SQQM and Commissioner of Taxation (Taxation)
[2022] AATA 298
•23 February 2022
SQQM and Commissioner of Taxation (Taxation) [2022] AATA 298 (23 February 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2021/2388
Re:SQQM
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member Linda Kirk
Date:23 February 2022
Place:Sydney
The Reviewable Decision is affirmed.
...........................SGD.............................................
Senior Member Linda Kirk
CATCHWORDS
TAXATION – whether to disregard all or part of Applicant’s non-concessional superannuation contributions – should discretion to disregard non-concessional contributions be applied - whether special circumstances to justify discretion being exercised exists – Applicant’s circumstances do not justify discretion being exercised – reviewable decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth)
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25
Commissioner of Taxation v Dowling [2014] FCA 252
Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1994) 7 ATD 333, 337
Dowling and Federal Commissioner of Taxation [2014] AATA 474; (2014) ATC 10-371
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Groth v Secretary, Department of Social Security 40 ALD 541
Liwszyc v Commissioner of Taxation (2014) 218 FCR 334
Rawson v Commissioner of Taxation [2013] FCAFC 26; (2013) 59 AAR 221
Re Lynton and Commissioner of Taxation [2012] AATA 667; (2012) 90 ATR 950
Re Peaker and Federal Commissioner of Taxation 2012 ATC 10-238; (2012) 87 ATR 578
Re Pitts and Commissioner of Taxation (Taxation) [2017] AATA 685
Re Sharkey and Federal Commissioner of Taxation [2007] AATA 1435; (2007) 66 ATR 878
Re Tran and Federal Commissioner of Taxation [2012] AATA 123; (2012) 87 ATR 322
Re Verschuer and Federal Commissioner of Taxation [2013] AATA 12; (2013) 88 ATR 991
Thompson and Commissioner of Taxation [2014] AATA 339; (2014) 98 ATR 661
Topp and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 99
Ward v Commissioner of Taxation [2016] FCAFC 132; (2016) 103 ATR 823
SECONDARY MATERIALS
Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006
REASONS FOR DECISION
Senior Member Linda Kirk
23 February 2022
APPLICATION FOR REVIEW
On 22 May 2020, SQQM (‘the Applicant’) requested the Commissioner of Taxation (‘the Respondent’) to make a determination under subsection 292-465(1) of the Income Tax Assessment Act 1997 (Cth) (‘ITAA’) to disregard all or part of her excess non-concessional superannuation contributions for the financial year ended 30 June 2019.[1]
[1] ST1.
On 16 July 2020, the Respondent issued a notice of decision, advising the Applicant that the Respondent had decided not to disregard or reallocate any of the Applicant’s non-concessional contributions for the 2019 income year.[2]
[2] T12, 67.
On 23 July 2020, the Applicant objected against the Respondent’s decision to not make the determination.[3]
[3] T13.
In a decision dated 25 March 2021 (‘the Reviewable Decision’)[4] the Respondent disallowed the Applicant’s objection in full.[5]
[4] T2.
[5] T15, 83.
On 13 April 2021 the Applicant lodged an application for review of the Reviewable Decision.[6]
[6] T1.
The review application was heard by the Tribunal by video-conference on 23 November 2021. The Applicant was self-represented and made submissions at the hearing.
The following documents were before the Tribunal:
·T-Documents Volume 1; and
·T-Documents Volume 2.
The Tribunal has reviewed all the evidence before it and refers to all relevant materials below.
LEGISLATION
Division 292 of the ITAA
Division 292 of the ITAA concerns excess non-concessional contributions. The object of the Division is stated in section 292-5 of the ITAA as:
The object of this Division is to ensure, in relation to non-concessional contributions to superannuation, that the amount of concessionally taxed *superannuation benefits that an individual receives results from contributions that have been made gradually over the course of the individual’s life.
Further guidance about the object of Division 292 is found in Division 280 of the ITAA. Division 280 is a guide to Part 3-30 of the ITAA. Subsection 280-15(1) provides:
There is a limit to contributions that can be made in respect of an individual in a year that receive favourable tax treatment.
The object of Division 292 is fulfilled, in part, by placing limits on the amount of concessional contributions and non-concessional contributions that can be made in a year[7]. The limit takes the form of a tax on excessive contributions which neutralises the favourable tax treatment of benefits that would otherwise accrue to a member arising from the excessive contributions.[8]
[7] Respondent’s Statement of Facts, Issues and Contentions (‘SOFIC”) at [19].
[8] Respondent’s SOFIC at [19].
Section 292-80 provides:
Liability for excess non-concessional contributions tax
You are liable to pay *excess non-concessional contributions tax imposed by the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 if you have *excess non-concessional contributions for a *financial year.
Note: The amount of the tax is set out in that Act.
Section 292-85 of the ITAA sets out when an individual will have excess non-concessional contributions and the amount of an individual’s non-concessional contributions cap for a financial year.
Section 292-90 of the ITAA defines the amount of an individual’s non-concessional contributions for a financial year.
An individual has excess non-concessional contributions for a financial year if the individual’s non-concessional contributions for that particular financial year exceed the cap set out in section 292-85.
However, for years ended 30 June 2014 or later,[9] an individual who has excess non-concessional contributions can elect to release from their superannuation an amount equal to those excess contributions plus 85 per cent[10] of an associated earnings amount.[11] The full associated earnings amount will be included in the individual’s assessable income and will be taxed at the individual’s marginal tax rate.[12] The individual will be entitled to a non-refundable tax-offset equal to 15 per cent of the associated earnings amount.[13]
[9] The Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014 amended the ITAA and the Taxation Administration Act 1953 (Cth) to make the taxation treatment of individuals with excess non-concessional contributions fairer by allowing a choice for individuals to either release the relevant amount from their superannuation or be subject to excess contributions tax: paragraph 1.1 of the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014; Respondent’s SOFIC at [21].
[10] Only 85 per cent of the associated earnings amount must be released as the superannuation provider may already have included the earnings on investments made with the excess contributions in the provider’s assessable income and been taxed on those earnings (at a rate of up to 15 per cent); Respondent’s SOFIC at [21]
[11] Subsection 280-15(3) ITAA.
[12] Section 292-25 ITAA.
[13] Section 292-30 ITAA. Associated earnings amounts are calculated to approximate the amount earned while the excess non-concessional contributions were held in a superannuation fund. The associated earnings amount is calculated by applying the associated earnings rate to the excess non-concessional contributions on a daily compounding basis for the length of the associated earnings period. The associated earnings rate is the average of the General Interest Charge (GIC) rate for each of the quarters of the financial year in which the excess contributions were made and compounds daily. For the 2019 income year, the average GIC rate was 8.96 per cent; Respondent’s SOFIC at [22]
Excess non-concessional contributions tax will not be imposed on excess contributions to the extent that they are released from superannuation.[14] This prevents any amounts no longer in superannuation from being treated as excess non-concessional contributions.[15]
[14] See sections 292-80, 292-85 and 292-90 ITAA.
[15] Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014, [1.19].
If the individual elects to not release the relevant amounts, the Respondent will issue an assessment to the individual for excess non-concessional contributions tax.[16]
[16] Section 292-230 ITAA.
If the individual does not make an election, the Respondent may issue a release authority to the relevant superannuation authority.[17]
[17] Subsection 131-15(2) of Sch 1 Taxation Administration Act 1953 (Cth).
The discretion in section 292-465
Section 292-465 of the ITAA enables the Respondent on application by the taxpayer to make a determination to disregard non-concessional contributions or allocate them to another financial year for the purposes of Division 292 and Subdivision 97-B in Schedule 1 of the Taxation Administration Act 1953 (Cth) (‘TAA’).
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 and Subdivision 97-B in Schedule 1 to the Taxation Administration Act 1953 , all or part of your * non-concessional contributions for a * financial year is to be:
(a) disregarded; or
(b) 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 undersubsection (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 one or more * excess non-concessional contributions determinations for the * financialyear--before the end of:
(i) the period of 60 days starting on the day you receive the most recent of those determinations; or
(ii) a longer period allowed by the Commissioner.
(3)The Commissioner may make a determination undersubsection (1) only if he or she considers that:
(a) there are special circumstances; and
(b) the determination is consistent with the object of this Division.
The two conditions in subsection 292-465(3) of the ITAA are cumulative. The Parliament recognised that in ‘special circumstances’ the imposition of a liability to pay excess contributions tax might produce an ‘unjust, unreasonable or inappropriate result’.[18] Accordingly, subsection 292-465(1) was enacted to confer on the Respondent an important discretion – a discretion to make a written determination to disregard, or allocate to another financial year, all or part of a person’s non-concessional contributions, for a financial year.
[18] See Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006, 34 [1.117].
The discretion conferred by section 292-465 of the ITAA is not unfettered. As Greenwood J observed in Commissioner of Taxation v Dowling (‘Dowling’):[19]
The Commissioner’s power to exercise the discretion is constrained, at the threshold, by the mandatory requirement that he or she “considers” that there are “special circumstances” warranting a constructive change to the actuality of the contributions either by disregarding or re-allocating some or all those contributions giving rise to the liability, and that he or she considers that doing so is consistent with the object of Div 292.
These s 292-465(3)(a) and (b) considerations are absolute pre-conditions to the exercise of the discretion.
[19] [2014] FCA 252 at [93]-[94].
His Honour added:[20]
Once the Tribunal (is) satisfied of the pre-conditions under s 292-465(3)(a) and (b), the question arose of whether the Tribunal ought to exercise the discretion and that matter gave rise to a consideration of the s 292-46(5) and (6) factors and any other factor the Tribunal regarded as a relevant matter.
[20] Commissioner of Taxation v Dowling [2014] FCA 252 at [125] per Greenwood J
Subsections 292-465(4) to (6) provide:
(4)In making a determination under subsection (1) 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.
ISSUE FOR DETERMINATION
The issue for the Tribunal’s determination is whether the Respondent’s decision to not make a written determination under subsection 292-465(1) disregarding, or allocating to another financial year,[21] all or part of the Applicant’s non-concessional contributions for the 2019 income year should have been made differently.
[21] This issue was not raised by the Applicant this review application.
In determining that broad issue, both of the following preconditions set out in subsection 292-465(3) need to be considered:
1)were there any ‘special circumstances’ justifying a determination that the discretion be exercised; and
2)if special circumstances existed, would making the determination have been consistent with the object of Division 292 of the ITAA?
If the two preconditions are satisfied, in deciding whether the determination should be made, regard may be had to the matters in subsections 292-465(5) and (6) of the ITAA and any other relevant matters, specifically:
3)was it reasonably foreseeable, when the relevant contribution was made, that the Applicant would have excess non-concessional contributions, having regard to the extent to which the Applicant had control over the making of the contribution?
EVIDENCE BEFORE THE TRIBUNAL
As at 30 June 2018, the Applicant had a total superannuation balance of $2,526,291.26,[22] and therefore had a cap of nil for the 2019 income year.[23]
[22] ST2, 94.
[23] T14, 79.
During the 2019 income year, the Applicant made the following excess non-concessional contributions (totalling $100,000):
(a) $48,000 on 14 August 2018;[24]
(b) $2,000 on 15 August 2018;[25]
(c) $20,000 on 21 January 2019;[26]
(d) $10,000 on 22 January 2019;[27]
(e) $20,000 on 22 January 2019;[28]
[24] T4, 12.
[25] T6, 18.
[26] T9, 27.
[27] T8, 24.
[28] T7, 21.
The Respondent must make a written excess non-concessional contribution (‘ENCC’) determination for individuals who have non-concessional contributions in excess of their cap for a financial year.[29] The ENCC determination states the amount of the excess contributions, the amount of the associated earnings for those contributions, and the total release amount.[30]
[29] Section 97-25 of Schedule 1 to the TAA.
[30] Respondent’s SOFIC at [8].
On 2 March 2020, the Respondent issued the Applicant a ENCC determination[31] which contained the following:
[31] T11.
Total Superannuation Balance as at 30 June 2018 $2,526,291.26 Non-concessional contributions cap $0.00 Non-concessional contributions $100,000.00 Excess non-concessional contributions for the determination $100,000.00 Excess non-concessional contributions tax (Option 2) $47,000.00 Associated earnings amount $16,179.00 Associated earnings period 1 July 2018 to 2 March 2020 Associated earnings rate 8.96% 85% of associated earnings amount $13,752.15 Amount to be released from your super fund(s) (Option 1) $113,752.15
On 20 April 2020, the Applicant was issued with an amended ENCC determination, which included additional non-concessional contributions of $25,000.[32] This was a result of an incorrect report by UniSuper Management Pty Ltd to the Respondent.[33] These non- concessional contributions were later re-classified as concessional contributions and the Applicant was issued with a further amended ENCC determination[34] (see paragraph [38] below).
[32] Respondent’s SOFIC at [10].
[33] Respondent’s SOFIC at [10].
[34] Respondent’s SOFIC at [10].
On 22 May 2020, the Applicant requested the Respondent to make a determination to disregard some, or all, of her excess non-concessional contributions for the 2019 income year for the following reasons:[35]
[35] ST1; Respondent’s SOFIC at [11].
a)On the UniSuper website she was encouraged to contribute a non-concessional voluntary payment up to $100,000 and she did this ‘unwittingly’ in January 2019;
b)She was not aware of the new law that came into effect in 2017 that resulted in her having a cap of nil for her non-concessional contributions;
c)The Applicant’s accountant was aware of the non-concessional contributions and did not advise her against them;
d)The Applicant’s accountant had been unwell;
e)The period from the end of 2016 to the end of 2018 were extremely difficult for the Applicant as she was being treated for cancer. The Applicant advised that she was diagnosed with cancer in November 2016.[36] The Applicant provided letters from her two treating clinicians in support; being:
(i) a medical report from Dr Ashanya Malalasekera dated 2 June 2017, which in addition to noting the Applicant’s treatment for cancer, notes that the Applicant has a history of post-traumatic stress disorder (‘PTSD’) (after witnessing her sister’s death from breast cancer) that has been exacerbated from her own breast cancer diagnosis and complex issues that arose during treatment;[37]
(ii) a letter from the Northern Sydney Cancer Centre dated 15 May 2020 which notes that the Applicant received radiotherapy between 3 January 2017 and 15 February 2017;[38]
f)The Applicant continues to suffer from PTSD;
g)In June 2017, the Applicant had to make funeral arrangements for a family member without assistance from other family members.
[36] T1, 4.
[37] T13, 71.
[38] ST1, 88.
In her oral evidence at the hearing, the Applicant provided further detail about her circumstances. She told the Tribunal that there had been ‘a coalescing of unfortunate circumstances’ in the years prior to her cancer diagnosis and between that diagnosis and her treatment.[39] Not only did she have to arrange a funeral for her brother-in-law, she was his legal guardian and was responsible for all pastoral decisions from 2011 until he died in June 2017, which was ‘an onerous job’. The PTSD which she suffers was a result of her sister having the same cancer, and she watched her and took her to medical consultations for the 10 years before she died in 2005. When the Applicant was diagnosed with cancer, she was told that ‘every step you make you are reliving your sister's diagnosis and you are in a state of hypervigilance and you can see what is coming ahead’.[40] In addition, her daughter is a single parent, and the Applicant was looking after her child and working until 2013. Although she had not been diagnosed with cancer at this time, there was a lot of stress in the Applicant’s life. She also divorced in 2001. Her PTSD diagnosis was not just because of the cancer ‘but because of flashbacks’ and she is ‘always in a state of hypervigilance’. In addition, although it has not been diagnosed, it is clear that she had post-natal depression and she is on the autistic spectrum. Both her grandchildren are also on the autistic spectrum and they receive help from NDIS.[41] The NDIS assistance that her grandchildren are receiving is not unlimited, and they are probably going to need help for the rest of their lives, even into adulthood.[42]
[39] Transcript of proceedings, 23 November 2021, 5.
[40] Transcript of proceedings, 23 November 2021, 5.
[41] Transcript of proceedings, 23 November 2021, 6.
[42] Transcript of proceedings, 23 November 2021, 7.
In relation to the non-concessional contribution being made in the course of a person’s working life, the Applicant said that she did not ‘have time to do it’ because she was already retired and only working part-time. Her understanding was that if a person worked 40 hours a month in a year then they are entitled to a concessional and a non-concessional contribution. She receives a defined benefit which comes as a fortnightly pension and the original residual.[43] When she retired in 2014, she was told by the State's super people, ‘look, you have time to think about it, you can take a little bit now, you can take a lump sum but after 12 months your fate is sealed to a fortnight defined benefit for the rest of your life’. This is what she did because she is not that good at organising her affairs. So, in her mind the defined benefit is ‘an artificial number’, and because she ‘expected an early death’ she thought that she had ‘better quarantine some money away in an accumulation account where it was assigned to [her] daughter so she can look after her children’ and ‘pay some charitable organisations’ because ‘there was nothing going to come from the defined benefit.’[44]
[43] Transcript of proceedings, 23 November 2021, 7.
[44] Transcript of proceedings, 23 November 2021, 7.
On 16 July 2020, the Respondent issued a notice of decision, advising the Applicant that the Respondent had decided not to disregard or reallocate any of the Applicant’s non- concessional contributions for the 2019 income year.[45]
[45] T12, 67.
On 23 July 2020, the Applicant objected against the Respondent’s decision to not make the determination,[46] largely repeating her contentions from her initial request as well as stating that she uses an accountant for her tax affairs and had a previously ‘perfect’ tax record.
[46] T13.
On 9 November 2020, the Applicant was issued with a further amended ENCC determination,[47] removing the concessional contributions incorrectly classified as non- concessional contributions referenced above in paragraph [32].
[47] T14.
On 25 March 2021, the Respondent disallowed the Applicant’s objection in full.[48]
SUBMISSIONS
[48] T15, 83.
Applicant
The Applicant does not dispute that she has exceeded her cap by $100,000.
The Applicant does not contend that any contributions were intended or expected to be made in another financial year.[49] She contends that there are ‘special circumstances’, primarily being her PTSD.[50] The Applicant further claims that her PTSD has directly affected her decision-making capabilities.[51]
[49] Respondent’s SOFIC at [39].
[50] Respondent’s SOFIC at [39].
[51] Respondent’s SOFIC at [39].
The Applicant contends the following amount to ‘special circumstances’:[52]
a)The Applicant’s ill health resulting from a cancer diagnosis in November 2016, PSTD resulting from this diagnosis and her having to act as legal guardian for her brother-in-law and make funeral arrangements for him when he died in June 2017;
b)The Applicant’s accountant being aware of the contributions but not advising against the making of them;
c)The Applicant ‘unwittingly’ making the contributions after she was encouraged to make the contributions based on general advice from the UniSuper website; and
d)The Applicant suffering a ‘penalty impost’ by being required to pay income tax at her marginal rate on the associated earnings.
[52] Respondent’s Outline of Submissions at [55].
The Applicant does not address whether exercising the discretion would be consistent with the object of Division 292, nor whether it would be reasonably foreseeable that there would be excess non-concessional contributions when the contributions were made.
Respondent
The Respondent contends:[53]
(a)There are no ‘special circumstances’ in the Applicant’s case that justify a determination that the discretion be exercised;
(b)Further, even if the Tribunal were to consider there were ‘special circumstances’, it would not be consistent with the object of Division 292 of the ITAA to disregard any of the excess non-concessional contributions; and
(c)Even if the Tribunal were to consider both the preconditions to the exercise of the discretion were satisfied, the Respondent submits that the discretion ought to not be exercised as it was entirely reasonably foreseeable that the Applicant would have excess non-concessional contributions when the contributions were made in the 2019 income year.
[53] Respondent’s SOFIC at [41].
CONSIDERATION AND REASONS
Onus of proof
Pursuant to section 14ZZK of the TAA, the Applicant bears the onus of demonstrating that the assessment is excessive.[54] The Applicant must therefore demonstrate that the Respondent’s decision to refuse to make a written determination under subsection 292-465(1) ‘should’ have been made differently and is not an appropriate exercise of the statutory power or discretion.[55]
[54] Respondent’s Outline of Submissions at [102].
[55] Re Sharkey and Federal Commissioner of Taxation [2007] AATA 1435; (2007) 66 ATR 878 at [22] (Senior Member Taylor SC). Aspects of this decision were however criticised in Rawson v Commissioner of Taxation [2013] FCAFC 26; (2013) 59 AAR 221 at [115]-[116] (Jagot J); Respondent’s Outline of Submissions at [102].
In challenging the Respondent’s decision, the Applicant must establish any fact that demonstrates that the assessment is excessive. As Latham CJ stated in Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation:[56]
I agree that upon appeal the onus rests upon the taxpayer of establishing the facts upon which he relies and if it is necessary for him to establish a particular fact in order to displace the assessment he must satisfy the Court with respect of that fact.
[56] (1994) 7 ATD 333, 337.
The Respondent is entitled to ‘rely upon any deficiency in proof’. It follows that if the evidence adduced by the Applicant does not discharge the burden of proof, the Respondent’s decision must be affirmed.[57]
[57] Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at [89] (Mason J).
The discretion in section 292-465
A number of general observations may be made in relation to the text and structure of section 292-465.
First, the word ‘only’ in subsection (3) is a word of limitation; its inclusion imports a requirement that the matters set out in paragraphs (3)(a) and (b) must exist before the discretion to make a determination under subsection 292-465(1) is enlivened.[58] Secondly, the word ‘and’ in paragraph (3)(a) is to be read conjunctively.[59] That is, the matters set out in paragraphs (3)(a) and (b) must both exist before the discretion to make a determination under subsection 292-465(1) is enlivened.[60] Thirdly, while the matters set out in paragraphs (3)(a) and (b) must exist before the Respondent may exercise the discretion conferred by subsection 292-465(1), those matters do not themselves dictate that the Respondent must make a determination, or that the discretion conferred by the subsection 292-465(1) ought to be exercised in any particular manner. The word ‘may’ in subsection 292-465(1) confers an overarching discretion on the Respondent once it has been enlivened.[61]
[58] Respondent’s Outline of Submissions at [41].
[59] Respondent’s Outline of Submissions at [42].
[60] Respondent’s Outline of Submissions at [42].
[61] Respondent’s Outline of Submissions at [43].
The existence of the matters set out in paragraphs 292-465(3)(a) and (b) will likely have some bearing on the exercise of the Respondent’s discretion under subsection 292-465(1). The matters identified in subsections 292-465(4) to (6) identify, without restricting the discretion conferred on the Respondent, relevant matters that may be taken into account in determining whether to exercise the discretion.[62]
[62] Respondent’s Outline of Submissions at [44].
In any particular case, it might be that although the matters identified in subsection (3) exist so as to enliven the Commissioner’s discretion, the matters identified in subsections (4) to (6) may militate against exercising the discretion conferred by subsection 292- 465(1).[63]
[63] Respondent’s Outline of Submissions at [45].
The meaning of ‘special circumstances’
In Ward v Commissioner of Taxation[64] the Full Federal Court considered the meaning of ‘special circumstances’ for the purposes of the exercise of the discretion in subsection 292-465(1) of the ITAA. It found the applicable test to be ‘what, if anything, takes this case out of the usual or ordinary case’.[65] In making this finding, it cited with approval the observations of Kiefel J (as her Honour then was) in Groth v Secretary, Department of Social Security,[66] that ‘if a tribunal were to conclude that something unfair, unintended or unjust had occurred there must be some feature out of the ordinary.’[67]
[64] Ward v Commissioner of Taxation [2016] FCAFC 132; (2016) 103 ATR 823 (Robertson, Davies and Wigney JJ) (‘Ward’).
[65] Ward at [39].
[66] 40 ALD 541 (Kiefel J) (‘Groth’).
[67] Groth, 545.
The question of whether there are ‘special circumstances’ in the context of section 292-465 requires consideration of the circumstances in the financial year giving rise to the excess non-concessional contributions.[68]
[68] See Dowling at [37].
As a matter of practical reality, the conclusion that something ‘unfair’ or ‘unjust’ has occurred ‘may be difficult to reach unless the circumstances reveal some “unusual, uncommon or exceptional” quality’.[69] However, these considerations are subordinate to the objective of the Division: subsection 292-465(3)(b). As McKerracher J stated in Liwszyc v Commissioner of Taxation (‘Liwszyc’):[70]
It is necessary to examine, within that context, whether or not the case is something unusual or different, taking it outside of the ordinary course. However … having regard to s 292-465(3)(b), the consideration that the ordinary rule leads to an unfair, unreasonable or inappropriate result must be subordinate to the requirement that making the determination is consistent with the object of the legislation, in this case, Div 292.
[69] Topp and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 99 at [39] (Senior Member Taylor SC).
[70] (2014) 218 FCR 334 at [73].
As the Tribunal explained in Re Tran and Federal Commissioner of Taxation,[71] the prime determinant is not the extent of the taxpayer’s misfortune:
[W]hilst each case must turn on its own 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.
[71] [2012] AATA 123; (2012) 87 ATR 322 at [15] (Member Dr Hughes) (‘Tran’) (cited with approval in Re McLennan and Federal Commissioner of Taxation [2013] AATA; (2013) 93 ATR 957, [33] (Senior Member Dr Levy RFD); See also Case 7/2013 [2013] AATA 557, [17] (Senior Member McCabe) (quoting observations made by Katzmann J in Fischer v Secretary, Department of Families, Housing Community Services and Indigenous Affairs [2010] FCA 441; (2010) 185 FCR 52, [80] with approval ‘… it is the circumstances that must be special, not the individual’s experience of them.’)
While there must be something ‘unusual’ or ‘uncommon’ for the test of ‘special circumstances’ to be satisfied, care should be taken not to overstate its requirements. As Besanko J said in Angelakos v Secretary, Department of Employment and Workplace Relations:[72]
It was not the intention of Parliament to confine the exercise of the discretion to an exceptional case. There is less risk of overstatement if the words “unusual” or “uncommon” are emphasised. Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case.
[72] [2007] FCA 25 at [33].
The context of section 292-465(3)(a) makes clear that innocent mistakes or ignorance of the law do not constitute ‘special circumstances’.[73] This was confirmed in Liwszyc:[74]
An innocent mistake or ignorance of the law does not in itself constitute a “special circumstance” nor do simple errors, albeit innocent errors or other mistakes which are made in good faith. Equally, the fact that an error was made by another person does not in itself constitute “special circumstances”.
[73] Tran at[19].
[74] Liwszyc at [77].
The same approach has been adopted in relation to the provision of incorrect or deficient advice,[75] financial hardship,[76] and personal challenges.[77]
1. Do the Applicant’s circumstances amount to ‘special circumstances’?
[75] Re Lynton and Commissioner of Taxation [2012] AATA 667; (2012) 90 ATR 950 at [16] (Member Dr Hughes) (‘Lynton’); Dowling and Federal Commissioner of Taxation [2014] AATA 474; (2014) ATC 10-371 at [25] (Deputy President Molloy); Thompson and Commissioner of Taxation [2014] AATA 339; (2014) 98 ATR 661 at [47] (Deputy President Deutsch) (‘Thompson’).
[76] Lynton at [16]; Dowling and Federal Commissioner of Taxation [2014] AATA 474; (2014) ATC 10-371 at [24].
[77] Lynton, [15]; Thompson, [50].
The Applicant’s contends the following circumstances amount to ‘special circumstances’:[78]
a)Her ill health resulting from a cancer diagnosis in November 2016, her PSTD which resulted from this diagnosis, and her having to act as legal guardian for her brother-in-law and make funeral arrangements for him when he died in June 2017 (‘personal circumstances’);
b)Her accountant being aware of the contributions but not advising against them (‘incorrect advice’);
c)Her ‘unwittingly’ making the contributions after she was encouraged to make them based on general advice from the UniSuper website (‘ignorance of the law’); and
d)Her suffering a ‘penalty impost’ by being required to pay income tax at her marginal rate on the associated earnings (‘penalty impost’).
[78] Respondent’s Outline of Submissions at [55].
a) Personal circumstances
In Thompson, Deputy President Deutsch did not consider that difficult personal circumstances were matters relevant to the discretion in subsection 292-465(3):[79]
The Applicant, both in written statements and verbally at the hearing, made repeated reference to the difficult personal circumstances she had encountered in the past. While I readily sympathise with the Applicant, and recognise that she has endured more than her fair share of personal problems, these are not matters that can ultimately be factored into the application of s 292-465(3).
[79] Thompson at [50].
The Deputy President reached this conclusion for several reasons. First, there is nothing ‘unusual or different’ about a person ‘experiencing difficult or trying personal circumstances’, observing ‘[t]hat is simply one of the vicissitudes of life; it is not something that can be described as “special”’.[80]
[80] Thompson at [52].
The Tribunal has consistently adopted this approach. In Lynton, Member Dr Hughes commented:[81]
The applicant’s difficult personal situation is not 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.
[81] Lynton at [15].
In Re Pitts and Commissioner of Taxation (Taxation) (‘Pitts’)[82] the Tribunal found that the applicant’s ill health resulting from melanoma treatment was insufficient to amount to a ‘special circumstance’.[83]
[82] [2017] AATA 685.
[83] Pitts at [126].
Secondly, in Thompson there was no real evidence before the Tribunal that would have enabled it ‘to identify precisely how the pressure of the Applicant’s personal circumstances manifested itself.’[84]
[84] Thompson at [53].
In Pitts, Senior Member Walsh similarly found that providing general evidence was insufficient to establish that the applicant’s ill health affected his decision-making at the relevant time:[85]
Mr Pitts has provided a letter from his doctor, dated 16 July 2015, which records the treatment he received in October 2010. Although this letter lists prescribed medication, it does not support Mr Pitts’ assertions concerning stress related memory loss at that time.
Mr Pitts has also provided general information on signs and symptoms of stress overload said to result in memory problems and poor judgement. Unfortunately, however, Mr Pitts has not provided any evidence which directly supports his claims concerning his mental state in October 2010.
[85] Pitts at [124] – [125].
Thirdly, and further to the second point, in Thompson there was no identifiable nexus between the applicant’s personal circumstances and the making of the contribution. Nor was there ‘evidence that would enable the Tribunal to conclude that the applicant’s personal circumstances explain, or even assist, in the understanding the making of that contribution.’[86]
[86] Thompson at [54].
Applying the principles from Thompson to the Applicant’s personal circumstances, the Tribunal finds that these do not constitute ‘special circumstances.’ The Applicant has not provided any specific evidence that enables the Tribunal to identify precisely how the pressure of her personal circumstances manifested itself. While the Applicant has provided some general comments on how PSTD affects people generally,[87] she has not evidenced how her condition affected her decision to make the excess contributions.
[87] T1, 4.
Nor is there an identifiable nexus between the Applicant’s personal circumstances and her making of the excess contributions. These were made on 14 August 2018, 15 August 2018, 21 January 2019 and 22 January 2019. The Applicant’s cancer diagnosis was made in November 2016. The Applicant further references two surgeries in late 2016, followed by six weeks of radiation therapy from 3 January 2017 to 15 February 2017.[88] Her evidence is also that she was the legal guardian of her brother-in-law from 2011 until he died in June 2017, and she was responsible for the funeral arrangements. All these events occurred well before the Applicant made the excess contributions. As such there is no sufficient nexus between these events and the making of the contributions.
[88] ST1, 88.
The Applicant further refers to her PTSD diagnosis. The only evidence she has provided in support of this diagnosis is a medical report from Dr Ashanya Malalasekera dated 2 June 2017.[89] This report does not, and cannot, provide evidence that the Applicant’s decision-making was affected at the time of the making of the excess contributions, as it was written more than a year prior to them being made.
[89] ST1, 86-87.
Accordingly, as in Thompson, the Tribunal finds that the Applicant has not established an identifiable nexus between her personal circumstances and the making of the excess contributions. Nor has she provided evidence that would enable the Tribunal to conclude that her personal circumstances explain the making of her excess contributions.
For these reasons, the Tribunal finds that the Applicant’s personal circumstances contention do not amount to ‘special circumstances’. Her personal circumstances of themselves cannot constitute special circumstances, and there is insufficient evidence of a direct link between the timing of her personal circumstances and her making the excess contributions in the 2019 income year.
b) Incorrect advice
The evidence before the Tribunal is that the Applicant did not seek advice from her accountant prior to making the excess contributions.[90] Her contention appears to be based on a dissatisfaction that she was not advised by her accountant of the consequences of her making the contributions after they were made. Accordingly, any perceived inadequacy in the accounting advice the Applicant received has no relevance to the making of the contributions.[91]
[90] Respondent’s Outline of Submissions at [69].
[91] Respondent’s outline of submissions at [69].
Even if the Applicant had received incorrect advice, the authorities recognise that this does not amount to ‘special circumstances.’[92]
[92] Dowling, [108]; Thompson, [47].
Accordingly, the Tribunal finds that the Applicant’s ‘incorrect advice’ contention is not a basis for a finding of ‘special circumstances’.
c) Ignorance of the law
It is well established that ignorance of the existence or effect of the law does not amount to ‘special circumstances’, unless there are other factors leading to the mistake.[93] The Applicant has not provided evidence that would establish any other factors, in conjunction with the circumstance, that would together, amount to special circumstances.
[93] Liwszyc at [77]. See also Re Peaker and Federal Commissioner of Taxation 2012 ATC 10-238; (2012) 87 ATR 578 at [20]; and Re Verschuer and Federal Commissioner of Taxation [2013] AATA 12; (2013) 88 ATR 991 at[46]; Thompson at [48]; Respondent’s Outline of Submissions at [73].
Accordingly, the Tribunal finds that the Applicant’s ‘ignorance of the law’ contention is not a basis for a finding of ‘special circumstances’.
d) Penalty impost
The Respondent submits that in the Applicant’s circumstances, the law is operating as intended, and it does not result in an unfair or unjust outcome for the Applicant.[94]
[94] Respondent’s outline of submissions at [75].
The Applicant can make an election either to:
a)release the excess contribution amount and associated earnings from her superannuation; or
b)elect to not release the relevant amounts.
Where the Applicant elects to release the relevant amounts from her superannuation, the Applicant only pays income tax at her marginal rate on the associated earnings amount.[95] The associated earnings period is from 1 July of the financial year in which the excess non-concessional contributions were made through to the date of the Applicant’s original ENCC determination.[96] The Applicant’s associated earnings period is 1 July 2018 to 2 March 2020.
[95] Associated earnings amounts are calculated to approximate the amount earned while excess non-concessional contributions were held in a superannuation fund. The associated earnings amount is calculated by applying the associated earnings rate to the excess non-concessional contributions on a daily compounding basis for the length of the associated earnings period. The associated earnings rate is the average of the General Interest Charge rate for each of the quarters of the financial year in which the excess contributions were made and compounds daily: Subsection 97-30(1) of Sch 1 TAA. For the 2019 income year, the average GIC rate was 8.96 per cent.
[96] Subsection 97-30(1) of Sch 1 TAA.
Further, the Applicant will be entitled to a non-refundable tax-offset equal to 15 per cent of the associated earnings amount.[97] The purpose of this tax offset is to compensate for any tax liability of the superannuation provider on earnings from investments made with the contributions making up the excess amount stated in the determination.[98] Together, these mechanisms ensure that concessional tax treatments obtained by taxpayers who make excess contributions are unwound.[99]
[97] Section 292-30 ITAA.
[98] Note 1 of section 292-30 ITAA.
[99] Respondent’s outline of submissions at [82].
Where the Applicant elects not to release the relevant amounts, she will be assessed for excess non-concessional contributions tax.[100] The amount of the excess non-concessional contributions tax is 47% of the Applicant’s excess non-concessional contributions for the 2019 income year.[101] This treatment is applied to both intentional and inadvertent breaches of the cap, and it has been held that this is the intended application of the law.[102]
[100] Section 292-230 ITAA.
[101] Section 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 (Cth).
[102] Re Ward and Federal Commissioner of Taxation [2018] AATA 1519; (2018) 108 ATR 193 (Deputy President Humphries).
Accordingly, the Tribunal finds that under either election, there would be no unfair, unintended or unjust outcome from the application of the general rule to the Applicant’s circumstances.
On the basis of the evidence before it and for the reasons stated, the Tribunal finds that there are no special circumstances in the Applicant’s case that justify a determination that the discretion be exercised.
2. Would making the determination be consistent with the object of Division 292 of the ITAA?
As the Tribunal has found that there are no ‘special circumstances’ it is not necessary for it to consider whether it would be consistent with the object of Division 292 of the ITAA to disregard any of the non-concessional contributions. However, for completeness it will do so.
As Greenwood J explained in Dowling, attention must be paid to the language of s 292-465(3)(b). The Tribunal must decide whether the making of a written determination to disregard the amount of the Applicant’s excess contributions for the 2019 income year is consistent with the object of Division 292:[103]
The Tribunal’s observations about factors that suggest the 2009 contribution is “not inconsistent” with the object of Div 292 mis-states the important language of the section. The Tribunal must consider that making a determination to disregard the 2009 contribution is consistent with the object of Div 292. (original emphasis)
[103] Dowling at [113].
The $100,000 excess non-concessional contributions made by the Applicant clearly cannot be said to represent contributions made gradually over the course of the Applicant’s lifetime.
The Respondent contends that if the discretion were to be exercised by the Tribunal in the Applicant’s favour, the result would be that the Applicant would have more money in superannuation than those who did not exceed their cap.[104] The releasing of excess non-concessional contributions, or imposition of excess contributions tax ensures, in keeping with the object of Division 292, that the excess amount in superannuation does not result in the Applicant receiving a larger amount of concessionally taxed superannuation benefits than others would be entitled.[105]
[104] Respondent’s outline of submissions at [92].
[105] Respondent’s outline of submissions at [92]; See generally, Pitts at [149].
The Tribunal reached this same conclusion in Pitts:[106]
If the discretion was to be exercised by the Tribunal in Mr Pitts’ favour, the result would be that Mr Pitts would have more money in superannuation than those that do not exceed their cap. The imposition excess contributions tax ensures, in keeping with the object of Division 292, that the excess amount in superannuation does not result in Mr Pitts receiving a larger amount of concessionally taxed superannuation benefits than others would be entitled to: refer to paragraphs 41 to 43 above.
Despite Mr Pitts’ contention to the contrary, there is no evidence from which the Tribunal can infer that the relevant contributions were made gradually over Mr Pitts’ life, consistently with the object of Division 292. That is, as submitted by the Commissioner, based on the evidence Mr Pitts has not sought to make gradual contributions in line with the “bring-forward” provisions and has therefore has [sic] been the beneficiary of tax concessions above and beyond those legislated.
[106] Pitts at [148] – [149].
A comparison of what the financial position of the Applicant would have been had she limited her contributions to the relevant cap, to what her financial position will be if the excess contributions are disregarded, further demonstrates that the exercise of the discretion in the Applicant’s favour would be inconsistent with the ‘object’ of Division 292. That is, if the Applicant had not exceeded the relevant cap then any income earned by the ‘excess’ amount of $100,000 not invested in superannuation would have been subject to income tax at ordinary rates. Conversely, given that those excess contributions are now invested in a superannuation fund, any income they earn in the fund and which is then paid to the Applicant, will be income tax free in her hands.[107] This approach was adopted by the Tribunal in Pitts.[108]
[107] See generally, Pitts at [150].
[108] Pitts at [149].
The Tribunal is satisfied that the Applicant has not demonstrated that the pre-conditions in subsection 292-465(3) of the ITAA are satisfied in her circumstances. As such, the discretion to disregard or allocate to another period non-concessional contributions for excess contributions tax purposes is not enlivened.
3. Subsection 292-465(5) and (6)
As the Tribunal has found that the preconditions in subsection 292-465(3) of the ITAA are not met and the discretion is not enlivened, it need not have regard to the matters set out in subsections 292-465(5) and (6), or any other relevant matters.
However, it finds that with respect to subsection 292-465(5) of the ITAA there is no basis on which to treat the contributions made in the 2019 income year as more appropriately being allocated to a different financial year. Further, in accordance with subsection 292-465(6) it finds that it was clearly foreseeable, and the Applicant intended, that the contributions would exceed her cap which was nil when she made the contributions in the 2019 income year. The Applicant had full control over the amount and timing of the contributions to her superannuation and she made the decision to do so. There is no suggestion that the contributions were made by another person or at the instigation or recommendation of another.
DECISION
The Reviewable Decision is affirmed.
I certify that the preceding 93 (ninety -three ) paragraphs are a true copy of the reasons for the decision herein of Senior Member Linda Kirk
...........................SGD.............................................
Associate
Dated: 23 February 2022
Date of hearing: 23 November 2021 Applicant: SQQM Solicitors for the Respondent: Ms M Calligaro, ATO
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