WTBW and Commissioner of Taxation (Taxation)

[2024] AATA 3268

WTBW and Commissioner of Taxation (Taxation) [2024] AATA 3268 (11 September 2024)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:          2023/3738

Re:WTBW

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member R Olding

Date:11 September 2024

Place:Brisbane

The decision under review is affirmed.

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

Senior Member R Olding

Catchwords

INCOME TAX – DIVISION 293 TAX – whether an election is required for excess concessional contributions for an income year to be increased by the unused concessional contributions cap from earlier years or the increase applies by force of the statute – held no election required and taxpayer cannot elect that an amount carried forward not be applied – decision affirmed

Legislation

Income Tax Assessment Act 1997 (Cth), ss 280-15, 291-1, 291-20, 291-465, 293-5, 293-15, 293-20, 293-30, 950-150

Cases

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41

Harvey v Minister for Primary Industry and Resources [2024] HCA 1

Secondary Materials

Explanatory Memorandum to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (Cth), 8.15, 8.17

REASONS FOR DECISION

Senior Member R Olding

11 September 2024

1. The Commissioner of Taxation assessed the applicant for tax under Division 293 of the Income Tax Assessment Act 1997 (Cth)[1] for the year ended 30 June 2022 in the amount of $3,315 and disallowed the applicant’s objection against the assessment. The applicant has applied to the Tribunal for review of that objection decision.

   [1] All legislative references are to the Income Tax Assessment Act 1997 (Cth).

2. The facts in this matter are not in dispute. Resolution of the dispute comes down to the construction of a particular statutory integer relevant to the application of Division 293 – the taxpayer’s ‘excess concessional contributions’ for the year.

3. The Commissioner maintains the applicant has no excess concessional contributions for 2022 because his concessional contributions are fully offset by the applicant’s unused concessional contributions cap carried forward from previous years.

4. The applicant says he does have excess concessional contributions for 2022 because the unused concessional contributions cap carried forward from previous years applies only if the taxpayer elects that it should apply and he has not done so. If the applicant is correct in that regard, his low tax contributions, and hence his Division 293 tax liability, would be nil.[2] 

   [2] If the applicant were correct regarding his Division 293 argument, a separate issue may arise regarding whether the applicant would have a liability for tax as a consequence of his excess concessional contributions being treated as assessable income under Division 291. The applicant puts forward various arguments in that regard including that the discretion under s 291-465 to allocate contributions to a different financial year should be exercised. However, the only matter before the Tribunal for review is the Commissioner’s objection decision relating to the applicant’s objection against the Division 293 assessment.

5. For the reasons that follow, I have decided an unused concessional contributions cap amount carried forward from previous years applies by force of law and does not require a taxpayer to elect to apply the unused amount carried forward or permit a taxpayer to elect not to apply the carried forward amount or part of it.  

   LEGISLATIVE FRAMEWORK

6. Under the taxation regime for superannuation, tax concessions are provided to encourage Australians to make provision for their retirement. In broad terms, employers are usually able to claim income tax deductions for contributions they make in respect of their employees and individuals may claim deductions for contributions to complying funds; contributions that can be deducted are assessable income of the superannuation fund as are the fund’s earnings; and the fund’s taxable income is taxed at a concessional rate.[3]

   [3] Division 280.

7. However, there is a limit to contributions that can be made for an individual in a year and receive favourable tax treatment. If concessional contributions exceed an indexed cap, the excess is included in the person’s assessable income (and gives rise to a tax offset to compensate for the tax applied to the contributions in the fund). Any unused part of the cap is carried forward for five years.[4] 

   [4] Section 280-15(1), (2).

8. Division 293 also limits the scope of the concessions. As s 293-5 states, the object of Division 293 is ‘to reduce the concessional tax treatment of superannuation contributions for high income individuals.’

9. Under Division 293, the sum of an individual’s income (as determined for surcharge purposes) and certain superannuation contributions is compared to a high-income threshold of $250,000. If there is an excess, Division 293 tax is payable on the excess, or on the contributions, whichever is less, but not on excess concessional contributions.[5] 

   [5] Section 293-10.

10. These outcomes are given effect by the key legislative provisions set out below.

11. Under s 293-15, a person is liable to pay Division 293 tax if they have ‘taxable contributions’ for an income year. You are taken to have taxable contributions if the sum of your income for surcharge purposes for an income year and your ‘low tax contributions’ for the corresponding financial year exceeds $250,000: s 293-20. The ‘low tax contributions’ amount for a financial year is calculated as the taxpayer’s ‘low tax contributed amounts’ covered by s 293-30 for the financial year, less the taxpayer’s ‘excess concessional contributions’ for the financial year: s 293-25.

12. Thus, the amount of a taxpayer’s excess concessional contributions affects calculation of the Division 293 tax, if any, that is payable.

    THE APPLICANT’S ARGUMENT

13. The parties agree the applicant’s income for surcharge purposes was $189,618 and his low tax contributed amount was $82,482.16. It is in relation to excess concessional contributions that they disagree. As noted above, the applicant says he has excess concessional contributions for 2022 because the unused concessional contributions cap carried forward from previous years applies only if the taxpayer elects that it should apply and he has not done so.

14. Whether this is correct depends on the construction of s 291-20, which is set out in full below:

    ‘Your excess concessional contributions for a financial year

    (1) You have excess concessional contributions for a *financial year if the amount of your *concessional contributions for the year exceeds your *concessional contributions cap for the year. The amount of the excess concessional contributions is the amount of the excess.

    (2) Your concessional contributions cap is:

    (a) for the 2017-2018 financial year—$25,000; or

    (b) for the 2018-2019 financial year or a later financial year—the amount worked out by indexing annually the amount mentioned in paragraph (a).

    Note: Subdivision 960-M shows how to index amounts. However, annual indexation does not necessarily increase the amount of the cap: see section 960-285.

    Five year carry forward of unused concessional contributions cap

    (3) However, your concessional contributions cap for the *financial year is increased in accordance with subsection (4) if:

    (a) your *concessional contributions for the year would otherwise exceed your concessional contributions cap for the year; and

    (b) your *total superannuation balance just before the start of the financial year is less than $500,000; and

    (c) you have previously unapplied *unused concessional contributions cap for one or more of the previous 5 financial years.

    (4) Apply your unapplied *unused concessional contributions cap for each of the previous 5 *financial years to increase your *concessional contributions cap (but not by more than the excess from paragraph (3)(a)).

    (5) For the purposes of increasing your *concessional contributions cap under subsection (4), apply amounts of *unused concessional contributions cap for previous *financial years in order from the earliest year to the most recent year.

    Your unused concessional contributions cap

    (6) You have unused concessional contributions cap for a *financial year if the amount of your *concessional contributions for the year falls short of your *concessional contributions cap for the year. The amount of the unused concessional contributions cap is the amount of the shortfall.

    (7) However, you do not have unused concessional contributions cap for a *financial year earlier than the 2018-2019 financial year.’

15. Statutory interpretation begins with the statutory text considered in context having regard to the evident object of the provision determined by permissible means.[6]

    [6] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41, [47].

16. In my view, an ordinary reading of s 291-20(3) indicates that application of the carried forward unused concessional contributions cap is mandatory rather than, as the applicant asserts, optional at the taxpayer’s election. That construction is apparent from the wording: the cap is increased in accordance with subsection (4) if the conditions stated in subsection (3) apply.  It is confirmed by the unqualified statutory commands in subsections (4) and (5) that the taxpayer ‘Apply’ the unused concessional contributions cap in the stated ways. It is also consistent with the absence of any provision for an election or other statutory mechanism by which a taxpayer could opt to apply only part of the taxpayer’s unused concessional contributions cap.

17. That statutory language does not refer to or suggest a discretion or election on the part of the taxpayer or the Commissioner. As noted, it does not provide any mechanism, such as a written election, for the taxpayer to opt to apply only part of the taxpayer’s unused concessional contributions cap, which would be expected if the unused amount is to be applied only to the extent chosen by the taxpayer. Why, then, does the applicant say the provisions should be construed as applicable only at the taxpayer’s election?

18. First, the applicant refers to wording in an explanatory guide on the Australian Taxation Office website – which states ‘you can use caps’ – as indicative of the provision being permissive rather than mandatory. Nothing in the comments of the administrator of these provisions can permissibly be taken into account in determining the intention to be attributed to Parliament when s 291-20 was enacted. This argument therefore cannot assist the applicant.

19. Secondly, the applicant notes that s 291-1 states: ‘You can carry forward unused concessional contributions cap from the previous 5 financial years…’ I acknowledge that, read in isolation, those words are consistent with the applicant’s submission. In particular, as the applicant says, ‘can’ may connote permission or a discretion.

20. However, s 291-1 is a ‘Guide’. Section 2-40 states:

    ‘. . . Guides form part of this Act but are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered for limited purposes. These are set out in section 950-150.’

21. Section 950-150 in turn states that in interpreting an operative provision, a Guide may only be considered:

    ‘(a) in determining the purpose or object underlying the provision; or

    (b) to confirm that the provision’s meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or

    (c) in determining the provision’s meaning if the provision is ambiguous or obscure; or

    (d) in determining the provision’s meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.’

22. The Guide does not, in respect of the issue raised by the applicant, shed light on the purpose or object of s 291-20. Nor is there anything in the Guide to cast light on whether the provision’s meaning is in that respect the ordinary meaning. Nor, in my view, could

    
    

    s 291-20 be said to be relevantly ambiguous or obscure or lead to a result that is manifestly absurd or unreasonable.

23. The applicant noted that he would not be facing the assessment if his employer had paid the contributions to the fund in the earlier years to which they relate, rather than entirely in the 2022 income year.[7] He also noted that he did not suffer a Division 293 assessment in any previous or subsequent years and argued that his situation therefore did not fit the target of Division 293; that is, high-income earners.

    [7] That the applicant, as a director of the employer company, could have caused the contributions to be paid in the years to which they related provides some context to the applicant’s case, but it is not relevant to the determination of the statutory construction issue on which the outcome turns.

24. However, that does not mean construing s 291-20(1) in accordance with its ordinary meaning results in a manifestly absurd or unreasonable outcome. With provisions of this kind, Parliament must draw a line delineating the limits of a concession. Interpretation of provisions to give effect to a policy is informed by the object of the provisions, especially when the object is stated in the legislation, but it is the rules delineating the statutory limits that must be construed. That a person falls on one side of the line or the other in a particular case at the margin does not mean the outcome is necessarily absurd or unreasonable. Indeed, in this case applying the provisions as the Commissioner submits results in less tax than if the taxpayer were assessed on the basis that, as the applicant asserts, he does have excess concessional contributions. On that premise, such excess contributions would form part of the applicant’s taxable income and be taxed at his applicable marginal rates rather than the concessional 15% rate applicable under Division 293.[8]

    [8] Subject to any exercise of the discretion under s 291-465 to reallocate contributions to earlier years.

25. Thirdly, the applicant notes the statutory command to ‘Apply’ unused concessional contributions cap in the way set out in s 291-20(4) does not specify to what extent the amount should be applied. Thus, the applicant says, a taxpayer could apply none, some or all of the unused concessional contributions cap.

26. Section 291-20(4) does not, in its terms, invite application of part or none of the unused amount. Rather, it requires ‘your unused concessional contributions cap’ to be applied which is defined in s 291-20(6) as a single amount. The only limitation is that the unused amount is not to be applied to an extent greater than the extent to which the taxpayer would otherwise exceed the cap. That wording seems to me to be inconsistent with the applicant’s submission.

27. There is, though, another aspect of s 291-20(4) that might be thought to support the applicant’s submission. The choice of the active voice – ‘Apply your unapplied unused concessional contributions cap . . . to increase your concessional contributions cap’ - rather than, for example, ‘Your unapplied unused concessional contributions cap is applied . . . to increase your concessional contributions cap’ – suggests an action by the taxpayer is required rather than the adjustment applying by statutory force. 

28. However, two other features point against that conclusion. First, the language employed is a common legislative device where a formula is required to be applied to arrive at an amount. Secondly, and more significantly, there remains the statutory command to apply the unapplied unused contributions cap, not a part of that amount, let alone no part of it.

29. Although not specifically relied upon by the applicant, I have considered the Explanatory Memorandum (EM) to the bill that introduced the five-year carry forward of unused excess contributions cap.[9] The EM does not directly address whether application of the carried forward amounts is discretionary at the taxpayer’s option or mandatory. This is not a case where the ‘clarity and specificity of the statements in the Explanatory Memorandum and its relevance to the . . . issue on this appeal require that the text and context of the definition . . . [to] be viewed through the prism of the clear manifested intention expressed in the Explanatory Memorandum.’[10]

    [9] Explanatory Memorandum to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (Cth).

    [10] Harvey v Minister for Primary Industry and Resources [2024] HCA 1, [119].

30. To the extent there are any indicators in the EM commentary, they point in both directions. For instance, paragraph 8.15 notes that qualifying individuals ‘are able to increase their concessional contributions cap’. That is suggestive of a choice. On the other hand, paragraph 8.17 says ‘only the exact amount of unused concessional contributions cap that is necessary [that is, the amount by which the cap would otherwise be exceeded] is used.’ That statement conflicts with the applicant’s submission that the taxpayer may choose an amount, if any, of the taxpayer’s unapplied unused concessional contributions cap to be used in an income year.

31. Accordingly, I have found reference to the EM to be of little assistance in resolving the construction issue raised by the applicant.

    DISPOSITION OF THE APPLICATION FOR REVIEW

32. For the reasons set out above, I am unable to accept the applicant’s submission that he was entitled to elect not to apply his carried forward unused excess contributions cap in calculating excess concessional contributions for the purposes of the assessment of his taxable contributions under Division 293.

33. As the applicant did not identify any other basis on which the assessment could be said to be excessive, the Tribunal is duty bound to affirm the objection decision.

I certify that the preceding 33 (thirty-two) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

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

Associate

Dated: 11 September 2024

Date of hearing:	23 August 2024
Advocate for the Applicant:	Self-represented
Counsel for the Respondent:	J Sproule
Solicitors for the Respondent:	ATO Litigation and Legal Services