Roger Davenport and Commissioner of Taxation
[2012] AATA 760
•1 November 2012
[2012] AATA 760
Division SMALL TAXATION CLAIMS TRIBUNAL File Number
2012/2018
Re
Roger Davenport
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member CR Walsh
Date 1 November 2012 Place Perth Decision Summary
The Tribunal affirms the Commissioner’s objection decision dated 28 March 2012.
................[sgd]........................................................
Senior Member CR Walsh
CATCHWORDS
SUPERANNUATION – concessional contributions – excess concessional contributions tax – when concessional contributions “made” - discretion to reallocate contribution to another financial year – whether “special circumstances” exist – object of Division 292 – appropriateness of allocation of contributions to another financial year – reasonable foreseeability of excess contributions – terms of any agreement – control over making of contributions – Commissioner’s objection decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 – section 292-20(1) – section 292 - 25(1), (2) and (3) – section 292-230(1) and (3) - section 292-465(1), (3), (4) (5) and (6)
Taxation Administration Act 1953 – section 14ZZK(b)
Income Tax (Transitional Provisions) Act 1997 – section 292-20
Superannuation Guarantee (Administration) Act 1992
Superannuation (Excess Concessional Contributions) Tax Act 2007Income Tax (Transitional Provisions) Act 1999
CASES
AAT Case 11,379 [1996] AATA 406; Case 64/96 96 ATC 583
Beadle v Director-General of Social Security (1985) 60 ALR 225
Secretary, Department of Social Security and Hales (1998) 82 FCR 154
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Riddell v Department of Social Security (1993) 42 FCR 443
Chantrell v Commissioner of Taxation [2012] AATA 179
Colless v Commissioner of Taxation [2012] AATA 5317
Hamad v Commissioner of Taxation [2012] AATA 530
Longcake v Commissioner of Taxation [2012] AATA 576
Bornstein v Commissioner of Taxation [2012] AATA 424
Kerr v Federal Commissioner of Taxation [2007] AATA 1732
Leckie v Commissioner of Taxation [2012] AATA 129
McMennemin v Commissioner of Taxation [2010] AATA 573
Minister for Community Services and Health v Chee Keong Thoo (1988) 78 ALR 307
Peaker v Commissioner of Taxation [2012] AATA 140
Rawson v Commissioner of Taxation [2012] AATA 3222
Paget v Commissioner of Taxation [2012] AAT 334
Secretary, Department of Employment, Education and Youth Affairs v Ferguson (1997) 76 FCR 426
Schuurmans-Stekhoven v Commissioner of Taxation [2012] AATA 62
Thommeny v Federal Commissioner of Taxation [2006] AATA 840Tran v Commissioner of Taxation [2012] AATA 123
SUPPLEMENTARY MATERIALS
Taxation Ruling TR 2010/1
Explanatory Memorandum to Taxation Laws Amendment (Simplified Superannuation) Act 2007 – paragraph 1.117
REASONS FOR DECISION
Senior Member CR Walsh
1 November 2012
INTRODUCTION
Mr Davenport’s review application concerns the taxation of excess concessional (superannuation) contributions.
Specifically, Mr Davenport seeks a review of the Commissioner’s objection decision (dated 28 March 2012) to disallow Mr Davenport’s objection (dated 2 August 2011) against an excess contribution tax assessment of $4,063.95 (issued on 25 January 2011) for the tax period ended 30 June 2009.
BACKGROUND TO APPLICATION
On 8 November 2010 the Commissioner advised Mr Davenport that, based on information available to him, Mr Davenport may be liable to pay excess contributions tax for the 2009 year.
The Commissioner subsequently advised Mr Davenport (on 19 January 2011) that he had exceeded the concessional contributions cap for the 2009 year (of $100,000) and would be receiving an excess contributions tax assessment.
On 25 January 2011 the Commissioner issued Mr Davenport with a notice of assessment of excess contributions tax for the 2009 year in respect of excess concessional contributions totalling $12,901.49.
On 31 January 2011 Mr Davenport made an application to the Commissioner for an excess contributions tax determination under section 292-465 of the Income Tax Assessment Act 1997 (ITAA 1997). Mr Davenport requested that the Commissioner exercise his discretion under that section to reallocate concessional contributions of $21,584.51 from the 2009 year to the 2008 year.
On 16 June 2011 the Commissioner advised Mr Davenport that he would not exercise his discretion under section 292-465 of the ITAA 1997 to reallocate the said concessional contributions from the 2009 year to the 2008 year and that no “special circumstances” attended Mr Davenport’s case.
On 2 August 2011 Mr Davenport lodged an objection the Commissioner’s excess contributions tax assessment for the 2009 year.
On 28 March 2012 the Commissioner disallowed Mr Davenport’s objection in full.
On 18 May 2012, Mr Davenport applied to the Tribunal for a review of the Commissioner’s objection decision. Mr Davenport’s stated reasons for his review application were, in summary, as follows:
“ I consider that the Excess Contribution Tax that was applied to the superannuation overpayment for the financial year 2008/2009 should be reallocated to the previous year 2007/2008 as I consider there are grounds for the special circumstances that apply in my case”. [Emphasis added]
Mr Davenport’s Statement of Facts, Issues and Contentions, dated 26 September 2012 (SFIC), identifies the following as “special circumstances”.
(i)The fact that contributions of $21,584.51 were credited to his superannuation fund account on 1 July 2008, rather than on 27 June 2008, and that:
“ The funds have been assigned to the wrong financial year due to clerical errors outside the control of the applicant”.
(ii)The fact that he had ‘no other option’ than to intentionally make contributions in the 2009 financial year in excess of the contributions cap on the basis that an amount of $14,508.07 would be reallocated to the 2008 financial year, as:
“ To do otherwise would be to ignore a mistake made by my superannuation provider and I would not have been able to challenge the error and have it corrected”.
However, Mr Davenport’s review application and SFIC raise an additional ground, namely that superannuation contributions which were electronically transferred by Mr Davenport’s employer on his behalf to the trustee of his superannuation fund on 27 June 2008, but which were not allocated to his superannuation account until 1 July 2008, were “made” in the financial year ended 30 June 2008 (and not in the 2009 financial year).
As detailed below, the contributions by Mr Davenport’s employer on his behalf to his superannuation fund totalling $21,584.51 relate to payments for two different periods. That is, one contribution of $14,608.07 (comprising a superannuation guarantee charge (SGC) contribution of $1,197.91 and a salary sacrifice combination of $13,310.16) relates to May 2008 and another contribution of $7,076.44 (comprising a superannuation guarantee charge contribution of $584.29 and a salary sacrifice contribution of $6,492.16) relates to the first half of June 2008.
Mr Davenport told the Tribunal that it is only the contribution of $14,608.07 (relating to May 2008) that he seeks to have reallocated from the 2009 year to the 2008 year on the basis that that contribution was “made” by his employer on his behalf in the 2008 year (and not in the 2009) year and for the reason that his case is attended by “special circumstances”.
RELEVANT FACTS & EVIDENCE
Mr Davenport was born on 27 August 1940. As such, on the last day of the financial year ended 30 June 2009 (the 2009 year) he was over 50 years of age.
At all relevant times Mr Davenport was employed by Ambit Group Pty Ltd (Ambit), which is part of the Peoplebank Australia Ltd group (Peoplebank), a supplier of specialist engineering recruitment services. Mr Davenport’s services were contracted to the Clough Engineering Group.
At all relevant times Mr Davenport was a member of Lifetime Superannuation Fund (LSF). The trustee of LSF is Plan B Trustees Limited (Plan B).
LSF’s “Plan B Lifetime Superannuation Fund Product Disclosure Statement” (Product Disclosure Statement) describes the key features of the LSF and specifies (at page 15) that:
“You need to send a Contribution Remittance Advice with your contribution detailing your contribution type and amount.”
Further, according to a letter from Mr Andrew McKay, Plan B Financial Advisor, to the Australian Taxation Office (ATO), dated 17 August 2012, the correct procedure to be followed by an employer when making a contribution to Plan B is as follows:
“The employer must provide a clear narration when electronically transferring funds which clearly identifies the “person’s” account that the funds are to go into ie, using their name or their member number. A remittance advice must also accompany the funds to identify how the contribution is to be allocated to the account ie, SGC, Salary Sacrifice, this can be sent by way of fax, e-mail or mail (See attached Superannuation Contribution letter).”
Following receipt of a “contribution remittance advice’ from an employer (containing all of the relevant information, as described immediately above), LSF processes the information received and allocates the contribution concerned to the relevant fund member’s superannuation account.
Salary sacrifice arrangement
In or about June 2007 Mr Davenport commenced a salary sacrifice arrangement with Ambit. The salary sacrifice arrangement was commenced by an email (which cannot be located by Mr Davenport) from Mr Davenport to Ambit. No written salary sacrifice agreement was entered into at that time by Mr Davenport with either Ambit or Peoplebank. There is no evidence that Mr Davenport’s email referred to the time at which superannuation contributions were to be made.
Superannuation contributions made before the contributions in issue
After commencing a salary sacrifice arrangement with Ambit in or about June 2007 Mr Davenport initially salary sacrificed into superannuation for only a short period until 6 July 2007. However he recommenced regularly salary sacrificing into superannuation on 5 March 2008.
Mr Davenport gave evidence that, using his weekly timesheets, he prepared two spreadsheets with details of SGC and salary sacrifice contributions covering the pay periods from 8 June 2007 to 18 May 2008 and 25 June 2008 to 21 June 2009, respectively, which he provided to Ambit to include the “Date Paid to Plan B” information.
Plan B provided Mr Davenport with a “Portfolio Snapshot” detailing contributions to LSF for the period 1 April 2008 to 30 June 2009.
According to the spreadsheets prepared by Mr Davenport and provided to Ambit:
(i)for the 4 pay days in the period from 20 February 2008 to 12 March 2008 (in the case of salary sacrifice only 2 pay days were involved, being 5 March 2008 and 12 March 2008) SGC and salary sacrifice contributions of $1,114.19 and $5,796.36, respectively, were made on 26 March 2008. Plan B’s “Portfolio Snapshot” shows salary sacrifice contributions of $11,592.72 and SGC contributions of $2,228.38 were received by the LSF on 27 March 2008. These amounts were subsequently reversed by 50% on 23 April 2008;
(ii)for the 4 pay days in the period from 19 March 2008 to 9 April 2008, SGC and salary sacrifice contributions of $1,139.96 and $12,666.12, respectively, were made on 21 April 2008. They are shown on Plan B’s “Portfolio Snapshot” as having been received by the LSF on 23 April 2008; and
(iii)for the 4 pay days in the period from 16 April 2008 to 7 May 2008, SGC and salary sacrifice contributions of $911.32 and $10,125.74, respectively, were made on 28 May 2008. They are shown on Plan B’s “Portfolio Snapshot” as having been received by the LSF on 5 June 2008.
Superannuation contributions at issue in this application
On 27 June 2008 Plan B received 4 electronic fund transfer (EFT) payments from Ambit with no clear narration identifying the relevant member or account. As LSF was unable to identify who the contributions were made on behalf of they were held in a suspense account.
Ambit sent, by post, 2 remittance advices, both dated 27 June 2008 (a Friday), from Sydney to Plan B in Perth.
On 1 July 2008 (a Tuesday) Plan B received the two remittance advices, both dated 27 June 2008, identifying contributions on behalf of Mr Davenport of $14,508.07 in respect of May 2008 and $7,076.44 in respect of the first half of June 2008.
Based on the evidence before the Tribunal, (including Plan B’s “Portfolio Snapshot” for Mr Davenport) a SGC contribution of $1,782.20 and a salary sacrifice contribution of $19,802.31 was transferred (allocated) to Mr Davenport’s LSF account on 1 July 2008, which, according to Plan B, was “when [Plan B] received the remittance advices providing [them] with all the relevant details”.
In a letter to Mr Davenport dated 10 July 2008, Plan B certified that SGC and salary sacrifice contributions totalling $21,584.51 “were received from Ambit Group Pty Ltd” on behalf of the LSF (“Account Number: 00124761 Account Name: Roger Davenport”) and specified “Receipt Date: 01/07/2008 Receipt No: 174061” (Plan B Letter). A similar letter was sent by Plan B to Ambit.
In Plan B’s letter to the ATO dated 17 August 2012 (see paragraph 19 above) Mr McKay states the following in relation to the contributions “received” from Ambit on 27 June 2008:
“Q10-Ambit Group did not provide a clear narration that identifies the person’s account the funds were to go to and they did not provide a remittance advice until the 1st July 2008. We received 4 X payments from Ambit Group on 27th June 2008 with the narration being AMBIT GROUP PTY AMBIT GROUP P/L and only 2 of those payments ended up being for Roger Davenport.
Q11-The payment advices were received from Ambit Group on the 1st of July 2008.”
Further, a letter from Ms Bernadette Carroll, Head of Administration Operations LSF, to Mr Davenport, dated 17 May 2012, explains why Plan B did not “receive” the relevant contributions for Mr Davenport from Ambit until 1 July 2008 as follows:
“This delay resulted because the funds were sent via Electronic Funds Transfer on the 27th June 2008 with no clear narration or remittance advice provided. This meant [Plan B] was initially unable to identify who these funds were intended for. Had we been able to identify these funds upon receipt, they would have been receipted to the client’s account and reported in previous financial year.”
Further concessional contributions made in 2009
Ambit made further contributions of $91,316.98 to the LSF, on behalf of Mr Davenport, in the 2009 year (comprising salary sacrifice contributions of $73,955.39 and SGC contributions of $17,361.59). These contributions were generally made on a monthly basis during the period August 2008 to June 2009.
On 26 October 2009 the LSF reported employer contributions totalling $112,901.49 were received on behalf of Mr Davenport for the 2009 year.
There is no dispute that each of the relevant contributions are “concessional contributions” within the meaning of section 292-25(1) of the ITAA 1997.
Mr Davenport’s actions following receipt of the Plan B Letter
In his SFIC, Mr Davenport states the following in relation to the Plan B Letter:
“ When I read this correspondence and notice the date the funds were supposedly received by Plan B that I commenced my investigations to find out what had occurred.”
According to his SFIC, Mr Davenport then “spoke (telephone call) with my then adviser from Plan B Darren Nash … who informed me that I could apply to have these contributions reallocated at the end of the financial year”.
Mr Davenport’s SFIC further provides that in February 2009 he met with Mr Darren Nash, Plan B Financial Advisor, and that that meeting was followed by a letter from Mr Nash to Mr Davenport (dated 25 February 2009). Mr Nash’s letter to Mr Davenport stated, in part, that “we … will need to check your SGC and Salary Sacrifice contributions do not go over the maximum $100,000 limit before the end of June” and then set out the contributions made to Plan B in respect of Mr Davenport in the 07/08 and 08/09 financial years to date. It included the SGC and salary sacrifice contributions made to Plan B in respect of Mr Davenport in July 2008. Further, enclosed under cover of that letter was an “Application – excess contributions tax determination” form. In relation to the enclosed form, the letter provided:
“ Enclosed is a form that can be completed and returned for the amount of the July 2008 contributions that formed part of contributions attributable to the 2007/2008 tax year. I would suggest checking this information on your pay slip at the time they were paid or confirm from the payroll administrator, of the amount paid in July 2008 that was from the previous quarter in the 07/08 tax year”
Mr Davenport’s SFIC states that he “then monitored the contributions (Salary Sacrifice and SGC) so that I did not exceed the $100,000 cap; in my calculations it was assumed the payments for May 08 Paid on 24th June totalling $14508.08 would be reassigned to financial year 2007/2008.”
Mr Davenport’s SFIC further provides:
“ My calculations as to the amount of contributions that I could make and not exceed the cap was based on the assumption that the ATO would look favourably on my request to have the May 2008 contributions of $14,508.07 be allocated to financial year 2007/2008. Had this or should it happen I would have come under the $100,000 Cap by $1606.58. As you can see by looking at my spread sheet (T.Doc Page 25) I ceased making salary sacrifice deductions 12th April 2008 [this is an error and should be 2009] for this very reason and assessed the amount of SGC contributions that was likely to accrue to the end of the financial year. To not have included the amount I deemed required needed to be re-reported would have denied me the opportunity to challenge the situation as there would have been no EXCESS CONTRIBUTIONS TAX and I would have been at a financial loss through no fault of my own.”
ISSUES
The ultimate issue for determination by the Tribunal in this review application is whether the excess contributions tax assessment issued to Mr Davenport by the Commissioner in respect of the 2009 year was excessive.
Mr Davenport bears the onus of proving that to be so pursuant to section 14ZZK(b)(i) of the Taxation Administration Act 1953 (TAA). To discharge this onus, Mr Davenport must establish the necessary facts and explain why the assessment is excessive, and further, what the assessment should be: Leckie v Commissioner of Taxation [2012] AATA 129 at [21].
Determining the main issue requires the Tribunal to consider whether the contribution of $14,508.07 (comprising a SGC contribution of $1,197.91 and a salary sacrifice contribution of $13,310.16) was “made” in respect of Mr Davenport in the 2008 or the 2009 financial year for the purposes of section 292-25(2) of the ITAA 1997.
If the Tribunal finds that the contribution of $14,508.07 (comprising a SGC contribution of $1,197.91 and a salary sacrifice contribution of $13,310.16) was “made” in respect of Mr Davenport in the 2009 financial year (and not the 2008 year as asserted by Mr Davenport), the Tribunal must then consider whether it should exercise the discretion in section 292-465(1) of the ITAA 1997 and reallocate the contribution of $14,508.07 from the 2009 year to the 2008 year (in which case, Mr Davenport will not have exceeded his concessional contributions cap for the 2009 year and no excess concessional contributions tax will be payable by him in respect of that year).
In deciding whether to exercise the section 292-465(1) discretion, the Tribunal must have regard to the following two (cumulative) conditions contained in section 292-465(3) of the ITAA 1997:
(a)Whether there are any “special circumstances” justifying a determination that the discretion be exercised; and
(b)If special circumstances exist, whether exercising the discretion is consistent with the “object” of Division 292 of the ITAA 1997.
Further, in deciding whether to exercise the section 292-465(1) discretion, the Tribunal may have regard to the following factors contained in subsections 292-465(4), (5) and (6) of the ITAA 1997:
(a)Whether the contribution of $14,508.07 would be more appropriately allocated from the 2009 financial year to the 2008 financial year;
(b)Whether it was reasonably foreseeable, when the relevant contribution was made, that Mr Davenport would have excess concessional contributions, having regard to the terms of any agreement concerning the amount and timing of the contribution and the extent to which he had control over the making of the contribution; and
(c)whether there are “any other relevant matters” that should be taken into account and what effect they have on the exercise of the discretion.
RELEVANT LAW & ANALYSIS
Legislative Framework
Part 3-30 of the ITAA 97 concerns the taxation of superannuation benefits. Part 3-30 was introduced into the ITAA97, by the Tax Laws Amendments (Simplified Superannuation) Act 2007, in the 2007 financial year, as part of the Federal Government’s significant amendments to superannuation.
Most contributions that are made to a superannuation fund are generally either "concessional contributions” or “non-concessional contributions”. “Concessional contributions” are, broadly, contributions that are made to a complying superannuation fund, and are included in the assessable income of the superannuation fund. A complying superannuation fund is assessed on its taxable income (including concessional contributions) at the rate of 15%.
Excess concessional contributions tax
The rules on “excess concessional contributions tax” are provided in Division 292-B of the ITAA 1997 (comprising sections 292-10 to 292-25 of the ITAA 1997) and is imposed by the Superannuation (Excess Concessional Contributions Tax) Act 2007. Excess concessional contributions tax is payable by individuals at the rate of 31.5% if their annual concessional contributions exceed their “concessional contributions cap” for the year: section 292-20(1) of the ITAA 1997.
For individuals aged 50 or over (like Mr Davenport), a transitional concessional contributions cap of $100,000 applies in the 2007/2008 and 2008/2009 financial year: see section 292-20(a) of the Income Tax (Transitional Provisions) Act 1999.
An individual has a concessional contribution for a financial year, pursuant to section 292-25(2) of the ITAA 1997, if the contribution is:
(a)made in the financial year to a superannuation fund in respect of that individual; and
(b) included in the superannuation fund’s assessable income; and
(c)is not a transfer from a foreign superannuation fund, a rolled over untaxed benefit or a contribution to a constitutionally protected fund.
Also included in an individual’s concessional contributions for a financial year are amounts allocated by a superannuation fund to that individual for the relevant year in accordance with conditions specified in the regulations: section 292-25(3).
Section 292-230(1) of the ITAA 1997 provides that the Commissioner must make an “excess contributions tax assessment” where a person has excess concessional (or non-concessional) contributions in a financial year. The Commissioner must give the person a notice of the excess contributions tax assessment, in writing, as soon as practicable after making the assessment: section 292-230(3)of the ITAA 1997.
Timing of contributions
Section 292-25(2)(a) and (b) of the ITAA 1997 provides that a person’s concessional contributions for a financial year include contributions:
(a)“made” in the financial year to a complying superannuation fund in respect of the person; and
(b)included in the assessable income of the superannuation fund provider in relation to the plan.
The term “made” is not defined in the ITAA 1997 for the purposes of Division 292.
The Tribunal has recently found, on a number of occasions, that contributions are “made” when they are actually received by the superannuation fund and credited to the relevant member’s superannuation fund account: See Colless v Commissioner of Taxation [2011] AATA 5317 at [8], Chantrell v Commissioner of Taxation [2012] AATA 179 at [14]-[15], [19]-[21], Peaker v Commissioner of Taxation [2012] AATA 140 especially at [8]-[9], Rawson v Commissioner of Taxation [2012] AATA 3222 at [53] to [67] and Paget v Commissioner of Taxation [2012] AATA 334 at [47] to [59].
The Commissioner’s views on when a contribution is considered to be “made” can be found in Taxation Ruling TR 2010/1 (titled “Income Tax: superannuation contributions”) which explains that a contribution is made when the capital of the fund is increased by a person whose purpose is to benefit one or more members of the fund: see paragraph 4 of TR 2010/1. TR 2010/1 provides that it is a person’s objective purpose, not their subjective intention, which must be determined.
Further, according to paragraph 13 of TR 2010/1, the Commissioner considers that where funds are transferred by ETF to the superannuation provider (as was the case here), the funds are received (“made”) when the funds are credited to the relevant member’s superannuation fund account. Paragraph 183 and paragraphs 196 to 186 of TR 2010/1 state:
“ 183. A contribution of funds as cash or an electronic funds transfer, is made when the account is received by the superannuation provider and credited to the relevant account.
… …
185. Electronic payment systems operate through contractual arrangements between the:
· payer and the payer’s financial institution;
· payer’s financial institution and the payee’s financial institution; and
· payee’s financial institution and payee.
186. When a financial institution agrees to accept a payment instruction it notifies the receiving institution of the details of the payment. In Australia there are several different clearing systems for the transferring of information and netting of amounts to be transferred between institutions. The clearing rules of these systems bind the financial institutions but not the customers. Most small payments between financial institutions are not processed in real time but are subject to deferred net settlement which occurs overnight [:Thomson Legal Online, Law Relating to Banker and Customer, paragraphs 4.1860, 4.1980, and 4.2090]. As such, it is not until an amount is credited to a bank account of the superannuation provider that a contribution will be taken to be made.” [Emphasis added]
See also paragraph 187 of TR 2010/1.
The evidence before the Tribunal is that on 1 July 2008 Plan B “received” two remittance advices (each dated 27 June 2008) from Ambit (Mr Davenport’s employer) identifying contributions totalling $21,584.51 (comprising $14,508.07 in respect of May 2008 and $7,076.44 in respect of the first half of June 2008). However, it was not until 1 July 2008 that Plan B allocated (transferred) a SGC contribution of $1,782.20 and salary sacrifice contribution of $19,802.31 from its “suspense account” to Mr Davenport’s LSF member account. The reason for this was that it when Plan B received the funds on 27 June 2008 it was not provided with a “contributions remittance advice” from Ambit clearly identifying who the funds were intended for, in accordance with Plan B’s “Product Disclosure Statement”, and so it put the funds received in its “suspense account” pending receipt of a remittance advice from the employer. It was not until Plan B received a “contributions remittance advice” from Ambit on 1 July 2008, in respect of the contributions made on behalf of Mr Davenport, that Plan B was able to retrieve the relevant funds from its suspense account and allocate (“credit”) them to Mr Davenport’s fund account. In such circumstances, the Tribunal considers that the contribution of $14,508.07 (relating to May 2008) was not “made” for Division 292 purposes until it was allocated to Mr Davenport’s LSF account on 1 June 2008, following receipt by Plan B of a “contribution remittance advice” from Ambit, indicating which funds contributed on 27 June 2008, were intended to be allocated to Mr Davenport’s account. That is, it was not until 1 July 2008 that the relevant contribution was removed from Plan B’s “suspense account” and credited to Mr Davenport’s LFS account, thereby increasing the capital of the LSF and such that the amount could be included in the assessable income of the LSF: Colless v Commissioner of Taxation [2012] AATA 441 at [8] per Senior Member McCabe.
As contended by the Commissioner, while Ambit did fail to ensure that the two remittance advices were received by Plan B by 30 June 2008, it was under no obligation to do so. Ambit did not fail to comply to with the terms of an existing agreement with Mr Davenport regarding the time at which superannuation contributions were to be made as, on the evidence before the Tribunal, no such agreement existed. The Tribunal agrees with the Commissioner’s assertion that, in the absence of an agreement regarding the timing of contributions, Ambit had only the statutory obligation under the Superannuation Guarantee (Administration) Act 1992 to make SGC contributions within 28 days after the end of the quarterly period, which Ambit satisfied in this case. Further, there was no definite pattern from which Mr Davenport could reasonably have expected that the relevant contributions would be credited to his LSF account by 30 June 2008. On the evidence, the immediately preceding contributions for the period from 16 April 2008 to 7 May 2008 were not credited to Mr Davenport’s account until 5 June 2008. On that basis, it is arguable that it was foreseeable that the relevant contributions would not be credited to Mr Davenport’s LSF account until on or about 5 July 2008.
Commissioner’s discretion in section 292-465
Having found that the concessional contribution of $14,508.07 was “made” on 1 July 2008 (and not 27 June 2008 as asserted by Mr Davenport) it necessary to consider whether the discretion in section 292-465 of the ITAA 1997 should be exercised in Mr Davenport’s favour to reallocate that contribution from the 2009 year to the 2008 year.
Section 292-465 of the ITAA 1997 allows a taxpayer to apply to the Commissioner to make a written determination to allocate concessional contributions to another financial year (for example to prevent his or her concessional contributions cap being breached in a particular financial year).
Section 292-465 of the ITAA 1997 (as in force at the relevant time) provides:
“ Commissioner’s discretion to disregard contributions etc. in relation to a financial year
(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 onon0concessional 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 91). 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.
(7)The Commissioner must give you a copy of the determination.
(8)A determination under this section may be included in a notice of assessment.
Review of determinations
(9)To avoid doubt:
(a)you may object under section 292-245 against an excess contributions tax assessment made in relation to you on the ground that you are dissatisfied with a determination that you applied for under this section; and
(b)for the purposes of paragraph (e) of Schedule 1 to the Administrative Decisions (Judicial review) Act 1977, the making of a determination under this section is a decision forming part of the process of making an assessment of tax under this Act.”
Thus, section 292-465(1) of the ITAA 1997 enlivens the Commissioner’s discretion to make a determination in relation to concessional contributions, upon the taxpayer making an application.
Section 292-465(2) of the ITAA 1997 was amended in relation to applications for excess contributions tax determinations made on or after 17 November 2010 and the above provision therefore applies to the application for an excess contributions tax determination that Mr Davenport made on 31 January 2011. Before being amended, applications for excess contributions tax determinations could not be made prior to the receipt of an excess contributions tax assessment for the financial year. That is, prior to being amended, section 292-465(2) read:
“ You may apply to the Commissioner in the approved form for a determination under subsection
(1) The application can only be made within:
(a) the period:
(i)starting on the day you receive an excess contributions tax assessment for the financial year; and
(ii)ending 60 days after that day;
(b)a longer period allowed by the Commissioner.”
The requirements of section 292-465(3) of the ITAA 1997 are conjunctive. That is, section 292-465(3) states that both:
(a) “special circumstances” exist in relation to the relevant taxpayer; and
(b)the making of the determination is consistent with the “object” of Division 292 of the ITAA 1997.
Further, in making a determination under section 292-45(1) of the ITAA 1997, section 292-465(4) provides that regard may be had to the specific matters in sections 292-465(5) and (60 and “any other relevant matters”. The use of the word “may” in section 292-465(4), clearly imparts discretion on the Commissioner (and the Tribunal on review) to refer to circumstances described in sections 292-465(5) and (6) and “any other relevant matters”: section 292-465(4). In other words, regard to those matters is optional and not mandatory. In contrast, it is mandatory that the decision-maker be satisfied that both conditions in section 292-465(3) are being met before a determination can be made under section 292-465(1) of the ITAA 1997 to reallocate a contribution to another financial year.
The discretionary considerations in sections 292-465(4) to (6) of the ITAA 1997 provide guidance as regards whether “special circumstances” exist in a particular case and whether a determination would be consistent with the “object” of Division 292 of the ITAA 1997 for the purposes of section 292-465(3) of the ITAA 1997.
Special circumstances
As stated above, the Commissioner cannot make the determination under section 292-465(1) of the ITAA 1997 unless “special circumstances” exist: section 292-465(3)(a) of the ITAA 1997.
The meaning of “special circumstances” has frequently been considered by the Courts and Tribunals in a variety on contexts.
In the context of the social security legislation, Burchett J commented in Minister for Community Services & Health v Chee Keong Thoo (1988) 78 ALR 307 at 324: “The core of the idea of ‘special circumstances’ is that there is something unusual or different takes a case outside of the ordinary course.” It is relevant in determining whether special circumstances exist, that the application of the general rule leads to a result that is unfair, unreasonable or inappropriate: Beadle v Director General or Social Security (1985) 60 ALR 225 at 228 per Bowen CJ, Fisher and Lockhart JJ. See also Riddell v Department of Social Security (1993) 42 FCR 443 at 450 (Full Federal Court), Secretary, Department of Social Security and Hales (1998) 82 FCR 154 per French J and Groth v Secretary, Department of Social Security (1995) 40 ALD at 545 per Kiefel J.
In relation to section 292-465(3)(a) of the ITAA 1997, Peaker v Commissioner of Taxation [2012] AATA 140 at [13] Member Webb found that “special circumstances” are unusual circumstances or circumstances out of the ordinary and noted that the term “special circumstances” is a direction to the decision-maker that the discretion it has is not to be enlivened lightly. Importantly, in Peaker Member Webb held at [20] that ignorance of superannuation arrangements was not “special circumstances”. Member Webb also noted that the information was publicly available and the applicant could have obtained it if he desired to do so. In reaching that decision Member Webb followed the earlier decision in Schuurmans-Stekhoven v Commissioner of Taxation [2012] AATA 62 where Senior Member McCabe made a similar finding.
In AAT Case 11,379 [1996] AATA 406: (1996) 96 ATC 583; (1996) 34 ATR 1175, the Tribunal concluded that the mere fact that the applicant marginally exceeded the relevant Act’s limit was not, of itself, “special circumstances”, and stated at [5] to [6]:
“ The term “special circumstances” has been the subject of numerous judgments and decisions in courts and tribunals. The ways in which people conduct their affairs are so numerous that legislators cannot predict, and hence allow for, every possible set of circumstances. Therefore, it is not possible, nor desirable, to attempt to codify the circumstances to be regarded as special. Each case is different to every other case and has to be treated on its merits. The point of legislation which allows for a discretion to be exercised in “special circumstances” is recognition of the fact that strict application of the legislation may be some unusual or unforeseen cases result in an unjust, unreasonable or inappropriate result: a result that the legislators did not intend.
There is no doubt that the applicant is unlucky to have fallen over the wrong side of the boundary line by such a small margin. I do not regard this fact as being special enough to invoke the desired discretion. In every piece of legislation where rights or entitlements are created there is a division between those who qualify and those who do not. Those people whose cases fall marginally one side or the other may regard themselves as either lucky or unlucky as the case may be. So be it.” [Emphasis added]
In Tran v Commissioner of Taxation [2012] AATA 123 Member Hughes summarised the law in relation to section 292-465(3) of the ITAA 1997 at [15] as follows:
“ The consistent interpretation adopted by the courts and this Tribunal in these decisions has been that whilst each case must turn on its merits, circumstances will not be special unless they are out of the ordinary. The prime determinant is not the extent of the taxpayer’s misfortune but rather the uniqueness of the events which has given rise to that misfortune. It has consistently been observed that an innocent mistake or ignorance of the law does not, in itself, constitute special circumstances”. [Emphasis added]
However, this interpretation of “special circumstances” was recently criticized as being “unduly narrow” and “misconceived” by Senior Member Allen in Hamad v Commissioner of Taxation [2012] AATA 530 at [12] to [14] but was adopted by Deputy President Groom in Longcake v Commissioner of Taxation [2012] AATA 576 at [18].
In Thommeny v Commissioner of Taxation [2006] AATA 840; (2006) 64 ATR 1092, a superannuation fund erred in delaying the reporting of a benefit to the applicant. The Tribunal held the circumstances of the applicant could not be characterised as “special circumstances”.
In Kerr v Commissioner of Taxation [2007] AATA 1732 circumstances, including incorrect advice of a financial planner, were held not to constitute “special circumstances”.
As noted earlier, Mr Davenport’s contends that “special circumstances” exist in his case since: (i) Plan B failed to correctly record the concessional contributions totalling $21,585.51 in the 2008 financial year (i.e. the contribution was allocated to the 2009 financial year due to clerical errors which were outside his control); and (ii) he had “no other option” but to intentionally make contributions in the 2009 year in excess of his concessional contributions cap to on the basis that an amount of $14,508.07 would be reallocated the 2008 year and “To do otherwise would be to ignore a mistake made by my superannuation provider” which he was not in a position to challenge and correct.
The Tribunal agrees with the submissions of the Commissioner that this is not a case where Ambit (Mr Davenport’s employer) failed to comply with the terms of an existing agreement with Mr Davenport regarding the timing of contributions as no such agreement existed. Further, this is not a case where Mr Davenport has been misled by Ambit as to when his SGC and salary sacrifice contributions would be made. That is, Mr Davenport’s evidence was that he was aware from the time of receipt of the Plan B letter dated 10 July 2008 that the contributions totalling $21,584.51 were “received” by Plan B on 1 July 2008. However, he continued to make salary sacrifice contributions until the pay date of 12 April 2009, in the knowledge that he would exceed his cap, on the basis that the “ATO would look favourably” on his request to reallocate $14,508.07 to the 2008 year. Based on the evidence before the Tribunal, Mr Davenport appears to have relied to some extent on the advice of Mr Nash, Plan B Financial Planner. However, the cases referred to above establish that error on the part of the fund provider and an applicant’s mistaken view of the law or reliance on the incorrect advice of a financial planner do not constitute “special circumstances” for section 292-456(3)(a) purposes: Tran, Thommeny, Kerr and Peaker.
Further, as argued by the Commissioner, whilst it is true that as section 292-456(2) stood prior to 17 November 2010 Mr Davenport could not make an application for an excess contributions tax determination until he had received an excess contributions tax assessment, this was a consequence of the legislative provisions as in force at the relevant time operating as Parliament intended and are not “special circumstances”. As the Tribunal noted in Schuumans- Stekkhoven, such consequences are the inevitable result of the application of the rule which are available for anyone to see.
As discussed above, the evidence before the Tribunal shows that Mr Davenport expected to have concessional contributions reallocated from the 2009 year to the 2008 year (where he was under his contributions cap) in order to take maximum advantage of the cap in the 2009 year. The Tribunal agrees with the Commissioner’s submission that Mr Davenport was under no legal requirement to salary sacrifice further contributions and that he chose to proceed in that manner for the purpose of obtaining the financial benefit of not having those amounts taxed at the marginal tax rate.
For the above reasons, and having regard to the matters set out in paragraphs 92 to 99 below, the Tribunal considers that no “special circumstances” exist in Mr Davenport’s case: cf Bornstein v Commissioner of Taxation [2012] AATA 424 at [10] to [12] per Senior Member McCabe.
In reaching the conclusion that Mr Davenport’s case is not attended by “special circumstances”, the Tribunal notes the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007, which amended the ITAA 1997 to, among other things, include section 292-465 of the ITAA 1997, which states the following at paragraph 1.117:
“ 1.117 The courts have considered what ‘special circumstances’ means in many different contexts. 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.” [Emphasis added]
Object of Division 292
Having found that no “special circumstances” exist in Mr Davenport’s case it is unnecessary to consider whether the making of a determination to allocate would be consistent with the object of Division 292 because the two conditions in section 292-465(3)(a) and (b) of the ITAA 1997 are cumulative. However, for completeness, the Tribunal will now consider section 292-465(3)(b) of the ITAA 1997.
As stated above, the Commissioner cannot make a determination under section 292-465(1) of the ITAA 1997 if he does not consider that the making the determination would be consistent with the object of Division 292 of the ITAA 1997: section 292-465(3)(b) of the ITAA 1997.
The object of Division 292 of the ITAA 1997 is set out in section 292-5 of the ITAA 1997 as follows:
“ Object of this Division
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.”
The “Guide” to Division 292, which is contained in section 292-1 of the ITAA 1997, provides:
“ What this Division is about
This Division limits the superannuation contributions made in a financial year for a person that receive concessionally taxed treatment.”
As a Guide provision, section 292-1 of Division 292 of the ITAA 1997 forms part of the ITAA 1997 but is to be kept separate from its operative provisions: see section 950-150(2) of the ITAA 1997. In interpreting the operative provisions of Division of the ITAA 1997, the Guide should only be considered for limited purposes, including “determining the purpose or object underlying the provision[s]” of Division 292: see section 950-150(2)(a) of the ITAA 1997.
Further guidance about the object of Division 292 of the ITAA 1997 may be found in Division 280 of that Act. Division 280, titled “Guide to the Superannuation Provisions”, provides a guide to Part 3-30 of the ITAA 1997. Specifically, section 280-15 of the ITAA 1997 (titled “Contributions phase – limits on superannuation tax”) provides:
“280-15(1) There is a limit to contributions that can be made in respect of an individual in a year that receive favourable tax treatment. This limit takes the form of a tax on excessive contributions, and neutralizes the favourable tax treatment arising from the excessive contributions.
280-15(2)If concessional contributions exceed an indexed cap, the individual concerned is taxed on the excess. This tax liability can be met by releasing money from his or her superannuation interests.” “While the applicant undoubtedly acted in good faith, he elected to take a variety of risks inherent in leaving the transaction until the last day of the financial year. To again use the words of Senior Member Muller in AAT Case 11,379, the applicant has fallen over the wrong side of the boundary line for reasons which, while not immediately in his control from a technical perspective, were within his control from an organisational perspective.”
The policy context of Division 292 can be discerned from the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which provides at [1.11] and [1.12]:
“ 1.11 The removal of age-based deduction limits, reasonable benefit limits (RBLs) and tax on superannuation benefits from taxed funds for people 60 and over will increase the concessions provided to superannuation. These changes, in conjunction with the continuing tax exemption provided for income from superannuation assets supporting a pension, will make superannuation an attractive vehicle for retaining assets to minimise tax. There will be an incentive for people to transfer income producing assets currently held outside superannuation to the concessionally taxed superannuation system.
1.12 To ensure superannuation taxation benefits are targeted appropriately, limits will be placed on the amount of superannuation contributions a person can make that receive concessional treatment ….” [Emphasis added]
In deciding whether to make a section 292-465(1) determination, the Commissioner (and the Tribunal on review) may have regard to the matters in section 292-465(5) and (6) of the ITAA 1997 and “any other relevant matters” (section 292-465(4) of the ITAA 1997). The matters in section 292-465(5) and (6) are addressed in paragraphs 92 to 99 below. Having regard to the matters discussed in paragraphs 92 to 99 below, the Tribunal considers that the making of a determination under section 292-465(1) of the ITAA 1997 in Mr Davenport’s particular case would not be consistent with the “object of Division 292 as discussed above: cf Hamad at [17] to [20] per Senior Member Allen and Bernstein at [14] per Senior Member McCabe.
Appropriateness of allocation to another financial year
Section 292-465(5) of the ITAA 1997 provides that the Tribunal may have regard a contribution made in a particular financial year would more appropriately be allocated towards another financial year instead.
Having regard to the matters set out in paragraphs 59 to 60 and 78 to 81 above, the Tribunal considers that it is not appropriate in Mr Davenport’s case for any of the contributions made by Ambit to Plan B on his behalf in the 2009 year (including the contribution of $14,508.07) to be reallocated to the 2008 year. In reaching that conclusion, the Tribunal notes the following comments of Member Hughes in Chantrell at [36]:
“ On the question of reallocation, it is not in contention that the applicant intended the contribution to be allocated to the 2007 financial year. However, this is not enough. As submitted by the respondent, there is no inherent connection between the contribution and the 2007 financial year other than the applicant's subjective (albeit undisputed) intention to allocate the funds to the 2007 year. The applicant's intentions were plain but they were not executed effectively.” [Emphasis added]
Reasonably foreseeability
Section 292-465(6) of the ITAA 1997 provides that the Tribunal may consider whether it was “reasonably foreseeable”, when the relevant contribution was made, that the person would have excess concessional contributions for the relevant financial year, having regard to:
(a)the terms of any agreement or arrangement between the person and the payer as to the amount and timing of the contribution; and
(b)the extent to which you had control over the making of the contribution.
Section 292-465(6) has been interpreted to import an objective test, meaning that the provision is not concerned with a person’s subjective beliefs but with what was objectively foreseeable at the time the relevant contribution is “made”: see McMennemin v Commissioner of Taxation [2010] AATA 573 wherein Deputy President Forgie at [111] quoted Mansfield J in Secretary Department of Employment Education and Youth Affairs v Ferguson (1997) 76 FCR 426 at 440; [1997] FCA 663, as to the meaning of “reasonably foreseeable”, as it appears in section 292-465(6) ITAA 1997, as follows:
“ The use of the expression ‘reasonably foreseeable’ is commonplace. It imports an objective assessment about a set of facts as they apply to a particular circumstance or to a particular person. To say that, as here, they direct attention to the particular person does not import the need to determine the actual state of mind of that person. It is to direct the objective assessment on the relevant facts in relation to a particular person, with that person’s health, knowledge and background. Some persons would be able to reasonably foresee circumstances more readily than others. …” [Emphasis added]
The evidence before the Tribunal is that at all relevant times Mr Davenport knew his concessional cap for the 2009 year and the taxation consequences that would follow if his concessional contributions exceeded that cap. He took the course of action he did on the basis that he “had no other option” and he made the relevant contributions in the knowledge that he would exceed his cap on the assumption that the Commissioner would look favourably upon him and reallocate the concessional contribution of $14,508.07 from the 2009 year to the 2008 year.
Terms of any agreement
As stated above (see paragraph 60), there was no agreement between Mr Davenport and his employer (Ambit) regarding the timing of contributions to Plan B. In the absence of such an agreement, an employer can only be expected to make a contribution to a superannuation fund in fulfilment of its superannuation guarantee and employment obligations in a reasonable timeframe which, on the evidence, Ambit did in this case.
Further, as previously stated (see paragraph 60), in this case there was no discernible pattern from which Mr Davenport could reasonably have expected that the relevant contributions would be credited to his account by 30 June 2008.
Control
As already stated, on the evidence, Mr Davenport (and not his employer, Ambit) was at all relevant times in a position to control the amount of salary sacrifice contributions Mr Davenport made to the LSF. That is, Mr Davenport could alter the amount sacrificed or cease salary sacrificed contributions altogether (as he did during the 2008 financial year and commencing April 2009, in the 2009 financial year).
DECISION
For the above reasons, the Tribunal affirms the Commissioner’s objection decision dated 28 March 2012.
I certify that the preceding 100 (one hundred) paragraphs are a true copy of the reasons for the decision herein of .......[sgd L Roberts]............................................
Administrative Assistant
Dated 1 November 2012
Date(s) of hearing 24 October 2012 Applicant In person Solicitors for the Respondent Mr Michael Vincent (Australian Taxation Office)
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