Re Lynton and Commissioner of Taxation
[2012] AATA 667
•2 October 2012
[2012]AATA 667
Division TAXATION APPEALS DIVISION File Number
2012/2102
Re
David Lynton
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Dr Gordon Hughes, Member
Date 2 October 2012 Place Melbourne The decision under review is affirmed
[sgd]................................................................
Dr Gordon Hughes, Member
Catchwords
Excess contributions tax – honest mistake by taxpayer – taxpayer facing financial difficulties – whether ‘special circumstances’ exist
Legislation
Income Tax Assessment Act 1997 section 292-5, 292-85, 292-465
Cases
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Groth v Department of Social Security [1995] 40 ALD 541
Re McMennemin and Federal Commissioner of Taxation [2010] AATA 573
Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348
Tefonu Pty Ltd v Insurance & Superannuation Commissioner (1993) 44 FCR 361
Secondary Materials
Practice Statement Law Administration PS LA 2008/1.
REASONS FOR DECISION
Dr Gordon Hughes, Member
2 October 2012
1.The applicant applied to the Commissioner of Taxation for a determination under section 292-465 of the Income Tax Assessment Act 1997 (the Act) exercising his discretion to disregard $23, 627 in non-concessional contributions made by the applicant in the financial year ended 30 June 2010. On 27 February 2012 the Commissioner rejected the application and issued an excess contributions tax notice of assessment to the applicant for $10,986.55. The Tribunal was required to determine whether the Commissioner should make a determination under section 292-465 of the Act.
LEGISLATION
2.Section 292-5 of Division 292 of the Act states that:
The object of this 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.
3.Section 292-465 of the Act states, relevantly:
(1)If 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.
(2)You 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.
(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.
(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.
CONSIDERATION OF ISSUES
Background
4.The applicant made excess non-concessional contributions of $23,627.00 in the financial year ending 30 June 2010.
5.Specifically, the applicant had made non-concessional contributions of $176,101.00 in the year ending 30 June 2008, $147,544.00 in the year ending 30 June 2009 and $149,982.00 in the year ending 30 June 2010. Pursuant to sections 292-85(2) to (4) of the Act, the applicant was entitled to make aggregate contributions of $450,000.00 over three years, in this instance, from 2008 to 2010. The contributions made in the year ending June 2010 exceeded the cap by $23,627.00.
6.The applicant acknowledged to the Tribunal that he would have been aware of the $450,000.00 cap applicable over three years but said he overlooked or forgot about it when making the third of the three contributions in question. The Commissioner did not dispute that the error arose from a simple oversight by the applicant.
7.The applicant contended that special circumstances existed for the purposes of section 292-465(3) of the Act. This was based primarily on the financial hardship which he was experiencing in supporting two adult children and five grandchildren; a commitment to provide for his wife who was significantly younger in years; the impact of the global financial crisis on his personal finances; and, specifically, the consequences of a failed investment opportunity.
8.Although he did not labour the point, the applicant also alluded to the fact that his accountant had not cautioned him against exceeding the aggregate contributions cap in the year in question.
Special circumstances
9.The question of what constitutes special circumstances has been the subject of numerous attempts at judicial interpretation.
In Re Beadle and Director-General of Social Security (1984) 6 ALD 1, the Tribunal observed, in the context of section 102 of the Social Security Act 1947 (Cth), that the expression special circumstances was: by its very nature incapable of precise or exhaustive definition. The Tribunal went on to add that it was necessary to consider whether, in context, the circumstances in question were unusual, uncommon or exceptional.
The relevant authorities were reviewed in detail by the Tribunal in Re McMennemin and Federal Commissioner of Taxation [2010] AATA 573, at paragraphs 97 to 102. This included reference to decisions by Kiefel J of the Federal Court in Groth v Department of Social Security [1995] 40 ALD 541 and Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348. McMennemin also made reference to a decision by Beazley J in Tefonu Pty Ltd v Insurance & Superannuation Commissioner (1993) 44 FCR 361.
Therefore, the Tribunal does not consider it necessary to review all the authorities on this point. Suffice it to say that in Groth, Kiefel J observed that special circumstances required something which took the events in question out of the usual or ordinary case, adding (at page 545):
It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.
It remains challenging, nevertheless, to apply the established principles to the facts of any given case. This remains the case even after reviewing factual scenarios set out in working examples contained in the Practice Statement Law Administration PS LA 2008/1 (PS LA 2008/1). While PS LA 2008/1 is not binding on the Tribunal, it is instructive to refer to paragraph 36, which states that:
It is not possible to identify every factor that might be relevant to considering whether the exercise of the discretion is appropriate or prescribe how one factor should always be considered. The following factors in isolation would not generally amount to the existence of special circumstances that make the imposition of the tax unjust, unreasonable or inappropriate:
oFinancial hardship – it is common or usual, rather than 'special' for some degree of financial hardship to occur as a result of excess contributions tax being assessed. The imposition of the tax and corresponding liability to pay the amount assessed is an intended consequence of the law designed to discourage excess contributions. The financial hardship may be ameliorated if a person uses the release authority given by the Commissioner to release the amount of the excess contributions tax from the fund to pay the liability. A claim of financial hardship should generally be considered in light of the PS LA 2011/17 Debt Relief.
oIgnorance of the law – a claim that a person was ignorant of the law would not, generally speaking, be regarded as 'special circumstances' unless other factors exist which would make the ignorance or misconception reasonable or understandable in the circumstances, such as where incorrect advice was provided to the person by the ATO.
oIncorrect professional advice – as with ignorance of the law, this would not generally amount to special circumstances, unless there were other special factors leading to the mistake. For example, if the incorrect professional advice was based on a widely understood view of the law that was ultimately found by a court to be incorrect, the incorrect advice may constitute special circumstances. However, the mere fact that a particular mistake is of a type that is 'not uncommon' or results from an incorrect interpretation of a provision which some may find hard to apply, would not generally make the circumstances sufficiently special to warrant exercise of the Commissioner's discretion.
oRetrospectivity of law or adverse effect of legislative changes – claims such as these would not be considered 'special circumstances'.
In the present case, it is necessary to distinguish between the applicant's difficult personal circumstances and the meaning of the term special circumstances as used in the legislation.
The applicant's difficult personal situation is not one which, in an unusual or uncommon way, would have directly affected his ability to manage his financial affairs. In this regard, it is important to emphasise that the Tribunal is not unsympathetic towards the personal challenges confronting the applicant in his daily life – but put simply, such circumstances are not what the legislation contemplates when it refers to special circumstances. The legislation contemplates circumstances which are inconsistent with a natural and foreseeable sequence of events. It does not contemplate circumstances which are of special significance to the taxpayer but not unique to an individual in the taxpayer's position.
The Tribunal is satisfied that the applicant is confronting financial hardship; that he made an innocent error in his attempt to comply with the law; and that his financial advisers might have done more to alert him to the impending problem. However, consistent with PS LA 2008/1, these findings simply do not constitute special circumstances as contemplated by section 292-465 of the Act.
Consistency with object of Division
17.The Tribunal accepts the respondent's contention that it would be inconsistent with the object of Division 292 for the Commissioner to exercise his discretion in circumstances where excess contributions result from inadvertence, ignorance of the law or incorrect advice. The object of the Division is to ensure gradual superannuation contributions over the course of a person's working life. This object necessarily leaves taxpayers with a responsibility to ensure compliance with the legislative requirements which are designed to realise the object.
Reallocation
18.The applicant sought to have his contribution reallocated to the financial year ending 30 June 2014. The applicant explained to the Tribunal that reallocation to the financial year ending 30 June 2013 would be inappropriate as his contributions for that financial year would otherwise be exceeded.
19.The circumstances do not warrant reallocation to another financial year. This would only be appropriate for consideration if there was a timing issue involved, such as a misallocation by an employer under a salary sacrifice agreement. This is not the case here.
Reasonable foreseeability
20.Had the applicant been sufficiently alert to the law and his tax obligations, he should have reasonably foreseen that the relevant contribution in the financial year ended2010 would result in his exceeding the applicable contributions cap.
21.In considering the question of reasonable foreseeability, section 292-465(6) of the Act entitles the Commissioner to have particular regard to the extent to which the taxpayer had control over the making of the contributions. In this instance, the applicant had direct, personal control over the amount and the timing of the non-concessional contributions of $149,982.00, which caused him to exceed the non-concessional contributions cap for the year in question.
DECISION
22.The applicant represented himself in these proceedings. In doing so, he presented as an honest, intelligent and articulate individual. He was quite rational in the construction of his submission.
23.The Tribunal has no doubt that the applicant made an honest mistake when he made an excess contribution in the financial year ended 30 June 2010.
24.The Tribunal is also in no doubt that the applicant faces challenging personal circumstances due to his own financial situation, compounded by a responsibility he chooses to discharge in rendering support to his children and grandchildren.
25.However, for the reasons set out above, the Tribunal is of the opinion that the applicant has not satisfied the requirements of section 262-465 of the Act so as to justify the exercise of the Commissioner’s discretion to disregard the excess non‑concessional contribution.
26.Accordingly, the decision under review is affirmed.
I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of:
Dr Gordon Hughes, Member.[sgd]...................................................................
Administrative Assistant
Dated 2 October 2012
Date of hearing 3 September 2012 Date final submissions received 20 August 2012 Applicant In person Counsel for the Respondent Peter Nicholas Advocate for the Respondent Liam Shiels ATO Legal Services
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