14. As the CSS is payable for life sub-section 140ZO(1) is applicable. This sub-section provides that the capital value of superannuation of pension is as follows:
“where:
Annual value means the annual value of the pension.
Pension valuation factor means the pension valuation factor applicable to the pension.
Undeducted purchase price means the undeducted purchase price of the pension, reduced by so much of the purchase price of the pension as is taken, because of section 27D, to consist of an amount to which sub-subparagraph 27D(1)(b)(iii)(DA) applies.
Residual capital value means the present value of the residual capital value, if any, of the pension.”
30. The respondent’s calculations are as follows:
$16,420.34 x 12 less 0 + 0 = $197,044.08 = the capital value of the applicant’s CSS pension.
31. Following the explanation by Ms Lai as to how the pension valuation factor of 12 is arrived at, the applicant was satisfied that the calculations were correct and in accordance with the applicable legislation. The Tribunal was referred to the definition of pension valuation factor appearing in s140C of the Act, which refers to “the factor ascertained in accordance with the regulations”.
32. Schedule 1B of the Superannuation Industry (Supervision) Regulations was tendered in evidence which verified the adoption of the figure “12” for the above calculation.
33. Adopting the capital value of the applicant’s CSS pension of $197,044.08 the RBL amount of the applicant’s CSS pension is calculated in accordance with s140ZK of the Act as follows:
$197,044.08 x (1,495 days + 0.8 x 6,118 days)
(1,495 days + 6,188 days)
$197,044.08 x (1,495 + 4894.4)
7,613
34. The final figure of applicable RBL of $562,195 was not disputed by the applicant. The Tribunal is satisfied that this figure has been calculated in accordance with the definition of “applicable RBL” as contained in sub-section 140ZA(3) which states:
“Applicable RBL means:
(a) if the current benefit is to be assessed against the recipient's lump sum RBL for the year of income in which the current benefit was paid or commenced to be paid—that lump sum RBL; or
(b) in any other case—the recipient's pension RBL for the year of income in which the current benefit was paid or commenced to be paid.”
35. The applicant’s lump sum RBL for the year ending 30 June 2003 pursuant to the provisions of s140ZD is calculated at $562,195 and the applicable pension RBL amount for the year ending 30 June 2003 is $124,384. The provisions of sub-section 140ZF(3) were applied. Citicorp reported to the respondent that the pension does not meet the pension annuity standard. The annexure attached to the respondent’s submissions satisfies the Tribunal that the lump sum RBL amount and the pension RBL amount have been correctly calculated in accordance with the applicable legislation.
36. Accordingly the Tribunal is satisfied that the respondent has correctly calculated the figure of $417,302.58 as representing the sum of adjusted RBL amounts of the applicant’s previous benefits in accordance with the applicable legislation. The Tribunal is satisfied that the respondent has correctly calculated the RBL amount of the applicant’s CSS pension at $165,374.15 in accordance with s140ZK of the Act.
37. The onus rests with the applicant pursuant to the provisions of s14ZZK to satisfy the Tribunal that the taxation decision should not have been made or should have been made differently. The applicant has failed to do so. Nor has the applicant persuaded the Tribunal that there is any provision for the exercise of discretion in making a taxation determination other than in accordance with the applicable legislation.
38. Whilst the applicant did not allege that there are any particular circumstances that constitute “special circumstances” within the meaning of s140ZB of the Act, Ms Lai referred the Tribunal to several decisions where this issue had been considered and contended that there was no justification for its application in the applicant’s case.
39. Section 140ZB of the Act states:
If:
(a) the whole or a part of an ETP, a superannuation pension or an annuity would, apart from this section, exceed the recipient's RBLs; and
(b) the Commissioner is satisfied that, because of the special circumstances of the case, the whole or a part of the ETP, pension or annuity should be treated as if it were not in excess of the recipient's RBLs;
the Commissioner may make a final determination or an interim determination accordingly.”
40. The Courts and Tribunals have adopted the meaning of “special circumstances” as something unusual or different to take the matter out of the ordinary course as applied by the Court in Re Beadle and Director-General of Social Security (1984) 6 ALD 1. There was no evidence before the Tribunal, nor did the applicant submit that his circumstances were particularly unusual or different or that they could be considered as “special” to justify the application of sub-section 140ZB(b) of the Act.
41. For the above reasons, the Tribunal affirms the decision under review and dismisses the appeal.
I certify that the 41 preceding paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Part-time Member)
Signed: K L Miller (Administrative Assistant)
Date/s of Hearing 4 February 2005
Date of Decision 18 April 2005
Counsel for the Applicant Applicant appeared on his own behalf.
Solicitor for the Applicant
Counsel for the Respondent Ms A Lai
Solicitor for the Respondent ATO Legal Services
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