Judith Sutton and Commissioner of Taxation

[2013] AATA 661

[2013] AATA 661

Division	TAXATION APPEALS DIVISION
File Number(s)	2013/1552
Re	Judith Sutton
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Mr S. Webb, Member
Date	16 September 2013
Place	Canberra

The objection decision is affirmed.

.......................[sgd]........................................

Mr S. Webb, Member

TAXATION – excess non-concessional superannuation contributions tax – concessional contributions – limit on deductions – personal superannuation contribution deductions in excess of taxable income not allowable – excess amount treated as non-concessional contributions – non-concessional contributions cap – cap exceeded – excess amount subject to excess contributions tax – calculation correct – decision affirmed

Income Tax Assessment Act 1997 s 8-1, 8-5, 12-5, 26-55, 36-10, 290-10, 290-150, 290-170, 290-180, 292-25, 292-80, 292-85, 292-90, 995-1

Income Tax (Transitional Provisions) Act 1997 s 292-20.

Re Confidential and Commissioner of Taxation [2013] AATA 110

Re Confidential and Commissioner of Taxation [2013] AATA 111

REASONS FOR DECISION

Mr S. Webb, Member

September 2013

1. Judith Sutton made personal non-concessional and concessional contributions to an accumulation superannuation fund in separate years. The concessional contribution exceeded her adjusted taxable income for that year. The Commissioner issued a taxation assessment on the basis that excess contributions tax applied to the amount the concessional contribution exceeded her adjusted taxable income[1]. Ms Sutton objected[2]. The Commissioner issued an objection decision[3], which is the subject of Ms Sutton’s present application.

   [1] T17.

   [2] T18.

   [3] T20.

2. The relevant facts are not in dispute. Considering the materials before me, I make the following findings –

   (a)at all relevant times Ms Sutton was a member of the Moore’s Nowra Superannuation Fund (the Fund)[4];

   [4] ST1, ST2 and ST4.

   (b)in the year ending 30 June 2009, Ms Sutton made a personal non-concessional contribution to the Fund of $450,000[5], utilising the bring forward provision under s292-85(3) of the Income Tax Assessment Act 1997 (the Assessment Act);

   [5] T3 folio 27.

   (c)on 1 July 2010, Ms Sutton lodged a Notice of Intent to claim a tax deduction of $50,000 in respect of contributions made in the year ending 30 June 2011[6];

   [6] ST3 folio 6.

   (d)on the same day the Fund Trustee acknowledged the Notice, stating “The Trustee has taken action to deduct the appropriate level of tax from the contributions claimed”[7];

   [7] Ibid.

   (e)as Ms Sutton was over 50 years old on 30 June 2011, under the Income Tax (Transitional Provisions) Act 2007 (the Transitional Act), her concessional contributions cap for that year is $50,000;

   (f)on 18 June 2012, an annual return for the Fund was lodged, specifying that Ms Sutton made personal contributions of $50,000[8], but recording no assessable contribution income[9];

   [8] T4 folio 37

   [9] T4 folio 34.

   (g)on 22 June 2012, Ms Sutton’s income tax return for 2010-2011 was lodged, in which no personal superannuation contribution deduction was claimed and her adjusted taxable income was specified to be $13,468[10];

   [10] T5 folio 52.

   (h)on 5 July 2012, a Notice of assessment was issued, specifying Ms Sutton’s taxable income as $13,468[11];

   (i)on 17 August 2012, an amended annual return for the Fund was lodged, specifying assessable personal contributions of $50,000[12];

   (j)on 18 October 2012, this amount was included in an amended Notice of assessment for the Fund[13];

   (k)on 21 November 2012, an excess contributions tax Notice of assessment was issued to Ms Sutton, erroneously specifying $50,000 in excess concessional contributions[14];

   (l)an objection to this assessment was lodged, but this was withdrawn on 3 December 2012[15];

   (m)on that day, Ms Sutton lodged an amended annual return claiming a deduction for “reportable superannuation contributions” of $13,468[16];

   (n)on 11 December 2012, Ms Sutton was issued with a Notice of amended assessment, in which her previously assessed taxable income ($13,468) was reduced to zero[17];

   (o)on 6 February 2013, Ms Sutton was issued with Notice of an amended assessment of excess contributions tax in respect of $36,532 in excess non-concessional contributions[18];

   (p)on 22 February 2013, an objection was lodged on Ms Sutton’s behalf, challenging the excess contributions assessment[19];

   (q)on 15 March 2013, an objection decision was issued[20].

   [11] T6 folio72.

   [12] T8 folio80.

   [13] T9 folio 90.

   [14] T10 folio 92.

   [15] T11 and T12

   [16] T13 folio 113.

   [17] T15 folio 141.

   [18] T17 folio 146.

   [19] T18.

   [20] T20.

3. The Commissioner conceded, correctly, that the $50,000 contribution Ms Sutton made in the year ending 30 June 2011 is a concessional contribution under s 292-25, within the cap imposed by s 292-20 of the Transitional Act. Ms Sutton’s intention to claim a deduction in that amount is clearly foreshadowed in the Notice of Intent she gave on 1 July 2010, and the Notice was acknowledged by the Fund, thereby meeting the requirements of s 290-170 of the Assessment Act.

4. With regard to assessable income, prior to her claiming any personal superannuation contribution deduction, Ms Sutton’s adjusted taxable income for the year ended 30 June 2011 is $13,468.  It is open for her to claim a deduction in that amount, effectively rendering her taxable income zero. That is what she did. There is no difficulty or issue with this.

5. But how is the remaining part ($36,532) of the $50,000 concessional contribution to be treated?

6. Ms Sutton’s advocate, Mr Ellis, says that it does not attract excess contributions tax as it is not a ‘non-concessional contribution’. In essence, Mr Ellis’ argument proceeds in the following way – a valid concessional contribution under s 292-25 is deductible; being deductible, it is allowable as a deduction; being allowable as a deduction, it is not within the meaning of ‘not allowable as a deduction’; and that being so, it is not a ‘non-concessional deduction’ under s 292-90(1)(aa) and (4)(b).

7. As will appear, the flaw in the argument is that the adjective ‘allowable’ qualifies the subject deduction – concessional contributions may generally be deductible, but a specific concessional contribution may only be allowable as a deduction if all relevant criteria are satisfied. If the criteria are not satisfied, the concessional contribution will not be allowable as a deduction, and it will be treated as a non-concessional contribution subject to excess contributions tax.

8. In order to address these issues specifically, having regard to the submissions of the parties, there are a number of questions to answer –

   (a)can a concessional contribution be treated as a non-concessional contribution;

   (b)what does ‘not allowable as a deduction’ mean;

   (c)are personal superannuation contribution deductions limited to a taxpayers adjusted taxable income;

   (d)is part of the $50,000 concessional contribution a non-concessional contribution because it is ‘not allowable as a deduction’; and if so

   (e)is the non-concessional contribution in excess of the non-concessional contribution cap; and if so

   (f)what is the amount of tax payable?

   Can a concessional contribution be treated as a non-concessional contribution?

9. The answer is Yes.

10. Mr Ellis argues that the legislation cannot sensibly be construed in a manner that would render part of a concessional contribution under s 292-25 into a non-concessional contribution under s 292-90. This, he says, would be wrong – where part of a concessional contribution is not claimed to offset adjusted taxable income, the legislation does not treat the unclaimed balance as a non-concessional contribution. He asserts that a construction of this kind stands counter to the concessional contribution provisions that allow contributions up to an annual cap as a deduction.

11. The Assessment Act imposes a cap on personal superannuation contributions that are subject to concessional rates of taxation and on personal superannuation contributions that may be deducted against assessable income. Mr Ellis is correct when he says that s 290-150 provides that concessional contributions under s 292-25 within the applicable cap are deductible. But s 292-90 provides that a non-concessional contribution includes the amount of any contribution within a year that is covered by a valid and acknowledged notice under section 290‑170, that it is not allowable as a deduction.

12. Thus, if a concessional contribution is not allowable as a deduction, it is treated as a non-concessional contribution.

    What does ‘not allowable as a deduction’ mean?

13. Mr Ellis says that the Assessment Act clearly and unambiguously provides that a concessional contribution is allowable as a deduction so long as the applicable contributions cap is not exceeded.

14. He asserts that the phrase ‘not allowable as a deduction’ in s 292-90(4)(b) must be construed within the meaning of the section, and it should not be taken to mean the same as ‘not allowed’, ‘not claimed’ or ‘limited’.

15. In his submission, ‘not allowable’ means that no deduction can be claimed for the expenditure which was the amount of the contribution – if the contribution is validly made and within the concessional contributions cap for the particular year, it is not ‘not allowable as a deduction’.

16. This is not correct - a concessional contribution is not necessarily allowable as a personal superannuation contribution deduction. The word ‘allowable’ refers, adjectivally, to the capability of being permitted – able to be allowed. It takes meaning from the context in which it is used. Thus, whether or not a particular deduction is able to be allowed, or is allowable, is a matter for assessment under all of the relevant provisions and, if claimed, it is a matter for determination. Under the Assessment Act, this is unavoidable.

17. The purposes of the Assessment Act and the interlaced superannuation contribution provisions must be considered when construing the phrase ‘not allowable as a deduction’ as it appears in s 290-180(4)(c) and s 292-90(4)(b) –

    290‑180 Notice may be varied but not revoked or withdrawn

    (1) …

    …

    (3) However, you cannot vary a valid notice after:

    (a) if you have lodged your *income tax return for the income year in which the contribution was made on a day before the end of the next income year—the end of that day; or

    (b) otherwise—the end of the next income year.

    (3A) …

    (4) Subsection (3) does not apply to a variation if:

    (a) you claimed a deduction for the contribution (or a part of the contribution); and

    (b) the deduction is not allowable (in whole or in part); and

    (c) the variation reduces the amount stated in relation to the contribution by the amount not allowable as a deduction. [emphasis added]

    292‑90 Your non‑concessional contributions for a financial year

    (1) The amount of your non‑concessional contributions for a *financial year is the sum of:

    (a) each contribution covered under subsection (2); and

    (aa) each amount covered under subsection (4); and

    (b) the amount of your *excess concessional contributions (if any) for the financial year.

    (2) …

    …

    (4) An amount is covered under this subsection if it is any of the following:

    (a) …

    (b) the amount of any contribution made to that plan in respect of you in the year that is covered by a valid and acknowledged notice under section 290‑170, to the extent that it is not allowable as a deduction for the person making the contribution;

    (c) … [emphasis added]

18. To my mind it is quite clear that the phrase ‘not allowable as a deduction’ in these sections refers to a deduction that is not allowable, in whole or in part, under s 290-150 subject to other relevant provisions. The legislation provides for a concessional contribution to be apportioned on the basis that part is allowable as a personal superannuation contribution deduction, and that part is not. The operation of s 290-180(3A) and the words ‘to the extent that’ in s 292-90(4)(b) support this interpretation. In that context, the words ‘any contribution’ are broad, and they do not only refer to non-concessional contributions, but also to concessional contributions that are not allowable as a deduction. The proposition that a concessional contribution under s 292-25 is deductible may be notionally correct in the abstract, but for a specific personal superannuation contribution deduction to be ‘allowable’, s 290-150 and other relevant provisions must be satisfied.

19. The converse, that no part of a concessional contribution under s 292-25 is ‘not allowable as a deduction’, does not hold. Deductibility of a personal superannuation contribution under 292-25, in the abstract, does not render it necessarily allowable. Whether such a contribution is allowable as a deduction cannot be assumed. It is a matter for assessment under s 290-150 and related provisions, including s 26-55. If the deduction meets the requirements of those provisions it will be allowable, whether or not it has been claimed. It is perhaps trite to observe that, to be allowed, a deduction must be claimed and determined. 

20. Mr Ellis cavils with the Commissioner’s reliance on the Explanatory Memorandum to the Superannuation Legislation Amendment (Simplification) Bill 2007 (the Simplification Bill), arguing that the so-called integrity measure (amending the definition of ‘non-concessional contributions’ to include assessable contributions to a fund that are not allowed as a deduction, thereby not including such contributions in the concessional contributions cap) does not support the interpretation for which the Commissioner contends. Mr Ellis draws a sharp distinction between what is ‘allowable’ in principle or in prospect, and that which is allowed, on determination of a claim.

21. It is not necessary to go to the Simplification Bill Explanatory Memorandum in order to properly construe the legislation - the language of the legislation is quite clear. Nonetheless, as the parties have raised this in submissions, I simply observe that the distinction Mr Ellis draws between ‘allowable’ and ‘allowed’ does not advance the matter. The phrase ‘for which a tax deduction is not allowed by the Commissioner’ in clause 1.22 of the Explanatory Memorandum should not be taken to constrain the plain meaning of the legislation to the extent that a personal superannuation contribution deduction is not allowable only if it is not allowed by the Commissioner. That would be the effect of the construction for which Mr Ellis contends on this point, and it is not correct. The legislation governs what is allowable as a personal superannuation contribution deduction. The Commissioner applies the legislation when determining whether or not deduction claims are allowed in the particular circumstances.

22. A concessional contribution should not be confused with an allowable personal superannuation deduction. A concessional contribution is one that conforms to s 292-25 and attracts a particular tax treatment as an assessable contribution in the recipient fund, subject to a 15 percent contributions tax. An allowable personal superannuation contribution deduction is one that satisfies the requirements of Sub-division 290-C. The answer to Mr Ellis’ point of principle is that unless a personal superannuation contribution, including a concessional contribution, satisfies the conditions of sub-division 290-C it is not allowable as a deduction. That is so whether or not the deduction has been claimed or determined.

    Are personal superannuation contribution deductions limited to a taxpayer’s adjusted taxable income?

23. The answer is Yes.

24. Mr Ellis accepts that the purpose and effect of s 26-55 is to limit the amount that may be claimed as a personal superannuation contribution deduction by a taxpayer each year in the particular circumstances – the limit is calculated as a factor of the taxpayer’s income and deductions for the year, and it applies to each taxpayer making concessional contributions within the applicable cap in that year. In this way, the amount that a taxpayer may claim in that year as a superannuation contribution deduction may be limited. But, in his submission, where the amount claimed as a deduction is lower than the amount of the concessional contribution, s 26-55 does not operate to render the balance ‘not allowable as a deduction’ - a taxpayer with insufficient assessable income to deduct non-excessive concessional contributions does not become liable for excess contributions tax on any part of the concessional contribution that has not been claimed as a deduction.

25. Mr Ellis cavils with the Tribunal’s contrary conclusions in two recent cases[21]. He maintains that legitimate concessional contributions within the applicable cap, whether claimed or not in  relation to assessable income, are not converted into non-concessional contributions by operation of s 292-90(4)(b). A concessional contribution, so the argument goes, is not confined to the amount of a person’s adjusted taxable income against which it may be deducted - were that to be correct, one would expect to find clear reference to such a constraint in s 292-25, which sets out criteria for determining ‘concessional contributions’, but there is no such reference. Thus, he maintains that a concessional contribution is an allowable deduction, and it is not subject to excess contributions tax, whether or not it is claimed or allowed in full.

    [21] Re Confidential and Commissioner of Taxation [2013] AATA 110 at [12]; Re Confidential and Commissioner of Taxation [2013] AATA 111 at [13].

26. This is not correct.

27. The Assessment Act does not operate in the abstract, and the allowability of tax deductions does not arise without authority. Deductions from a person’s taxable income are not permitted unless they are provided for generally (s 8-1) or specifically (s 8-5).

28. The specific provisions governing the deduction of superannuation contributions are summarised in the list of deductions set out in s 12-5 –

superannuation—deductibility of contributions
generally ......................................................................................	Division 290
contributions for employees etc. ............................................	Subdivision 290‑B
contributions to non‑complying funds ..................................	sections 290‑10 and 290‑75
limit on deduction .....................................................................	26‑55
no deduction under any other provision of the Act ............	section 290‑10
personal contributions ..............................................................	Subdivision 290‑C

1. Personal contributions include concessional contributions that are included in the assessable income of a superannuation fund under s 292-25.

2. Specific provision is expressly made in s 290-150 for the deduction of personal superannuation contributions. Section 290-150 is in the following terms –

   290‑150 Personal contributions deductible

   (1) You can deduct a contribution you make to a *superannuation fund, or an *RSA, for the purpose of providing *superannuation benefits for yourself (regardless whether the benefits are payable to your *SIS dependants if you die before or after becoming entitled to receive the benefits).

   Note: Other provisions of this Act and the Income Tax Assessment Act 1936 may reduce, increase or deny the deduction in certain circumstances. For example, see section 26‑55 of this Act.

   (2) However, the conditions in sections 290‑155, 290‑160 (if applicable), 290‑165 and 290‑170 must also be satisfied for you to deduct the contribution.

   (3) You can deduct the contribution only for the income year in which you made the contribution.

   (4) …

3. As can be seen, the amount of a personal superannuation contribution deduction that is allowable under s 290-150 is limited by operation of the formula in s 26-55  –

   26‑55 Limit on deductions

   (1) There is a limit on the total of the amounts you can deduct for the income year under these provisions:

   (a) …

   …

   (d) section 290‑150 (which is about deductions for personal superannuation contributions).

   Do not include in the total an amount that you could also deduct under another provision of this Act, apart from section 8‑10 (which prevents double deductions).

   (2) The limit is worked out by subtracting from your assessable income all your deductions except:

   (a) *tax losses; and

   See Division 36 (which is about tax losses of earlier income years).

   (c) the amount you can deduct for the income year under section 393‑5 (which provides for deductions for making *farm management deposits).

1. The term ‘tax losses’ is defined under s 995-1 by reference, in part, to s 36-10, which is in the following terms –

   36‑10 How to calculate a tax loss for an income year

   (1) Add up the amounts you can deduct for an income year (except *tax losses for earlier income years).

   (2) Subtract your total assessable income.

   (3) …

   (4) Any amount remaining is your tax loss for the income year, which is called a loss year.

   Note 1: Some deductions are limited so that they cannot contribute to a tax loss. See section 26‑55 (Limit on certain deductions).

   Note 2: …

   (5) ...

2. There is no ambiguity in the text, operation or purposes of the legislation in respect of superannuation contribution deductions. The amount of personal superannuation contribution deduction that is allowable in a particular year is limited to the adjusted assessable income of the tax payer under s 26-55(2). This is so even though the allowable deduction may be lower than the cap on concessional contributions for that year, or lower than the total concessional contributions made.

3. Essentially, s 26-55 operates to preclude tax losses from the calculation of deduction limits with respect to personal superannuation contributions, and it limits personal superannuation contribution deductions that would produce tax losses. If a concessional contribution, and the potential deduction it represents, is greater than the limit on deductions under s 26-55, the part of the contribution that exceeds the limit is not allowable as a deduction under s 290-150 and it is within the scope of s 292-90. Confining contribution deductions to the income year in which the contribution is made (s 290-150(3)) is entirely consistent with this purpose.

4. Thus, if the concessional contribution exceeds the taxpayer’s adjusted taxable income, the balance is not allowable as a deduction and it is treated as a non-concessional contribution.

   Is part of the concessional contribution a non-concessional contribution because it is ‘not allowable as a deduction’?

5. The answer to this question is Yes.

6. Mr Ellis says that no part of the $50,000 concessional contribution Ms Sutton made in the year ending 30 June 2011 is ‘not allowable as a deduction’, or was ‘not deductible’: the $50,000 contribution did not exceed the concessional contributions cap for the year and, therefore, it is not a ‘non-concessional contribution’. He says that the difference between the contribution and Ms Sutton’s adjusted assessable income, $36,532, does not trigger s 292-90(4)(b).

7. This is not correct.

8. As Ms Sutton’s adjusted taxable income in the year ending 30 June 2011 was $13,468, this is the limit on deductions under s 290-150, applying s 26-55. The fact that she made a concessional contribution of $50,000 to the Fund in that year does not alter this result. The $50,000 cap describes a general limit, both in terms of concessional contributions and the amount of any related deductions, subject to other requirements being met. A concessional contribution deduction that would result in a tax loss is not an allowable deduction.

9. It follows that, the $36,532 balance of Ms Sutton’s $50,000 concessional contribution exceeds her adjusted taxable income for the year ending on 30 June 2011 and the limit imposed by s 26-55 on deductions under s 290-150. That it has not been claimed as a deduction is beside the point – whether claimed or not, and whether or not a determination has been made, it is not allowable as a deduction.

10. I am satisfied that s 292-90(4)(b) applies.

11. Thus, by operation of s 292-90(1), the part of Ms Sutton’s concessional contribution that is not allowable as a deduction ($36,532) is a non-concessional contribution for the year ending 30 June 2011.

    Is the non-concessional contribution in excess of the non-concessional contribution cap?

12. The answer to this question is also Yes.

13. Ms Sutton made a non-concessional contribution of $450,000 to the Fund in the year ending 30 June 2009. In consequence of this, under s 292-85, the applicable non-concessional contribution for the year ending 30 June 2011 is nil.

14. It follows that the amount of $36,532 is to be treated as an excess non-concessional contribution in that year, in respect of which, under s 292-80, excess non-concessional contributions tax is payable.

    What is the amount of tax payable?

15. The amount of the tax is set out in the Superannuation (Excess Non-concessional Contributions Tax) Act 2007. The applicable rate is 46.5 percent.

16. In the result, the amount of excess non-concessional contributions tax is $16,987.35.

    Conclusion

17. That being so, the objection decision is correct and it is affirmed.

I certify that the preceding 48 (forty -eight) paragraphs are a true copy of the reasons for the decision herein of Mr S. Webb, Member

...................[sgd].....................................................

Associate

Dated 16 September 2013

Date of hearing	2 September 2013
Date final submissions received	2 September 2013
Advocate for the Applicant	Bill Ellis, The 2020 Group
Counsel for the Respondent	Denis Barlin
Solicitors for the Respondent	Amy Chou, Review and Dispute Resolution Practice, Australian Tax Office