FEDERAL COURT OF AUSTRALIA
Stern v Commissioner of Taxation [2024] FCAFC 21
File number(s): VID 592 of 2023 Judgment of: THAWLEY, HESPE AND HORAN JJ Date of judgment: 1 March 2024 Catchwords: SUPERANNUATION – Div 294 of the Income Tax Assessment Act 1997 (Cth) – whether defined benefit lifetime pension excluded from calculation of excess transfer balance – reliance on Guide in determining purpose or object underlying operative provisions – contended purpose not supported by statutory text – s 294-140 neither ambiguous nor manifestly absurd or unreasonable – held: s 294-140 should be construed in accordance with words in fact used
STATUTORY CONSTRUCTION - whether s 294-140 of the Income Tax Assessment Act 1997 (Cth) means what it says or should be construed in accordance with a contended purpose not evident from the statutory language used – held: s 294-140 means what it says
Legislation: Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1997 (Cth)
Superannuation (Excess Transfer Balance Tax) Imposition Act 2016 (Cth)
Superannuation Act 1976 (Cth)
Taxation Administration Act 1953 (Cth)
Cases cited: BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112
Certain Lloyd’s Underwriters v Cross [2012] HCA 56; 248 CLR 378
Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation [1981] HCA 26; 147 CLR 297
Mills v Meeking [1990] HCA 6; 169 CLR 214
Stern and Commissioner of Taxation (Taxation) [2023] AATA 2010
Taylor v The Owners – Strata Plan No 11564 [2014] HCA 9; 253 CLR 531
Taylor v Owners – Strata Plan No 11564 [2013] NSWCA 55; 83 NSWLR 1
Division: General Division Registry: Victoria National Practice Area: Taxation Date of hearing: 23 February 2024 Number of Paragraphs: 50 Counsel for the Applicant: Mr M Bearman Solicitor for the Applicant: Whiting Lawyers Counsel for the Respondent: Ms M Schilling
Ms WilsonSolicitor for the Respondent: Australian Government Solicitor ORDERS
VID 592 of 2023 BETWEEN: STEVEN STERN
Applicant
AND: COMMISSIONER OF TAXATION
Respondent
ORDER MADE BY:
THAWLEY, HESPE AND HORAN JJ
DATE OF ORDER:
1 MARCH 2024
THE COURT ORDERS THAT:
1.The application be dismissed.
2.The applicant pay the respondent’s costs, as agreed or taxed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
This is an “appeal” brought by Mr Stern against the Commissioner of Taxation pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), from a decision of the Administrative Appeals Tribunal made on 4 July 2023 on a “review” pursuant to Part IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953). The Tribunal affirmed a decision made by the Commissioner on 5 November 2021 disallowing Mr Stern’s objection: Stern and Commissioner of Taxation (Taxation) [2023] AATA 2010. The “appeal” is brought in the original jurisdiction of this Court and must be “on a question of law”. The central issue in the appeal is the…
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- AGLC
- Stern v Commissioner of Taxation [2024] FCAFC 21
- Case
- [2024] FCAFC 21
- Decision Date
CaseChat Overview and Summary
The primary legal issue was whether section 294-140 of the Income Tax Assessment Act 1997 (Cth) should be interpreted based on its literal meaning or if it should be construed to align with a contended purpose not evident from the statutory language. The court examined the statutory text, structure, and legislative scheme to ascertain the purpose and operation of the provisions. The court found that the statutory provisions were clear and unambiguous, and that the exclusion of defined benefit lifetime pensions from the calculation of the excess transfer balance was not an object discernible from the text and structure of the legislation.
The court rejected Stern's argument that the statutory provisions should be construed in a manner that aligns with the contended purpose, stating that the statutory provisions should be interpreted according to their literal meaning. The court held that the value of defined benefit lifetime pensions is counted towards the transfer balance cap, and excess transfer balance tax is imposed for breaches of the transfer balance cap attributable to other superannuation interests. The court concluded that none of the considerations in Taylor v National Australia Bank Ltd supported construing section 294-140 otherwise than in accordance with the words in fact used.
The Federal Court dismissed Stern's application, holding that the statutory provisions should be interpreted according to their literal meaning. The court ordered that the application be dismissed and that Stern pay the Commissioner's costs. The court found that the statutory provisions were clear and unambiguous, and that the exclusion of defined benefit lifetime pensions from the calculation of the excess transfer balance was not an object discernible from the text and structure of the legislation.
Orders
Orders of the court
1. The application be dismissed.
2. The applicant pay the respondent’s costs, as agreed or taxed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Finally, Mr Stern’s written outline of submissions foreshadowed an argument that, if ss 294-1, 294-5 and 294-120 “are disregarded (enabling s 294‑140 to be read and construed as if they did not exist), the prescribed basis for Division 136 of Schedule 1 … as part of a legislative scheme to cap excess taxation benefits is lost”, and that this is “significant not only because it is difficult to see a constitutional foundation for Division 136 outside s 51(ii) of the Constitution but also because Division 136 compels an acquisition of property … without providing compensation on ‘just terms’ for the acquisition”: AS[20]. In the course of oral submissions, counsel for Mr Stern framed this submission as providing “context” for his construction arguments and emphasised that he did not contend for the invalidity of any legislative provisions. Rather, he clarified that the submission was intended to do no more than emphasise that both Div 294 of the ITAA 1997 and Div 136 of Schedule 1 of the TAA 1953 are designed to limit and neutralise taxation benefits, and are therefore supported as laws with respect to taxation within the power conferred by s 51(ii) of the Constitution and should be construed accordingly. In such circumstances, counsel accepted that the question of law raised by the appeal can be resolved as a matter of statutory construction, and that it is unnecessary for us to give separate consideration to any constitutional issues.CONSIDERATION Mr Stern’s submissions are predicated on assertions about the purpose and operation of the statutory scheme which are not borne out by an examination of its text and structure – as to which see: Certain Lloyd’s Underwriters v Cross [2012] HCA 56; 248 CLR 378 at [25] and [26]. Contrary to Mr Stern’s submissions, excluding defined benefit lifetime pensions that are subject to commutation restrictions from the calculation of “excess transfer balance” is not an object of the legislation which can be discerned applying ordinary principles of statutory construction. Rather, as explained further below, it is intended that:(a)the value of such pensions is counted towards the transfer balance cap; and(b)excess transfer balance tax:(i)is not imposed for a breach of the transfer balance cap that is attributable to certain defined benefit income streams, but excess defined benefit income is instead subject to additional income tax under Subdiv 303-A;(ii)is imposed for a breach of the transfer balance cap that is attributable to other superannuation interests. It is not correct to say, as Mr Stern does, that “excess transfer balance under s 294-30 results either in excess tax benefits being neutralised by excess benefits tax or by a commutation of the fund precluding that prospect but not both”. A taxpayer with excess transfer balance is subject to both excess transfer balance tax and commutation of the excess that is not referable to capped defined benefit income streams. As mentioned, counsel for Mr Stern submitted that s 294-1, s 294-5 and s 294-120 are in “conflict” with s 294-140. These provisions are:Guide to Division 294294–1 What this Division is about