Williams and Repatriation Commission
[2002] AATA 754
•11 January 2002
DECISION AND REASONS FOR DECISION [2002] AATA 754
ADMINISTRATIVE APPEALS TRIBUNAL )
) No NS2002/0036
TAXATION APPEALS DIVISION )
Re DAVID EDMUND BUTTERS
Applicant
And COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr M J Sassella, Senior Member
Date3 September 2002
PlaceSydney
Decision The tribunal affirms the decision under review.
[SGD] M J SASSELLA
Senior Member
CATCHWORDS
INCOME TAXATION – Senior Australian Tax Offset – individual to be of pension age to qualify – situation where individual is a member of a couple whose partner is below pension age – situation where individual qualifies for offset but is entitled to nil rate – situation where partner of individual may transfer unused offset to individual – meanings of "pension age", "member of a couple", "taxable income", "rebate amount", "rebate threshold".
Income Tax Assessment Act 1936 ss 160AAAA
Income Tax Assessment Regulations 1936 regulations 150AA, 150AB, 150AD, 150AE.
Social Security Act 1991 s 23(5A), (5B), (5C)
REASONS FOR DECISION
3 September 2002 Mr M J Sassella, Senior Member
THE APPLICATION
This is an application to the Administrative Appeals Tribunal ("the tribunal") by Mr David Edmund Butters ("the applicant"), date of birth 6 March 1931 (T3-13), for review of a decision by a delegate of the Commissioner of Taxation ("the respondent") dated 25 March 2002 (T7) in which an amended assessment issued on 18 January 2002 (T4) was confirmed following an objection by the applicant (T6).
HEARINGThe tribunal convened a hearing in this matter in Sydney on 30 August 2002. Mr Butters represented himself and Ms M Sultana of the Australian Taxation Office ("the ATO") represented the respondent. The tribunal had sworn evidence from Mr Butters and access to the following documents taken into evidence:
Exhibit TD1 – Section 37(1AB) documents (including exhibits T1 – T7) provided by the respondent.
Exhibit A1 – Applicant's written submission, undated.
Exhibit R1 – Respondent's statement of facts and contentions, undated.
Exhibit R2 – Two-page update to 2001 Tax Pack, June 2001.
Exhibit R3 – Seven-page update to 2001 Tax Pack.
FINDINGS ON MATERIAL QUESTIONS OF FACT WITH REFERENCE TO THE EVIDENCE AND OTHER MATERIAL IN SUPPORT OF THOSE FINDINGS
On 23 November 2001 the ATO issued a notice of assessment in respect of Mr Butters' taxable income for the 2001 tax year (T3-12). It indicated that he had a taxable income of $33,071. He had still to pay $1,242.85 of a total tax of $6,301.30. He had been allowed various credits including some rebates. These did not include the Senior Australian tax offset ("SATO"). Mr Butters told the tribunal that he had accidentally omitted to check a box on his income tax return flagging that he wished to be considered for SATO. He sought to remedy this by writing to the ATO on 27 November 2001 (T7-30) and explaining the error.
On 18 January 2002 the ATO issued an amended assessment (T4-15) in which taxable income had been amended to $32,399, the tax on that income was $6,099.70 and the tax still to be paid was $1,073.24. The rebates identified were the same as previously. This is to say that the amendments did not reflect Mr Butters' request to benefit from the SATO. They stemmed from adjustments made to other items in his return.
On 21 January 2002 Mr Butters wrote to the ATO (T6-17) objecting to the refusal to extend to him the SATO and the imposition of a general interest charge on his outstanding tax debt. On 25 March 2002 a delegate of the Commissioner of Taxation wrote to Mr Butters (T7-20) to tell him that his objection had been disallowed. Reasons were provided.
The respondent explained in full in ex R1 and orally the reasons for Mr Butters' inability to qualify for the SATO. The argument was as follows:
(a)Section 160AAAA of the Income Tax Assessment Act 1936 ("the Act") provides the eligibility criteria for the SATO.
Tax rebate for low income aged persons
160AAAA.(1) A taxpayer who is an individual (other than in the capacity as trustee) is entitled to a rebate of tax in the taxpayer's assessment in respect of income of a year of income of an amount (if any), ascertained in accordance with the regulations, if the taxpayer satisfies the conditions in subsections (2) and (3).(2) The first condition is that, on at least one day during the year of income, either:
(a) the taxpayer:(i) is in receipt of a pension, allowance or benefit under the Veterans' Entitlements Act 1986 (other than Part VII); and
(i) has reached pension age, within the meaning of the Veterans' Entitlements Act 1986; or
(b) the taxpayer:(i) has reached pension age, within the meaning of the Social Security Act 1991; and
(ii) has 10 years qualifying Australian residence or has a qualifying residence exemption for an age pension, within the meaning of the Social Security Act 1991; and
(iii) is not in gaol.
(3) The second condition is that the taxpayer has a taxable income for the year of income less than an amount ascertained in accordance with the regulations.
(4) For the purposes of subsection (3), if the taxpayer is the spouse of another person, the taxable income of the taxpayer is taken to be half of the sum of:
(a) the taxable income of the taxpayer; and
(b) any share of the net income of a trust estate to which the spouse is presently entitled and that is assessed under section 98; and
(c) the actual taxable income of the spouse (reduced by any amount included in the spouse's assessable income under section 100).(5) Regulations made for the purposes of this section may be expressed to apply in relation to a year of income any part of which occurred before the notification of the regulations.
(b)Section 160AAAA(1) provides in effect that (i) an individual must satisfy the conditions in s 160AAAA(2) and (3) in order to be eligible for the SATO and (ii) that an individual who is eligible will be entitled to an amount (if any) ascertained in accordance with the Income Tax Regulations 1936 ("the Regulations").
INCOME TAX ASSESSMENT REGULATIONS 1936
Division 1A – Rebate under sections 160AAAA and 160AAAB of the Act
Definitions
150AA In this Division:…
rebate threshold has the meaning given by subregulation 150AB (3);
relevant income-recipientmeans:
(a) the taxpayer, if the taxpayer is an individual (except in the capacity of a trustee); and
(b) the beneficiary of a trust, if the trustee in relation to the trust:(i) is the taxpayer; and
(ii) is liable to be assessed under section 98 of the Act in respect of the beneficiary's share of the net income of the trust estate.
Eligibility—amount of taxable income
150AB. (1) For subsection 160AAAA (3) or 160AAAB (3) of the Act, the amount mentioned is:(2) A taxpayer's rebate amount for a year of income is the amount in the relevant item in the following table:
Item Class of person Rebate amount1 Single person $2 230
2 Member of a couple $1 602
3 Member of an illness-separated couple $2 040
(2A) For subregulation (2):
member of a couple means a person (other than a member of an illness-separated couple) who, at any time in the year of income, was the spouse of another person.
member of an illness-separated couple means a person who, at any time in the year of income:
(a) is entitled to receive an illness-separated-rate social security pension or illness-separated-rate service pension; or
(b) is the spouse of another person from whom the spouse is separated in circumstances in which, if the spouse was otherwise entitled to receive a partnered-rate social security pension, the spouse would be entitled to receive an illness-separated-rate social security pension.
single person means a person who, at any time in the year of income is not the spouse of another person.
(2B) If, in a year of income, more than one item in the table in subregulation (2) applies to a taxpayer, the taxpayer's rebate amount is the amount that gives the taxpayer the greatest rebate entitlement.(3) For this regulation, a rebate threshold for a year of income is:
where:
low income rebate amount means the maximum amount of rebate allowable under section 159N of the Act.
rebate amount has the meaning given by subregulation (2).
Note: lowest marginal tax rate and tax-free threshold are defined in regulation 148.(4) If an amount worked out under subregulation (1), (2) or (3) is not an amount of whole dollars, the amount must be rounded up to the nearest whole dollar.
Rebate for low income aged persons
150AD. Subject to regulations 150AE and 150AF, a taxpayer who, under section 160AAAA or 160AAAB of the Act, is eligible, in a year of income, for a rebate of tax is entitled, in respect of income, or trust income, of the year of income, to a rebate of tax amounting to:
(a) for the year of income ending on 30 June 1997:(i) if the relevant income-recipient's taxable income of the year of income does not exceed his or her rebate threshold—half the taxpayer's rebate amount; or
(ii) if the relevant income-recipient's taxable income of the year of income exceeds his or her rebate threshold—half the taxpayer's rebate amount as reduced by 12.5 cents for each $1 of the amount of the excess; and
(b) for a later year of income:(i) if the relevant income-recipient's taxable income of the year of income does not exceed his or her rebate threshold—the taxpayer's rebate amount; or
(ii) if the relevant income-recipient's taxable income of the year of income exceeds his or her rebate threshold—the taxpayer's rebate amount, reduced by 12.5 cents for each $1 of the amount of the excess.
Transfer of unused rebate from taxpayer other than trustee
150AE. (1) Regulation 150AD is affected by subregulation (2) if, in relation to a year of income:
(a) a taxpayer (TP1) is:(i) entitled to a rebate of tax under section 160AAAA or 160AAA of the Act; and
(ii) the relevant income-recipient in relation to the rebate to which he or she is entitled; and
(aa) a person (TP2) who is, at any time in that year of income, TP1's spouse is:(i) entitled to a rebate of tax under section 160AAAA of the Act; and
(ii) the relevant income-recipient in relation to the rebate to which he or she is entitled; and
(b) TP1's:(i) rebate amount for the year of income worked out under this regulation; or
(ii) adjusted rebate amount worked out under regulation 151;
exceeds the tax payable by TP1 in respect of income of that year (disregarding any credits or rebates); and
(c) the amount of the rebate to which, apart from this subregulation, TP2 is entitled under section 160AAAA of the Act for the year of income is less than TP2's rebate amount for that year.(2) In the circumstances mentioned in subregulation (1), the rebate amount for the year of income is:
(a) for TP1:(i) the amount ascertained under subregulation 150AB (2); or
(ii) the adjusted rebate amount ascertained under subregulation 151 (3);
reduced by the amount of the excess rebate amount mentioned in paragraph (1) (b); and
(b) for TP2—the amount ascertained under subregulation 150AB (2) increased by the amount of the excess rebate amount mentioned in paragraph (1) (b).(3) Regulation 150AD is affected by subregulation (4) if, in relation to a year of income:
(a) a taxpayer (TP1) is:(i) under section 160AAAA or 160AAA of the Act—entitled to a rebate of tax; and
(ii) in relation to the rebate to which he or she is entitled—the relevant income-recipient; and
(b) TP1 is, at any time in that year of income, the spouse of a person who is a relevant income-recipient in relation to a taxpayer (TP2) who is entitled under section 160AAAB to a rebate of tax; and
(c) TP1's:(i) rebate amount for the year of income worked out under this regulation; or
(ii) adjusted rebate amount worked out under regulation 151;
exceeds the tax payable by TP1 in respect of income of that year (disregarding any credits or rebates); and
(d) the amount of the rebate to which, apart from this subregulation, TP2 is entitled under section 160AAAB for the year of income in relation to TP1's spouse is less than TP2's rebate amount for that year in relation to TP1's spouse.(4) In the circumstances mentioned in subregulation (3), the rebate amount for the year of income is:
(a) for TP1—the amount ascertained under subregulation 150AB (2) or 151 (3) reduced by the amount of the excess rebate amount mentioned in paragraph (3) (c); and
(b) for TP2—the amount ascertained under subregulation 150AB (2) increased by the amount of the excess rebate amount mentioned in paragraph (3) (c).(5) For paragraphs (1) (c) and (3) (d), if the year of income concerned is the year of income ending on 30 June 1997, the amount of rebate to which TP2 is entitled is taken to be the amount mentioned in paragraph 150AD (b).
(6) If the year of income mentioned in subregulation (1) or (3) is the year of income ending on 30 June 1997, the amount ascertained under paragraph (2) (b) or (4) (b) is limited to the amount of tax payable by TP2 in respect of income of that year.
(7) This regulation applies whether TP1 is, or is not, the same person as TP2.
(8) * * * * *
(9) * * * * *
(10) This regulation does not apply if TP2 was in receipt of a benefit under Part 2.11, 2.12, 2.14 or 2.15 of SSA91 on the last day of the year of income.
(c)The first eligibility condition is that on at least one day during the year of income an individual has reached pension age as defined in the Social Security Act 1991 ("the SSA"). That definition is in s 23(5A), (5B) and (5C) of the SSA.
23.(5A) A man reaches pension age when he turns 65.
23.(5B) A woman born before 1 July 1935 reaches pension age when she turns 60.
23.(5C) A woman born within the period specified in column 2 of an item in the following Table reaches pension age when she turns the age specified in column 3 of that item.
PENSION AGE FOR WOMAN1 From 1 July 1935 to 31 December 1936 60 years and 6 months
2 From 1 January 1937 to 30 June 1938 61 years
3 From 1 July 1938 to 31 December 1939 61 years and 6 months
4 From 1 January 1940 to 30 June 1941 62 years
5 From 1 July 1941 to 31 December 1942 62 years and 6 months
6 From 1 January 1943 to 30 June 1944 63 years
7 From 1 July 1944 to 31 December 1945 63 years and 6 months
8 From 1 January 1946 to 30 June 1947 64 years
9 From 1 July 1947 to 31 December 1948 64 years and 6 months
(d)Mr Butters was born on 6 March 1931 (T3-13) and was aged 65 or over throughout the 2001 tax year. He therefore met the condition in s 160AAAA(2)(b)(i). Mrs Butters was, however, born on 29 November 1941 (T5-16). In accordance with item 5 in the table in s 23 (5C) of the SSA she will reach pension age only on 29 May 2003. She will not therefore be eligible for the SATO until the end of the 2003 tax year, and that is on the basis hat she will meet the other conditions.
(e)Mr Butters has 10 years qualifying Australian residence as required in s 160AAAA(2)(b)(ii) of the Act (ex R1, paragraph 3.2).
(f)Mr Butters was not in gaol when he applied for the SATO, a condition for SATO in s 160AAAA(2)(b)(iii) of the Act.
(g)Section 160AAAA(3) required also that Mr Butters had a taxable income for the 2001 tax year less than an amount ascertained in accordance with the regulations. For this purpose the applicable regulation is regulation 150AB of the Regulations. Regulation 150AB(1) explicitly states that the amount of taxable income for the purposes of s 160AAAA(3) of the Act is the amount derived by applying a formula. The figures applicable to the elements in that formula in 2001 were: $1,602 for the "rebate amount" and $16,306 for the "taxpayer's rebate threshold". Application of these figures generated a taxable income of $29,122. Mr Butters' taxable income was, as seen earlier, $32,399. While it appears that Mr Butters cannot satisfy this condition, regard must be had to s 160AAAA(4) of the Act.
(h)Section 160AAAA(4) of the Act provides that, for a taxpayer who is spouse of another person, the taxpayer's taxable income is half the sum of the taxpayer's taxable income and the actual taxable income of the spouse. Mrs Butters' taxable income was assessed as only $63 (ex R1, paragraph 3.1). Mr Butters' taxable income for the purposes of s 160AAAA was, therefore, $16,231. Thus, Mr Butters was eligible for the SATO. The issue then became the quantum (if any) of that offset.
(i)The quantum of the offset was set by regulation 150AD. Regulation 150AD(b)(ii) applied to Mr Butters as his taxable income for the year, $32,399, exceeded his rebate threshold which, as was seen above in paragraph 6(g), was $16,306. As regulation 150AD(b)(ii) stated, the quantum of the offset was reduced by 12.5 cents for each dollar of taxable income Mr Butters received in excess of the $16,306 figure. Mr Butters' excess taxable income was $16,093. The reduction in quantum was one-eighth of that amount, ie $2,012 (rounded up). As Mr Butters was entitled to only a maximum of $1,602 and he had $2,012 deducted from that maximum, he was entitled to a negative amount of SATO.
(j)Regulation 150AE anticipates that such an outcome may occur and, where the taxpayer has a spouse who also attracts SATO (ie he or she is of pension age, has fulfilled the residence requirements and is not in gaol), permits the transfer of any unused SATO from the spouse who has a lower taxable income to the spouse whose taxable income has precluded him or her from receiving any SATO. This ameliorating provision was not available to Mr Butters because his wife was not of pension age at any time in tax year 2001. Had it been available, given that Mrs Butters had only $63 taxable income, she would have had all of her $1,602 rebate amount to transfer to Mr Butters.
The tribunal, in view of the above analysis, finds that the decision under review was correct. However, Mr Butters made a number of submissions to the tribunal which are now addressed.
Mr Butters submitted that if he were single he would, with his taxable income in 2001, have had a $680 SATO, and he argued that he should be treated as a single person for the purposes of SATO as his wife was not eligible under the Act. The tribunal doubts that the $680 figure is accurate but, even if it is, the definitions of family relationships for the purposes of regulation 150AB(2) make it clear that a "member of a couple" means a person (other than a member of an illness-separated couple) who, at any time in the year of income, was the spouse of another person. No notice is taken of whether the spouse was of any particular age.
The evidence suggests that Mr and Mrs Butters are legally married and are not separated by illness and so Mr Butters is a member of a couple under regulation 150AB(2A). Mr Butters' argument goes to the policy behind the SATO legislation rather than providing a route by which a decision-maker could assist him within the terms of the legislation.
Mr Butters provided written submissions to the tribunal (ex A1) in which he quoted an example from a CCH publication wherein a Mrs Robinson had $18,000 taxable income, Mr Robinson had $14,000 and the total was $32,000. Both were allowed $1,602 SATO despite Mrs Robinson being above the rebate threshold of $16,306. Unfortunately that example does not assist Mr Butters because the editors of the CCH publication start the example by stating that Mr and Mrs Robinson are both 70 years old and both received the Age Pension in the 2001 tax year. Had Mrs Butters been of an age sufficient for Age Pension, Mr Butters would clearly have been able to benefit from the SATO.
The tribunal was concerned by the rules in paragraph 6 above that permit an averaging of the taxable incomes of both spouses for the purposes of eligibility for SATO (paragraph 6(h)) but permit no such averaging for the calculation of the SATO quantum (paragraph 6(i)) and raised the issue at the hearing. The tribunal is satisfied, however, that a proper reading of the legislation compels such an approach. Section 160AAA(1) directs a reader to the regulations for assessment of the amount of any offset. The same provision directs a reader to section 160AAAA(2) and (3) of the Act for material limited to an individual's eligibility for SATO. A gloss is then placed on subsection (3) in subsection (4) where (only) for the purposes of subsection (3) the averaging of the two spouses' taxable incomes is authorised. There is no similar provision applying to regulation 150AD.
The outcome of this application is no doubt perplexing to Mr Butters, as he told the tribunal. When Mrs Butters reaches pension age in May 2003 there need be little if any perceptible change in the financial and social arrangements that apply for them. However, Mrs Butters will be a year or two older than on 30 June 2001 and will be able to claim an Age Pension which she may or may not be granted. The only difference for them is necessarily one of Mrs Butters' age.
This is an essentially arbitrary measure adopted by the Parliament to determine when an individual may merit some tax relief not available to an individual in similar circumstances but younger in age. It reflects a policy of providing assistance to the older members of Australian society who can be said to have certain financial obligations and restrictions that affect younger people less. These might include higher health costs and restricted work opportunities. For Mr Butters the arbitrariness of setting an age criterion is an irritant. However, in public administration it is common for Parliament to set apparently arbitrary age-related criteria for benefits of various types, and for the imposition of obligations. It is generally simpler and more efficient for public administration to take advantage of criteria with an element of certainty about them, such as age. The delivery of benefits in accordance with such criteria is simpler, more efficient and more certain. The SATO requirements are an example of such public policy decision-making.
CONCLUSIONThe tribunal has found that the ATO has applied the statutory provisions relating to the SATO correctly in Mr Butters' case. However, the tribunal would comment that it may have been preferable for the decision-makers writing to Mr Butters to mention that their decisions were made in accordance with legislation. Much of the documentation provided to Mr Butters could be read to suggest that the principles applied were purely administrative rules devised within the ATO.
DECISIONThe tribunal affirms the decision under review.
I certify that the 15 preceding paragraphs are a true copy of the reasons for the decision herein of Mr M J Sassella, Senior Member
Signed: .....................................................................................
AssociateDate of Hearing 30 August 2002
Date of Decision 3 September 2002
Advocate for the applicant Self-represented
Advocate for the respondent Ms M Sultana, ATO
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