KXCS and Commissioner of Taxation (Taxation)
[2021] AATA 4498
•3 December 2021
KXCS and Commissioner of Taxation (Taxation) [2021] AATA 4498 (3 December 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2020/7943
Re:KXCS
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member Dr M Evans-Bonner
Date:3 December 2021
Place:Perth
The Reviewable Decision, being the objection decision of the Deputy Commissioner of Taxation dated 13 October 2020, is affirmed.
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Senior Member Dr M Evans-Bonner
CATCHWORDS
TAXATION – income tax – superannuation contributions – Division 293 tax assessment – Applicant received lump sum redundancy and leave payout shortly before end of 2017-2018 financial year – whether discretion can be exercised under Division 293 - whether special circumstances apply to Division 293 - Reviewable Decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth) ss 83-10, 83-80, 291-465, 293, 293-5, 293-15, 293-20
Taxation Administration Act 1953 (Cth) ss 14ZZK(b)
CASES
Blank v Commissioner of Taxation [2015] FCAFC 154
DHDF and Commissioner of Taxation [2016] AATA 778
Re Tong and Federal Commissioner of Taxation [2007] AATA 1234; (2007) 66 ATR 412
REASONS FOR DECISION
Senior Member Dr M Evans-Bonner
3 December 2021
THE APPLICATION
This application concerns the application of Division 293 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997).
The Applicant has sought review in this Tribunal of an objection decision dated 13 October 2020 (Reviewable Decision), which confirmed that he was liable to pay Division 293 tax for the 2017-2018 income year (T2/4-6).
BACKGROUND
The Applicant was made redundant on 22 May 2018 after 12 years of working for his company. The redundancy came as a shock to him (T4/8).
He received a lump sum payment which included a redundancy payout and payouts for accrued annual leave and long service leave.
Unfortunately for the Applicant, this lump sum payment increased his income and superannuation contributions for the 2017 – 2018 financial year to $257,546, which exceeded the Division 293 earnings threshold.
The consequence was that the Applicant became liable to pay Division 293 tax, specifically, additional tax on his superannuation contributions for the 2017-2018 financial year (ss 293-15, 293-20 ITAA 1997).
There is no dispute between the parties as to the amount of the Applicant’s taxable income and superannuation contributions, or that he exceeds the Division 293 earnings threshold of $250,000.
THE APPLICANT’S SUBMISSIONS
The Applicant argued that the imposition of the Division 293 tax is not fair and that he should not be required to pay it. He felt that he was being unfairly penalised for being made redundant shortly before the end of the financial year. It is understandable that as well as experiencing the shock of the redundancy, the Applicant was upset when he received an assessment to pay an additional amount of tax because of the timing of his redundancy and payout. If the lump sum was paid to him after 30 June 2018, he would not have incurred the tax liability.
The Applicant submitted that some sort of discretion should be exercised so that he does not have to pay the Division 293 tax. He submitted that being made redundant shortly before the end of the financial year constituted special circumstances. The Applicant also suggested that the amounts of accrued leave he was paid out for (long service leave and/or annual leave), some of which related to previous financial years, could be disregarded to reduce his income and superannuation contributions to below the Division 293 earnings threshold of $250,000. The Applicant expressed the opinion that the intention of the Division would not be to penalise people who have been made redundant in similar circumstances to him.
The Commissioner submitted that there is no discretion under Division 293 that could be exercised as requested by the Applicant, and therefore, that the Reviewable Decision should be affirmed.
CONSIDERATION
The object of Division 293 is “to reduce the concessional tax treatment of superannuation contributions for high income individuals” (s 293-5 ITAA 1997). That is, its aim is to bring fairness to taxpayers by requiring high income earners (those who exceed the income threshold of $250,000) to pay an increased amount of tax on their superannuation contributions.
Unused annual leave payments and unused long service leave payments are assessable income (ss 83-10, 83-80 ITAA 1997). In DHDF and Commissioner of Taxation [2016] AATA 778 (DHDF) Deputy President Deutsch, citing the Full Federal Court decision of Blank v Commissioner of Taxation [2015] FCAFC 154 and the Tribunal decision in Re Tong and Federal Commissioner of Taxation [2007] AATA 1234; (2007) 66 ATR 412, explained that:
9.The accepted tax treatment of income derived from employment is that employment income is derived when the income is actually received irrespective of the period for which the payment occurs.
In DHDF, Deputy President Deutsch further explained that salary relating to a past (or future) income year is assessable in the income year when the income was received:
10.Arrears of salary for example, paid after the resolution of the dispute are assessable income in the year of receipt thus salary wages or other employment remuneration are assessable on receipt even though they relate to a past or a future income year: Case U152 (1987) 87 ATC 894 and AAT Case 4188 [1988] AATA 73; (1988) 19 ATR 3336.
Thus, even though some of the Applicant’s annual leave and long service leave related to past income tax years, the payout amounts he received for them constitute income for the 2017-2018 tax year, being the tax year when they were received.
The Applicant’s submission with respect to special circumstances is somewhat understandable because the Commissioner applied special circumstances in making a separate objection decision dated 1 June 2021 (T19/55), that is not the subject of this review. In that objection decision the Commissioner found that there were special circumstances and decided to disregard an amount of superannuation guarantee contributions made by the Applicant’s employer. However, that decision was made under a different Division of the ITAA 1997, specifically s 291-465 in Division 291.
The Applicant argued that if there is discretion to consider special circumstances under Division 291, there should be a similar discretion under Division 293. However, there is no equivalent provision to s 291-465 of the ITAA 1997 in Division 293 that would permit the Commissioner (or the Tribunal standing in the shoes of the Commissioner) to consider special circumstances. In DHDF, Deputy President Deutsch explained at [15]: “there is no express statutory discretion available under division 293 of the kind which is present in division 291 and division 292, namely sections 291-465 and section 292-465 respectively”.
CONCLUSION
For the reasons outlined above, I find that the Applicant’s redundancy and leave payouts are part of his 2017-2018 income. I do not have any discretion under Division 293 to alter, reduce, remove, disregard, or allocate to another financial year, any amount of leave payout from the amount of the Applicant’s 2017-2018 income. There is no discretion to apply special circumstances.
Consequently, the Applicant has been unable to meet the burden of proving that the Reviewable Decision is excessive or otherwise incorrect (s 14ZZK(b) Taxation Administration Act 1953 (Cth)).
DECISION
The Reviewable Decision, being the objection decision of the Deputy Commissioner of Taxation dated 13 October 2020, is affirmed.
I certify that the preceding 19 (nineteen) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr M Evans-Bonner
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Associate
Dated: 3 December 2021
Dates of hearing: 1 December 2021 Representative for the Applicant: Self-represented Representative for the Respondent: Ms K McClurkin, instructed by Mr D Scalzi of the Australian Taxation Office
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