HARDY and COMMISSIONER OF TAXATION

[2011] AATA 685

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 685

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2011/1553

SMALL TAXATION CLAIMS TRIBUNAL		)
Re		BADEN HARDY

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Egon Fice, Senior Member

Date4 October 2011  

PlaceMelbourne

Decision The Tribunal affirms the reviewable decision dated 12 April 2011.

..........[sgd] Egon Fice...............

Senior Member

TAXATION – Income tax return – Taxable income – Reportable fringe benefits – Contributions to superannuation fund – Superannuation contributions surcharge – Surcharge threshold – Eligible Termination Payment

Administrative Appeals Tribunal Act 1975 s 34J

Fringe Benefits Tax Assessment Act 1986

Superannuation Contributions Tax (Assessment and Collection) Act 1997 ss 7(1), 7(2), 7A, 7 A(3), 7B, 9, 9(1), 10, 10(2), 10(3), 10(4), 15(1)

Superannuation Contributions Tax Imposition Act 1997

REASONS FOR DECISION

4 October 2011   Egon Fice, Senior Member           

1.The parties to this proceeding consented to the Tribunal making a determination without proceeding to a hearing in accordance with s 34J of the Administrative Appeals Tribunal Act 1975. In my opinion, the issues for determination in this matter can be adequately determined in the absence of the parties.  From the materials, I understand that there is no dispute about the factual matters as described by the Commissioner of Taxation (the Commissioner).

2.Mr Baden Hardy lodged an Income Tax Return for the 2004 financial year in about August 2004.  No reportable fringe benefits amounts were included in that return.  The Commissioner issued a Notice of Assessment for the 2004 financial year in August 2004. 

3.Mr Hardy had made contributions to his superannuation fund, the Mercer Super Trust.  On 3 November 2004 the Mercer Super Trust reported to the Commissioner Mr Hardy’s surchargeable contributions to that fund for the 2004 financial year in the amount of $10,674.97.  The superannuation contributions surcharge applied to superannuation contributions on a member’s surchargeable contributions for the financial year commencing 1 July 1996 and concluding on the last financial year ending before 1 July 2005 (Superannuation Contributions Tax (Assessment and Collection) Act 1997) (the SCT Act). A surcharge was payable on those contributions where the adjusted taxable income of a fund member was greater than the surcharge threshold. A person’s adjusted taxable income is determined in accordance with s 7A or s 7B of the SCT Act.

4.The Commissioner calculated Mr Hardy’s adjusted taxable income for the 2004 financial year and found it to be below the surcharge threshold of $94,691.00. The Commissioner determined that no superannuation contributions surcharge was payable. 

5.However, after further investigation by the Commissioner, it was discovered that Mr Hardy did not include reportable fringe benefits in the amount of $11,142.00 in his Income Tax Return for the 2004 financial year.  Therefore, the Commissioner issued an amended assessment to Mr Hardy on 19 December 2006. That amended assessment elevated Mr Hardy’s amended taxable income to $104,739.97, above the surcharge threshold of $94,691.00.  The Commissioner determined that the superannuation contributions surcharge was payable and calculated the surcharge rate at 7.18137 per cent. 

6.In February 2007 the Commissioner issued an assessment of superannuation contributions surcharge in the amount of $766.60 to the Mercer Super Trust. This was in accordance with s 10 of the SCT Act. However, the Mercer Super Trust reported to the Commissioner that the contributions made on behalf of Mr Hardy had been rolled over into another superannuation provider, Summit Master Trust, on 4 November 2005. The Mercer Super Trust said it ceased to be the holder of the contributions made on behalf of Mr Hardy at that date.

7.The Commissioner cancelled the assessment issued to the Mercer Super Trust and issued a new assessment to the Summit Master Trust on 15 May 2007.

8.On 6 December 2010 the Summit Master Trust reported to the Commissioner that on 28 March 2006, surchargeable contributions in the amount $405 had been paid out to Mr Hardy as an eligible termination payment (ETP); that the amount of $5,858.58 of surchargeable contributions had been paid to Mr Hardy on 31 July 2006 as an ETP; and surchargeable contributions of $4,106.93 were paid to Mr Hardy as part of a divorce settlement on 9 January 2007.  Because the Summit Master Trust no longer held the surchargeable contributions, the Commissioner cancelled the assessment issued to that trust.  Instead, the Commissioner issued an amended assessment in the amount of $21.85 to the Summit Master Trust in respect of $304.46 of contributions which it reported it continued to hold in respect Mr Hardy’s contributions for the 2004 financial year.

9.Because the three payments which constituted his contributions to the two super funds in question had been returned to him, the Commissioner issued assessments of superannuation contributions surcharge to Mr Hardy in respect of those three payments in the sums of $29.05, $294.90 and $420.70 respectively.  Mr Hardy received these assessments on 14 February 2011 and immediately lodged a complaint to the Commissioner raising a number of questions about his liability to pay the superannuation contributions surcharge.  On 15 March 2011 Mr Hardy, in a telephone conversation with an officer of the Commissioner, indicated he wished to lodge an objection against the superannuation contributions surcharge assessments made by the Commissioner.  Under the cover of a letter dated 12 April 2011, the Commissioner provided Mr Hardy with his objection decision.  Mr Hardy now seeks review of that decision by this Tribunal.

10.As best I can determine from handwritten notes provided by Mr Hardy setting out the reasons for his application, he claims that:

a)the surcharge is payable by the superannuation fund within 12 months of the contribution being made;

b)funds were available in the Summit Master Trust until 25 February 2008;

c)no reasons were given by the Commissioner for the delay in issuing contributions surcharge assessments to him;

d)Mr Hardy in fact received two letters on the same day, one indicating that no payment was required, and the other indicating a payment was due;

e)he did not consider it to be his responsibility to monitor or regulate the super funds;

f)all of his tax returns had reported all information required by law; and

g)the Commissioner failed in his responsibilities (presumably as required by law) and that he had no obligation to pay.

LIABILITY TO PAY SUPERANNUATION CONTRIBUTIONS SURCHARGE

11.Sections 7(1) and 7(2) of the SCT Act provide:

7Superannuation contributions surcharge

Financial years to which surcharge applies

(1)Superannuation contributions surcharge is payable on a member’s surchargeable contributions for the financial year that began on 1 July 1996 or a later financial year that ends before 1 July 2005.

No surcharge is payable unless adjusted taxable income is greater than surcharge threshold

(2)Surcharge is not payable for a financial year unless the member’s adjusted taxable income for the financial year is greater than the surcharge threshold for the financial year.

12.The first matter to observe is that the superannuation contributions surcharge is payable if the adjusted taxable income exceeds the surcharge threshold. Where no eligible termination payments were made for the financial year in question, s 7A of the SCT Act provides for the calculation of adjusted taxable income. Section 7A(3) provides that the adjusted taxable income of the member for the financial year is the sum of, amongst other things:

a)

the member’s taxable income for the year of income comprising the financial year less any amounts included in the member’s assessable income in that year of income which were ETPs or included under  

s 26 of the Income Tax Assessment Act 1936;

b)the member’s surchargeable contributions for the financial year; and

c)if the member is an employee within the meaning of the Fringe Benefits Tax Assessment Act 1986, and the member has a reportable fringe benefits total for the year of income comprising the financial year, the reportable fringe benefits total for the year of income.

13.Because Mr Hardy omitted from his 2004 tax return the reportable fringe benefits he received in that financial year, for the purposes of the SCT Act, the Commissioner was correct in amending Mr Hardy’s assessable income for the 2004 financial year to include his reportable fringe benefits in the sum of $11,142. That sum must be added to his assessable income for the purposes of calculating his adjusted taxable income under the SCT Act.

14.There was no issue about the surcharge threshold for the 2004 financial year. Section 9(1) of the SCT Act provides that the surcharge threshold for the 1996/1997 financial year was $70,000. For later financial years, the surcharge threshold is calculated by using the following formula:

a)previous surcharge threshold multiplied by indexation factor; and

b)the indexation factor for a financial year is a number calculated to three decimal places which is arrived at by dividing the index number for the last quarter in the current March year by the index number for the last quarter in the previous March year.  

15.The surcharge threshold is required to be published by the Commissioner.  From the Australian Taxation Office website, the superannuation surcharge threshold for the 2003/2004 financial year was $94,691.

16.The person liable to pay the superannuation contributions surcharge is the person set out in s 10 of the SCT Act. Section 10(2) provides that if a superannuation provider is the holder of the surchargeable contributions when an assessment of the surcharge on those contributions is made, the provider is liable to pay the surcharge. However, s 10(3) provides that s 10(2) does not apply to a superannuation provider which ceases to be the holder of the contributions before a notice of assessment is given to it.

17.What follows from these sections is that the Commissioner correctly determined that the Mercer Super Trust was not liable to pay surcharge contributions because it had ceased to hold Mr Hardy’s contributions at the time that the Commissioner issued his assessment.  Furthermore, except for the sum $304.46, the Summit Master Trust reported to the Commissioner that it had ceased to hold Mr Hardy’s surchargeable contributions at the time the Commissioner issued it with an assessment.  Therefore, correctly in my opinion, the Commissioner determined that the balance of Mr Hardy’s surchargeable contributions for the 2004 financial year had been paid to Mr Hardy either as an ETP or a payout as a result of his divorce settlement. 

18.Section 10A of the SCT Act deals with payment splits as a result of marriage breakdowns. In effect, it provides that where a superannuation payment is split between the parties to the marriage and an assessment is then made that the surcharge is payable on all contributions of the member, if a superannuation provider has ceased to hold the contributions for the member, the member is then taken to be the holder of those contributions and liable to pay the surcharge. Section 10(4) of the SCT Act provides that if surchargeable contributions have been paid to the member, the member is liable to pay the surcharge. Therefore, I find that the Commissioner’s assessment issued to Mr Hardy in respect of the payments made to him from the Summit Master Trust by way of ETP and a split in surchargeable contributions due to his divorce settlement, correctly resulted in a liability to Mr Hardy to pay the superannuation contributions surcharge.

19.Section 15(1) of the SCT Act provides that:

(1)For each financial year (being a financial year that ends before 1 July 2005) for which there are surchargeable contributions for a member, the Commissioner must make an assessment that:

(a)calculates the member’s adjusted taxable income; and

(b)if the adjusted taxable income is greater than the surcharge threshold:

(i)     calculates the surchargeable contributions; and

(ii)     calculates the rate of surcharge that applies to the member; and

(iii)     specifies the amount of the surcharge payable or, if no surcharge is payable, states that a nil amount of surcharge is payable; and

(c)if the adjusted taxable income is equal to or less than the surcharge threshold—states that a nil amount of surcharge is payable.

20.One of Mr Hardy’s complaints was that he received two Notices of Assessment, one indicating a nil amount was payable and the second indicating that he was liable to pay a superannuation contributions surcharge. While I do not have the notices of assessment before me, the likely explanation for what Mr Hardy complains of is that he received a nil amount assessment following his tax assessment for the 2004 financial year. However, following the amendment of the 2004 assessment due to Mr Hardy’s failure to return reportable fringe benefits, the assessment of liability was amended to include the amounts assessed to Mr Hardy pursuant to s 15 of the SCT Act.

21.The rate of superannuation contributions surcharge is calculated in accordance with the Superannuation Contributions Tax Imposition Act 1997 (the SCTI Act). Section 5(1AA) of the SCTI Act sets out the higher and lower income amounts for the 2004 financial year. It also sets out the maximum surcharge percentage of that financial year as being 14.5 per cent. Applying those figures to the formula set out in s 5(1) of the SCTI Act results in the calculations made by the Commissioner in respect of Mr Hardy’s liability for this superannuation contributions surcharge. In my opinion, the calculations made by the Commissioner in that regard are correct. As a result, I find that the assessments of superannuation contributions surcharge issued to Mr Hardy on 15 February 2011 by the Commissioner were correct. Mr Hardy is liable to pay the surcharge on those contributions.

22.Although Mr Hardy complained about the length of delay between the lodgement of his tax return in 2004 and the assessment by the Commissioner that he was liable to pay the superannuation contributions surcharge in the amounts I have indicated above, the reasons for that delay are reasonably apparent.  In fact, it is fair to say that but for Mr Hardy’s failure to return reportable fringe benefits amounts in his 2004 tax return, this problem would not have arisen.  The superannuation contributions surcharge would have been levied against Mercer Super Trust at that time.  However, it has taken some time for the Commissioner to track the progress and distribution of the surchargeable contributions, finally finding that the balance of funds had been returned to Mr Hardy thereby making him liable to pay the superannuation contributions surcharge.

CONCLUSION

23.In my opinion, the objection decision made by the Commissioner on 12 April 2011 disallowing Mr Hardy’s objection to the Commissioner’s decision to assess him for superannuation contributions surcharge in the 2004 financial year was correct.  I affirm that decision.

I certify that the twenty-three [23] preceding paragraphs are a true copy of the reasons for the decision herein of  
Egon Fice, Senior Member

Signed: .........[sgd]..................................................................
  E. Montalto, Associate

Dates of Hearing  Decision on Papers
Date of Decision                   4 October 2011
Representative for the Applicant              Self Represented

Representative for the Respondent          Ms P Lecordier, Australian Taxation Office Legal Services Branch