Purcell and Commissioner of Taxation (Taxation)
[2020] AATA 4235
•23 October 2020
Purcell and Commissioner of Taxation (Taxation) [2020] AATA 4235 (23 October 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2019/8515
Re:Elaine Purcell
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Mr Rob Reitano, Member
Date:23 October 2020
Place:Sydney
The decision under review is affirmed.
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Mr Rob Reitano, Member
CATCHWORDS
TAXATION – excess non concessional contributions to superannuation – spousal contributions to superannuation – associated earnings treated as assessable income – amount of associated earnings – whether calculation of associated earnings was correct – whether proxy rate is a penalty – no power vested in the Commissioner to remit amount calculated as associated earnings – objection decision affirmed – decision under review affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth) ss 291-465, 292-465
Taxation Administration Act 1953 (Cth) s 8AAD, sch 1 s 97-25, sch 1 s 97-30, sch 1 div 284
REASONS FOR DECISION
Mr Rob Reitano, Member
23 October 2020
On 13 February 2019 the Commissioner of Taxation (Commissioner) advised Elaine Purcell (Mrs Purcell) that in the year ending 30 June 2018 she had made non-concessional contributions to superannuation that exceeded the cap for making such contributions without the need to pay additional tax on those contributions.
The Commissioner then made an ‘excess non-concessional contributions determination’ which is a written determination made when a person exceeds their non-concessional contributions cap. The ‘excess non-concessional contributions determination’ is required to identify, amongst other things, the amount of the excess non-concessional contributions, the rate of taxation that they will attract if they are not released and the amount of ‘associated earnings’.
‘Associated earnings’ are the ‘estimated’ amount of earnings that the excess non-concessional contribution is taken to have earned whilst in the superannuation fund. The amount of associated earnings is treated by the Commissioner as assessable income for taxation purposes unless a request is made by a taxpayer to have it dealt with in some other way or where the Commissioner seeks a release of the funds.
In a decision dated 20 November 2019, after considering Mrs Purcell’s objection to the excess non-concessional contributions determination the Commissioner disallowed Mrs Purcell’s objection (objection decision). Mrs Purcell has sought a review of the objection decision.
I have decided to affirm the objection decision and what follows are my reasons.
FACTS
On 21 and 22 May 2018 Mrs Purcell and her husband respectively made voluntary contributions to Mrs Purcell’s superannuation fund in the amounts of $1000 and $3000. Mrs Purcell says that she was not aware that her husband had made the contributions, but as will be seen that makes no difference for present purposes.
Mrs Purcell was represented in this review by her husband Mr Purcell. Mrs Purcell conceded in the hearing that the contributions made by her husband were properly treated as contributions by her. Mrs Purcell also properly conceded at the hearing that the contributions of $4,000 did exceed the relevant non-concessional contributions cap. Her concessions were properly made even though she had taken a different position in her objection to the Commissioner.
On the basis of those facts the Commissioner made an excess non-concessional contributions determination in the following terms:
Total Superannuation Balance at 30 June 2017 $999,362.46 Non-concessional contributions cap $0 Non-concessional contributions $4,000 Excess non-concessional contributions for this determination $4,000 Excess non-concessional contributions tax (if not released) $1,880 Associated earnings amount $609 Associated earnings period 1 July 2017 to
13 February 2019
Associated earnings rate 8.73% 85% of associated earnings amount $517.65 Amount to be released from super fund(s) (if released) $4,517.65 ISSUE
As a result of the concessions made the only issue is whether the Commissioner was entitled or required to make an associated earning calculation under section 97-25 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA 1953).
I am not considering an application under s 291-465 or s 292-465 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) which allows the Commissioner in certain circumstances to disregard excess superannuation contributions. No such decision has been made by the Commissioner. That decision has not yet been made by the Commissioner because no request has, perhaps, yet been made. In the absence of the Commissioner making a decision there is no power for the Tribunal to review or deal with that matter.
LEGISLATION
Section 97-25 of Schedule 1 of the TAA 1953 provides:
(1) If your non-concessional contributions for a financial year (the contributions year) exceed your non-concessional contributions cap for the contributions year, the Commissioner must make a written determination stating
(a) the amount of the excess; and
(b) the amount of your associated earnings worked out under section 97-30; and
(c) the following amount (the total release amount):
Amount of the excess + (0.85 x Amount of your associated earnings)
Section 97-30 of Schedule 1 of the TAA 1953 provides:
(1) You are taken to have associated earnings equal to the sum (rounded down to the nearest dollar) of the amounts worked out under the following formula for each of the days during the period:
(a) starting on the first day of the contributions year; and
(b) ending on the day the Commissioner makes the first excess non-concessional contributions determination you receive for the contributions year.
Proxy rate x (Excess – Sum of earlier daily proxy amounts)
where: excess means the amount of the excess referred to in paragraph 97-25(1)(a).
proxy rate means the lower of:
(a) the rate worked out under subsection 8AAD(1) for the first day of that period as if the base interest rate (within the meaning of subsection 8AAD(2)) for that day were the average of the base interest rates for each of the days of the contributions year; and
(b) a rate determined under subsection (2) for the contributions year.
sum of earlier daily proxy amounts means the sum of the amounts worked out under the formula for each of the earlier days (if any) during that period.
The proxy rate is the average of the general interest rate charge defined in s 8AAD(1) for each quarter of the taxation year in which contributions were made, in this case the tax year ending 30 June 2018, calculated on a daily rate. In that taxation year the average annual rate for the general interest charge was 8.73% per annum or a daily rate of 0.02391781%.
The equation in this case involves identification of the excess amount of contributions, which is $4,000; the amount of associated earnings worked out under s 97-30 which is 593 days (the period from 1 July 2017, which was the first day of the contributions year, to 13 February 2019, which was the date of the excess contributions calculation) and the application of the formula in s 97-30. There was no issue between the parties that the application of the formula resulted in a total of $609 which is the associated earnings calculated for the purpose of s 97-25 of Schedule 1.
CONSIDERATION
Section 97-25 makes clear that the Commissioner is required to make an excess non-concessional contributions determination through use of the word ‘must’. As part of that determination ‘the amount of your associated earnings worked out under section 97-30’ must be included. The Commissioner has no discretion. He is obliged to make the written determination and he is obliged to apply the formula in s 97-30 in calculating associated earnings.
In this case having made the determination and having calculated the amount of associated earnings correctly a series of possible consequences flow, one of which is that the amount of the associated earnings will be treated as assessable income.
Mrs Purcell claims that the proxy rate set by s 97-30 is in fact a penalty, both because of the rate it imposes is said to be high and because of the fact that it applies for a number of days that exceed the number of days from which the contributions were made. She claims that the Commissioner has a discretion to waive or remit the so-called penalty relying on the particular circumstances in which the contributions were made.
Neither s 97-25 nor s 97-30 are concerned with penalties at all. Those sections require the Commissioner to make a particular kind of determination that records and calculates various amounts, and which then has a number of potential different consequences. The Commissioner has done what the section requires him to do by those sections.
The excess non-concessional contributions determination includes the calculation of an amount by reference to a statutory formula, the design or purpose of which is to approximate the amount that would have been earned on excess contributions whilst seated in a superannuation fund. The amount is not described by the TAA 1953 as a penalty (because that is not what it is); the consequence of the calculation of associated earnings is found elsewhere: see, for example, ss 292-25, 292-30, 292-80 and 292-85 of the ITAA 1997 and ss 131-15, 131-50 and 131-10 of Schedule 1 of the TAA 1953.
There is nothing in the regime of penalties found in Part 4 -25 of Schedule 1 of the TAA 1953 that would permit a conclusion that the Commissioner has any power to remit an amount of associated earnings. Nor is there any power vested in the Commissioner elsewhere to remit an amount that is calculated as associated earnings.
CONCLUSION
The decision under review is affirmed.
I certify that the preceding 21 (twenty-one) paragraphs are a true copy of the reasons for the decision herein of Mr Rob Reitano, Member
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Associate
Dated: 23 October 2020
Date(s) of hearing: 25 August 2020 Advocate for the Applicant: Mr J Purcell Solicitors for the Respondent: Mr S Roewal and Ms E Risteski, Australian Taxation Office
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