"VCJ" and Commissioner of Taxation

[2006] AATA 955

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 955

ADMINISTRATIVE APPEALS TRIBUNAL          №VT2005/656

TAXATION        APPEALS       DIVISION

Re:           “VCJ”

Applicant

And:           COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal:       Dr Gordon Hughes, Member

Date:10 November 2006

Place:Melbourne

Decision:The Tribunal affirms the decision under review.

(sgd) Dr Gordon Hughes

Member

TAXATION – superannuation guarantee charge – contributions paid three days late by employer – absence of respondent’s discretion to remit all or part of the superannuation guarantee charge

Superannuation Guarantee (Administration) Act 1992 ss 5, 31, 32, 62(3)

Superannuation Guarantee Charge Act 1992 s 5

Superannuation Industry (Supervision) Act 1993 s 117(3)

Re Williams and Commissioner of Taxation [2005] AATA 113

Re Truelove v Commissioner of Taxation [2000] AATA 276

Re Kancroft Pty Ltd (acting as trustee for Robertson Family Trust) and Commissioner of Taxation [2004] AATA 591

Re Jarra Hills Pty Ltd (trading as Extension Factory) and Federal Commissioner of Taxation (1997) 37 ATR 1022

Re Pye and Federal Commissioner of Taxation (2004) 55 ATR 1024

REASONS FOR DECISION

10 November 2006  Dr Gordon Hughes, Member

1.      This matter was heard before the Tribunal on 20 October 2006.  VCJ (the applicant) was represented by Mr H. Bellin, a director.  The Commissioner of Taxation (the respondent) was represented by Ms A. English, a solicitor with the Australian Taxation Office.

2.      Following a Superannuation Guarantee Audit of the applicant in 2004, the respondent identified superannuation guarantee shortfalls in relation to five employees.  On 2 August 2005 the applicant filed a notice of objection.  On 10 November 2005 the respondent issued a notice of decision, disallowing the objection.  The applicant seeks a review of that decision.

3.      The facts are not in dispute.  As an employer during the financial year ending 30 June 2003, the applicant was required to provide superannuation support for its eligible employees by the due date, being 28 July 2003.  The applicant made the payments three days late, on 31 July 2003.

4. As a consequence of the late payment, the applicant became subject to a superannuation guarantee charge (SGC) on the superannuation guarantee shortfall, pursuant to s 5 of the Superannuation Guarantee Charge Act1992. In addition to becoming liable for payment of the superannuation guarantee shortfall, the applicant became liable for payment of nominal interest pursuant to s 31 of the Superannuation Guarantee (Administration) Act 1992 (the Administration Act), together with an administrative component pursuant to s 32 of the Administration Act. An SGC assessment was issued to the applicant in the following amounts:

Total individual shortfalls:     $27,735.71
  Nominal interest:  $8,267.51

Administrative component:    $200.00

5. In addition, the applicant became liable to the assessment of a penalty pursuant to Part 7 of the Administration Act. The respondent imposed a penalty of 10 per cent, in accordance with paragraph 24 of the Superannuation Guarantee Ruling N°94/3. This ruling was withdrawn on 12 April 2006.

6. Pursuant to s 62(3) of the Administration Act, the respondent has the power to remit all or part of a penalty under Part 7. The respondent subsequently did so in acknowledgement of the fact that the applicant had made its superannuation contribution in full only three days late. The respondent maintained, however, that it did not have the power, under any circumstances, to remit all or part of the SGC.

7.      The issue before the Tribunal was, therefore, whether the applicant was, in fact, entitled to a reduction in the SGC for the year ending 30 June 2003, given that the requisite superannuation contributions had been made only three days late.  In the course of the hearing the applicant expressed the view that a requirement to pay the SGC was harsh, unconscionable and contrary to the public interest because it involved a double payment – not only did it require the applicant to pay again the amount of superannuation contributions which had been paid three days late, it also meant an unexpected and unmerited windfall for the employees in question.

8. The applicant was unable to recoup the overpaid amount directly from the relevant superannuation fund, having been advised that such recourse was precluded by s 117(3) of the Superannuation Industry (Supervision) Act 1993.  Furthermore, the overpaid funds could not be applied to the subsequent financial year because the applicant had ceased to trade.

9.      Ms English contended that the legislation provides the respondent with no discretion to remit any or all of the SGC.  She further pointed out that the legislation was designed to protect eligible employees by ensuring they received superannuation support from their employers, and hence its rather draconian application was justified.

10.     Despite what appears to be a somewhat anomalous result, the law appears to be well settled on this point.  The respondent does not have the discretion to remit the SGC.  Moreover, there is no discretion to remit or waive the nominal interest or administration component:  Re Pye and Federal Commissioner of Taxation (2004) 55 ATR 1024.

11.     In Re Jarra Hills Pty Ltd and Federal Commissioner of Taxation (1997) 37 ATR 1022, Senior Member Pascoe stated at paras 5‑8:

…The legislation is quite clear in providing a deadline for contributions to superannuation of 28 July of the following financial year. There is no provision in the legislation which allows for any extension of time beyond that date nor any discretion given to the respondent or this tribunal to overlook a failure to make required levels of superannuation contributions by that date.

…there is nothing that either the respondent or this tribunal can do to ameliorate that position…

The Tribunal must affirm the decision under review as the legislation under which the assessment was issued is clear and unambiguous…

12.     Re Jarra Hills Pty Ltd was subsequently followed in Re Truelove and Commissioner of Taxation [2000] AATA 276; Re Kancroft Pty Ltd (acting as trustee for Robertson Family Trust) and Commissioner of Taxation [2004] AATA 591; and Re Williams and Commissioner of Taxation [2005] AATA 113.

13.     The Tribunal has on occasions acknowledged the anomaly inherent in the respondent's lack of discretion to remit all or part of the SGC.

14.     In Re Jarra Hills Pty Ltd, for example, Senior Member Pascoe stated at para 6:

It is accepted that the likely result of the applicant's failure to avoid the shortfall by 28 July 1994 is that the total cost of superannuation to the applicant and the benefits derived in respect of certain employees have been higher than that intended by both the applicant and the legislation. Nevertheless, there is nothing that either the respondent or this tribunal can do to ameliorate that position...

15.     Similarly, in ReTruelove, Senior Member Block stated at para 13:

I have some sympathy for the Applicant.  The additional amounts assessed against him are substantial in relation to the actual charge and the delays which occurred…  Had the Act allowed me to do so, I might have been inclined to reduce such amounts; however, I have no such powers. 

16.     In Re Williams, Member Fisher stated:

54.      This issue troubled the Tribunal greatly. The Applicant has attempted to perform his legal obligations in relation to the payment of superannuation on behalf of his employees, although he has done so late, and then by way of payment to the superannuation trustee. In view of the timing differential, the Respondent was empowered to, and did, impose a superannuation guarantee charge in respect of the late payment of superannuation.

…

56.      in both effect and broad terms, the applicant has paid superannuation contributions twice.  The respondent is not obliged to refund any superannuation guarantee charge that it has properly raised against the applicant.  Whether the respondent chooses to do so on an ex gratia basis is a matter entirely for the respondent…

17.     He added:

58.      The correct (but not necessarily preferable) decision in this case is that the respondent was lawfully empowered to raise and recover superannuation guarantee charges against the applicant …

59.      There is an unfortunate legislative lacuna raised by the facts of this case where the applicant paid superannuation contributions to a trustee late, yet still has incurred a superannuation guarantee charge liability…

18.     The Tribunal respectfully agrees with and follows the decision in Re Jarra Hills Pty Ltd.  In doing so, however, it shares the reservations cited above regarding the legislative inflexibility which, in circumstances such as this, can serve only to unduly penalise the employer for a relatively minor administrative oversight.

19.     For the above reasons, the Tribunal affirms the decision under review.

I certify that the nineteen [19] preceding paragraphs are a true copy of the reasons for the decision herein of

Dr Gordon Hughes, Member

(sgd):        Ursula Noyé

Clerk

Date of Hearing:  20 October 2006

Date of Decision:  10 November 2006
Advocate for applicant:             Mr H. Bellin

Advocate for respondent:         Ms A. English, ATO Legal Services Branch