Pyke and Commissioner of Taxation

[2007] AATA 1784

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1784

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No TT2006/9-10

TAXATION APPEALS DIVISION		)
Re		JODIE PYKE

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Ms A F Cunningham (Senior Member)

Date21 September 2007  

PlaceHobart

Decision The appeal is dismissed and the decision under review affirmed. 

[Sgd Ann Cunningham]

Senior Member

CATCHWORDS

Income Tax - superannuation guarantee charge - failure to make superannuation guarantee contributions by due dates - payments made but to approved superannuation funds instead of the ATO - no discretion to set-aside Commissioner's assessment - decision under review affirmed

Superannuation Guarantee (Administration) Act 1992, s33, s36

Superannuation Guarantee Charge Act 1992, s5

Taxation Administration Act 1953, s14ZZ, s14ZZK

Jarra Hills Pty Ltd v F C of T 37 ATR 1022; 97 ATC 2132 and ATR 1024

Robert Truelove v Commissioner of Taxation [2000] AATA 276      

Re Williams v Federal Commissioner of Taxation [2005] AATA 113

F C of T v Dalco (1990) 98 ATC 4088   Way v Commissioner of Taxation [2003] AATA 720:   Gauchi v FC of T (1975) 75 ATC 4257

REASONS FOR DECISION

21 September 2007 Ms A F Cunningham (Senior Member)   

1.      This is an application for the review of a decision made by the respondent which partially allowed the applicant's objection against a superannuation guarantee charge (SGC) assessments for the year ended 30 June 2003 and for the quarters ended 30 September 2003, 31 December 2003 and 31 March 2004 in the amount of $22,730.59 together with notices of assessment of penalty pursuant to Part 7 of the SGAA in the amount of $1,136.51. 

2.      The SGC assessments arose from a tax office audit which found that the applicant had failed to make sufficient employer superannuation guarantee contributions for its employees for the year ended 30 June 2003 and for the quarters ended 30 September 2003, 31 December 2003 and 31 March 2004 by the due date.  The respondent determined that a superannuation guarantee shortfall existed in relation to those employees.

3.      The applicant has appealed the respondent's decision contending that all superannuation guarantee charge amounts have been paid and requesting that the Tribunal exercise its discretion to set aside the respondent's decision.  The applicant maintains that the amounts identified were paid to an approved superannuation fund.

4.      Whilst it is not disputed that all superannuation guarantee contributions have now been paid albeit after the due dates for payment, it is contended by the respondent that the legislation does not permit the exercise of a discretion which would permit the setting aside of the assessments.  The respondent contends that the requirements of the Superannuation Guarantee (Administration) Act 1992 (SGAA) have been followed and that no discretion is afforded either to extend the time for the applicant to make superannuation contributions on behalf of its employees or to remit any component of the SGC for the relevant year. 

Background

5.      The following facts were not in dispute and are verified by documentation contained in the T Documents.  The Tribunal accordingly finds as follows:

(i)        By letter dated 17 June 2004 the respondent notified the applicant that      her business had been selected for a superannuation guarantee audit to          ensure compliance under the SGAA.  The letter stated that the SGAA      stipulates that if employers have not provided sufficient superannuation   contributions for all their eligible employees by the 28th day following the end     of the relevant financial year(s) and/or quarter(s), the employer must pay the            superannuation guarantee charge (SGC). 

(ii)       Enclosed with the letter was a superannuation guarantee audit        questionnaire which was required to be returned to the tax office no later than       15 July 2004. 

(iii)      On the due date the applicant provided details of superannuation    contributions for its employees for the relevant periods. 

(iv)      Based on the information provided the respondent concluded that the        applicant had failed to make sufficient superannuation contributions by the      due date for the relevant periods. 

(v)       On 5 April 2006 the applicant was notified by the respondent that the            superannuation guarantee audit had identified superannuation guarantee shortfalls for the relevant periods and that SGC assessments would issue.      Those assessments were issued on 18 May 2006.  The SGC assessments         total $22,730.59.  In addition a 5% penalty of $1,136.52 was imposed        pursuant to Part 7 of the SGAA for failure to lodge Superannuation Guarantee            Statements by the due date. 

(vi)      On 6 June 2006 the applicant lodged a notice of objection against the        SGC assessments.  The applicant conceded that a number of the payments      were late but that all payments had subsequently been made albeit to an    approved superannuation fund.

(vii)     In a decision made on 1 August 2006, the respondent partially allowed      the applicant's objection by remitting in full the penalty amount of $1,136.52.   

(viii)     On 15 September 2006 the applicant applied to the Administrative Appeals Tribunal for review of the objection decision.

Issues

6.      The first issue for determination is whether the SGC assessments for the year ended 30 June 2003 and for the quarters ended 30 September 2003, 31 December 2003 and 31 March 2004 were correctly calculated under the SGAA.

7.      The second issue is whether superannuation contributions made by the applicant after the due dates can reduce the applicant's liability to pay the SGC in relation to the subject periods. 

The Applicant's Case

8.      The applicant was the proprietor of a hairdressing business known as Any Length Haircutters for the relevant periods.  When the applicant became ill in 2003, management of the business suffered and some of the superannuation payments were not met.  The superannuation underpayments were realised when the business was eventually sold after running into financial difficulty.  The applicant used her maximum borrowing capacity to pay outstanding debts which included unpaid superannuation contributions.  These payments were made to the private superannuation funds.  The applicant was unaware of the requirement that any late payments were to be made to the ATO and was not made aware of this requirement until the SGC assessment was issued on 18 May 2006.  The applicant contends that had she been notified at an earlier date, she could have made the payments direct to the ATO and not the superannuation funds. 

9.      The superannuation funds are not obliged to refund payments made, however one fund agreed to repay some of the contributions.  Because of the time lapse, some of the former employees had either cashed in their superannuation policies or rolled them over so that the funds were no longer in a position to refund the contributions.

10.     It is the applicant's contention that she should not be required to meet these payments twice which will result in several of her former employees receiving double the amount of superannuation to which they are entitled. 

11.     The applicant queries how the ATO can contend that she has failed to make her superannuation contribution payments when all staff have been fully compensated by being paid the due amounts. 

12.     It was submitted by Mr Pyke, who appeared on behalf of the applicant, that the wording of section 36 of the SGAA being in the terms "if the Commissioner is of the opinion" suggests that the respondent has a discretion as to whether to impose the liability to pay the SGC.

"Sections 36 reads as follows:

(1)If:

(a)an employer has not lodged a superannuation guarantee statement for      a quarter; and

(b)the Commissioner is of the opinion that the employer is liable to pay superannuation guarantee charge for the quarter; the Commissioner may make an assessment of the employer’s superannuation guarantee shortfall for the quarter and of the superannuation guarantee charge payable on the shortfall.

(2)For the purposes of making an assessment under subsection (1), the superannuation guarantee shortfall is taken to be the amount that in the Commissioner’s opinion might reasonably be expected to be the shortfall.

(3)Superannuation guarantee charge in relation to an assessment made under subsection (1) is payable on the day on which the assessment is made".

The Respondent's Case

13.     It was submitted by the respondent that the requirements of the SGAA are clear and unambiguous and have been followed by the Commissioner.  As the applicant failed to make the required level of superannuation contributions to a complying superannuation fund within 28 days following the end of each of the relevant periods, the Act requires that she lodge a SG statement and pay the SG shortfall to the Commissioner which she failed to do.

14.     The respondent contends that the default SG assessments have been correctly raised and the respondent has no discretion to remit any component of the SGC or to extend the deadline for contributions.  A discretion exists in relation to the remission of penalties imposed under Part 7 of the SGAA which has been exercised in favour of the applicant.

15.     The respondent does not dispute that the applicant has paid the superannuation contributions on behalf of its employees for each of the relevant periods but that such payments were not paid in accordance with the requirements of the Act but paid to the private superannuation funds.

The legislation

16. An application for a review of a decision under the SGAA is pursuant to the provisions of section 14ZZ of the Taxation Administration Act 1953 (TAA 1953). Section 14ZZK provides:

"On an application for review of a reviewable objection decision:

(a)       the applicant is, unless the Tribunal orders otherwise, limited to the          grounds stated in the taxation objection to which the decision relates; and

(b)       the applicant has the burden of proving that:

(i)        if the taxation decision concerned is an assessment (other   than a franking assessment)—the assessment is excessive; or

(ii)       if the taxation decision concerned is a franking assessment—                  the assessment is incorrect; or

(iii)      in any other case—the taxation decision concerned should not                 have been made or should have been made differently"..

17.     By virtue of section 5 of the Superannuation Guarantee Charge Act 1992 (SGCA) a charge is imposed on any superannuation guarantee shortfall for a quarter.  The SGAA specifies in section 33(1) the time frames within which superannuation guarantee statements for each quarter are due.  It was not disputed by the applicant that she had failed to meet all of the payments due pursuant to this legislation.

18.     Section 33(1) of SGAA requires that an employer who has an SG shortfall for a quarter also lodge an SG statement for the year on or before 14 August in the following year or such later time as allowed by the Commissioner.

19.     Where a superannuation guarantee statement has not been lodged by the employer, section 36 of the SGAA provides that the Commissioner may make an assessment of the SG payable on the shortfall.

20.     The Tribunal rejects the applicant's contention that sub-section 36(1) affords the Commissioner discretion as to payment of the superannuation guarantee charge.  The charge is payable by virtue of section 5 of the SGCA where a superannuation guarantee shortfall has occurred.  The wording in sub-paragraph 36(1)(b) does not afford the Commissioner a discretion as to whether or not the charge is due but requires a finding by the Commissioner as to whether or not the charge arises because of a shortfall when the payment is due.  As stated by Senior Member Pascoe in Jarra Hills Pty Ltd v F C of T 37 ATR 1022; 97 ATC 2132 and ATR 1024:

"The legislation is quite clear in providing a deadline for contributions to superannuation of 28th July of the following financial year.  There is no provision in the legislation which allows for any extension of time beyond that date nor any discretion given to the respondent or this Tribunal to overlook a failure to make required levels of superannuation contributions by that date

...

There is nothing that either the respondent or this Tribunal can do ameliorate that position.

...

The Tribunal must affirm the decision under review as the legislation under which the assessment was issued is clear and unambiguous".

21.     The facts giving rise to that decision was similar to the current circumstances.  The applicant, an employer, failed to make sufficient superannuation contributions for its employees by the specified due date.  The required contributions were paid however after the due date.  The applicant claimed that the contributions required under the Act were made, albeit after the due date, and that it was unfair and inequitable for it to be required to be paid twice for the same employees as well as penalties. 

22.     The lack of a discretion which would enable account to be taken of such circumstances was commented on by Senior Member Pascoe at paragraph 6:

"It is accepted that the likely result of the applicant's failure to avoid the shortfall by 28th July 1994 is that the total cost of superannuation to the applicant and the benefits derived in respect of certain employees have been higher than that intended by both the applicant and the legislation.  Nevertheless there is nothing that either the respondent or this Tribunal can do to ameliorate that position".

23.     A similar finding was made by Senior Member Block in Robert Truelove v Commissioner of Taxation [2000] AATA 276. He stated at paragraph 13:

"I have some sympathy for the applicant.  The additional amounts assessed against him are substantial in relation to the actual charge and the delays which occurred

...

Had the Act allowed me to do so, I might have been inclined to reduce such amounts; however I have no such power".

24.     In Re Williams v Federal Commissioner of Taxation [2005] AATA 113, Member Fisher stated:

"54.  This issue troubled the Tribunal greatly.  The applicant has attempted to perform his legal obligations in relation to the payment of superannuation on behalf of his employees, although he has done so late, and then by way of payment to the superannuation trustee.  In view of the timing differential, the respondent was empowered to, and did, impose a superannuation guarantee charge in respect of the late payment of superannuation.

...

56.      In both effect and broad terms, the applicant has paid superannuation contributions twice.  The respondent is not obliged to refund any superannuation guarantee charge that it has properly raised against the applicant.  Whether the respondent chooses to do so on an ex-gratia payment on an ex-gratia basis is a matter entirely for the respondent.

...

58.      The correct 'but not necessarily preferable' decision in this case is that the respondent was lawfully empowered to raise and recover superannuation guarantee charges against the applicant.

...

59.      There is an unfortunate legislative lacuna raised by the facts of this case where the applicant paid superannuation contributions to a trustee late, yet still has incurred a superannuation guarantee liability...".

Conclusion

25.     It was submitted on behalf of the respondent that application of the legislation is justified to ensure that all eligible employees receive the correct level of superannuation support from their employers.  Whilst the Commissioner acknowledges the applicant's attempts to make the required superannuation contributions on behalf of eligible employees, it is ultimately the applicant's responsibility to ensure it meets the obligations under the legislation. 

26.     Whilst the Tribunal accepts the submissions made by the respondent, no explanation or excuse was offered for the substantial delay between the receipt by the respondent of the applicant's completed Superannuation Guarantee Audit Questionnaire on 15 July 2004 and completion of the Superannuation Guarantee Audit by the respondent on 5 April 2006.  The applicant contends that had the shortfalls been identified and advised to her within a more reasonable timeframe, she would have made her shortfall contributions direct to the ATO rather than to the private superannuation funds.  This may have avoided the double payments of the shortfall amounts. 

27. The provisions of section 14ZZK clearly provide that the burden rests with the applicant to demonstrate that the assessment is excessive. It is not sufficient that the applicant submit that the Commissioner failed to take account of particular circumstances or act within a reasonable timeframe.

28.     The Tribunal referring to the High Court's decision of F C of T v Dalco (1990) 98 ATC 4088 commented at para 75 in its decision Way v Commissioner of Taxation [2003] AATA 720:

"... the High Court concluded that "excessive" referred to the amount of the assessment (see the Judgement of Brennan J at 4089-4094), and that it was necessary for the taxpayer to discharge the burden of proving that his taxable was in truth less than the amount assessed".

And at para 76:

"in the present matter it was necessary for the applicant to satisfy the Tribunal, on the balance of probabilities, that the amount of his sales tax liability for the quarters covered by the assessments was actually less than that stated in the assessment".

It is not the responsibility of the respondent to show that the assessments were correctly made and unless the taxpayer shows by evidence that the assessment is incorrect, it will prevail. (See Gauchi v FC of T (1975) 75 ATC 4257).

29.     It was not contended by the applicant that the assessments that were arrived at the respondent as evidenced at T2 in the T Documents were incorrectly calculated in accordance with the applicable legislation.  The Tribunal has no basis upon which to dispute the calculations and accepts their validity.

30.     Whilst the Tribunal sympathises with and understands the applicant's frustrations, there is no legislative power that enables the Tribunal to overrule the decision of the Commissioner.  The legislation referred to entitled the Commissioner to raise the subject superannuation guarantee charges because the applicant failed to make the required superannuation contributions by the due dates.  The issue that troubles the Tribunal is the applicant's contention that had the Commissioner undertaken the Superannuation Guarantee Audit in a more timely manner upon receipt of the applicant's Superannuation Guarantee Audit Questionnaire and advise that payments should be made to the ATO rather than the superannuation funds, she would not now be in the position of being required to make the payments twice.  The applicant used the proceeds of sale of her business and borrowed funds in order to meet her obligations.  There is also the possibility that further refunds of contributions paid by the applicant could have been made by the superannuation funds if the requests had been made at an earlier time. 

31.     The Commissioner quite correctly determined to discharge the 5% penalty previously imposed and may consider that in the circumstances some form of ex-gratia payment by way of refund of contributions due as assessed is appropriate. 

32.     For the above reasons the Tribunal must determine to dismiss the appeal and affirm the decision under review. 

I certify that the 32 preceding paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member)

Signed:  R Hunt (Administrative Assistant)

Date/s of Hearing  17 August 2007
Date of Decision  21 September 2007
Advocate for the Applicant       Mr A Pyke
Solicitor for the Respondent     Mr A McCulloch, ATO Legal Services