The Taxpayer and Commissioner of Taxation

[2011] AATA 168

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 168

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  2010/1806

TAXATION APPEALS DIVISION		)
Re		THE TAXPAYER

Applicant

And  COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal  Senior Member B J McCabe

Date 15 March 2011

Place Brisbane

Decision  The Tribunal affirms the decision under review.

.........................[SGD].....................

Senior Member

CATCHWORDS

TAXATION — non-concessional superannuation contributions — excess contributions — error of tax accountant ­— decision under review affirmed

Income Tax (Transitional Provisions) Act 1997

Superannuation Industry (Supervision) Regulations 1994

REASONS FOR DECISION

1.      

The taxpayer’s superannuation fund reported that it had received a

non-concessional contribution of greater than $1 million which had been allocated to the taxpayer’s account for the period 10 May 2006­ - ­30 June 2007. That is a problem, because the rules impose a cap of $1 million on non-concessional contributions during that period. The Commissioner raised an excess contributions tax assessment on the amount exceeding $1 million. The taxpayer has objected to that decision.

2.      On objection, the taxpayer initially argued the excess contribution was properly characterised as a termination payment that would attract different treatment. He has abandoned that argument before the Tribunal. In written submissions lodged on his behalf, the taxpayer contends the excess amount was incorrectly allocated to him by his former accountant. The taxpayer says the error is not his fault, and insists there was no intention on his part to mislead the Commissioner. He subsequently filed an amended return in which the amount of his contribution was reduced to the limit and the excess was allocated to another member of the fund. The paperwork indicates that the other member formally joined the fund at the end of the period in question (ie in June 2007). The taxpayer says that should fix the problem. He argues it would be “unjust, unfair and otherwise inappropriate” for him to be required to pay the tax in the circumstances.

3.      There does not appear to be any serious contest over whether there was an excess contribution made. There is certainly no evidence offered that would call the Commissioner’s conclusion on this point into question. In those circumstances, I accept there was an excess contribution which would ordinarily give rise to a liability to pay tax. The taxpayer’s focus is on how the mistake came to pass, and whether it can be addressed without having to pay the tax.

Factual background

4.      The taxpayer set up a self-managed super fund in 1980. He was the trustee of the fund. The fund was set up for the benefit of the employees of the business conducted by a company of which the taxpayer was a director. The taxpayer was replaced as trustee of the fund in January 2007 by a company that had been established for that purpose. The taxpayer was the only director, member and shareholder of that trustee company. He was also the only member of the fund until another member joined on 30 June 2007. 

5.      

The fund received a contribution in the amount $1,489,402.31 on

31 July 2006. The fund lodged member contribution statements in respect of the 2007 year of income on 3 March 2008. The statements reported contributions in the amount of $1,253,100 by the taxpayer. They also reported contributions of $400,671 on behalf of the other member.

6.      The taxpayer’s affairs were subsequently audited and the excess contribution was identified as a problem. The Commissioner issued an assessment setting out the additional tax that was payable. The taxpayer lodged an amended return and revised statements from the fund which reduced the amount that had been allocated to the taxpayer’s account and increased the amount that had been allocated to the other member – the one who had purported to join the fund on 30 June 2007.

7.      

In written submissions, the taxpayer argued that it was his intention to have the other member admitted to membership of the fund at the beginning of the

2006-2007 financial year rather than on the last day. He attributed the failure to make the appointment earlier to his then accountant.

The legislation

8.      

The Commissioner points out that the relevant provisions of the Income Tax (Transitional Provisions) Act 1997 (“the Act”) set a cap on the total amount of

non-concessional contributions that can be made by a taxpayer in a year of income. In the year of income in question, s 292-80(3)(c) says that limit is $1,000,000. 

9.      The contribution in question was received and banked by the fund on 31 July 2006. Sub-regulation 7.08(2) of the Superannuation Industry (Supervision) Regulations 1994 requires that the contribution be allocated to a member of the fund within 28 days of receipt. (A different time-frame may apply in some circumstances, but there is no suggestion those circumstances exist here.) The taxpayer was the only member of the fund at the time the payment was received by the fund, and he was the only member of the fund when the regulations said the payment had to be allocated. The Commissioner says that is the end of the matter: the whole amount had to be allocated to the taxpayer, and his tax has been assessed accordingly.

10.     I note the taxpayer says it was his intention that the other person who became a member – a woman who was in fact a fellow director and perhaps an employee of the company which conducted the taxpayer’s business – should have been admitted to membership in time to receive an allocation, and would have been so admitted but for the mistakes of his then accountant.

11.     Even if I accept that the failure to admit the taxpayer’s fellow director to membership of the super fund was the product of an unfortunate error in the office of the tax accountant, that error does not change the fact that the taxpayer was the only member of the fund to whom contributions could be allocated at the relevant time. The rules are quite detailed, but they are clear enough. The taxpayer’s liability for taxation cannot be judged on the basis of what he should have done; he is liable on the basis of what he (or his agent, which is effectively the same thing at law) actually did do. I am not satisfied the Commissioner (or the Tribunal on review) has the discretion to ignore what occurred and behave as if the taxpayer had behaved differently.

Conclusion

12.     The taxpayer’s written submissions suggest the taxpayer should not be made to pay for an innocent mistake. Sadly for the taxpayer, I do not see how the Commissioner can accept that view. It may be that the taxpayer has other remedies open to him if he has incurred a loss as a result of his agent’s failure to follow instructions – but that is a question for others. The objection decision must be affirmed.

I certify that the 12 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed: ...................[SGD]........................................................
  Kerri Smith

Date of Hearing   Hearing on Papers
Date of Decision  15 March 2011