Pamela Dowling and Commissioner of Taxation
[2013] AATA 49
[2013] AATA 49
Division TAXATION APPEALS DIVISION File Numbers
2012/2727
2012/2728
Re
Pamela Dowling
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member Dr K S Levy, RFD
Date 1 February 2013 Place Brisbane The Tribunal decides:
The decision under review is set aside;
In accordance with s 292-465(1)(b), the non-concessional contribution for 2009 (Transaction 1) is to be disregarded;
The subsequent transaction in 2010 (Transaction 2) does not constitute “special circumstances”; and
The penalty assessment be set aside for these transactions.
........................................................................
Senior Member Dr K S Levy, RFD
CATCHWORDS
TAXATION – Superannuation – Excess Non-Concessional Contributions Tax – Special circumstances – Discretion under Div 292 – Decision set aside.
LEGISLATION
Income Tax Assessment Act 1936 (Cth) s 140ZB
Income Tax Assessment Act 1997 (Cth) ss 292-5, 292-15, 292-20, 292-465
Superannuation (Excess Non-Concessional Contributions Tax) Act 2007 (Cth)
Superannuation (Excess Concessional Contributions Tax) Act 2007 (Cth)
Taxation Administration Act 1953 (Cth) s 14ZZK
CASES
AAT Case 64/96, No 11,379 (1996) 34 ATR 1175
Beadle v Director-General of Social Security (1985) 60 ALR 225
Groth v Department of Social Security (1995) 40 ALD 541
Hurlingham Estate Ltd v Wild and Partners (1996) 37 ATR 261
Leda Pty Ltd v Weerden (2007) 63 ACSR 636
Re Bornstein and Commissioner of Taxation [2012] AATA 424
Re Chantrell and Commissioner of Taxation [2012] AATA 179
Re Kerr and the Commissioner of Taxation (2007) 67 ATR 710
Re Leckie and Commissioner of Taxation [2012] AATA 129
Re Naude and Commissioner of Taxation [2012] AATA 130
Re Peaker and Commissioner of Taxation [2012] AATA 140
Re Rawson and Commissioner of Taxation [2012] AATA 322
Re Thommeny and Commissioner of Taxation (2006) 64 ATR 1092
Re Tran and Commissioner of Taxation [2012] AATA 123
Riddell v Secretary, Department of Social Security (1993) 42 FCR 443
Schuurmans-Stekhoven and Federal Commissioner of Taxation (2012) 82 ATR 731
SECONDARY MATERIALS
Explanatory Memorandum to Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth)
Practice Statement Law Administration 2008-1
REASONS FOR DECISION
Senior Member Dr K S Levy, RFD
1 February 2013
INTRODUCTION
Prior to 2008, the applicant Mrs Pamela Dowling and her husband, Mr John Dowling had separate superannuation accounts; Mrs Dowling had an account with Unisuper, and Mr Dowling had an account with Sunsuper. In 2008-9, in anticipation of Mr Dowling reaching the eligibility for the age pension, he transferred his superannuation into a new account that was in the applicant’s name with Sunsuper (“Transaction 1”). This occurred following advice sought from both a Centrelink Finance Officer and a representative of Sunsuper. In 2010-11, Mrs Dowling then made another transaction with her Unisuper superannuation account, this time withdrawing $240,000 and re-contributing $200,000 of it to the same account, on the understanding that this would be beneficial to her children after she died (“Transaction 2”).
The Commissioner assessed Mrs Dowling as having made an excess non-concessional contribution in 2010-11 of $43,858 for that year. She requested the Commissioner exercise his discretion to disregard that amount or have it allocated to another financial year. The Commissioner determined on 30 April 2012 that this discretion should not be exercised. As a consequence, the Commissioner then issued an excess contribution assessment on 11 May 2012. Mrs Dowling then lodged an objection to the assessment on 5 June 2012. On 12 June 2012 the objection was disallowed.
The applicant now appeals to this Tribunal for further review of that decision.
ISSUE FOR DETERMINATION
Should a discretion be exercised to disregard the excess contribution or to allocate the excess to another financial year?
EVIDENCE
The applicant appeared at the Tribunal with her husband, Mr John Dowling. They represented themselves. The present matter originally arose from a desire for Mr Dowling, who is on a disability pension, to be able to also obtain the age pension when he turned 65 in April 2009.
In anticipation of that date, the following facts are relevant:
(a)Mr and Mrs Dowling spoke with a Centrelink Finance Officer to obtain financial advice on 27 November 2008 about their relevant assets and income.
(b)Prior to February 2009, Mrs Dowling maintained a Unisuper account.
(c)Prior to February 2009, Mr Dowling maintained a Sunsuper account.
(d)On 3 February 2009, they met a Sunsuper representative, Mr Peter Hamilton of DGZ Financial Planning to consider whether Mr Dowling could obtain the age pension when he turned 65. They were advised that a legitimate strategy would be to withdraw all of the superannuation of Mr Dowling and re-contribute into a new superannuation account in the name of Pamela Dowling.
(e)On 6 February 2009, Mr Dowling withdrew $293,895.75 from his Sunsuper account tax free, as he was over 60 years of age.
(f)The written evidence of the Sunsuper agent is that on 10 February 2009, an amount of $293,858 was paid as a contribution to a Sunsuper account in the name of Mrs Dowling.
(g)In the 2010-11 financial year, Mrs Dowling read in the media that superannuation benefits would not be taxed or would be minimally taxed, when paid as a death benefit to estate beneficiaries. This required a withdrawal of her benefits and then to re-contribute it as a personal (non-concessional) contribution. She did not seek professional advice from a tax lawyer or accountant when she undertook this action.
(h)On 30 August 2010, she implemented that strategy. She withdrew $240,933.39 from her superannuation fund and made a $200,000 contribution to her Unisuper account (and retained the balance). This was a non-concessional contribution for the 2010-11 year.
(i)As a result, Mrs Dowling was regarded as activating what is known as the three year “bring forward” rule. That is, whereas she would have been entitled to contribute up to $150,000 in non-concessional contributions for each of the following three financial years, the fact that she had exceeded the amount of $150,000, meant that she could contribute, by the three year rule, up to $450,000 in that year, but could contribute nothing more than that maximum amount (or the balance of the three year total) for the remainder of that three year period.
Applicant’s statement of 20 June 2012
In response to the notice of assessment of excess contribution tax, the applicant responded to the Deputy Commissioner of Taxation and explained her circumstances that she had received advice from a financial officer in the Bundaberg office of Centrelink in anticipation of her husband turning 65 years of age. She also explained that both she and her husband had been previously married and that they both had children of their previous marriages, who they each wished to benefit from their respective individual superannuation after they died. She confirmed that on 24 August 2010, without a consulting a financial advisor, she withdrew an amount from her account and re-contributed it based on information she had read in the media.
Applicant’s letter to the Commissioner dated 10 September 2012
The letter dated 10 September 2012 has a number of attachments and was forwarded to the Tribunal with the applicant’s statement of 9 October 2012. Inter alia, attached to that letter, was evidence in the form of a statement by Mr Dowling; correspondence from the Commissioner from 2 March 2012 up to October 2012; a statement by the applicant; and a statement of Facts, Issues and Contentions by the applicant.
Her letter of 10 September 2012 provides corroboration of evidence she has relied upon in the past, in particular, evidence of meetings with financial advisors of both Centrelink and also Sunsuper.
The statement of Mr Dowling, in addition to corroborating the evidence of Mrs Dowling, also noted that at no time was the matter of excess contributions raised by either Centrelink or Sunsuper. His statement indicates that “now” he realises that the original transfer of his superannuation into the name of Mrs Dowling was the origin of the non-concessional contribution problem now experienced by his wife. Mr Dowling’s statement was not signed or dated but in addition to giving oral evidence at the Tribunal hearing he affirmed that it was his statement and it was true and correct.
In relation to evidence of the financial advisers at Centrelink and also Sunsuper, Mrs Dowling stated all of the advice that she and her husband had received was verbal. There is a letter dated 3 September 2012 by Peter Hamilton at DGZ Financial Planning which confirmed that the earlier evidence that they obtained from Centrelink was “legitimate” and that “… Centrelink would not assess Pamela’s superannuation until she reached age pension age”. This was the basis of the strategies pursued by the applicant and her husband in 2009.
In her letter to the Commissioner of Taxation, the applicant included reasons why she sought review of the objection decision and why she thought it was not correct. In particular, she stated:
(1)In relation to the Commissioner’s arguments that “ignorance of the law” is no excuse, Mrs Dowling said she did not accept that she was aware that the withdrawal from her husband’s account would leave her “… $156,142.00 remaining from the $450,000.00 bring-forward cap amount”.
(2)She did not understand the withdrawal and re-contribution in August 2010 would result in her exceeding her non-concessional contributions cap.
(3)She denied that she had sought financial advice from two independent advisors and therefore did not accept the Commissioner’s reasons for his decision that she “should have been advised of the consequences of these decisions”.
She also made two other contentions:
(1)She did not gain any monetary benefits (other than tangentially, through those which were approved by Centrelink for her husband); and
(2)She did not add additional contributions to any of the re-contributed amounts. In other words, she said there was no new money being added to any of the superannuation of either her husband or herself. Rather, they had just restructured their superannuation using the same amounts by merely withdrawing and re-contributing their own money.
In response to these submissions, the Commissioner decided in his decisions dated 12 June 2012 that he did not see justification for altering his previous decision as he did not regard the facts as disclosing “special circumstances” nor was there justification for exercising the discretion to absolve Mrs Dowling from the excess non-concessional contribution tax.
CONSIDERATION
I have taken into account the statutory law, the case law and the parties’ submissions as to the application of the facts to the law. It is notable that there has been an increasing number of cases dealing with these statutory provisions in the Tribunal in 2012.
The Statutory Law – Background to the Relevant Provisions
Division 292 of the Income Tax Assessment Act 1997 (“ITAA 97”) prescribes the limits of concessional and non-concessional contributions that can be made into superannuation over an annual or three year period. Where those limits are exceeded, the taxpayer is personally liable for the excess contributions tax which results (s 292-15 ITAA 97). The amount of the excess contribution tax depends on whether the contribution is concessional or non-concessional. The excess contribution taxes are authorised by the Superannuation (Excess Non-Concessional Contributions Tax) Act 2007 and the Superannuation (Excess Concessional Contributions Tax) Act 2007.
Concessional contributions are taxed at 15% and are paid by the Fund at the time of deposit. Any excess concessional contributions are taxed at 31.5% and this is paid by the tax payer. This means when excess contributions are paid the total tax paid is 46.5%, which equates to the top marginal rate of taxation which can be imposed.
Non-concessional contributions attract no tax. However, if excess non-concessional contributions are made, these are taxed at 46.5%.
This case concerns non-concessional contributions.
Where excess contribution tax is paid, the law now provides that the individual may be permitted to withdraw that amount from the taxpayer’s superannuation account in order to pay the excess contributions tax.
There are limits on the amounts which a taxpayer may contribute annually to concessional contributions and non-concessional contributions. For the 2009-10 and 2010-11 years, the contribution limit prescribed for concessional contributions was $50,000 per annum. The level of non-concessional contributions for those financial years was three times that amount, or $150,000 per annum (s 292-20 ITAA 97).
There is a mechanism used by some taxpayers to “bring forward” up to three years of non-concessional contributions in a financial year but if this is used, then no further contributions beyond the total amount of a three year limit can be made for the remainder of that three year period. This applies to individual taxpayers.
The applicant has argued that the amount of excess tax of $20,393.95 (or 46.5% of the excess contribution of $43,858) is unfair. She says that apart from the circumstances in which she agreed to her husband opening a superannuation account in her name, she undertook the second transaction in August 2010 after she saw information contained in a newspaper article in respect of a “withdrawal and re-contribution” strategy. She said she was motivated by the desire to minimise tax payable by her children on her superannuation benefits after she dies.
Relevant Statutory Law
The relevant law relating to the issue of whether a discretion should be exercised to disregard the excess contribution or allocate to another financial year is contained in Division 292 of ITAA 97. This is set out below:
292‑465 Commissioner’s discretion to disregard contributions etc. in relation to a financial year
1If you make an application in accordance with subsection (2), the Commissioner may make a written determination that, for the purposes of this Division:
(a)all or part of your *concessional contributions for a *financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination; and
(b)all or part of your *non‑concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination.
2You may apply to the Commissioner in the *approved form for a determination under subsection (1). The application can only be made:
(a)after all of the contributions sought to be disregarded or reallocated have been made; and
(b)if you receive an *excess contributions tax assessment for the *financial year—before the end of:
(i) the period of 60 days starting on the day you receive the assessment; or
(ii) if the Commissioner allows a longer period—that longer period.
3The 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.
4In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
The starting point for assessing whether a discretion could be exercised, involves determining whether the pre-conditions in s 292-465(3) are satisfied. That is the applicant must show both:
(a) “special circumstances”; and
(b)that the exercise of the discretion would be consistent with the object of Division 292.
What are “Special Circumstances”?
Mr Brennan referred the Tribunal to the often cited case of Groth v Department of Social Security (1995) 40 ALD 541 at 545 where Kiefel J said the explanation of the term “special circumstances” did not require “judicial gloss”. Her Honour said for “special circumstances” to exist, there must be some aspect which distinguishes a case from the “usual or ordinary case”. Mr Brennan submitted it must also be shown that this would lead to a result which is unfair, unreasonable or inappropriate or which was unintended by the legislation (Beadle v Director-General of Social Security (1985) 60 ALR 225 at 228 per Bowen CJ, Fisher and Lockhart JJ).
The respondent submitted that there are certain precedents which guide what constitutes “special circumstances” for the purposes of this section. An examination of a number of authorities, particularly recent authorities which consider s 292-465 ITAA 97 and the similarly worded s 140ZB Income Tax Assessment Act 1936, reveals the following:
(1)An error on the part of a third party will not, of itself, constitute “special circumstances” (Re Thommeny and Commissioner of Taxation (2006) 64 ATR 1092);
(2)Erroneous financial advice has been held not to be “special circumstances” (Re Kerr and the Commissioner of Taxation (2007) 67 ATR 710); and
(3)Ignorance of superannuation law is not, of itself, a special circumstance (Schuurmans-Stekhoven and Federal Commissioner of Taxation (2012) 82 ATR 731).
The above decisions have been followed in Re Peaker and Commissioner of Taxation [2012] AATA 140 at paras [13]-[22]; Re Paget and Commissioner of Taxation [2012] AATA 334; and Re Colless and Commissioner of Taxation [2012] AATA 441. Decisions involving excess contributions as a result of salary sacrifice arrangements have also resulted in the same outcome (Re Leckie and Commissioner of Taxation [2012] AATA 129; Re Naude and Commissioner of Taxation [2012] AATA 130). The relative strictness in applying these provisions is evident in these cases. An error which results even though the applicant’s intention was to make a contribution to superannuation in a different year, will not amount to “special circumstances” (Re Chantrell and Commissioner of Taxation [2012] AATA 179). That decision was followed in very similar circumstances in Re Rawson and Commissioner of Taxation [2012] AATA 322 (“Rawson”).
It is to be noted that where a contribution is made as a result of media reports (as is the case here), a sympathetic approach cannot be expected on the basis of “special circumstances” (Re Tran and Commissioner of Taxation [2012] AATA 123).
Recently, however, “special circumstances” were held to exist where there was “a ‘perfect storm’ of events, miscommunications and misunderstandings that combine to leave the taxpayer in an unusual and unfortunate position” (Re Bornstein and Commissioner of Taxation [2012] AATA 424). That decision involved the taxpayer receiving advice from his accountant and the interpretation of the ATO website, which, together, were regarded as the “special circumstances”. I asked Counsel for the Commissioner what the respondent’s position was in relation to the application of that case. He stated unlike Bornstein, there was no issue in the present matter which could be sheeted home to some ambiguity associated with information on the ATO website. I agree with that submission. He also submitted that Mrs Dowling admitted not taking any financial advice in relation to the second transaction and that the only arguments which may be made in her support would be firstly, that there was a responsibility on Sunsuper to advise the applicant in view of the magnitude of the transaction; and secondly, if the Tribunal found “special circumstances” existed, then it was submitted that the only discretion which should be considered would be to disregard the payment and not to allocate it to another year. I will deal with these last two submissions later in these reasons.
One of the most informative extrinsic guides to the interpretation of these statutory provisions is to be found in the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007, where paragraph 1.117 sets out the intended interpretation of the term “special circumstances” as follows:
It is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case-to-case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.
That paragraph is repeated in Practice Statement Law Administration (PS LA) 2008-1 at paragraph 24. PS LA 2008-1 provides a guide for the exercise of the discretion under s 292-465. Paragraph 25 of PS LA 2008-1 is also informative. It states:
In determining whether there are special circumstances in a given case, a decision maker should consider whether there are circumstances which are outside the ordinary course. In deciding whether the circumstances are outside the ordinary course, it is highly relevant whether the imposition of the excess contributions tax would be unjust, unreasonable or otherwise inappropriate.
I note also that PS LA 2008-1 states that financial hardship, ignorance of the law, incorrect professional advice, and retrospectivity of law or adverse effects of legislative changes would not generally amount to “special circumstances” (see paragraph 36). But merely because such a factor exists cannot result in peremptory rejection of the claim (see paragraph 37).
The above principles and precedents are of strong and persuasive value, but each case must be determined on its own merits (Riddell v Secretary, Department of Social Security (1993) 42 FCR 443 at 450). I note also that the onus of proof is on the applicant to show that the assessment is excessive (s 14ZZK(b)(i) of Taxation Administration Act 1953).
When considering “special circumstances”, it is expected that only a small percentage of cases would be likely to demonstrate “special circumstances”. The facts of a case must be truly special or unusual and in addition, the imposition of excess non-concessional contributions tax would need to be shown to be unjust, unreasonable or inappropriate if the ultimate decision is to reflect “special circumstances”.
I now turn to deal with the transactions involved in contributing the applicant’s present superannuation excess contribution assessment. The issue for determination is set out in paragraph 4 of this decision. In addressing this question, the applicant has made two distinct transactions where “special circumstances” must be considered in relation to the excess contribution tax assessed. These are:
(a)The transfer of Mr Dowling’s superannuation to the applicant (Transaction 1); and
(b)The non-concessional contribution by Mrs Dowling in August 2010 (Transaction 2).
Transaction 1 - The Transfer Of Mr Dowling’s Superannuation To The Applicant
In applying the law above, I am satisfied that there are “special circumstances” in relation to this transaction as far as the applicant is concerned. In considering the evidence, I found both the applicant and her husband to be witnesses of truth. “Special circumstances” does not require judicial gloss (“Beadle”). This was approved in Groth. Further, the decision in Groth was in agreement with the reasoning of the three member Tribunal, which was the subject of the appeal. That Tribunal decision referred to a number of earlier decisions and said:
(a)“special circumstances” will exist “if the circumstances are such that it is unreasonable, unjust or inappropriate …”; and
(b)that the assessment of “special circumstances” must be made against the background of the purpose of the legislation; and
(c)that “[t]he circumstances of a particular case will give rise relevantly to an unreasonable or unjust result only if the operation of [the relevant statutory provisions], apart from the ameliorating provisions … produces that result” (Secretary Department of Social Security v Smith (1991) 23 ALD 277 at 282; 30 FCR 56 at 62).
In particular, I find there are “special circumstances” for this transaction for an amalgam of the following reasons:
(1)Mr and Mrs Dowling’s circumstances are that their superannuation accounts are kept separate to try to ensure the children of their former marriages will benefit from their individual superannuation on their deaths. That, in itself, is not out of the ordinary. But those circumstances led to Mr Dowling, with the concurrence of Mrs Dowling, to gift his superannuation to Mrs Dowling by way of a new account with Sunsuper in Mrs Dowling’s name, after taking advice from Centrelink and Sunsuper. The ultimate purpose of this strategy was that Mr Dowling would then be entitled to age pension (in addition to his disability pension) when he turned 65, a year or so after they made their enquiries with Centrelink.
If there had not been this practical issue for Mr Dowling, then the “bring forward” provisions would not have been engaged for Mrs Dowling. She has therefore been affected consequentially by the re-arrangement of her husband’s affairs, rather than to advance her own position primarily.
(2)I agree with the finding in the ATO’s original decision that Mrs Dowling obtained financial advice from two independent financial advisers. I find however that she, in conjunction with Mr Dowling, were not negligent in relation to this transaction. They endeavoured to obtain advice to ensure what they did was legally permissible. They sought advice from a financial advisor employed by Centrelink and a private sector financial adviser who was the agent of Sunsuper over the period from 27 November 2008 to 3 February 2009. In particular:
a. The applicant sought advice in good faith. Centrelink did not provide written advice. The independent advice from Sunsuper, which confirmed that the initial advice from Centrelink was correct, is evidence of the applicant’s attempt to be diligent and to verify the legitimacy of the initial advice received from Centrelink. The recent letter from DGZ Financial Planning shows that paperwork was completed that day for withdrawal of Mr Dowling’s superannuation at the applicant’s request. The evidence shows only that the record is transactional and did not relate to any professional knowledge based advice. The correspondence shows the advisers did not provide any written advice, which is a standard practice amongst professional financial advisers. The advice on both those occasions was obviously not complete in any professional sense and, I find it was oral advice as put in evidence by the applicant, Mrs Dowling.
b. The applicant and Mr Dowling sought advice from Centrelink which was free of charge and from Sunsuper’s agent (who did not charge the applicant a fee). There is no dispute about those facts and it is not exceptional for superannuation advice to be provided free by superannuation funds to its members. In relation to advice from professional advisers, Courts have recognised that at least for commercial clients, professional advisers have a duty which may expand or contract, depending on the sophistication of their clients (Hurlingham Estate Ltd v Wild and Partners (1996) 37 ATR 261 at 267 per Lightman J). Indeed it has been recognised that a client may not know the extent of the advice needed and consequently, a lawyer (or perhaps any other advisor) may have a responsibility for determining questions which the client needs to have answered (See Leda Pty Ltd v Weerden (2007) 63 ACSR 636). Therefore, a mere ignorance of the law (which, by itself, is not a defence) may be relative to the circumstances including the level of advice given, the degree of sophistication of clients and the magnitude of the amount involved. I make a finding of fact that Mr and Mrs Dowling did not have any knowledge of excess contributions (or the corresponding tax) and no advice on this issue was offered by the financial adviser from Centrelink (whose role probably did not encompass financial advice of this nature). It is clear that the Sunsuper representative did not give the relevant advice either.
c. The applicant and her husband were undertaking a complex transaction involving two superannuation funds and neither of which involved any knowledge of the other, and there is no suggestion of anything deceitful in this regard.
d. The ATO’s original decision relied, in part, on the reasoning that the applicant could have or should have obtained information from the financial advisers about excess contributions or excess contributions tax. Given the evidence now available, I do not regard that as a sustainable reason as I found the evidence to indicate that neither Mrs Dowling nor Mr Dowling had any real concept of excess contributions before or after consulting either of the financial advisers and therefore would not have been in a position to ask appropriate questions. “Special circumstances” is concerned predominantly with the special nature of the circumstances and not with the financial amount of the excess. Also, the cases show it is clearly of no benefit to a taxpayer seeking relief to show that there has been an innocent mistake; ignorance of the law; or a failure of a financial planner to properly inform a taxpayer (Rawson). However, although ignorance of the law is no defence of itself, I am satisfied that Mrs Dowling and her husband exercised due diligence of reasonable persons in their position and attempted to get advice, but inadvertently, did not receive advice in a professional manner. They did not have a concept of the excess non-concessional contributions tax before or after consulting either of the financial advisers.
e. The reasons in subparagraph d above are strengthened when considering the applicant’s letter of 10 September 2012 (which is subsequent to the ATO decisions) and now provides evidence which was not available to the ATO decision maker. That provides corroboration that she only received oral advice as she contends. Her evidence is supported by Mr Peter Hamilton’s letter of 3 September 2012, who confirmed advice he gave on 3 February 2009 in relation to the transfer of Mr Dowling’s superannuation which Mr and Mrs Dowling had initially received from Centrelink (Attachment to applicant’s letter of 10 September 2012).
(3)This transaction, is also different from the usual case as there were no actual new contributions made, only rearranging their existing funds (although that, of itself, is not sufficient to amount to “special circumstances”).
(4)Most of the precedent decisions involve those who are employed and it might be expected employed persons and employees have the opportunity to develop at least some day to day insight from their organisation about the law surrounding Division 292, its purpose and the extent to which it will apply to them.
The applicants here are not employed. They are retired. They took advice but the action taken based on that advice led them into technical error under the law. They are not particularly wealthy in terms of Superannuation, the purpose of the law of Superannuation being to encourage individuals to be financially self-sufficient in retirement rather than dependent on social security payments.
Mr Brennan referred me, inter alia, to Tran where Member Dr Gordon Hughes said the important issue is not the misfortune of the taxpayer but the uniqueness of the circumstances. I agree that is a correct reflection of the emphasis when considering “special circumstances”. However, taking account of the circumstances in their entirety, I am satisfied that “special circumstances” exist in relation to Transaction 1. In addition, that conclusion is reinforced as the circumstances “give rise relevantly to an unreasonable or unjust result only if the operation of [the statutory provisions here], apart from the ameliorating provisions … produces that result” (Secretary Department of Social Security v Smith (1991) 23 ALD 277 at 282; 30 FCR 56 at 62).
In particular, the penalty of $20,393.95 would be particularly harsh for Mrs Dowling’s own superannuation of about $200,000. The intention of the superannuation legislation more broadly is to make individuals more self-sufficient and not be reliant on public revenue. The applicant and her husband are retired and while the breach has been a result of insufficient competent advice, the culpability of the applicant is minimised and that was done to comply with the law as it presently exists. This is also relevant to consideration of the exercise of the discretion (see paragraph 40 PS LA 2008-1 and the following paragraphs).
Transaction 2 - The Non Concessional Contribution by Mrs Dowling in August 2010
Applying the factors discussed above, there are no “special circumstances” as a matter of law for Transaction 2.
In the applicant’s original application for review dated 2 April 2012 completed on her behalf by her representative from David Habermann & Co, there is a proposition that the applicant and her husband in August 2009 and August 2010 were advised to undertake a ‘withdrawal’ and ‘re-contribution’ strategy and Attachments A to E to that application were provided by the applicant. I find that there is no evidence of any weight to support the applicant’s arguments in relation to Transaction 2. This was then, some eight to nine months after Transaction 1 and in addition, advice was available over a longer period but not sought out. Those attachments seem to confirm a record of what had occurred, not what advice was given. The context of these transactions which make up Transaction 2 may be very different to Transaction 1 and in any event, there is no evidence to support the contention that the applicant was advised to carry out a ‘withdrawal’ and ‘re-contribution’ strategy.
While I did not accept the ATO proposition that for Transaction 1, imputing into the evidence what the applicant should have been advised for Transaction 2, the applicant had by then, experience of Transaction 1 and could have obviously spoken to financial advisers over a much lengthier period, which she concedes did not occur. As Counsel for the Commissioner pointed out, the facts and principles in Tran are very similar to Transaction 2 without any of the redeeming features which I found with Transaction 1.For these reasons, a more strict application of the common law in terms of ignorance of the law and inadequate or erroneous financial advice should be applied to this transaction. The applicant cannot succeed in Transaction 2 as “special circumstances” do not exist for that transaction.
Conclusion as to “Special Circumstances”
For the above reasons, I find that “special circumstances” are properly established for Transaction 1 in this case. Further, I find that no “special circumstances” arise in Transaction 2.
Would the exercise of a discretion under s 292-465(3) be consistent with the object of Division 292?
As the applicant has demonstrated “special circumstances” for Transaction 1, consideration must now be given to whether the exercise of the discretion in the applicant’s favour would be consistent with objects of Division 292. In that regard, the Tribunal is guided by sub-sections 292-465(5) and (6). As there are no “special circumstances” in relation to Transaction 2, there will be no consideration of the discretion for Transaction 2.
The object of Division 292 is stated in s 292-5:
The object of Division is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person’s life. (Also, see paragraph 19 PS LA 2008-1.)
The cap set for both concessional and non-concessional contributions is an effective mechanism to reasonably limit the earnings which are concessionally taxed in a superannuation fund (see paragraphs 19 and 20 PS LA 2008-1).
The applicant argues that:
·She did not gain any monetary benefit (other than the fact that she may gain some adjunct benefit consequentially as her husband would be entitled to age pension); and
·She did not add any additional contribution. That is, no new money was added to the combined superannuation of herself and her husband. They merely withdrew and re-contributed their own money.
There is no real dispute with any of those factual submissions.
Mr Brennan said the apparent absence of any direct financial benefit from her contributions is an irrelevant consideration. I agree that is not a specific requirement of the statutory law or the case law and does not, of itself, assist in establishing “special circumstances”. However, the applicant’s submission does go to establish Transaction 1 was at least, not inconsistent with Division 292, and therefore, it does assist in this issue to establish whether the exercise of the discretion would be consistent with the objects of Division 292.
The relevant provisions are set out in ss 292-465(5) and (6) ITAA 97:
(5)The Commissioner may have regard to whether a contribution made in the relevant *financial year would more appropriately be allocated towards another financial year instead.
(6)The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have *excess concessional contributions or *excess non‑concessional contributions for the relevant *financial year, and in particular:
(a)if the relevant contribution is made in respect of you by another person—the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and
(b)the extent to which you had control over the making of the contribution
The object of Division 292 may be considered satisfied where the “special circumstances” justify a determination being made to disregard the excess contributions or allocate them to a different financial year. Specifically, if the “special circumstances” relate more directly to the amount of the contribution, then the Tribunal may be more at liberty to determine that an excess contribution might be disregarded. Alternatively, where the “special circumstances” show that a contribution might be more appropriately applicable to a different financial year, then such allocation may be appropriate (see paragraph 30 PS LA 2008-1).
In this case, there are no factual circumstances about whether the chronology of events would present a compelling case for allocating an excess non-concessional contribution to another financial year. Therefore, I find that any action under s 292-465(5) would be an inappropriate option in this case. I therefore agree with the respondent’s submission in this regard.
With respect to s 292-465(6), the question for the Tribunal is whether it was “reasonably foreseeable” in August 2010, that the non-concessional contribution made might result in an excess contribution.
Unlike Rawson, which was based on facts with some similar features, Mrs Dowling and her husband were not conducting a business when the husband was trying to deposit money to his wife’s superannuation account as a non-arm’s length employer. Indeed, there was no contribution by employees or employers in this case as commonly occurs, such as in Schuurman-Stekhoven, Tran, Peaker or Rawson. Mrs Dowling had an arrangement with her husband to accept his superannuation contribution. The arrangement to make the contribution was under the control of Mr Dowling and the acceptance of it was under the control of Mrs Dowling. The relevant contribution was made after seeking advice from financial advisers from Centrelink and Sunsuper when it was proposed to open a separate superannuation account for Mrs Dowling. The advice received did not put either Mrs Dowling or Mr Dowling in a position where they might be able to foresee any other problems which could arise, nor could any person objectively be put on notice as a result of that advice. Also, neither superannuation fund knew of the relevant activities of Mr and Mrs Dowling in the other fund. There was nothing dishonest about this and no reason for them to believe that there was any reason for them to inform the other superannuation fund of discussions being held with the competitor fund (s.292-456(6)(a)). Had there been evidence that Mr and Mrs Dowling knew of the concept of excess contributions and its consequences, then the weight of evidence in the applicant’s favour would have been very different.
The test here is the “reasonably foreseeable” test. It is an objective test and therefore the subjective view by the applicant is not relevant. In the “special circumstances” of this case, I consider that an objective person could be confused with this area of the law and in the circumstances of this case and would not be reasonably able to foresee that an excess contribution could occur then or in a subsequent superannuation transaction. There is clearly some confusion in this area of the law. The number of appeals to this Tribunal in 2012 year alone is ample evidence of that. But looking at a reasonable person in the applicant’s position, it would be difficult to foresee the outcome of the transaction, particularly after the applicant and her husband made reasonable attempts to ensure they were in compliance with the law, yet those attempts yielded an incorrect understanding of the law. Indeed, without the subsequent transaction (Transaction 2) by the applicant, the excess contribution would not have occurred at all.
The respondent argued that the legislation does not contemplate circumstances which are of special significance to the taxpayer, but rather only those which are not unique to the individual in the taxpayer’s position. The respondent also submits that “… it is irrelevant whether a person marginally falls foul of a statutory provision or their default is truly egregious” (AAT Case 64/96, No 11,379 (1996) 34 ATR 1175 at [5]-[6] and at paragraphs 18 and 19 of the Respondent’s Outline of Argument).
While these principles are correct, if applied in a strict or inflexible way, there would never be any circumstance which would be “special” and therefore, the ameliorating provision would never be applied in any case at all. If that was the case, the section dealing with “special circumstances” passed by Parliament would have been intended to be devoid of meaning, which, of course, would be absurd.
The object of the legislation is to limit the level of concessional and non-concessional based money put into superannuation funds over a lifetime (see paragraph 20 of PS LA 2008-1). The exercise of a discretion in the favour of the applicant would be consistent with the object of the legislation. In the final analysis of deciding whether a determination should be made by exercising discretion under s 292-465, the approach set out in paragraph 37 of PS LA 2008-1 is instructive. It states:
Each individual case will present a unique set of circumstances that need to be considered and weighed up in forming an opinion. It may not be helpful to focus too closely on each particular circumstance and ask whether it is special. Of itself, one particular matter is unlikely to be special for there would be many other individuals in a similar situation. The question is whether, when the relevant circumstance of the individual and the making of the relevant contributions are looked at in their entirety, they may be fairly described as unusual, uncommon or exceptional so as to warrant the exercise of the discretion.
I find that the exercise of the discretion under s 292-465(3)(b) is consistent with the objects of the legislation as the funds concerned in Transaction 1 are all those of her husband, and are those which Mr Dowling made gradually over the course of his life (s 292-5).
The circumstances of Transaction 1 also reveal that if the level of penalty in the applicant’s circumstances were applied (being $20,393.95 on the applicant’s $200,000 superannuation), the applicant would be penalised 10% of her superannuation when no ordinary deposit or deduction from salary was made. Where there would be an excessively punitive outcome in a special case which falls within what is referred to in the Explanatory Memorandum to the 2007 Amendment Act, this could be regarded as being “unjust, unreasonable or inappropriate”. In the circumstances therefore, I find in respect of Transaction 1, that the discretion should be exercised in Mrs Dowling’s favour. The appropriate resolution is that the notional excess contribution (and the related penalty assessed) should be disregarded under s 292-465(1)(b) and not be taken into account in consideration of the liability for excess non-concessional contributions tax for the 2010 transaction (Transaction 2).
DECISION
I decide:
(1)The decision under review is set aside;
(2)In accordance with s 292-465(1)(b), the non-concessional contribution for 2009 (Transaction 1) is to be disregarded;
(3)The subsequent transaction in 2010 (Transaction 2), does not constitute “special circumstances”; and
(4)The penalty assessment be set aside for these transactions.
I certify that the preceding 61 (sixty-one) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr K S Levy, RFD.
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Dated 1 February 2013
Date of hearing 5 December 2012 Representation for the Applicant Self-represented
Counsel for the Respondent Mr Brennan
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