HARRIS v FC of T
Judges:Sackville J
Kenny J
Allsop J
Court:
Full Federal Court
MEDIA NEUTRAL CITATION:
[2002] FCAFC 226
Sackville, Kenny and Allsop JJ
Introduction
1. This is an appeal from a judgment of a judge of the Court, dismissing an appeal under s 14ZZ of the Taxation Administration Act 1953 (Cth) by the present appellant against an appealable objection decision of the respondent (``the Commissioner''). The issue for determination is whether a contribution of $315,600 made by the appellant to a non- complying superannuation fund for the purpose of providing superannuation benefits to himself is deductible under Div 3 of Pt III of the Income
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2. Section 82AE was repealed by the Taxation Laws Amendment (Superannuation Contributions) Act 2001 (Cth), which is applicable to contributions made after 30 June 2000. The issue in the present appeal therefore cannot arise in respect of contributions made after that date.
Factual background
3. The facts are not in dispute. At all material times, the appellant was a director of G Harris Automobile Pty Ltd (``the company'') and held a controlling interest in it. The company, as trustee of The Harris Wood Unit Trust, carried on business as a motor vehicle dealer. The appellant established the POHA Superannuation Fund (``the Fund'') on 16 September 1997, for the purpose of providing superannuation benefits for, amongst others, himself. The Fund is a ``non-complying superannuation fund'', as defined in s 267(1) of the Act. For this reason alone, the appellant would not be entitled to an allowable deduction under s 82AAT of the Act, which provides for deductions for superannuation contributions by an ``eligible person'' for his or her own benefit.
4. During the year ended 30 June 1998 (``the 1998 year of income''), the appellant, as the controller of the company, contributed $315,600 (``the contribution'') to the Fund for the purpose of making provision for superannuation benefits for himself. The appellant became entitled to the contribution as a result of distributions made to him in his capacity as a beneficiary of the Trust.
The Assessments
5. On 14 October 1998, the Commissioner assessed the appellant's income for the 1998 year of income under s 169A of the Act, based upon a return of income that the appellant had furnished to the Commissioner. The assessment allowed a deduction in the sum of $315,600 which was claimed by the appellant, being the amount of the contribution. On 3 December 1999, however, the Commissioner issued an amended assessment for the 1998 year of income, disallowing the deduction for the contribution and imposing a penalty (including interest) of $19,748.52 under s 226L of the Act.
The Objection
6. The appellant objected to the Commissioner's amended assessment by notice of objection dated 1 February 2000. The appellant claimed that the contribution constituted an allowable deduction pursuant to s 82AAE of the Act. The Commissioner disallowed the appellant's objection on or about 30 November 2000. Also on that date, a delegate of the Commissioner made a determination under s 177F(1) of the Act that, if otherwise allowable, the contribution, in its entirety, should not be allowable to the appellant in relation to the 1998 year of income. The appellant appealed to this Court against the Commissioner's decision.
Legislative framework
7. In the 1998 year of income, s 82AAE was in the following terms:
``A deduction is allowable under this Subdivision in respect of an amount paid by a taxpayer as a contribution to a non- complying superannuation fund (as defined by subsection 267(1)) for the purpose of making provision for superannuation benefits for an eligible employee ... in relation to the year of income in which the amount is paid.''
(Emphasis added)
8. Section 82AAA relevantly provided that:
``(1) In this Subdivision, unless the contrary intention appears:
...
`eligible employee' , in relation to a taxpayer, means:
- (a) in the case of a taxpayer whether a company or a person other than a company:
- (i) an employee of the taxpayer;
- (ii) an employee of a company in which the taxpayer has a controlling interest [emphasis added]; or
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- (iii) an employee of a company in which the taxpayer is the beneficial owner of shares but in which the taxpayer does not have a controlling interest (not being an employee who is associated with the taxpayer or who, or a relative of whom, has set apart or paid, or entered into a contract, agreement or arrangement under which he is, or will or may be, required to set apart or pay, amounts as or to a fund for the purpose of providing superannuation benefits for, or for a relative of, the taxpayer); and
- (b) in the case of a taxpayer being a company:
- (i) an employee of a person that has a controlling interest in the taxpayer; or
- (ii) an employee of a company in which a controlling interest is held by a person who also has a controlling interest in the taxpayer;
`employee' means a person who is employed by a taxpayer and:
- (a) is engaged in producing assessable income of the taxpayer; or
- (b) is a resident of Australia and is engaged in the business of the taxpayer.
(2) For the purposes of this Subdivision, a director of a company shall be taken to be employed by the company.''
The question for determination is whether the appellant as a director who had a controlling interest in the company was, by virtue of par (a)(ii) of the definition of ``eligible employee'' in s 82AAA(1) and by virtue of subs 82AAA(2), to be regarded as an ``eligible employee'' for the purposes of s 82AAE of the Act.
Decision at first instance
9. There were two issues before the learned primary judge. The first was whether the contribution was deductible under s 82AAE of the Act, and the second, whether the Commissioner was entitled to rely on s 177F of the Act. His Honour held, amongst other things, that a director of a company in which the director has a controlling interest cannot contribute to a non-complying superannuation fund under s 82AAE for his own benefit as an ``eligible employee'' in order to obtain an allowable deduction to the extent of the contribution.
10. Since his Honour held that the contribution was not deductible under s 82AAE, it was unnecessary for him to deal with the s 177F issue. On this appeal, the parties agreed that, if the appeal was successful, the issues arising in connection with s 177F should be remitted to the primary judge for determination.
11. His Honour's reasons for judgment ([2001] FCA 1689) are reported in
2002 ATC 4017 and in (2001) 48 ATR 434. At [9]-[10] of his reasons, the primary judge described the parties' respective positions in the following terms [at 4018-4019]:
``The taxpayer's case is remarkably simple. He was an eligible employee because he had a controlling interest in the company. Accordingly, as a taxpayer, he was entitled to a deduction under s 82AAE for the contributions he made to the Fund during the year of income for the purpose of providing benefits to himself as an eligible employee.
The Commissioner's riposte is equally simple. He contends that s 82AAE is concerned with deductions for superannuation contributions made by one person (the taxpayer) for the benefit of another person (the eligible employee). He supports that contention by referring to the definition of an `eligible employee' in s 82AAA(1) which he contends signifies a relationship between one person (the eligible person) and another (the taxpayer); the eligible person and the taxpayer therefore cannot be the same person. The Commissioner states that this is made clear from the terms of s 82AAE which the Commissioner contends provide, implicitly if not explicitly, for a person (the taxpayer) to be entitled to a deduction for superannuation contributions paid to a fund for the benefit of another person (the eligible employee). The Commissioner's construction of the relevant provisions, so it is said, gives effect to the ordinary and natural meaning of the language used in ss 82AAA and 82AAE and is consistent with the legislative purpose of, in general, limiting the deductibility of superannuation contributions made by self employed
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persons for their own benefit to complying superannuation funds.''
12. The primary judge considered the manner in which the Act provides for the deductibility and assessability of superannuation contributions: see [12]-[22]. His Honour observed, at [19]-[20] [at 4019-4020]:
``The attraction to the taxpayer (and others in his situation) of paying superannuation contributions for his own benefit, purportedly pursuant to s 82AAE, is obvious; such deductions may be unlimited in amount, are fully deductible and, unlike all other deductible superannuation contributions, are not assessable as taxable contributions. Further, the payments may be made to a non-complying fund thereby enabling the Fund and the taxpayer to sidestep the rigorous supervisory and other requirements imposed on complying funds.
The only factor that the taxpayer's counsel could point to that made persons in the taxpayer's situation beneficiaries of such fiscal largess was that they were directors or employees of a company which they controlled. The identity of the company they control is irrelevant to the superannuation contribution as it need not be the source, directly or indirectly, of that contribution. Prima facie, control of a company appears to be irrelevant to the purposes for which the legislature has provided deductibility and other tax incentives to persons to make superannuation contributions. The resulting beneficence, allegedly bestowed on directors or employees who happen to be controllers of a company, is not bestowed on any other company controllers, on any non-controlling directors or employees, or on self employed persons. It would not be a misuse of language to describe that outcome as extraordinary or, at the least, anomalous.''
13. The primary judge considered, at [27]-[ 29], that [at 4021]:
``[T]he Commissioner's construction, which gives operative effect to the words `in relation to', has a powerful advantage in an ordinary and grammatical sense and also gives effect to the intended operation of s 82AAE. The words `in relation to' signify some connection or relation between the two persons referred to; the taxpayer and the eligible employee.
...
Although the ambit of the matters to which such words (ie `in relation to' or `in respect of') of relationship or connection extend may be a matter of contention, depending upon the context in which such words are used, there can be no doubt that they pertain to a relationship or connection between distinct subjects or subject matters. It is inherent in the use of those words that each of the subjects or subject matters in question is distinct. In the present context the use of the words `in relation to' is not apt to refer to a relationship or connection between the same person, albeit in his or her respective capacities as a taxpayer and as an employee.''
14. His Honour noted, at [30] [at 4021]:
``The specific context in which the definition in s 82AAA(1) is to be applied supports the Commissioner's construction. Section 82AAE refers to an amount paid by a taxpayer to provide superannuation benefits for an eligible employee. It is implicit that the section is referring to amount paid by one person (the taxpayer) for the benefit of another person (the employee) who is an `eligible person' only if that other person's, direct, or indirect, employment relationship with the taxpayer falls within one of the classes described in s 82AAA(1).''
The parties' submissions on appeal
15. On this appeal, the appellant contended (and the Commissioner denied) that the primary judge had erred in finding that the contribution was not an allowable deduction under s 82AAE of the Act. Both parties submitted that the ordinary and natural reading of ss 82AAE and 82AAA supported their respective positions. The appellant contended that ``[a]s a matter of simple syntax of the sections'', the requirements of s 82AAE were met. The Commissioner submitted that the language of s 82AAE showed that ``[t]he same person is not two subject matters but one'', referring, in this context, to the common law rule (as stated in
Rye v Rye [1962] AC 496 at 507 per Lord MacDermott and in
Farrar v Farrars, Limited (1888) 40 Ch D 395 at 409 per Lindley LJ) that a person could not convey real or personal estate to himself or herself.
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16. The Commissioner submitted that the opening words of the definition of ``eligible employee'', namely, ``eligible employee, in relation to a taxpayer'', ``reinforces the requirement that is implicit in the language of s 82AAE that there must be a relationship of a particular type between the taxpayer who makes the contribution and the eligible employee for whose benefit the contribution is made, in order for the contribution to be deductible''. He contended that the content of the relevant relationship in the present statutory context was employment, and that ``[i]t [was] straining the English language to suggest that the relationship which a person has with him or herself may be described as one of direct or indirect employment''.
17. One difficulty with the Commissioner's submission, as thus expressed, is that it tends to disregard the significance, for s 82AAE, of the definition of ``eligible employee'' in s 82AAA(1): cf
FC of T v Prestige Motors Pty Ltd as trustee 98 ATC 4241 at 4261; (1998) 153 ALR 19 at 43 per Hill and Sackville JJ. Plainly enough, as the Commissioner contends, there is no employment relationship between the appellant as the contributor and the appellant as the person for whose benefit the contribution is made. Equally plainly, the definition of ``eligible employee'' in s 82AAA(1) contemplates that, in addition to the paradigm case where the contributing taxpayer is the employee's employer (expressed in par (a)(i) of the definition), a person for whose benefit a contribution is made may be an ``eligible employee'', though not employed by the contributor, if the contributor has a controlling interest in a company that does have an employment relationship with the employee. This is the situation contemplated by par (a)(ii) of the definition. Similarly, a person for whose benefit a contribution is made may be an ``eligible employee'', though not employed by the contributor, if the contributor is a shareholder with less than a controlling interest in the employer company and is at arm's length from the employee (as described in par (a)(iii) of the definition). It does not, of course, follow that a contributor who has a controlling interest in a company of which he is also a director is entitled to a deduction under s 82AAE for contributions made for his own benefit. This is the issue for determination.
18. The appellant propounded two views of the words, ``eligible employee, in relation to a taxpayer''. These words were, he said, used to supply the context for the operation of the definition. In other words, they were a point of reference. Alternatively, if, as the Commissioner submitted, they expressed some substantive notion, then they did not require a relationship between two different individuals. Referring to
Lee v Lee's Air Farming Ltd [1961] AC 12 and
Salomon v A Salomon & Company Limited [1897] AC 22, the appellant argued that these words were capable of referring to the one individual in two different capacities (i.e., as controlling shareholder of an employer and as employee).
19. If attention is confined to the language of s 82AAE and of the relevant definitions in s 82AAA, the better view is that s 82AAE does not apply where the taxpayer making a contribution is one and the same as the person who is said to be the eligible employee. The use of the expression ``in relation to'' in the definition of ``eligible employee'' clearly enough contemplates that there is some relationship between the taxpayer and the eligible employee. As the primary judge observed, it is difficult to see what work that expression has to do, if the intent is that the taxpayer and the eligible employee can be the same person. The suggestion made by counsel for the appellant that the words supply the ``context'' for the operation of the definition is a less than satisfying answer.
20. The difficulty facing the appellant's argument is compounded when one looks at the structure of par (a) of the definition of ``eligible employee''. Paragraph (a) identifies three categories of employee. Sub-paragraph (i) (``employee of a taxpayer'') plainly contemplates that the employee and the taxpayer will be different persons. Counsel for the appellant did not suggest that a taxpayer can be his or her own employee.
21. Sub-paragraph (iii) also plainly contemplates that the employee and the taxpayer will be different persons. It is true that the opening words of sub-par (iii) (``employee of a company in which the taxpayer is the beneficial owner of shares''), if read in isolation, could be understood as applying to the case where the taxpayer and the employee are one and the same person. But the balance of sub-par (iii) excludes from the definition
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(among others) an ``employee who is associated with the taxpayer''. It is difficult to imagine why the drafter would exclude from the definition an associate of the taxpayer but not the taxpayer himself or herself, unless it was assumed that the exclusion was unnecessary. In other words, the only sensible reason for not expressly excluding the taxpayer from sub-par (iii) would seem to be because the taxpayer was thought not to be an employee for the purposes of the definition in any event. When the point was put to counsel for the appellant, counsel could not identify any other reason.22. If what has been said thus far is correct, it is but a small step to conclude that sub-par (ii) is drafted on the same assumption as both sub- pars (i) and (iii). That is, although the relevant words (``an employee of a company in which the taxpayer has a controlling interest''), taken in isolation, could be read as applying to the case when the taxpayer and the employee are the same person, the sub-paragraph is drafted on the basis that the taxpayer and the employee will be different persons.
23. While this is the better construction of the definition, it cannot be said that the definition is entirely free from ambiguity. In these circumstances it is appropriate to examine and take into account the statutory context and legislative history of ss 82AAE and 82AAA to resolve possible ambiguity: see, e.g.,
K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) Aust Torts Reports ¶80-323 at 68,326; (1985) 157 CLR 309 at 312-313 per Gibbs CJ, Torts 68,327; CLR 314-315 per Mason J, Torts 68,330; CLR 319 per Brennan J and Torts 68,331; CLR 321-322 per Deane J and
Cooper Brookes (Wollongong) Pty Ltd v FC of T 81 ATC 4292 at 4295-4296; (1980-1981) 147 CLR 297 at 304-305 per Gibbs CJ and ATC 4299-4300; CLR 310-311 per Stephen J. In
CIC Insurance Limited v Bankstown Football Club Limited (1997) 9 ANZ Insurance Cases ¶61-348; (1997) 187 CLR 384, Brennan CJ, Dawson, Toohey and Gummow JJ observed, at ANZ 76,853; CLR 408, that:
``It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses `context' in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd [(1986) 6 NSWLR 363 at 388], if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.''
[Citations omitted]
Each party supported his position by reference to legislative history.
Legislative history
(a) Parties' submissions on legislative history
24. Before considering the legislative history in more detail, it may be helpful to outline the parties' contentions with respect to it. The Commissioner contended that, since 1915, there has been a dichotomy in Commonwealth income tax law between the deductibility of contributions to a superannuation fund made by a contributor for his or her own benefit and contributions made by a contributor for employees other than himself or herself. The appellant did not dispute that there were, in income tax law, two streams of deductibility, for employees and for others, but he did dispute that these streams were mutually exclusive.
25. The Commissioner contended that, in the 1998 year of income, the dichotomy to which he referred was expressed by Subdiv AA, headed ``Contributions for Superannuation Funds for Benefit of Employees'', and by Subdiv AB, headed ``Contributions for Superannuation Funds by Eligible Persons'', both which were found in Pt III of the Act: see also Acts Interpretation Act 1901 (Cth), s 13(1).
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In the 1998 year of income, s 82AAE formed part of Subdiv AA.26. The Commissioner further contended that, when Parliament introduced s 82AAE into the Act in 1994, it did so as part of a legislative scheme which made all contributions to superannuation funds the subject of income tax in the hands of a recipient trustee. This latter matter was significant, so the Commissioner submitted, in light of the amendments made at the same time to s 274 of the Act. (Section 274 deals with the circumstances in which contributions to superannuation funds are taxable.) The Commissioner pointed out that, if the appellant were correct, then in respect of the 1998 year of income, a controlling shareholder and director who fell within par (a)(ii) of the definition of ``eligible employee'' in s 82AAA(1) would be entitled to a deduction for a contribution paid to a superannuation fund, although the contribution was made for his or her own benefit; yet by virtue of s 274(1), as amended in 1994, the contribution would not, so it seemed, be assessable in the hands of the trustee under Pt IX of the Act. This apparent anomaly should, so the Commissioner submitted, lead the Court to reject the appellant's submissions, especially considering that it had apparently been the Parliament's intention, both in 1989 and 1994, to impose a tax liability on all superannuation funds.
27. The appellant contended, however, that the amendments made to s 274 in 1994 could not provide a basis for construing s 82AAE, since s 82AAC (which was a counterpart provision to s 82AAE) had not materially changed since its introduction in 1989. Nor could these amendments provide a basis for construing the definition of ``eligible employee'' in s 82AAA, which had not materially changed since 1964.
28. In order to understand the parties' competing submissions, it is necessary to make a relatively detailed examination of the legislative history. Resort to this history makes it abundantly clear that there were indeed two streams of deductibility for contributions to superannuation funds and that, broadly speaking, there was one stream for contributions for the benefit of the taxpayer in his or her own right (or for his or her dependants) and another, for the benefit of employees (other than the taxpayer).
(b) Early history of income tax provisions regarding superannuation
29. Under the Income Tax Assessment Act 1915 (Cth) (``the 1915 Act''), a taxpayer in receipt of salary or wages (and the like) was entitled to a deduction (not exceeding 50 pounds) from his or her taxable income for payments made to ``superannuation, sustentation, widows' or orphans' fund or any society duly registered under any Friendly Societies Act of the Commonwealth or a State'': see par 18(g). A deduction was also allowed for ``sums set aside or paid by an employer of labour as or to a fund to provide individual personal benefits, pensions, or retiring allowances to employees'': see par 18(j). The position under the Income Tax Assessment Act 1922 (Cth) (``the 1922 Act'') remained substantially the same, save that the taxpayer was entitled to a deduction not exceeding 100 pounds for payments ``for the personal benefit of the taxpayer or his wife or children'' to any fund of the kind to which par 18(g) of the 1915 Act had formerly applied: see par 23(1)(g) of the 1922 Act. Under par 23(1)(j) of the 1922 Act, a deduction was also allowed for ``so much of the assessable income as is set aside or paid by an employer of labour'' to a fund for the provision of benefits, pensions and retiring allowances to employees of the same kind to which par 18(j) of the 1915 Act had earlier referred.
30. The Income Tax Assessment Act 1936 (Cth) (``the 1936 Act'') divided employer contributions into two classes - payments made pursuant to a legal obligation and voluntary payments. Pursuant to s 66, a deduction was allowed for
``[s]o much of any sum set apart or paid by the taxpayer... as or to a fund to provide individual personal benefits, pensions or retiring allowances for his employees as is proportionate to the extent to which those employees are engaged in producing the assessable income of the taxpayer... where the taxpayer is under a legal obligation to set apart or pay that sum.''
31. The rights of the employees to receive the benefits were also to be ``fully secured''. Paragraph 78(1)(b) of the 1936 Act dealt with voluntary contributions, permitting a deduction for ``[s]ums which are not otherwise allowable deductions and which are set aside or paid by the taxpayer... as or to a fund'' for the
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provision of benefits, pensions and allowances, as in the new s 66, to employees who ``are engaged in his or any business or class of business''. The rights of employees to receive these benefits were also to be fully secured.32. A concessional deduction remained in respect of payments to a superannuation fund for the taxpayer's own benefit. Pursuant to par 79(e) of the 1936 Act, a ``concessional deduction'' in an amount not exceeding 100 pounds was allowed for payments, ``being... payments to superannuation... widows' or orphans' funds...''. The Income Tax Assessment Act 1942 (Cth) (``the 1942 Act'') repealed s 79, however, and introduced a new s 160, which converted the former concessional deduction into a right to receive a rebate in an assessment of tax of up to 100 pounds: see par 160(2)(f)(ii) inserted by s 24 of the 1942 Act.
33. The provisions concerning employer contributions were significantly amended in 1944. The amendments demonstrated that the primary object of these income tax provisions at this stage of their history was to provide an incentive for employers to contribute to funds making provision for the general body of their employees and dependants (being persons who, it could be assumed, might well be unable to make sufficient provision of their own for their retirement or for their dependants in the event of their death).
34. The explanatory memorandum to the Income Tax Assessment Bill of 1944 said the following about s 66 (at p 13):
``Section 66 is being repealed and a new section inserted in its stead in order to provide for the deduction of those amounts only which were in contemplation when the section was enacted.
The object of section 66 is to encourage the establishment and maintenance of provident funds for the benefit of the general body of the employees of the taxpayer.
Recently, however, there has been a growing tendency on the part of companies to establish funds for the benefit of a limited number of senior executive officers for whom inordinately large benefits are provided to the exclusion of the general body of employees....
It is accordingly proposed to limited the deduction permitted by the section to the sum of [100 pounds] in respect of each employee or 5 per centum of the employee's annual remuneration, whichever deduction is the greater.''
(Emphasis added)
35. Section 66 of the 1936 Act was repealed by the Income Tax Assessment Act 1944 (Cth) (``the 1944 Act'') and a new s 66 was inserted. The new provision resembled the old, save that the new provision imposed limits on the amount of the deduction available to an employer in respect of contributions for employees. The deduction available under s 66 was limited to 100 pounds or 5% of the remuneration paid by the taxpayer to the employee, whichever was the greater: see subs 66(3), inserted by s 7 of the 1944 Act. The Commissioner had discretion, however, to allow a greater amount in ``the special circumstances of the case'' (subs 66(4)).
36. Paragraph 66(2)(c) of the 1944 Act required the Commissioner to determine, in the case of a taxpayer that was a private company, ``the part, if any, of the sum so set apart or paid which is attributable to the provision of benefits... for any person who is both a shareholder and an employee of that company if, in the opinion of the Commissioner, the benefits... are provided for that person as a shareholder''. Subsection 66(9) provided that any amount excluded from deduction by the section should not be deductible under any other provision of the Act.
37. A new subs 66(11) stated that ``[f]or the purposes of this section a director of a company shall be deemed to be an employee of the company''. In this connection, the explanatory memorandum stated (at p 15):
``Provident Funds frequently provide benefits for directors and employees. The purpose of [this] sub-section... is to ensure that contributions made to funds to provide benefits to directors should be subject to the same concessions and limitations as are contributions to funds for the benefit of employees.''
38. The 1944 Act also replaced the former par 78(1)(b) deduction with a new s 79, which allowed deductions for an employer's voluntary contributions to a fund to provide benefits, pensions, or retiring allowances for employees engaged in his business (or for their dependants) subject to the same limitations on amount as in s 66.
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39. The Income Tax and Social Services Contribution Assessment Act 1950 (Cth) (``the 1950 Act'') altered the position regarding contributions for a taxpayer's own benefit, by introducing s 82H. The 1950 Act replaced the concessional rebate in the former par 160(2)(f) (repealed by s 22 of the 1950 Act) by an allowable deduction, in par 82H(1)(b)(i), for ``payments for the personal benefit of the taxpayer or his spouse or child made to... a superannuation... fund''. This was subject to a limit of 200 pounds for deductions under s 82H in any one year of income (subs 82H(2)).
40. In 1952, the Parliament again directed its attention to employer contributions. The Income Tax and Social Services Contribution Assessment Act (No 3) 1952 (Cth) (``the 1952 Act'') amended s 79, and increased the amount of the allowable deduction under s 79 to 200 pounds or 5% of the remuneration paid by the taxpayer to the employee, whichever was the greater: see new par 79(3)(c). The application of subs 79(1) was limited to contributions made by a taxpayer, for the purpose of making provision for benefits, pensions or retiring allowances ``for, or for dependants of, employees of a person or persons other than the taxpayer...''. Subsection 79(2) continued to make provision, in par (c), for the situation where the taxpayer was a private company.
41. The explanatory memorandum to the Income Tax and Social Services Contribution Assessment Bill (No 3) of 1952 noted (at p 66) that:
``Cases in which section 79 will require to be applied are not numerous. However, there are instances from time where a shareholder makes a contribution to a pension fund for the benefit of employees of a company from which he receives dividends. Moreover, associated companies sometimes make contributions to funds for employees of other companies in the group. This concession will be preserved in section 79 as amended.''
(c) The introduction of s 82AAA
42. For present purposes, s 82AAA and Subdiv AA of Pt III were conceived in the report submitted, in June 1961, by the Commonwealth Committee on Taxation chaired by GC Ligertwood (``the Ligertwood Committee''). Chapter 22 concerned superannuation funds and, under the heading, ``Contributions by Employers and Third Parties'', the report commented:
``730. Employers and third parties may, under certain conditions, obtain a deduction for contributions paid to superannuation and similar funds for the benefit of employees (Sections 66 and 79)....
731. Section 66 permits a deduction by an employer for contributions on behalf of his own employees. Section 79 permits a deduction in respect of `employees of persons other than the taxpayer'.
732. It has been submitted to us that having the two Sections is an unnecessary complexity and that they should be combined. We are in favour of the suggestion, first because it would assist in simplification of the Act, and second because it would provide the opportunity to overcome an existing anomaly in the Act whereby favoured employees, who frequently are the working proprietors of companies, may obtain greater benefits than those apparently intended by the legislature.
733. Numerous schemes for taking advantage of anomalies were brought to our notice. For example-
- (a) A taxpayer may make a deductible contribution on behalf of his spouse or some other relative who is an employee of another person or company in no way connected with the taxpayer.
- (b) Multiple contributions on behalf of one employee can be made by associated companies, each up to the permitted maximum of [200 pounds].
- (c) A private company is able to obtain a maximum deduction in respect of a `shareholder' who is an employee if that `shareholder' interposes another company between him and his employer. This renders ineffectual the present provisions in the Act which endeavour to limit the deduction (in respect of the amounts set aside for an employee who is a shareholder) to the amount which would have been set aside if he had not been a shareholder.
- (d) A director with only nominal duties is able to arrange an annual amount of [200 pounds] set aside for his benefit, and the
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company obtains an income tax deduction of that amount.''
43. The Ligertwood Committee recommended (at par 736) that s 79 be omitted from the Act and that a new s 66 be inserted, which was to be ``along the lines of'' the then existing s 66 but was to contain the following additional features:
``(1) The Section should provide for a deduction from assessable income of contributions to a superannuation fund or funds made for or on behalf of an employee by his employer, or by a person other than his employer who has a proprietary interest in the business of the employer.
(2) The amount of the deduction available in respect of any one employee should not exceed, in the aggregate, the greater of [200 pounds] or 5 per cent of the employee's total remuneration in respect of the year ended 30 June... provided that if the Commissioner of Taxation is of the opinion that the special circumstances of the case warrant an allowance of a higher amount he shall have power to allow as a deduction such higher amount that he considers reasonable.
(3)...
(4) The Commissioner's power under the present law, to limit the deductions allowable in respect of contributions by private companies for the benefit of the employee-shareholder should be re- expressed to enable that power to be exercised where the employee's interest in a private company is held indirectly through a holding company or where the shares are held by a relative of the employee.''
44. Many of the recommendations of the Ligertwood Committee were given statutory form by the Income Tax and Social Services Contribution Assessment Act (No 3) 1964 (Cth) (``the 1964 Act''). The 1964 Act replaced ss 66 and 79 of the 1952 Act with ss 82AAA to 82AAR (inclusive). These provisions were contained in a new subdivision, ``Subdivision AA - Contributions to Superannuation Funds for Benefit of Employees''. As it happens, the form and content of s 82AAA have not altered much since 1964 and the definition of ``eligible employee'' in subs 82AAA(1), not at all. In 1964, par 82AAA(2)(a) provided, much as in 1998, that, for the purposes of Subdiv AA, ``a director of a company shall be deemed to be employed by the company''.
45. The explanatory memorandum which accompanied the Income Tax and Social Services Contribution Assessment Bill (No 3) 1964 noted (at p 46) that, by virtue of par (a)(ii) of the definition of ``eligible employee'', a deduction would be available to an individual contributor who had a controlling interest in a company which employed the employees for whom he contributed. According to the memorandum (at p 47), the effect of par (a)(iii) of the definition was that ``an employee may qualify as an `eligible employee' under sub- paragraph (iii) only if he and the taxpayer are at arm's length in relation to the contribution made to a fund for his benefit''.
46. Section 82AAC of the 1964 Act was similar in form to s 82AAC as it stood in 1998, save that in 1964 the provision did not differentiate between complying and non- complying funds (a distinction introduced in 1989). In 1964, s 82AAC provided that where a taxpayer,
``... for the purpose of making provision for superannuation benefits for, or for dependants of, an eligible employee, sets apart or pays in the year of income an amount... as or to a fund or funds from which the benefits are to be provided, and the right of the employee or dependants to receive the benefits is fully secured, the amount... so set apart or paid is... an allowable deduction.''
There was then no equivalent to the s 82AAE with which this appeal is concerned.
47. Pursuant to a new s 82AAD, the amount of an allowable deduction might be reduced where an employee was associated with the taxpayer, with the effect that a deduction was allowable ``only to the extent to which, in the opinion of the Commissioner, the amount or amounts would have been so set apart or paid if the employee had not been associated with the taxpayer''. According to the explanatory memorandum (p 50), s 82AAD was ``designed as a safeguard against deductions being allowed in respect of excessive contributions by a taxpayer for the benefit of an employee with whom he is associated''. An employee was taken to be associated with a person in the circumstances outlined in s 82AAB. That is, an employee was associated with a person if he or she was a relative of the person; or, in the case
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of a private company, an employee was associated with the company if he or she (or a relative) was a director or shareholder of the company.48. The report of the Ligertwood Committee and the explanatory memorandum to the 1964 Bill made plain the purposes of the new provisions (contained in the new Subdiv AA) that were to replace ss 66 and 79. They were, first, to simplify the employer contribution provisions and, secondly, to prevent proprietors of private companies and their relatives from taking undue advantage of excessive deductions. Section 82AAD (as well as s 82AAB and par (a)(iii) of the definition of ``eligible employee'' in subs 82AAA(1)) concerned this latter matter. A further purpose of the definition of ``eligible employee'' in s 82AAA was, however, to ensure, as a condition of deductibility, that there was a relationship of a certain kind between the contributor (whether an employer, or a shareholder having a controlling, or less than controlling interest, in the employer) and the employee: see explanatory memorandum, at p 44. As par (a)(iii) of the definition demonstrates, the legislature contemplated that an employee might qualify as an ``eligible employee'' if the contributor were a shareholder with less than a controlling interest only if the employee and the contributor were at arm's length.
49. It is plain enough from the Ligertwood Committee's report that the Committee did not contemplate that a person who contributed to a superannuation fund to make provision for himself or herself (or his or her dependants) would be entitled to a deduction by virtue of the amendments that the Committee recommended. The Committee apparently assumed that contributions for a taxpayer's own benefit would continue to be governed by s 82H. Bearing in mind the evident concerns of the 1964 amendments and the limitations placed on deductible contributions in favour of persons associated with the taxpayer, it can scarcely have been within the Parliament's contemplation that an individual, who happened to be a controlling shareholder and director of an employer company, might make contributions for his own benefit and acquire an allowable deduction under s 82AAC.
50. Section 82H was amended in 1973 by s 14 of the Income Tax Assessment Act 1973 (Cth) in order that, amongst other things, there would be no deduction available where a superannuation fund was not a fund to which ss 23F or 79 of the Act applied (par 82H(1G)(b)). Section 82H was later repealed by the Income Tax Assessment Act (No 2) 1975 (Cth) (``the 1975 Act''). Pursuant to ss 159N and 159R of the 1975 Act (inserted by s 17 of that Act), however, a taxpayer was entitled to a rebate up to $1,200 for payments ``for the personal benefit of the taxpayer or his spouse or child'' made to a superannuation, sustentation, widows' or orphans' fund. (Sections 159N and 159R of the 1975 Act were later repealed by the Taxation Laws Amendment Act (No 2) 1985 (Cth) (``the 1985 Act''). The 1985 Act also amended s 82AAC by adding subs 82AAC(3), pursuant to which a deduction was not allowable if s 121CC applied to the fund in relation to the year of income. Section 121CC concerned the assessment of investment income of superannuation funds to which s 23F or s 23FB applied.)
51. Sixteen years after Subdiv AA, the Parliament introduced Subdiv AB into Pt III of the Act. Subdivision AB, which included ss 82AAS to 82AAT (inclusive), was introduced by the Income Tax Assessment Amendment Act (No 4) 1980 (Cth) (``the 1980 Act''). The purpose of s 82AAT was explained in the explanatory memorandum to the Income Tax Assessment Amendment Bill (No 4) 1980 in the following terms:
``It is proposed to provide a special deduction, up to a maximum of $1200 in any income year, for contributions made... by a person who is self-employed or employed or is otherwise engaged in a gainful occupation, but in respect of whom no employer or other person contributes or is to contribute towards superannuation benefits..... [p 2]
[S]elf-employed persons and persons otherwise engaged in gainful occupations but for whom superannuation benefits are not supported by an employer or anyone else, are not entitled to tax deductions for their personal contributions but are entitled to the same tax concessions for such contributions as supported employees are for theirs.... The position is proposed to be changed by [introducing] a new income tax deduction under section 82AAT for `unsupported' persons who make provision
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for their own retirement by contributing to a qualifying superannuation fund.''[p 5-6]
Any excess of contributions over $1,200 to a qualifying superannuation fund was to be treated as rebatable expenditures.
52. The new s 82AAT provided that:
``[T]here shall be allowed as a deduction [up to $1,200] from the assessable income of an eligible person of a year of income the amount of any contribution... made by the eligible person during the year of income... to a qualifying superannuation fund, being contributions made to obtain superannuation benefits for the eligible person or, in the event of the death of the eligible person, for the dependants of the eligible person.''
53. By virtue of subs 82AAS(2), an eligible person was any person, unless, during the year of income, it was reasonable to expect that superannuation benefits, which were attributable to contributions made to a fund by another person, would be provided for him or her. Pursuant to subs 82AAS(1), a ``qualifying superannuation fund'' was a superannuation fund, the income of which was exempt from tax by virtue of par 23(ja), or a fund to which s 79 applied. Subsection 159R(8A), inserted by the 1980 Act, provided that amounts that were deductible under s 82AAT were not rebatable under s 159R.
(d) The imposition of a general tax liability on all superannuation funds
54. The Commissioner's submission that the amendments effected by the Taxation Laws Amendment Act (No 2) 1989 (Cth) (``the 1989 Act'') were intended to subject to income tax all contributions made to all superannuation funds is borne out by closer examination of the legislative history. To understand the submission, it is helpful to outline the earlier tax status of superannuation funds.
55. By virtue of par 11(f) of the 1915 Act, the income of ``a provident, benefit, or superannuation fund established for the benefit of employees in any business'' was exempt from income tax. Funds of this description retained a tax-exempt status under par 14(1)(f) of the 1922 Act and under par 23(j)(i) of the 1936 Act. The assessable income of a taxpayer included 5% of any amount paid ``in consequence of retirement from... any office of employment'': see par 26(d) of the 1936 Act.
56. The 1964 Act introduced a new s 23F. This continued the tax-exempt status of superannuation funds (as defined in subs 23F(1)), providing the funds met the criteria set out in subs 23F(2). One criterion was that the fund was established and maintained solely for the provision of superannuation benefits for employees in the event of their retirement (or in other circumstances approved by the Commissioner), or for employees' dependants in the event of death. In order to maintain their tax-exempt status, the funds could accept contributions from certain persons only. They were an employee or employer, a company in which the employer of the employee had a controlling interest and, if the employer were a company, a person who was ``associated with that company'': see par 23F(2)(c). A person was associated with the company that was the employer if, amongst other things, the person had a controlling interest in the company: see subs 23F(3).
57. Section 23F was introduced following the Ligertwood Committee's report, which noted, at par 739, that par 23(j) was
``being extensively exploited in a manner which was never contemplated when the legislation was introduced for the encouragement of employers in establishing bona fide funds on behalf of employees.''
The Committee recommended (at par 742) ``a series of tests to guide the Commissioner... as to which funds should continue to qualify'' for full or partial exemption. These tests subsequently found their way into s 23F of the 1964 Act.
58. The 1989 Act introduced a new Pt IX, ``Taxation of Superannuation Business and Related Business''. Within Pt IX, s 267 introduced a distinction between a ``complying superannuation fund'' (being a fund the subject of a notice under either s 12 or s 13 of the Occupational Superannuation Standards Act 1987 (Cth)) and a ``non-complying superannuation fund'' (being a fund that was a superannuation fund, but not a complying superannuation fund). Complying superannuation funds were taxed at a concessional 15% rate (and had various other tax advantages). A non-complying fund was taxed at the top marginal rate of tax. Contributions to superannuation funds were liable to tax in the hands of the fund trustee. Pursuant to par 274(1)(a)(i), taxable
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contributions to an ``eligible entity'' (which included both a complying and non-complying superannuation fund (s 267(1)) included ``an amount in respect of which a deduction is allowable... under section 82AAC to the person making the payment'' and, pursuant to par 274(1)(a)(ii), ``a contribution made by a person (in this section called the `contributor') to obtain superannuation benefits for the contributor or, in the event of the death of the contributor, for dependants of the contributor...''. Subsection 274(2) made particular provision for contributions to which par 274(1)(a)(ii) applied. (There were further amendments to s 274 in 1989, by virtue of which par 274(1)(a)(ii) became par 274(1)(b): see Taxation Laws Amendment (Superannuation) Act 1989 (Cth), s 48. An effect of this change was that only amounts paid to a complying superannuation fund to obtain superannuation benefits for the contributor or his or her dependants were taxable contributions. Paragraph 274(1)(b) subsequently became par 274(1)(b)(i): see s 3 of the Superannuation Guarantee (Consequential Amendments) Act 1992 (Cth) and the Schedule to that Act. Like par 274(1)(b), that section was limited in its application to complying superannuation funds.) As the Commissioner observed, broadly speaking, the effect of the 1989 amendments was to render all superannuation funds liable to income tax in the hands of their trustees. The liability extended to all contributions that were deductible to the contributor under ss 82AAC and 82AAT.59. For present purposes, it is also relevant that, at the same time that Pt IX was amended in this way, ss 82AAB to 82AAP in Subdiv AA were repealed and replaced by a new s 82AAC: see Schedule 1 to the 1989 Act. Section s 82AAA (containing, amongst other things, the definition of eligible employee), the clawback provisions in Subdiv AA, and s 82AAR remained substantially unaffected by the 1989 Act. The new form of s 82AAC did not differ greatly from the previous one, save that the new s 82AAC allowed a deduction only for a contribution to an eligible superannuation fund (within the meaning of Pt IX). The term ``eligible superannuation fund'' embraced both complying and non-complying funds. Section 82AAT was also amended, with the result that a deduction was only available under it in respect of amounts contributed to a complying superannuation fund, as defined in Pt IX. The monetary limit on a deduction for a contribution for a taxpayer's own benefit was also lifted to $3,000 (s 82AAT(2)).
60. The Taxation Laws Amendment (Superannuation) Act 1992 (Cth) further amended s 82AAC by limiting the quantum of the allowable deduction by reference to a formula based upon the age of an employee and defined monetary limits. There were also amendments to s 82AAT, bringing the maximum deductions allowable under Subdiv AB into line with the maximum deductions allowable under Subdiv AA.
(e) The 1994 amendments: just a matter of simplification?
61. The Taxation Laws Amendment Act (No 4) 1994 (Cth) (``the 1994 Act'') again amended s 82AAC, with the effect that a deduction was only allowable under this provision for contributions to a complying superannuation fund. The explanatory memorandum to the 1994 Bill stated (at par 7.99-7.10):
``Employers will continue to be entitled to deductions for superannuation contributions only under Subdivision AA of Division 3 of Part III of the ITAA.... However, the deduction limits in section 82AAC will be restricted to contributions paid to a complying superannuation fund... or to a non-complying superannuation fund provided that the taxpayer making the contribution had reasonable grounds for believing that the fund was a complying fund....
...
Any other contributions paid by an employer for eligible employees to a non-complying superannuation fund will be deductible. The amount of the deduction will not be limited to the amounts specified in section 82AAC.... However, these contributions will be fringe benefits and subject to tax under the FBTAA....''
In connection with the last-mentioned matter, it is relevant to note that the 1994 Act introduced a new provision (par 136(j)) into the Fringe Benefits Tax Assessment Act 1986 (Cth), with the result that there was no exemption from fringe benefits tax in respect of superannuation contributions by an employer unless the contributions were paid to a fund that
ATC 4673
the employer reasonably believed to be a complying superannuation fund.62. Section 82AAE, in the form relevant to this appeal, was also introduced into the Act by the 1994 Act. (As has been noted, s 82AAE has since been repealed.) Pursuant to s 82AAE, there was an allowable deduction in respect of a contribution by a taxpayer to a non-complying superannuation fund ``for the purpose of making provision for superannuation benefits for an eligible employee''.
63. As well, the 1994 Act amended subs 274(1) by introducing new pars (a) and (aa). Paragraph 274(1)(aa) concerned non-resident superannuation funds. Paragraph 274(1)(a), which concerned resident superannuation funds, was amended to read:
``Subject to this Division, the following amounts paid to an eligible entity... are taxable contributions in relation to the contribution year:
- (a) if the eligible entity is a resident superannuation fund in relation to the year of income in which the contributions are made:
- (i) contributions made for the purpose of making provision for superannuation benefits for another person ,...:
- ...
- (ii) a specified roll-over amount;...''
[Emphasis added]
That is, ``taxable contributions'' were to include contributions made for the purpose of making provision for superannuation benefits for another person, and not the taxpayer. There was no distinction drawn in par 274(1)(a) between complying and non-complying superannuation funds. Paragraph 274(1)(b) was not substantially affected, and subs 274(2) not at all: under them, where a notice was given under subs 82AAT(1A) stating (amongst other things) that a contribution had been made to a complying superannuation fund, then the contribution to such a fund by a taxpayer for his or her own benefit was taxable.
64. As already noted, the appellant contended that the source of the ``(untested) anomaly'' which concerned the primary judge was the amendment to s 274 made by the 1994 Act, because if the appellant were correct, he was not only entitled to claim the whole of the contribution as a deduction in his own right but also, by reason of the amendment to par 274(1)(a), the contribution was not a ``taxable contribution'' for the purposes of s 274. The Commissioner, on the other hand, contended that the language of s 274, as amended, reflected a distinction that had always existed. This was a distinction between the operation of s 82AAE and s 82AAC on the one hand and that of s 82AAT on the other. The language of s 274 (as it stood in 1998) was, so the Commissioner submitted, consistent with the legislative intent that it was s 82AAT, and not s 82AAE (or s 82AAC), which determined the deductibility of contributions made by a person for his or her own benefit.
65. Clearly enough, the new Pt IX, which was introduced in 1989, was intended to render all contributions, which were allowable deductions in the hands of a contributor, liable to income tax in the hands of the fund trustee. At the same time, a dichotomy between employer contributions on the one hand and contributions for a taxpayer's own benefit on the other remained. Whereas the enactment of a new s 82AAC in 1989 permitted an employer to claim a deduction, unlimited in amount, for a contribution to a fund for employees, s 82AAT continued to limit a taxpayer's entitlement in respect of contributions for himself or herself. In 1989, this dichotomy was plainly reflected in s 274, since s 82AAC was expressly mentioned in par 274(1)(a) and s 82AAT was referred to by clear implication in par 274(1)(a)(ii) (and, subsequently, par 274(1)(b), then par 274(1)(b)(i)): see [58] above. There is nothing in the legislative history as at 1989 to support the proposition that the Parliament contemplated that a controlling shareholder and director of a corporate employer who contributed to a superannuation fund for his or her own benefit could take advantage of s 82AAC and avoid the restrictions in s 82AAT.
66. Apart from the amendment in 1994 to s 274 (which is of equivocal significance) there is no evidence that, in 1994, the Parliament intended significantly to modify the position established in 1989, by removing the tax liability from contributions to non-complying funds made by and for the benefit of controlling shareholders (who were also directors) of corporate employers. Indeed, the legislative history does not suggest any reasonable explanation for such a legislative choice. The better view is that, when Parliament introduced
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new pars (a) and (aa) into subs 274(1) in 1994, it merely intended to restate the connection between the taxation of contributions in the hands of the fund trustee and the deduction of contributions in the hands of the contributor. Since the introduction of s 82AAE necessitated amendment to par 274(1)(a), the Parliament might have chosen simply to incorporate a reference to s 82AAE in par 274(1)(a). Instead, it chose to deal with the matter compendiously, by reference to an element common to both ss 82AAC and 82AAE (and not s 82AAT) - namely, that the contributor's contributions were not for his or her own benefit but for the benefit of another (i.e., an employee of the taxpayer, or the employee of a company in which the taxpayer had a controlling interest, or in respect of which, in the relevant circumstances, the taxpayer had a less than controlling interest).67. Let it be accepted that, as the appellant submitted, the amendments made to s 274 in 1994 cannot affect the proper construction of s 82AAE since its counterpart, s 82AAC, was incorporated into the Act in 1989: see, e.g.,
Optus Vision Pty Ltd & Anor v FC of T 2001 ATC 4248 at 4255; (2001) 110 FCR 305 at 315 per Emmett J. As Emmett J observed, at ATC 4255; FCR 315:
``... [W]hile the view taken by Parliament as to the legal meaning of a doubtful enactment may, in some circumstances, be treated as persuasive, though not binding, authority..., a statute means what it means, as a matter of law, from the time of its enactment.''
[Citation omitted]
When s 82AAC was introduced in 1989, the definition of ``eligible employee'' in s 82AAA of the Act was available as an aid to the construction of this expression as it appeared in s 82AAC: see
Gibb v FC of T (1966) 14 ATD 363 at 367; (1966) 118 CLR 628 at 635 per Barwick CJ, McTiernan and Taylor JJ. Similarly, the definition was available as an aid to the construction of s 82AAE on its introduction in 1994. Let it further be assumed that the term ``eligible employee'' bore the same meaning in s 82AAE as in s 82AAC. In view of the matters referred to earlier, this lends support to the Commissioner's submission that the Commonwealth income tax law rests on a dichotomy between the provisions dealing with employer contributions on the one hand and contributions for the taxpayer's own benefit on the other, all of which were to be taxed in the hands of the trustee of the relevant superannuation fund.
Construction of s 82AAE
68. With this in mind one turns again to ss 82AAE and 82AAA. As already noted, both parties relied on the operation of the phrase ``in relation to'' in the opening words of the definition of ``eligible employee''. As McHugh J observed in
O'Grady v The Northern Queensland Company Limited (1990) 169 CLR 356 at 376:
``The prepositional phrase `in relation to' is indefinite. But, subject to any contrary indication derived from its context or drafting history, it requires no more than a relationship, whether direct or indirect, between two subject matters.''
The identity of the two subject matters in relationship with one another depends upon the relevant context: cf
FC of T v Scully 2000 ATC 4111 at 4121; (2000) 201 CLR 148 at 170-171 per Gaudron ACJ, McHugh, Gummow and Callinan JJ;
The Workers' Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 at 653-654 per Deane, Dawson and Toohey JJ and
J & G Knowles & Associates Pty Ltd v FC of T 2000 ATC 4151 at 4156 (``J & G Knowles'') per Heerey, Merkel and Finkelstein JJ.
69. In their consideration of whether a benefit was provided ``in respect of the employment of the employee'' for the purposes of subs 136(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth), the Full Court in J & G Knowles referred to
Smith v FC of T 87 ATC 4883; (1987) 164 CLR 513 and observed, at 4158, that:
``[I]t must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment....
Here the question whether there is a sufficient or material connection or relationship between a benefit and employment is assisted by having regard to the purpose or object of imposing FBT on employers.''
70. In the statutory context presently under consideration, what do the words ``in relation to'' signify? There is nothing in this context, including the legislative history, that would support the proposition that they signify a
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relationship between two different capacities of the same taxpayer. On the contrary, throughout the legislative history of the Commonwealth income tax law, there have been two streams of deductions for superannuation contributions, and each stream has been treated as exclusive of the other: see, e.g., s 82AAR introduced by the 1964 Act. One stream has concerned contributions by an employer (or someone who stands in the place of the employer for this purpose) to a fund for the benefit of another who is an ``eligible employee''. The history of Subdiv AA, in particular, confirms that the employer contribution provisions have, since their inception, been premised on a relationship between two different persons. There is nothing in the legislative history between 1915 and the end of the 1998 year of income that supports the proposition that a taxpayer may utilise an employer contribution provision to secure a deduction in respect of a contribution to a superannuation fund for his or her own benefit. The history of this branch of the law shows that any provision for the taxpayer's own benefit fell within the second stream of personal benefit contributions which, in the 1998 year of income, found expression in Subdiv AB, and had earlier found expression in ss 159N and 159R of the 1975 Act, s 82H of the 1950 Act (and par 160(2)(f) of the 1942 Act, par 79(e) of the 1936 Act, par 23(1)(g) of the 1922 Act and par 18(g) of the 1915 Act).71. To the extent that par (a)(ii) of the definition of ``eligible employee'' in s 82AAA(1) may be read as covering the same individual in two different capacities, the statutory context requires that it be read down. Hence, in order to satisfy s 82AAE (and s 82AAC), there must be a contribution by one person (an employer or a person who, for these purposes, can be regarded as acting in the stead of the employer) and a different person (the employee) for whose benefit the contribution is made. That is, these provisions refer to an act by one person (making payment to a relevant fund) for the benefit of another person. Bearing in mind the legislative history of these provisions, this reading is readily accommodated in s 82AAE (and s 82AAC), both of which refer to a contribution made by ``a taxpayer... for the purpose of making provision for superannuation benefits payable for an eligible employee'' (emphasis added). In the absence of the definition of ``eligible employee'' in s 82AAA, these provisions would naturally be read as referring to a taxpayer on the one hand and a different person, an employee, on the other.
72. Further, in light of the legislative history, it is tolerably clear that the object of Subdiv AB would be frustrated in part if s 82AAE were construed in the manner for which the appellant contends. The object of Subdiv AB is to specify and limit the circumstances in which a person (whether employed or not) may obtain a deduction for a contribution made for his or her own benefit. There is nothing in the Act or in the legislative history that would provide a rational basis for permitting a contributing taxpayer (who happened to be a controlling shareholder and director of a corporate employer) to secure an unlimited deduction under s 82AAE, in respect of a contribution to a fund to make provision for himself. The Act makes it plain that there is a difference between the legislative policy underlying Subdiv AA, which is designed to encourage employers (and those who stand in their place) to make provision for their employees, and the policy underlying Subdiv AB, which is designed to encourage individuals to make provision for themselves on their retirement. If the appellant is correct, a controlling shareholder who happened to be a director of a corporate employer has, at least since 1964, been able to circumvent the limitations imposed on the deductibility of contributions made by a person for his or her own benefit. The legislative history of these provisions makes it difficult to accept that this result conforms to the legislative scheme, which has evolved since 1915 and substantially reached the form with which this appeal is concerned in 1989 (albeit subject to subsequent amendments).
Summary
73. In summary, no error is shown in the judgment of the primary judge. The appellant was not entitled to an allowable deduction pursuant to s 82AAE of the Act in respect of the contribution made to a non-complying fund for his own benefit in the 1998 year of income. In that year, s 82AAE did not entitle a taxpayer, who happened to hold a controlling interest in a corporate employer and who was a director of it, to claim a deduction in respect of a contribution to a superannuation fund for the provision of a benefit for himself.
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74. For the reasons stated above, the appeal should be dismissed with costs. Since the appellant has failed, there is no need to remit the matter to the primary judge for determination of the issue that otherwise would have arisen under s 177F of the Act.
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellant pay the respondent's costs of and incidental to the appeal.
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