Pamela Dowling and Commissioner of Taxation
[2014] AATA 474
[2014] AATA 474
Division TAXATION APPEALS DIVISION File Numbers
2012/2727
2012/2728
Re
Pamela Dowling
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President I R Molloy
Date 14 July 2014 Place Brisbane The Tribunal affirms the objection decision.
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Deputy President I R Molloy
CATCHWORDS
TAXATION – Superannuation – Excess non-concessional contributions tax – Whether special circumstances – Whether discretion under Division 292 of the Income Tax Assessment Act 1997 (Cth) can be exercised – Decision under review affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth) ss 292-5, 292-465
CASES
Chantrell and Commissioner of Taxation [2012] AATA 179
Commissioner of Taxation v Dowling [2014] FCA 252
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Kerr and Commissioner of Taxation (2007) 67 ATR 710
Liwszyc v Commissioner of Taxation [2014] FCA 112
Lynton and Commissioner of Taxation [2012] AATA 667
Rawson and Commissioner of Taxation [2012] AATA 322
Riddell v Secretary, Department of Social Security (1993) 42 FCR 443
Schuurmans-Stekhoven and Federal Commissioner of Taxation (2012) 82 ATR 731
Tran and Commissioner of Taxation [2012] AATA 123
REASONS FOR DECISION
Deputy President I R Molloy
14 July 2014
Introduction
The applicant, Pamela Dowling, seeks the exercise of the discretionary power under
s 292-465(2) of the Income Tax Assessment Act 1997 (Cth) (“the ITAA”) to disregard or allocate to another financial year all or part of her non-concessional contributions to superannuation in the 2010/11 financial year which gave rise to a liability for excess non-concessional contributions tax.
This is a rehearing following an appeal to the Federal Court.[1] The parties agreed that the evidence in the previous hearing should be received as evidence in this hearing and, furthermore, that the findings of fact in the previous hearing should be accepted. Those findings were favourable to Mrs Dowling in that the Tribunal assessed her and her husband, John Dowling, as witnesses of truth.
[1] Commissioner of Taxation v Dowling [2014] FCA 252.
On this hearing further documentary evidence was received and brief additional oral evidence was given by Mr Dowling. I should record that I also found Mr Dowling to be truthful.
Issues
The exercise of the discretion is governed by ss 292-465(3) and (4) of the ITAA which provide:
(3) The Commissioner may make the determination only if he or she considers that:
(a) there are special circumstances; and
(b) making the determination is consistent with the object of this Division.
(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
The issues are:
·whether there are special circumstances warranting a change to the contributions giving rise to the liability for excess non-concessional contributions tax either by disregarding or reallocating some or all of those contributions and whether doing so is consistent with the object of Division 292 of the ITAA; and
·if the above preconditions are satisfied, whether the discretion should be exercised in favour of Mrs Dowling having regard to s 292-465(4).
Special circumstances
In 2008 Mrs Dowling maintained a Unisuper superannuation account, and Mr Dowling maintained a Sunsuper superannuation account. Mr Dowling was receiving a disability pension.
On 27 November 2008 Mr and Mrs Dowling spoke with a Centrelink finance officer to obtain financial advice about their assets and income.
On 3 February 2009 they met a Sunsuper representative to consider whether Mr Dowling could obtain an age pension when he turned 65 in April 2009.
Mr and Mrs Dowling were advised that a legitimate strategy would be for Mr Dowling to withdraw all of his superannuation, most of which had been accumulated during his working life, and re-contribute it into a new superannuation account in the name of Mrs Dowling.
On 6 February 2009, Mr Dowling gave effect to this strategy by withdrawing $293,895.75 from his Sunsuper account tax-free.
On 10 February 2009, the sum of $293,858.00 was paid as a non-concessional contribution to a Sunsuper superannuation account in the name of Mrs Dowling.
The annual non-concessional contributions cap was $150,000. By the contribution in February 2009, Mrs Dowling, who was aged under 65, triggered the three year “bring-forward” rule giving her an aggregate cap over three years of $450,000.
Neither Mrs Dowling nor Mr Dowling had any knowledge of excess contributions (or the tax implications). No advice on this issue was offered by the Centrelink officer or the Sunsuper representative.
In the following financial year, 2009/10, Mrs Dowling did not make any contributions to superannuation.
In the 2010/11 financial year, Mrs Dowling read reports in the media that superannuation benefits would not be taxed, or would be minimally taxed, when paid as a death benefit. Mrs Dowling formed the view that she was required to withdraw an amount from her superannuation account and re-contribute it as a personal non-concessional contribution.
On 30 August 2010, Mrs Dowling implemented this strategy by withdrawing $240,933.39 from her Unisuper superannuation account and re-contributed $200,000 to the same account.
Mrs Dowling did not seek any professional advice before she undertook this action.
The $200,000 contribution brought Mrs Dowling’s total non-concessional contributions in the three financial years ending 30 June 2011 to $493,858. Accordingly, she had exceeded her non-concessional contributions cap for the 2010/11 financial year by $43,858.
The excess non-concessional contributions rendered Mrs Dowling liable for excess contributions tax at a rate of 46.5%, amounting to $20,393.95.
An application for a determination under s 292-465(2) of the ITAA to disregard or reallocate the contribution in whole or in part was refused by the Commissioner. An objection to the excess contributions tax assessment, on the grounds of dissatisfaction with the Commissioner’s decision, was disallowed.
Mrs Dowling says that the 2010/11 contribution was a mistake in that she was unaware of the contributions cap. She says she was motivated by the desire to minimise tax payable by her children on her superannuation benefits after she dies.
Mrs Dowling says she did not receive any direct financial benefit from the relevant transaction, and that the withdrawal and further contribution essentially involved the same money. She believes that the amount of the tax, approximately 10% of her contributions to Unisuper, to be harsh and unfair.
The term “special circumstances” has been held to mean something unusual or different, outside the ordinary course of events.[2]
[2] Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545; Liwszyc v Commissioner of Taxation [2014] FCA 112 at [71].
Ignorance of the law,[3] mistake[4] and financial hardship[5] have not generally been regarded as constituting special circumstances.
[3] Schuurmans-Stekhoven and Federal Commissioner of Taxation (2012) 82 ATR 731; Tran and Commissioner of Taxation [2012] AATA 123 at [15].
[4] Chantrell and Commissioner of Taxation [2012] AATA 179; Rawson and Commissioner of Taxation [2012] AATA 322; Tran and Commissioner of Taxation [2012] AATA 123 at [19]; Liwszyc v Commissioner of Taxation [2014] FCA 112 at [77].
[5] Lynton and Commissioner of Taxation [2012] AATA 667 at [15]-[16].
Erroneous or deficient professional advice[6] and reliance on media reports[7] have also been said not to satisfy the requirement of special circumstances.
[6] Kerr and Commissioner of Taxation (2007) 67 ATR 710.
[7] Tran and Commissioner of Taxation [2012] AATA 123 at [20]-[21].
Each case, however, must be determined on its own merits.[8] It is a matter of looking at the relevant circumstances in their entirety.
[8] Riddell v Secretary, Department of Social Security (1993) 42 FCR 443 at 450.
I appreciate all that Mrs Dowling has said. She was not aware of the contributions cap. She would not have acted as she did, if she had known that she would be assessed for taxation as has occurred.
It is not correct, and I do not think Mrs Dowling asserts, that she did not gain any benefit at all from her actions. However I accept there was no significant and direct financial gain.
In the end, however, having regard to all of the circumstances, I am not able to say that the case displays special circumstances under s 292-465(3)(a) of the ITAA.
Object of Division 292
The object of the Division is stated in s 292-5 of the ITAA:
The object of this Division is to ensure… that the amount of concessionally taxed superannuation benefits that an individual receives results from superannuation contributions that have been made gradually over the course of the individual’s life.
The facts are that Mrs Dowling withdrew $240,933.39 from her Unisuper superannuation account in August 2010. She then made a lump sum contribution of $200,000 to the same account.
This was a new non-concessional contribution. The purpose was to differentiate this contribution from the monies which had been withdrawn, and thereby gain a tax advantage for Mrs Dowling’s children when she dies.
I am not able to say that disregarding or reallocating the lump sum contribution in whole or in part would be consistent with the object of Division 292.
Conclusion
The objection decision is affirmed.
I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy .............................Sgd.......................................
Associate
Dated 14 July 2014
Date of hearing 19 June 2014 Applicant In person Counsel for the Respondent Mr V. G. Brennan Solicitors for the Respondent Australian Taxation Office
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