McMENNEMIN & ANOR v FC of T

Members:
S A Forgie DP

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2010] AATA 573

Decision date: 3 August 2010

Deputy President S A Forgie

1. By a deed of settlement dated 21 February 1997, Mr and Mrs McMennemin established the McMennemin Superannuation Fund (Fund). They are its sole members. Both are retired. Mr McMennemin retired as an accountant over 17 years ago and Mrs McMennemin has also retired from a clerical and administrative career. From time to time, they made contributions to the Fund in the form of either cash or in specie in order to provide for their retirement. On 14 December 2006, each of them contributed $138,484 to the Fund (initial contributions). This contribution made them each eligible for the maximum age-based deduction of $105,113. The Fund included the combined contributions of $210,226 in its assessable income as this represented those parts of the contribution that were allowable deductions for Mr and Mrs McMennemin. That meant that the sum of $105,113 was regarded as concessional contributions for each of them within the meaning of Division 292 of the Income Tax Assessment Act 1997. The remaining contributions of $33,371 made by each of them were regarded as non-concessional contributions for the Fund had not included them in its assessable income.

2. On 26 June 2007, each contributed a further $1,000,000 and, on 16 October 2007, lodged their income tax returns. The Commissioner of Taxation (Commissioner) decided that each had exceeded the non-concessional contributions cap applicable for the financial year ending 30 June 2007 by an amount of $33,371. He assessed each as liable to pay an excess contributions tax (ECT) of $15,517.50 under the Income Tax Assessment Act 1997 (ITAA97).

3. Having received the excess contributions tax assessments (ECT assessments), Mr and Mrs McMennemin applied to the Commissioner under s 292-465 of Division 292 of ITAA that he either disregard the excess non-concessional contributions or allocate them for the purposes of another financial year. As the Commissioner decided that the circumstances were not special circumstances within the meaning of s 292-465(3)(a) and that making the determination would not be consistent with the object of Division 292 as required by s 292-465(3)(b), he refused to make the determination. The Commissioner made his decision on 2 July 2009.

4. Mr and Mrs McMennemin objected to the ECT assessments on 23 July 2009 and the Commissioner disallowed their objections on 5 October 2009. They have applied to the Tribunal for review of the Commissioner's objection decision. Although Mr and Mrs McMennemin and the Commissioner have submitted that the Tribunal has jurisdiction to review the Commissioner's refusal to make a determination under s 292-465, I have decided that it does not. It is a decision on an application that could have changed the factual substratum on which the provisions of ITAA97 relating to Mr and Mrs McMennemin's liability to ECT were given concrete application. In order to change it, the Commissioner would have had to make a determination on the application. The factual substratum is the basis on which the Commissioner applies the provisions of the ITAA97 relating to their liability to pay ECT and ascertains the amount, if any, of that tax. The basis is not the process by which the assessment is made. As it is only the assessment that can be the subject of the Tribunal's review when it reviews the Commissioner's objection decision, it cannot review the Commissioner's decision not to make a determination. I would have come to the same conclusion even if the Commissioner had made a determination and Mr and Mrs McMennemin had not been satisfied with it.

5. Should I be incorrect in my conclusion that the Tribunal does not have jurisdiction to review the Commissioner's determination, I have considered whether I would have reached a decision other than that reached by the Commissioner under s 292-465 of ITAA97. I have decided that I would not.

Background

6. Mr McMennemin turned 65 years of age on 1 February 2007 and Mrs McMennemin turned 60 on 4 April 2007. They did not use the services of a tax agent. Instead, Mr McMennemin was responsible for managing his wife's taxation affairs as well as his own, examined the TaxPack 2006 and Supplementary Guide dealing with personal superannuation contributions and formed the view that each of them was eligible to claim a personal income tax deduction of $105,113 in light of their contributions of $138,484 and on the basis of their ages. The Commissioner allowed each of their claims in relation to their initial contributions.

7. Mr and Mrs McMennemin were each unaware that their initial contributions would be taken into account in deciding whether they had exceeded their non-concessional contributions cap.

8. In the Federal Budget delivered on 9 May 2006, the then Government announced various changes to the superannuation rules. Among them was its proposal to abolish reasonable benefit limits (RBLs) and age-based deduction rules for contributions. These changes were explained in a paper entitled "A Plan to Simplify and Streamline Superannuation" issued on behalf of the Government (PSSS paper). Mr McMennemin noted [4.5.1] of the PSSS paper but, to put it in context, I will reproduce [4.5] as well:

  • " 4.5 Undeducted contributions

    Not all contributions are currently subject to tax in a superannuation fund. Personal undeducted contributions, which are made from an individual's after-tax income, would remain tax free when contributed to, and withdrawn from, superannuation. Undeducted contributions would also remain eligible for the Government co-contribution.

    Once in the fund, the earnings on all contributions are subject to the concessional 15 per cent earnings tax which represents a significant concession designed to encourage and support retirement savings. The removal of benefits tax and RBLs would increase the concessions provided to superannuation.

    These proposed changes, in conjunction with the current tax exempt status of superannuation pension assets, would make superannuation an attractive vehicle in which to retain assets to avoid paying tax. There would also be an incentive for high-wealth individuals to transfer large amounts of assets currently held outside superannuation to the concessionally taxed superannuation system.

    To ensure the concessions are targeted appropriately, a cap of $150,000 a year (three times the proposed concessional contributions limit) on the amount of post-tax superannuation contributions a person can make would apply. In addition, the Government will consider whether the cap should be averaged over three years to allow people to accommodate larger one off payments.

    This cap is expected to impact on very few people. If the proposals in this paper are adopted, this restriction would apply from Budget night, 9 May 2006.

  • 4.5.1 Refund of excessive contributions

    Contributions in excess of the cap would be returned to the individual. Any earnings on the excess would be effectively taxed at the top marginal tax rate.

  • 4.5.2 Administration

    The ATO would collect the necessary information on contributions in order to determine when a person has exceeded the annual cap. This would trigger a return of the excessive contributions and earnings.

    Rules would be developed to determine which contributions are refunded in the case of multiple contributions and funds."

9. At the beginning of the PSSS paper, appeared a statement that:

"The Government's proposed plan would:

  • • simplify superannuation arrangements for retirees, making it easier to understand;
  • • improve incentives to work and save; and
  • • introduce greater flexibility in how superannuation savings can be drawn down in retirement.

If the proposed changes are implemented, the adequacy of retirement incomes would be improved, and over 10 million Australians with superannuation accounts, plus future account holders and their families, would benefit through greater simplicity.[1] PSSS paper, Introduction and consultation process, p vii

The Government sought submissions and comments from the community on its paper by 9 August 2006.

10. I find on the basis of his evidence that Mr McMennemin noted the proposed changes to the undeducted contributions rules and that it was proposed that any contributions made in excess of the new non-concessional contributions caps would be returned to taxpayers.

11. On 13 June 2006, the then Treasurer announced that persons could contribute up to $450,000 of non-concessional contributions in any three year period. This cap would apply from 10 May 2006.

12. Following the public consultation on the PSSS paper, a further paper was issued on behalf of the Government. The paper was entitled "A Plan to Simplify and Streamline Superannuation - Outcomes of Consultation" (PSSS-outcomes paper). It announced that the proposal to return contributions in excess of the cap to the individual would not be proceeding and the excess undeducted (or post-tax) contributions would be taxed at the top marginal rate and the Medicare levy would be imposed. The Treasurer's Press Release of 5 September 2006 announced:

  • "• subject to any applicable work test people will be able to make up to $1 million of post-tax contributions between 10 May 2006 and 30 June 2007 which will allow people who were planning a large contribution under the existing rules to do so;
    • - The $150,000 annual limit on post-tax contributions will commence from 1 July 2007. People aged less than 65 will be able to bring forward two years of contributions, enabling $450,000 to be contributed in one year, with no further contributions in the next two years.
  • • in addition to the annual cap, people can contribute:
    • - a lifetime limit of $1 million from the sale of small business assets which have been held for 15 years; and
    • - settlements for injuries resulting in permanent disablement; …"[2] Supplementary T-documents at 122

13. On 7 September 2006, an article published in the Herald Sun stated:

"Treasurer Peter Costello has made some major concessions in his tune-up of the new superannuation blueprint he laid down at this year's Federal Budget.

One of those is that subject to any applicable work test, people will be able to make up to $1 million capital contributions to super up until July 1, 2007.

[3] Exhibit A, FM3

14. On 7 December 2006, the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (Bill) was introduced into Parliament. The Treasurer released a Press Release on the same day. It concluded with the statement:

"The Assistant Treasurer also clarified the administrative arrangements for people who have made after-tax contributions above $1 million since 10 May 2006. People will be able to withdraw (without penalty) excess after-tax contributions that have been made before today. People in this situation will need to make an application to the Australian Taxation Office before 30 June 2007 to release the money. People will also be able to seek the Commissioner of Taxation's discretion to disregard or reallocate excess after-tax contributions made since 10 May 2006 to a different income year in limited special circumstances.

The Bill was passed by Parliament and came into operation on 24 September 2007.

15. I accept that Mr McMennemin read the article published in the Herald Sun on 7 September 2006 to the effect that taxpayers could contribute up to $1m into their superannuation fund before 1 July 2007. I also accept that he read the PSSS paper in an attempt to understand the new laws.

16. In October or November 2006 and while finalising the 2006 accounts and tax return for the Fund, Mr McMennemin discussed the new $1 million cap and their previous contributions with the Fund's accountant and auditor. As the Fund's accountant and auditor was not called to give evidence, in the absence of that evidence, I cannot make findings as to what the Fund's accountant and auditor said to Mr McMennimen. What I can make findings about are the matters that Mr McMennimen understood as a result of his conversation with the Fund's accountant and auditor. Mr McMennemin felt that he had not been made aware that the previous contributions had to be deducted from the $1 million cap. Instead he understood that the advice he was given was that he and his wife could each make a contribution of $1 million into the Fund on or before 30 June 2007.

17. Mr McMennemin also looked at the TaxPack 2007 and Supplemental Guide, which he had obtained before the end of the 2006/2007 income year. In the "What's new this year?" section at page 9 of the TaxPack 2007, the only reference to superannuation is:

" SUPERANNUATION CHANGES

If you are aged 60 years and over and your only source of income is from superannuation benefits (both lump sum and income streams) that have already been subject to tax in the superannuation fund you may not have to lodge a tax return in the future. Read Will you need to lodge an Australian income tax return in the future? on page 12 for more information."

The information at page 12 did not relate to the way in which non-concessional contributions to a superannuation fund would be taxed.

18. Question D13 of the Supplemental Guide was headed "Personal superannuation contributions" and advised the reader:

"Did you make personal superannuation contributions to a complying superannuation fund or a retirement savings account (RSA)?

If the answer was in the affirmative, as it was for Mr and Mrs McMennemin, the reader was advised that it may be possible to claim a deduction. Information was given on a number of topics but none addressed the amount of contributions to the superannuation fund until Step 2. That Step is not relevant as it applied to persons who were aged 70 years on 1 June 2006 or who reached that age by 31 May 2007. Only Steps 3 and 4 referred to the amount of contributions:

"STEP 3 Add up your 2006-07 contributions and if the total is more than $5,000, go to step 4. If it is $5,000 or less, write the amount at H item D13 on page 11 of your tax return. Do not show cents. Go to step 5.

STEP 4 If your contributions total more than $5,000, you can claim the lesser of:

  • • $5,000 plus 75% of your contributions over $5,000
  • • your age-based deduction limit. Your deduction claim is limited by your age when you made your last contribution for the year. If you were under 35 years at that time, your deduction limit is $15,260; if aged 35 to 49 years, it is $42,385; and if aged 50 to 70 years, it is $105,113.

Write this amount at H item D13 on page 11 of your tax return. Do not show cents.

At the beginning of the TaxPack 2007 is a section headed "Our commitment to you". It reads in part:

"TaxPack 2007 is a public ruling for individuals who use it reasonably and in good faith to complete their 2007 personal tax return. This means that if we state the law incorrectly and as a result you do not pay enough tax, we will not ask you to pay the extra tax.

If any other information in TaxPack 2007 is incorrect and as a result you do not pay enough tax, we may ask you to pay the extra tax. However, we will not charge you a penalty or interest.

If our advice in TaxPack 2007 is misleading and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, we must ask you to pay it. However, we will not charge you a penalty or interest if you acted reasonably and in good faith.

If you make an honest mistake when you try to follow our advice and you owe us money as a result, we will not charge you a penalty. However, we will ask you to pay the money, and we may also charge you interest.

If correcting the mistake means we owe you money, we will pay it to you. We will also pay you any interest you are entitled to."

19. Apart from a variation in the figures setting out the deduction limits, the relevant passages of TaxPack 2007 reflected those of TaxPack 2006. TaxPack 2008:

" Contributions caps

Caps apply to contributions made to your super account from 1 July 2007. Contributions that exceed the cap amounts are subject to extra tax. The amount of the cap and how much extra tax you pay on the amount in excess of the cap depends on whether the contributions are concessional or non-concessional contributions.

If your contributions exceed the relevant contributions cap, an assessment will be made for excess concessional contributions tax or excess non-concessional contributions tax on the excess contributions (see Your notice of assessment on page 115 in TaxPack 2008).

Non-concessional contributions cap

The non-concessional contributions cap for 2007-08 is $150,000 per person. If you are under 65 years of age at any time in 2007-08, instead of the yearly cap of $150,000 you have the option of contributing up to $450,000 over a three-year period (the 'bring forward option') - but certain conditions apply. First, the bring forward option has to be triggered - this will automatically happen when your contributions exceed $150,000 in a particular year. Once this happens, you can spread out your remaining contributions, as long as they don't exceed $450,000 over the three-year period that started in the year the bring forward option was triggered. If your contributions are more than $450,000 within this three-year period, you will be liable for the excess non-concessional contributions tax.

20. I accept that Mr McMennemin and his wife did not intend to make any contributions in excess of the contribution caps applying at the relevant times. Had they understood that their contributions of $1 million would lead to their exceeding the non-concessional limits by $33,371, neither would have done so. Instead, they would have made a contribution of a smaller amount that kept them under the limits. I find that Mr McMennemin's evidence on this point is consistent with the manner in which he made the initial contributions.

Legislative framework

21. In this section, I will set out the law as it is now in force and will then turn to the transitional provisions that applied to contributions made during part of the financial year 2006/2007.

An outline of the statutory provisions relating to contributions to superannuation funds and the like

22. Part 3-30 of the ITAA97 is concerned with superannuation. It begins with Division 280, which provides a guide to the superannuation provisions. It also states:

"Tax concessions in this Part are intended to encourage Australians to save in order to make provision for their retirement, recognising that superannuation investments, and the income from them, are quarantined for retirement.[4] ITAA97, s 280-1(2)

23. The ITAA97 makes provision for the treatment of superannuation for taxation purposes. It does not trespass upon other enactments setting out prudential and operating standards for superannuation providers.[5] ITAA97, s 280-5(5) The ITAA97 establishes three phases: the contributions phase, the investment phase and the benefits phase.[6] ITAA97, s 280-5(1) It goes on to describe each phase:

  • "280-5(2) In the contributions phase, contributions are made to a superannuation plan[7] A “ superannuation plan ” means: (a) a superannuation fund; or (b) an approved deposit fund; or (c) an RSA: ITAA97, s 995-1(1). in respect of a member of the plan.
  • 280-5(3) In the investment phase, these contributions are invested by the superannuation provider.
  • 280-5(4) In the benefits phase, these contributions, plus earnings from investing them, are usually paid as benefits to the member when he or she retires after reaching preservation age. In the event of death, the benefits are usually paid to the member's dependants.

24. In this case, I am concerned with the contributions phase. There are two aspects of that phase: the deductibility of contributions and the limit on the amount of contributions that will receive favourable tax treatment. Deductibility of contributions made in relation to individuals who are not employed is described generally in s 280-10(1):

"… Individuals can usually deduct contributions they make in respect of themselves if less than 10% of their total assessable income (plus reportable fringe benefits) for the income year is attributable to employment or similar activities.[8] ITAA97, s 280-10(1)

25. The word " deduction means an amount you can deduct".[9] ITAA97, s 995-1(1) The word "deduct" has the meanings given by ss 8-1 and 8-5.[10] ITAA97, s 995-1(1) Section 8-1 is concerned with general deductions. It permits the deduction from a person's assessable income of any loss or outgoing to the extent that it has been incurred in gaining or producing assessable income or was necessarily incurred in carrying on a business for the purpose of gaining or producing assess able income.[11] ITAA97, s 8-1(1) That permission is qualified by s 8-1(2). A loss or outgoing that can be deducted under s 8-1 is called a general deduction.[12] ITAA97, s 8-1(3)

26. Deductions permitted by s 8-5 are called specific deductions.[13] ITAA97, s 8-5(3) In addition to general deductions, a person is also permitted to deduct from assessable income an amount that a provision of the ITAA97, other than a provision of Division 290, permits to be deducted.[14] ITAA97, s 8-5(1) Some provisions of the ITAA97 prevent a person from deducting an amount that could otherwise be deducted or limit the amount that can be deducted.[15] ITAA97, s 8-5(2) A deduction of the sort provided for by s 280-10(1) in respect of contributions to a superannuation plan is a specific deduction.

Contributions

27. Division 290 makes more detailed provision with respect to the contributions phase. Sub-division 290-A makes clear that the Division does not apply to certain contributions but they have not been made in this case.[16] ITAA97, s 290-5 Deductions may only be made if provision is made for them under Division 290. This is the effect of s 290-10.

28. Sub-division 290-B provides that, if a person complies with ss 290-70, 290-75 and 290-80,[17] ITAA97, s 290-60(2) that person:

"… can deduct a contribution you make to a superannuation fund, or an RSA, for the purpose of providing superannuation benefits for another person who is your employee when the contribution is made (regardless whether the benefits are payable to a SIS dependant of the employee if the employee dies before or after becoming entitled to receive the benefits)."

The deduction can only be made for the income year in which the contribution was made.[18] ITAA97, s 290-60(3) The conditions relate to the employee's being an employee within the meaning of the Superannuation Guarantee (Administration) Act 1992 who is engaged in producing assessable income for the person or an Australian resident engaged in the person's business.[19] ITAA97, s 290-70 The contributions must be made to a complying superannuation fund[20] ITAA97, s 290-75 and there are age related conditions.[21] ITAA97, s 290-80

29. Sub-division 290-C deals with deducting personal contributions. Subject to meeting the conditions in ss 290-155, 290-160, 290-165 and 290-170,[22] ITAA97, s 290-150(2) a person can deduct a contribution made by that person to a superannuation fund or an RSA (as defined in the Retirement Savings Account Act 1997[23] ITAA97, s 995-1(1) ), for the purpose of providing superannuation benefits for him or her self. That is the effect of s 290-150(1). A "superannuation benefit" is given its meaning by s 307-5.[24] ITAA97, s 995-1(1) That section sets out eight types of superannuation benefits by reference to the name, member benefits and death benefits of each.

30. In outline, the qualifications to the general proposition in s 290-150(1) are that, in order to deduct a contribution then, in the income year in which the contribution was made:

  • (1) the superannuation fund must be a complying superannuation fund (s 290-155);
  • (2) if the person engages in activities that result in his or her being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (assuming that s 12(11) of that Act had not been enacted[25] Section 12(11) of the SGA Act provides: “A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work.” ), that person may only deduct a contribution if less than 10% of the total his or her assessable income and his or her reportable fringe benefits for the income year is attributable to the activities (s 290-160);
  • (3) the person must be at least 18 years of age at the end of the income year in which he or she made the contribution and have derived income from the carrying on of a business or attributable to activities covered by s 290-160(1) (s 290-165(1));
  • (4) the person must have made the contribution on or before a day that is 28 days after the end of the month in which the person turns 75 years of age (s 290-165(2)); and
  • (5) the person must give the trustee of the fund or the RSA provider a valid notice, in the approved form, of his or her intention to claim the deduction. If he or she lodges an income tax return for the income year in which the contribution was made before the end of the next income year, he or she must give the notice before the end of the day of lodgement (s 290-170(b)(i)). Otherwise, he or she must give that notice by the end of the next income year (s 290-170(b)(ii)).

31. Section 290-230 permits a person to a tax offset for an income year for a contribution made in the income year to a superannuation fund, or an RSA, for the purpose of providing superannuation benefits for that person's spouse. Section 290-235 imposes limits on the amount of tax offset to which a person is entitled in those circumstances.

An outline of the statutory provisions relating to excess contributions tax

32. Division 292 is concerned with ECT. Its object, found in Subdivision 292-A:

"… is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person's life."

33. The way in which this achieved is by limiting the amount of contributions that may be deducted and imposing a tax on those contributions that are made in excess of those limits. Contributions may be concessional or non-concessional. Section 292-15, coming within Subdivision 292-B, expresses the liability to pay tax in relation to excess concessional contributions:

"You are liable to pay excess concessional contributions tax imposed by the Superannuation (Excess Contributions Tax) Act 2007 if you have excess concessional contributions for a financial year.[26] ITAA97, s 292-15

34. A person has "excess concessional contributions" for a financial year if the amount of concessional contributions for the year exceeds that person's concessional contributions cap for the year. The amount of the excess concessional contributions is the amount of the excess.[27] ITAA97, s 292-20(1) A person's concessional contributions cap for the 2007-2008 financial year is $50,000.[28] ITAA97, s 292-20(2) The amount is indexed annually[29] ITAA97, s 292-20(2) in accordance with Subdivision 960-M.[30] ITAA97, s 960-265, item 9

35. A person's concessional contributions for a financial year is:

"… the sum of:

  • (a) each contribution covered under subsection (2); and
  • (b) each amount covered by subsection (3)."[31] ITAA97, s 292-25(1)

For the purposes of this case, it is enough to note that an amount of a contribution that is included in the assessable income of the superannuation provider in relation to a superannuation plan may be a concessional contribution.[32] ITAA97, s 292-25(2) If a contribution is a non-concessional contribution, it must, among other things, be a contribution that is not included in the assessable income of the superannuation provider in relation to the fund.[33] ITAA97, s 292-90(2)(b)

36. Subdivision 292-C is concerned with excess non-concessional contributions tax. Section 292-80 provides that:

"You are liable to pay excess non-concessional contributions tax imposed by the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 if you have excess non-concessional contributions for a financial year."

A person has excess non-concessional contributions for a financial year if the amount of non-concessional contributions for the year exceeds his or her non-concessional contributions cap for the year. The amount of the excess non-concessional contributions is the amount of the excess.[34] ITAA97, s 292-85 The amount of the non-concessional contributions cap is worked out in accordance with s 292-85. What are non-concessional contributions are determined in accordance with s 292-90.

Excessive contributions tax assessments

37. The Commissioner must make an assessment, known as an "excess contributions tax assessment" in the following circumstances:

  • "(a) if a person has excess concessional contributions for a financial year - the amount of the excess concessional contributions; and
  • (b) the amount (if any) of excess concessional contributions tax which the person is liable to pay in relation to the financial year."[35] ITAA97, s 292-230(1)
  • "(a) if a person has excess non-concessional contributions for a financial year - the amount of the excess non-concessional contributions; and
  • (b) the amount (if any) of excess non-concessional contributions tax which the person is liable to pay in relation to the financial year."[36] ITAA97, s 292-230(2)

The Commissioner must give the person an ECT assessment (ECT assessment) as soon as practicable after making the assessment.[37] ITAA97, s 292-230(3) The Commissioner must comply with the provisions of Subdivision 292-E in doing so. Once the Commissioner gives the taxpayer notice of the ECT assessment, that person becomes liable to pay that amount of tax within 21 days of being given the notice.[38] ITAA97, s 292-385

38. If a person is dissatisfied with an ECT assessment made in relation to him or her, he or she may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 (TA Act).[39] ITAA97, s 292-245 In so far as evidence is concerned, s 292-250 of ITAA97 provides that s 177 of the Income Tax Assessment Act 1936 applies as if a reference in that section to an assessment or notice of assessment included a reference to an ECT assessment or a notice of an ECT assessment. That means that production of a notice of an ECT assessment or of a document under the hand of the Commissioner (and certain others) purporting to be a copy of the notice of an ECT assessment shall be conclusive evidence of the due making of the ECT assessment. Other than in proceedings under Part IVC of the TA Act, the production of it is conclusive evidence of the amount and all the particulars of the ECT assessment.

39. The provisions of Subdivision 292-F permit the Commissioner to amend an ECT assessment. It may be amended at any time during the period of four years after the original ECT assessment day for the person for that year (four year period). The expression "original excess contributions tax assessment day" is a reference to the meaning given by s 292-305.[40] ITAA97, s 995-1(1) Therefore:

"… for a person for a financial year [it] is the day on which the Commissioner gives the first excess contributions tax assessment to the person for the financial year.[41] ITAA97, s 292-305(2)

Once amended in accordance with the Subdivision, the ECT assessment is taken to be an ECT assessment for the person for the year.[42] ITAA97, s 292-310(1) The Commissioner must give the person a written notice of the amendment as soon as practicable after making it.[43] ITAA97, s 292-310(2)

40. The Commissioner may amend an ECT assessment for a financial year after the end of the four year period if, within that four year period the person applies for an amendment in the approved form and the person gives the Commissioner all of the information necessary for making the amendment. Once amended in any particular, the Commissioner may further amend the assessment in that particular if of the opinion that it would be just to do so.[44] ITAA97, s 292-325

41. Should a person not make a full and true disclosure to the Commissioner of the information necessary for an ECT assessment for that person for a financial year and, in making the assessment, the Commissioner makes an under-assessment, regard may be had to s 292-320(1). Should the Commissioner also be of the opinion that the under-assessment was due to fraud or evasion, he or she may amend the assessment at any time.

Payment of excess contributions tax

42. Once the Commissioner gives the person notice of the ECT assessment, that person becomes liable to pay that amount of tax within 21 days of being given the notice.[45] ITAA97, s 292-385 Should the person not pay the ECT by the date it is due and payable, that person is liable to pay the general interest charge (GIC) on the unpaid amount until both it and the GIC is paid.[46] ITAA97, s 292-390

43. If an amendment of an ECT assessment were to be amended to reduce a person's liability to pay ECT, the effect of s 172 of Income Tax Assessment Act 1936 (ITAA36) is twofold. First, the amount by which it is reduced is taken never to have been payable for the purposes of calculating the GIC and for Division 280 of Schedule 1 of the TA Act applying the shortfall interest charge.[47] “The object of this Division[280] is to neutralise benefits that taxpayers could otherwise receive from shortfalls of … excess contributions tax, so that they do not receive an advantage in the form of a free loan over those who assess correctly.”: TA Act, s 280-50 Second, the Commissioner must apply any tax overpaid in accordance with Divisions 3 and 3A and Part IIB of the TA Act.[48] ITAA97, s 292-395

Collection and recovery of excess contributions tax

44. As soon as practicable after making an ECT assessment for a person, the Commissioner must give that person a release authority. If the person is liable, as in this case, for an amount of excess non-concessional contributions tax, the Commissioner gives the release authority in respect of that amount.[49] ITAA97, s 292-405(1)(b)

45. The person may[50] If for an excess non-concessional contributions tax, the person must give it to the superannuation provider and do so within 21 days: ITAA97, s 292-410(2) give the release authority to a superannuation provider holding a superannuation interest (other than a defined benefit interest) for the person in a complying superannuation plan within 90 days of the date of the release authority.[51] ITAA97, s 292-410(1) Once given a release authority, the superannuation provider must pay the amount within 30 days after receiving the release authority for the amounts specified in s 292-415 and in accordance with that section.

Commissioner's discretion to disregard contributions in relation to a financial year

46. If a person makes an application in accordance with s 292-465(2):

"… the Commissioner may make a written determination that, for the purposes of this Division:

  • (a) all or part of your concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination; and
  • (b) all or part of your non-concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination."[52] ITAA97, s 292-465(1)

47. The Commissioner may make a determination:

"… only if he or she considers that:

  • (a) there are special circumstances; and
  • (b) making the determination is consistent with the object of this Division.[53] ITAA97, s 292-465(3)

Subdivision 292-465 goes on to specify the matters to which the Commissioner may have regard:

  • "(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
  • (5) The Commissioner may have regard to whether a contribution made in the relevant financial year would more appropriately be allocated towards another financial year instead.
  • (6) The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have excess concessional contributions or excess non-concessional contributions for the relevant financial year, and in particular:
    • (a) if the relevant contribution is made in respect of you by another person - the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and
    • (b) the extent to which you had control over the making of the contribution."[54] ITAA97, ss 292-465(4)–(6)

Section 292-465(7) provides that "The Commissioner must give you a copy of the determination."

48. A person may apply to the Commissioner in the approved form for a determination within the time limit specified in s 292-465(2). Unless the Commissioner allows a longer period, the person must make the application within the period starting on the day the person receives an ECT assessment for a financial year and ends 60 days later.

The transitional provisions

49. The insertion of Division 292 in the ITAA97 was effected by the Tax Laws Amendment (Simplified Superannuation) Act 2007 (TLA 2007 Act). The Division came into operation on 15 March 2007[55] TLA Act 2007, s 2(1), item 2 and that was the same day that the Act received Royal Assent.

50. The Income Tax (Transitional Provisions) Act 1997 (ITTP Act) also made specific provision for the transition to what is now Division 292 of the ITAA97. It does that as a result of amendments made to it by the TLA 2007 Act. The TLA 2007 Act amended the ITTP Act by inserting Part 3-30 - Superannuation in it with effect from 15 March 2007[56] TLA Act 2007, s 2(1), item 2 although some of its provisions related to earlier periods.

51. In so far as it applies to this case, s 292-80 provided that:

  • "(1) The object of this section is to apply (with modifications) provisions relating to excess non-concessional contributions tax in respect of certain contributions made during the period that:
    • (a) begins on 10 May 2006; and
    • (b) ends just before 1 July 2007.
  • (2) The provisions are as follows:
    • (a) Subdivision 292-C of the Income Tax Assessment Act 1997 (excess non-concessional contributions tax);
    • (b) any other provision of that Act, or of any instrument made under that Act, to the extent that it relates to the operation of that Subdivision;
    • (c) any other provision of any other Act, or of any instrument made under any other Act, to the extent that it relates to the operation of that Subdivision.
  • (3) Those provisions apply in relation to that period, and do so as if:
    • (a) that period were the 2006-2007 financial year; and
    • (b) the amount of a person's non-concessional contributions for that financial year:
      • (i) did not include the amount of the person's excess concessional contributions for that financial year;
      • (ii) if subsection (6) applies - included in the amount mentioned in that subsection; and
      • (iii)
    • (c) the person's non-concessional contributions tax for that financial year were $1,000,000;
    • (d)-(j)
  • (4)
  • (5) Subsection (6) applies if:
    • (a) contributions are made in respect of a person (the first person ) in either or both of the following periods:
      • (i) 10 May 2006 to 30 June 2006;
      • (ii) 1 July 2006 to 30 June 2007; and
    • (b) those contributions are allowable as a deduction for another person under subsection 82AAC(1) of the Income Tax Assessment Act 1936 (apart from subsection 82AAC(2) of that Act).
  • (6) The amount to be included in the first person's amount of non-concessional contributions under subparagraph (3)(b)(ii) is the sum of:
    • (a) the amount of those contributions made in the period mentioned in subparagraph (5)(a)(i), to the extent that they exceed the first person's deduction limit (within the meaning of subsection 82AAC(2A) of the Income Tax Assessment Act 1936) for the income year of the other person in which the contributions were made; …"

The tribunal's jurisdiction to review commissioner's decision under s 292-465

General principles

52. Unlike a court of general jurisdiction, the Tribunal may only undertake those functions prescribed by Parliament. In relation to the review of decisions, Parliament has provided that:

"An enactment may provide that applications may be made to the Tribunal:

  • (a) for review of decisions made in the exercise of powers conferred by that enactment."[57] Administrative Appeals Tribunal Act 1975 (AAT Act), s 25(1)

Section 25(4) provides the necessary corollary to this sub-section when it provides that the "… Tribunal has power to review any decision in respect of which application is made to it under any enactment." The remaining ten sub-sections of section 25 go on to refine the general proposition made in s 25(1) and to provide that an enactment may modify the operation of any particular provision of the AAT Act.

53. It is clear from s 25 generally and from ss 25(1) and 25(4) which I have set out that Parliament intended that the Tribunal's power of review be defined and circumscribed by the enactment making provision for that review. Sometimes that enactment is the enactment under which the decision was made. At others, it is the enactment that could be described as a companion enactment to that under which the decision was made.[58] The Social Security (Administration) Act 1999 (SSA) could be described as a companion enactment to the Social Security Act 1991 (SS Act). A decision may be made under the SS Act but, if it is reviewable by the Tribunal, provision for that review will be found in the SSA. This interpretation is consistent with the statements made by the Attorney-General in his Second Reading speech in the House of Representatives when he said:

"The intention of the present Bill is to establish a single independent tribunal with the purpose of dealing with appeals against administrative decisions on as wide a basis as possible. The Bill would establish the Tribunal and provide for its membership, powers and procedures. The Tribunal thus established would be a standing body that can be given jurisdiction as new legislation creating administrative discretions is introduced. At the same time, the Government proposes to review discretionary powers under existing legislation to determine whether there should be appeals to the Tribunal against decisions in the exercise of those discretions, and whether existing provisions for appeal would be brought within the framework of the new Tribunal."[59] Hansard, House of Representatives at 1187

Taxation Administration Act 1953

54. Mr and Mrs McMennemin's solicitor, Mr Kolliou, and the Commissioner's counsel, Mr Ure, agreed that the Tribunal has jurisdiction to review the Commissioner's decision not to make a determination under s 292-465. Mr Kolliou supported Mr Ure's submission that the Tribunal has jurisdiction as well as his very properly putting the contrary case. Both would acknowledge that the Tribunal cannot acquire jurisdiction by consent just as the courts cannot. As was said in McLeish v Faure:[60] [1979] FCA 38; (1979) 40 FLR 462 per Sweeney, Evatt and Northrop JJ

"It is trite law that parties, by consent, cannot confer jurisdiction upon the court."[61] [1979] FCA 38; (1979) 40 FLR 462 at [9]; 467

55. Part IVC of the Taxation Administration Act 1953 (TA Act) provides for the review of decisions as well as assessments, determinations and notices. Section 14ZL provides:

  • "(1) This Part applies if a provision of an Act or of regulations (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part.
  • (2) Such an objection is in this Part called a taxation objection ."

56. Division 3 of Part IVC describes how a taxation objection is to be made and how they are to be dealt with by the Commissioner. In particular, a taxation objection must "state in it, fully and in detail, the grounds that the person relies on".[62] TA Act, s 14ZU(c) There is no question that Mr and Mrs McMennemin have taken the correct procedural steps. Once the Commissioner has made a decision on the objection, known as the objection decision,[63] TA Act, ss 14ZY(3) s 14ZZ provides that a person dissatisfied with it may seek review of a reviewable objection decision in the Tribunal, appeal to the Federal Court in respect of an appealable objection decision and choose what to do in the case of those decisions that come within both categories.

57. A "reviewable objection decision" is "… an objection decision that is not an ineligible income tax remission decision".[64] TA Act, s 14ZQ An "ineligible income tax remission decision" is such a decision if s 14ZS(2) applies.[65] TA Act, s 14ZS(1). The provision also provides that a decision is an ineligible income tax remission decision if s 14ZS(4) applies but s 14ZS(4) was repealed in 1992. Section 14ZS(2) provides that an objection decision is an ineligible income tax remission decision if it relates to, with certain exceptions, the remission of additional tax payable under the ITAA36. The decision under consideration in this case is neither a decision relating to the remission of additional tax nor a decision made under the ITAA36. It is a reviewable objection decision and Mr and Mrs McMennemin are entitled to apply for its review in the Tribunal.

58. When reviewing a reviewable objection decision, the Tribunal is, unless it otherwise orders, "… limited to the grounds stated in the taxation objection to which the decision relates".[66] TAA, s 14ZZK(a) If the taxation decision concerned is an assessment other than a franking assessment, the applicant for review has the burden of proving that the assessment is excessive.[67] TAA, s 14ZZK(b)(i). A “taxation decision” includes an assessment against which a taxation objection has been made: TAA, s 14ZQ. The word "excessive" relates to the amount of the substantive liability as opposed to matters relating to:

"… what is characterised as the procedure or mechanism of assessment. An error or slip by the Commissioner in following that procedure or in the operation of that mechanism does not necessarily produce any error in the amount of the substantive liability of the taxpayer …".[68] WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2008] HCA 33 ; (2008) 237 CLR 198 at [6]; 203-204 per Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ

The submissions

59. The scheme of review provided in Part IVC of the TA Act has at its foundation the making of an assessment, determination or decision or the giving of a notice for which provision is made in a statutory provision for an objection to be made against it. Clearly such a provision exists in s 292-245 of ITAA97 for an objection to be made against an ECT assessment. No such provision is made in relation to a determination made under s 292-465.

60. Mr Ure submitted that, once an application is made under s 292-465, a decision on that application is integral to the process of the excessive contributions tax assessment. In that way, a determination made under s 292-465 becomes reviewable in the process of reviewing the excessive contributions tax assessment under s 292-245. Relying on Batagol v Commissioner of Taxation[69] [1963] HCA 51; (1963) 109 CLR 243; Kitto, Menzies and Owen JJ (Batagol), he submitted that an assessment must be understood as involving "the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will be come due and payable as the proper tax in that case".[70] [1963] HCA 51; (1963) 109 CLR 243 at [5]; 252 per Kitto J

61. The Commissioner's decision on an application under s 292-465, Mr Ure submitted, is integral to the first limb of his assessment function in s 292-230. If made, the s 292-465 determination would affect the calculation of a person's excess contributions as it would direct that all or part of the excess amount is to be disregarded or allocated to another financial year. Once a determination has been made, an amended ECT assessment must follow. It is not to the point though, that an application for a determination is refused. The discretion forms part of the process of assessment and goes to ascertaining the person's substantive liability to tax. The relatively short time within which a person may apply for a determination under s 292-465 reflects the integral role that the determination plays in the ECT assessment.

62. Mr Ure relied on a number of cases, to which I will come, for the proposition that there is a distinction between the Commissioner's administrative functions and assessment functions. A decision producing an alteration to the factual substratum, on which tax liability will depend, does not involve the exercise of the Commissioner's assessment function. Mr Ure drew an analogy between a determination made under s 177F of Part IVA of ITAA36 and a determination under s 292-465. Both, he submitted, go directly to the amounts that are to be included in the assessments. In Commissioner of Taxation v Richard Walter Pty Ltd[71] [1995] HCA 23; (1985) 183 CLR 168; 127 ALR 21; 95 ATC 4067; 29 ATR 644 (Richard Walter), Mason CJ had observed that a determination by the Commissioner under s 177F was part of the process of assessment because it went to "the ascertainment of the substantive liability of the taxpayer to tax."[72] [1995] HCA 23; (1985) 183 CLR 168; 127 ALR 21; 95 ATC 4067; 29 ATR 644 at [6]; 178; 35; 4077; 657

What is an ECT assessment?

63. I will begin with the word "assessment", to which Mr Ure took me for it is the assessment (or an amended assessment in some cases) that is the subject of the reviewable objection decision that entitles a person to seek review in the Tribunal. The person has the burden of proving that the assessment is excessive. The word "assessment" is defined in s 995-1(1) of ITAA97:

" assessment , in relation to a tax-related liability, has the meaning given by a taxation law that provides for the assessment of the amount of the liability.

A "taxation law" means an Act of which the Commissioner has the general administration or regulations under such an Act.[73] ITAA97, s 995-1(1) ITAA97 is such a law.[74] ITAA97, s 1-7

64. Clearly, an ECT assessment is an assessment of that sort. What may be encompassed in the process of making that assessment was considered by the High Court in Batagol when considering the making of assessments provided for in ss 166, 167, 168 and 169 of the ITAA36. Kitto J said:

"The word 'assessment' is defined in s. 6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. … '[A] scertainmen't is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified …. The respective amounts of the taxable income and the tax have been rendered certain. The word 'ascertainment' being understood in this sense, the definition of 'assessment' means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case. [N]othing done in the Commissioner's office can amount to more than steps which will form part of an assessment if, but only if, they lead to and are followed by the service of a notice of assessment.[75] [1963] HCA 51; (1963) 109 CLR 243 at [5]; 251-252

65. Applying this reasoning to the ECT assessment, it represents the completion of the process by which the amount of a particular person's excess concessional contributions or non-concessional contributions and the amount of any liability that person may have to pay ECT as a result are given concrete application. This characterisation of an assessment necessarily sets the framework within which the Tribunal may review the objection decision. It is apparent from the structure of the review provisions that the Tribunal may only review the objection decision which, in turn, reviewed the assessment.

The authorities

66. I will start with Richard Walter and s 177F of ITAA36, which is found in the anti-avoidance provisions found in Part IVA of ITAA36. Taking s 177F(1)(a) considered by the High Court, as an example indicative of the content of all three paragraphs of the section, it provides:

"Where a tax benefit has been obtained, or would but for this section be obtained, by a taxpayer in connection with a scheme to which this Part applies, the Commissioner may -

  • (a) in the case of a tax benefit that is referable to an amount not being included in the assessable income of the taxpayer of a year of income - determine that the whole or part of that amount shall be included in the assessable income of the taxpayer of that year of income; or
  • (b)
  • (c) …
  • (d) …

    and, where the Commissioner makes such a determination, he shall take such action as he considers necessary to give effect to that determination."

A "tax benefit" is defined in s 177C. In essence it is an amount that is not included in the assessable income of a taxpayer in a year of income where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out.

67. Where the Commissioner determines under s 177F(1)(a) that an amount is to be included in the assessable income of a taxpayer of a year of income, that amount shall be deemed to be included in that assessable income by virtue of such provision of ITAA36 as the Commissioner determines.[76] ITAA36, s 177F(2) Notice of the determination must be given to the taxpayer.[77] ITAA36, s 177F(2C) The Commissioner may amend an assessment at any time if the amendment is for the purpose of giving effect to s 177F(3).[78] ITAA36, s 177G Section 177F(3) permits the Commissioner to make compensating adjustments to assessable income that would not have been included or to deductions that would have been allowed had the scheme not been entered or carried out.

68. In Richard Walter, consideration of s 177F occurred in the context of s 177(1) of ITAA36, which provides:

"The production of a notice of assessment … shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct."

Section 204(1) of ITAA36 sets out when tax becomes payable. Where a taxpayer lodges a return before the due date, tax generally becomes payable 21 days after a notice of assessment is given to him or her.[79] ITAA36, s 204(1)(a)(ii)

69. Mason CJ said of these provisions:

"… It is only after the Commissioner, having gone through the process of calculation, serves a notice of assessment on the taxpayer that there is brought about an ascertainment of the taxable income and the tax payable for the purposes of s 166 so that, to use the words of Kitto J in Batagol v Federal Commissioner of Taxation …, 'they are to be taken for all purposes (except those of appeal: see s 177) to be the result flowing from the application of the Act in the particular case'.

Section 177(1) distinguishes … 'between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment.'"[80] [1995] HCA 23; (1995) 183 CLR 168 at 182; citations omitted

Earlier, his Honour had said:

"It is evident from the provisions of the Commissioner's power to make determinations under s 177F(1) and (2) is conditioned upon the fact that a tax benefit has been obtained, or would have been obtained but for the section, in connection with a scheme to which Pt IVA applies. Although the power to make a determination is conditioned in this way, the making of the determination forms part of the process of assessment and goes to the ascertainment of the substantive liability of the taxpayer to tax. …"[81] [1995] HCA 23; (1995) 183 CLR 168 at 178

70. I have looked also to the other cases to which Mr Ure referred me. The first is Tooheys Ltd v Minister for Business and Consumer Affairs[82] [1981] FCA 121; (1981) 54 FLR 421 in which Ellicott J considered whether Item (e) of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) excluded review of the Minister's decision to refuse to make a determination under the Customs Act 1901 (Customs Act) wholly or partly exempting certain goods from that Act. Schedule 1 to the ADJR Act excludes from the definition of the expression "decision to which this Act applies" a decision included in any of the classes of decisions set out in Schedule 1 to the Act.[83] ADJR Act, s 3(1) Item (e) of Schedule 1 excludes from review under the ADJR Act:

"decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty, or decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts: …

The Acts listed include the Customs Act.

71. Section 273 of the Customs Act provides that the Chief Executive Officer of Customs (CEO) may make a determination that, subject to any specified conditions, an item (or a proposed item) of a Customs Tariff shall apply, or shall be deemed to have applied, to the particular goods specified in the determination.[84] Customs Act, s 173(1) The CEO may do that whether or not he or she has made a by-law for the purposes of an item or proposed item of a Customs Tariff.[85] Customs Act, s 273(2) As rates of duties are determined by reference to several criteria, including the tariff classification under which the goods are classified, the CEO's determination may affect the rate of duty to which the goods are subject. Section 271(1) provides that the CEO may make by-laws for the purposes of an item or proposed item if an item of a Customs Tariff, or a proposed item of a Customs Tariff, is expressed to apply to goods, or to a class or kind of goods, as prescribed by by-law and under that item or proposed item, any matter or thing is expressed to be, or is to be determined, as prescribed or defined by by-law.[86] Customs Act, s 273(1)

72. The effect of the CEO's refusal to make a determination in Tooheys was to impose a higher rate of duty on the goods when they were imported than would otherwise be the case. After referring to the passage from the judgment of Kitto J in Batagol, to which I have referred,[87] See [64] above Ellicott J applied its principles to the Customs Act in Tooheys to decide that the Court's jurisdiction to review the determination was not excluded by cl 1(e) of Schedule 1 to the ADJR Act:

"The calculation of customs duty in a particular case involves identifying the applicable rate of duty and the value of the goods. The rate of duty … is ascertained by reference to the schedules to the Customs Tariff and after having regard to provisions such as ss. 15, 16 and 33A thereof. The content of those schedules, in part, depends on and must be read with the by-laws and determinations already made pursuant to ss 271 to 273 of the Act. The schedules so read are, in part, the provisions in the light of which the liability to customs duty is to be calculated in a particular case. The by-laws and determinations can of course, as illustrated by this case, be specific and relate to the very goods in respect of which the calculation is being made.

However, this does not, in my view, alter the character of a determination that an item shall apply to particular goods. It is one of the provisions in the light of which customs duty is to be calculated. The making of it is not part of the process of calculation of duty nor is it in my view a decision which can properly said to be a decision 'leading up to the making' of the calculation of duty. The words 'leading up to the making' are intended to point to decisions which have to be made or in the circumstances it is appropriate to make before the actual process of assessment or calculation can begin. A determination can be made under s. 273 relating to particular goods but the process of calculating duty does not depend on it any more than it depends on the existence of the general provisions of the Act relating to value or duty.

In other words, what par. (e) is directed to is the process whereby the liability to tax or duty is calculated in a particular case. A decision to make a by-law or determination is a decision which affects liability. It is not a decision dealing with the calculation of liability. It is only in a temporal sense that it could said to lead to the making of a calculation of duty, but in my view this is not enough. …"[88] [1981] FCA 121; (1981) 54 FLR 421 at 436

73. The cases of Intervest Corporation Pty Ltd v Commissioner of Taxation[89] [1984] FCA 297; (1984) 3 FCR 591; Smithers J (Intervest) and Hadfield Finance Pty Ltd v Federal Commissioner of Taxation[90] [1988] FCA 124; (1988) 19 ATR 1083; Woodward, Jenkinson and Foster JJ (Hadfield Finance) are based on the principles set out in Batagol as are Federal Commissioner of Taxation v Administrative Appeals Tribunal; AC Goode and Co Ltd[91] (1990) 21 ATR 250; 90 ATC 4342 ; Jenkinson J. The Commissioner's decision fixed the date by which the taxpayer was required to lodge its return. It was held that “… In our opinion the decision sought to be reviewed in the present case, whilst being a decision which will normally precede the making of assessments, is not properly characterised as a decision forming part of the process of making assessment or leading up to the making of assessments. …”; at 254; 4346 (AC Goode) and Isaacs v Commissioner of Taxation[92] [2005] FCA 832; (2005) 144 FCR 194; Conti J. (Isaacs).

74. Intervest concerned the Commissioner's decision refusing a request made under s 105AA to determine a further period during which the taxpayer might pay dividends for the purpose of making a sufficient distribution within the meaning of s 195A(1) of ITAA36. Smithers J decided that the decision was not excluded from judicial review by Item (e) of Schedule 1 to the ADJR Act for it could not be said to be a decision "making or forming part of the process of making or leading up to the making of an assessment or calculation of tax or decisions amending or refusing to amend an assessment or calculation of tax …".[93] [1984] FCA 297; (1984) 3 FCR 591 at 592

75. In reaching this conclusion, Smithers J said:

"A refusal of a request made under s 105AA after service of a notice of assessment is relevant to the liability of the applicant to pay the tax demanded in the notice of assessment which has been issued. If the request is granted a reduction in liability may result. If it is refused the chance of any such reduction is eliminated. But there is no sense in which a decision to refuse the request is a decision making an assessment or calculation of tax, or a decision forming part of the process of making an assessment or calculation of tax. A decision refusing a request denies to the taxpayer making the request an opportunity to change the basis of fact by reference to which an assessment, or an amended assessment, depending upon appropriate calculations, might be made.

Also, a decision granting or rejecting a request is not, in my opinion, a decision leading up to the making of an assessment or calculation of tax. Of course a refusal of a request made after the notice of assessment has been given does not in any sense lead up to an assessment. In that case the only assessment ever made is the one already made. Also, the grant of a request which is made after service of a notice of an assessment cannot lead up to an assessment. If it leads up to anything in the nature of an assessment it could only, putting the matter at best for the taxpayer, lead up to the making of an amended assessment. But a decision leading up to the making of an amended assessment is not a decision within the scope of clause (e) of the first Schedule to the ADJR Act. In so far as that clause refers to decisions which lead up to assessments or calculations of tax, they are decisions 'leading up to the making of assessments or calculations of tax' and not 'decisions amending or refusing to amend assessments or calculations of tax'.[94] [1984] FCA 297; (1984) 3 FCR 591 at 593-594

76. A little later in his reasons, Smithers J said:

"The distinction between the Commissioner's assessment function and his administrative function is relevant in this case. It is in his administrative function that he may or may not sanction the taking of steps by a taxpayer which, if taken by him, may produce a state of facts by reference to which an amended assessment may be made which might differ from that upon which the assessment already made was made. When he approaches the task of making an assessment with reference to the facts before him and makes the necessary calculations for that purpose he is exercising his assessment function. But however widely the net is cast by the words of clause (e) it does not cover a decision not being part of the process of assessment and which relates only to the question whether a taxpayer shall be permitted to carry out transactions which may reduce the amount of income upon which he is liable to pay tax. It may result in the making of an amended assessment. But it is so far removed from the assessment process that it does not, in the relevant sense, lead up to the making of an assessment. It provides an opportunity for the taxpayer to make payments the making of which will introduce new elements into his financial affairs by reference to which the amount of income on which he is liable to pay tax may be reduced and the amount of his taxable income may be ascertained. Decisions making or forming part of the process of making an assessment or calculation of tax are clearly made in the process of assessing tax. Decisions leading up to the making of an assessment may not necessarily be so confined. But, in my view, a decision not being connected directly or indirectly with the process of the making of an assessment is not within the category specified in clause (e) of the Schedule merely because the making of an assessment or a particular assessment thereafter was a consequence of business dealings which flowed from the decision and affected its income position and tax liability but did not otherwise operate upon or have any other significance in respect of the assessment.[95] [1984] FCA 297; (1984) 3 FCR 591 at 595

77. Hadfield Finance also concerned a decision by the Commissioner not to allow the taxpayer an additional period in which to make a dividend distribution. A submission was made to the court that it should distinguish Intervest on the basis that the request in that case had been made under s 105AA after the Commissioner had issued an assessment whereas it had been made before the issue of the assessment in Hadfield Finance. The Court did not accept that a distinction could properly be made between the case before it and that in Intervest. Foster J, with whom Woodward and Jenkinson JJ agreed, said:

"… If the refusal of a s 105AA request cannot properly be characterised as part of the assessment process or as a decision leading up to an assessment of tax, simply because it cannot be accommodated as a matter of strict analysis within those concepts, then it matters not whether the refusal precedes or follows the assessment."[96] [1988] FCA 124; (1988) 19 ATR 1083; 79 ALR 249 at [29]; 1088; 256

78. Foster J also considered a submission:

"… that policy considerations compel a conclusion that the respondent's decision under s. 105AA is to be regarded as part of the assessment process. It was put that, as by s. 177 of the Act a notice of assessment is conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all particulars of the assessment are correct, it is to a high degree desirable that all discretionary decisions of the Commissioner which could have any relation to or bearing upon the making of the assessment should be reviewable on the merits by way of the appeal procedures put in place by the sections already set out. This policy was said to be discernible in
Jolly v. Federal Commissioner of Taxation, (1936) 53 CLR 206 at 214, where Rich and Dixon, JJ. said:-

'The Board is only an executive body in an administrative hierarchy. The purpose of erecting it was to enable taxpayers to have a reconsideration or re-examination of the process by which liability has been imposed upon them, particularly in relation to matters in which the Commissioner had a discretion.'

However, this comment must, in my opinion, be read in the context of the issue in that case, which was whether the Commissioner's discretion to remit additional tax wholly or in part was reviewable by the Board. The High Court held that it was, as being a decision of the Commissioner clearly bound up with his power to impose additional tax in respect of an assessment. The case, in my view, has no direct bearing upon the question arising here. It may be that there is unfairness in restricting a taxpayer company, denied an opportunity to make sufficient distribution after the expiry of the prescribed period, to an appeal confined to administrative law considerations rather than affording it a full reconsideration on the merits. However, this unfairness, if such it be, can, in my view, be remedied only by the Legislature; it cannot be eliminated by any available construction of the Act.

I am therefore, with respect, of the opinion that the decision of Smithers, J. in Intervest correctly categorises a refusal of a request under s. 105AA as being no part of the process of assessment under the Act."[97] [1988] FCA 124; (1988) 19 ATR 1083; 79 ALR 249 at [35]-[37]; 1089-1090; 257

79. In AC Goode, Jenkinson J, considered a decision by the Commissioner to fix the date by which the taxpayer was required to lodge its return. In the absence of an extension, the taxpayer had been obliged to lodge its return by 31 August 1985 in compliance with s 161 of ITAA36. Under s 222(1), the Commissioner had assessed additional tax for late lodgement of the return. His Honour, held:

"… The lodgment of a return and, a fortiori, the grant of an extension of time for its lodgement is so remote from the Commissioner's assessment activities as not to form part of or lead up to those activities. Accondingly, it is not a decision of a class referred to in paragraph (e) of Sch 1 to the Judicial Review Act.

But in a case such as this, where the decision concerning extension of time is made after the return has been furnished, it may fairly be said that the only purpose served by the making of the decision is to enable the question to be answered whether a liability under s 222 is to arise. A decision whether to extend the time for furnishing a return which has at the time of the making of the decision been furnished cannot easily be described as 'remote from the Commissioner's assessment activities'.

However, to decide in exercise of a power conferred by s 161(1) what the date shall be on or before which the obligation to furnish a return must be discharged is in my opinion to make a decision about a matter affecting liability to additional tax under s 222(1), whether the decision be made before or after the return is furnished, and is not a decision dealing with the calculation - or, in the language of the definition of 'assessment' in s 6 of the Act, 'the ascertainment' - of the amount of additional tax payable. To fix upon that date is to prescribe by administrative decision one of the circumstances upon which the liability to additional tax will depend: it is not to ascertain the existence of a circumstance on which such a liability depends in the course, and for the purpose, of assessment. (
Cf. Tooheys Ltd. v. Minister for Business and Consumer Affairs; (1984 54 FLR 421, espec. at 436.) In my opinion the decision of the applicant fixing that date formed no part of the assessment which he made of the second-named respondent's liability to additional tax, and was accordingly not a subject of re-consideration by him in making his decision on the second-named respondent's objection against the assessment, nor a subject of consideration by the Administrative Appeals Tribunal in its review of the latter decision.[98] (1990) 21 ATR 250; 90 ATC 4342 at 254-255; 4346-4347

80. In Isaacs, the taxpayer acquired options in May 1998 to purchase shares in his employer under an employee share scheme. His employer told him to take advice on the taxation treatment of the options. In April 1999, accountants lodged his return for the 1998 fiscal year. The Commissioner issued an assessment in May 1999. In May 2001, the taxpayer purported to make an election under s 139E of ITAA36 that s 139B(2) applied in respect of the options for the 1998 year. Section 139B provides that a taxpayer's assessable income includes the discount given in relation to the share or right acquired under an employee share scheme. In most circumstances, it is included in the assessable income for the year of income in which the share or right was acquired. The taxpayer tendered to the Commissioner an amount that he said represented the tax that would have been payable had the discount been included in his assessable income. When the Commissioner refused the taxpayer's request, the taxpayer objected to the assessment for the 1998 year. The Commissioner disallowed the objection and the Tribunal decided it did not have jurisdiction to review his refusal to extend the time under s 139E.

81. Conti J dismissed the appeal from the Tribunal's decision. In doing so, he said:

"… The discretion conferred upon the Commissioner by s 139E(2) to allow further time to make an election after the taxpayer had lodged his, her or its income tax return for that fiscal year … is 'logically anterior to the process of assessment of the taxable income of [Mr Isaacs]'. … [T]he conclusion is persuasive to the effect that the Commissioner's decision not to allow further time pursuant to s 139E did not form part of the income tax assessment process, and accordingly the Tribunal was not empowered and had no jurisdiction to review that decision."[99] [2005] FCA 832; (2005) 144 FCR 194 at [68]; 223

A little later, his Honour said:

"…The Commissioner has established in principle by reference to authorities such as Hadfield and Intervest, that the exercise of a function, which may allow or deny a taxpayer the opportunity of alteration of the factual basis upon which his or her assessment to tax is to be made, does not thereby render that function to be part of the taxation assessment process. As anticipated by Tooheys, it is not enough that in a temporal sense, a decision might conceivably lead to the making of a calculation and assessment of taxation for that decision to be one that is part of the assessment process.[100] [2005] FCA 832; (2005) 144 FCR 194 at [71]; 224

82. In Meredith v Commissioner of Taxation,[101] [2002] FCAFC 271; (2002) 125 FCR 308; 192 ALR 418; 50 ATR 528; 76 ALD 33; [2002] ATC 4730 Lee, Cooper and RD Nicholson JJ the Full Court of the Federal Court considered whether or not the making of a determination under s 177F(1) or (2A) of ITAA36 is sufficiently connected or related to the making of an assessment of tax under that Act to come within cl (e) of Schedule 1 to the ADJR Act. Lee and Cooper JJ observed that, in respect of the exercise of power under s 177F, no distinction is drawn between whether there is an existing assessment or there is not. Their Honours continued:

  • 43…. For the purpose of Pt IVA of the ITAA, no distinction is drawn in respect of the exercise of the power under s 177F(1) as to whether or not there is an existing assessment. Section 177F(2A), which requires the Commissioner to do what is necessary to give effect to a determination under s 177(F)(1), and s 177G which permits the amendment of assessments, contemplate that in some cases there will be an existing assessment which will require amendment following a further assessment consequent upon a determination under s 177F(1)(a) of the ITAA. In Deputy Commissioner of Taxation v Richard Walter Pty Ltd, some of the assessments in issue were assessments amended in consequence of a determination under s 177F(1)(a). All determinations were held to be within the 'due making of the assessment' provision for the purposes of the operation of s 177(1) of the ITAA.
  • 44 It follows, in our view, that the decisions made under s 177F(1)(a) of the ITAA in the present case fell within cl (e) of First Schedule to the ADJR Act and were thereby excluded from judicial review under that Act."[102] [2002] FCAFC 271; (2002) 125 FCR 308; 192 ALR 418; 50 ATR 528; 76 ALD 33; [2002] ATC 4730; at [43]-[44]; 320; 429; 538-539; 43; 4739

83. When I view all of the cases, it seems to me that they establish the following principles:

  • 1. an "assessment" is the completion of the process by which the provisions of an enactment relating to liability to a tax, charge or duty are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax, charge or duty in that case;
  • 2. decisions, however described, that alter the regulatory framework within which an assessment of a tax, charge or duty is made or reviewed (or that refuse to do so) are decisions:
    • (1) making or forming part of the process of making, or leading up to the making of, that assessment or calculation; but
    • (2) are not decisions that are part of the completion of the process by which the provisions of the regulatory framework relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case (Tooheys);
  • 3. decisions that, if they were to be made by the Commissioner, would alter (or permit the person to alter) the factual substratum on which an assessment of a tax, charge or duty would otherwise be made or reviewed (or that refuse to do so) are decisions:
    • (1) making or forming part of the process of making, or leading up to the making of, that assessment or calculation; but
    • (2) are not decisions that are part of the completion of the process by which the provisions of the regulatory framework relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case (Intervest, Hadfield Finance, AC Goode and Isaacs); and
  • 4. decisions that are made by the Commissioner within the existing regulatory framework and on the basis of an unaltered factual substratum as part of the ascertainment of the amount of taxable income and of the tax payable thereon are decisions that are part of the completion of the process by which the provisions of the regulatory framework relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case (Richard Walter).

The determination in this case

84. The ECT assessment may be amended on the Commissioner's own initiative or on the application of the person in respect of whom it has been made provided the application is made in a four year period. An application for an amendment of an ECT assessment under s 292-315 is different from an application for a determination under s 292-465. Each must be made on an approved form but they are different approved forms. An application for an amendment of the ECT assessment may or may not lead to an amendment. An application for a determination may or may not lead to a determination.

85. If it does lead to a determination, the Commissioner must give a copy of that determination to the person. The result of that determination will be that all or part of the person's, in this case, non-concessional contributions for a financial year is to be disregarded or allocated instead to a different financial year. That determination does not, of itself, lead to the amendment of the ECT assessment but a practical consequence of it must be that the person's non-concessional contributions for a financial year will have been reduced and the difference by which those contributions exceed the person's non-concessional contributions cap will have been reduced by the same amount. That in turn will lead to a reduction in the ECT for the year and so to the Commissioner's issuing an amended assessment under s 292-305(1).

86. If the Commissioner does not make a determination, there is neither a determination nor an amended assessment. The assessment as issued remains untouched. The person may object to the assessment as Mr and Mrs McMennimen have done in this case and so proceed ultimately to review of the objection decision in the Tribunal.

87. Having regard to the authorities to which I have been referred and which I have set out above, it seems to me that the task that confronts me is one of characterisation. Provided a person has made an objection to an ECT assessment and the Commissioner has made an objection decision, that person may seek review of the ECT assessment by applying to the Tribunal for its review. Whether a particular decision or determination is reviewable as part of the review of that ECT assessment depends upon whether it was made as part of the Commissioner's assessment function or part of his administrative function. That is to say, is it a decision or determination that logically precedes the process of assessment but not part of the assessment process?

88. In this case, it seems to me that s 292-465 gives a person an opportunity to alter the factual basis on which his or her assessment of ECT is to be made but it is no more than that. As was acknowledged in Tooheys, a successful application for a determination under that section may well lead the Commissioner to re-calculating the amount of, in this case, excess non-concessional contributions, reassessing the ECT and so making an amended ECT assessment. In that sense, there is a temporal connection between the making of a determination, if it should be made, and the amended assessment. All that has happened, though, is that the person has had the opportunity to introduce a new element by reference to which his or her excess non-concessional contributions on which he or she will be required to pay ECT will be reduced. The new element is that part or all of the excess non-concessional contributions will be disregarded or attributed to another year. The determination to disregard or attribute to another year is not a decision that is part of the process by which a person's excess non-concessional contributions and the amount of any liability that person may have to pay ECT are ascertained and thereby given concrete application. Those decisions are made against a factual background of which the determination is but one feature.

89. I do not accept the submission that a determination under s 292-465 of ITAA97 is of the same type as a determination under s 177F of ITAA36. The latter determination was considered in Richard Walter in 1985 and so before the enactment of ITAA97 and definitions to which I will return. The effect of the determination under s 177F is that the amount referred to in it is deemed to be included in a taxpayer's assessable income by virtue of a provision of ITAA36 determined by the Commissioner. In Richard Walter the High Court held the determination was part of the process of assessment and goes to the ascertainment of the taxpayer's substantive liability to tax. The condition that had to be satisfied before the Commissioner could make the determination was that the taxpayer had obtained, or would but for s 177F obtain, a tax benefit in connection with a scheme. It is a determination that is made in light of the facts before the Commissioner. While it is a determination that may increase a taxpayer's assessable income, it is not a determination that changes the factual substratum on which an assessment is made or would, but for the change, be made. That is in sharp contrast with the determination under s 292-465. Its effect is to change the factual substratum on which the assessment is made. The change comes about by the fact that the Commissioner then disregards all or part of the excess non-concessional contributions or allocates them to another year.

90. It seems to me that this interpretation is consistent not only with the principles applied in Richard Walter but also with those in the other cases to which I was referred. A change in the factual substratum was what was considered in each of Tooheys, Intervest, Hadfield Finance, AC Goode, Isaacs and Meredith but not regarded as part of the assessment process in any of them. In each of those cases, the change in factual substratum was either brought about, or sought to be brought about, at the instigation of the taxpayer. That is in contrast to the position in Richard Walter where the taxpayer played no role in instigating the Commissioner's consideration under s 177F. At the same time, it is consistent with the situation in the case I must consider. Mr and Mrs McMennimen applied to the Commissioner for a determination under s 292-465.

91. I have also considered the matter from two other points of view. The first is from the point of view of the provisions that have been enacted since 1985 but which would now be relevant in a determination were made under s 177F of ITAA36. Section 4-15 of ITAA97 provides that taxable income is assessable income less deductions. "Assessable income" consists of ordinary income and statutory income[103] ITAA97, s 6-1(1) and s 6-10(4) other than exempt income.[104] ITAA97, s 6-1(3) Statutory income is not ordinary income[105] ITAA97, s 6-10(1) but it is included in a taxpayer's assessable income by statutory provisions about assessable income.[106] ITAA97, s 6-10(2) Those provisions are listed in the table in s 10-5. Among them is s 177F of ITAA36 but s 292-465 is not. Therefore, income determined by the Commissioner under s 177F on the basis that a tax benefit is referable to an amount's not being included in the assessable income of the taxpayer in a year of income, is assessable income. The determination is clearly part of the process by which a person's assessable income and the amount of any liability that person may have to pay tax are ascertained and thereby given concrete application. It is reviewable as part of the assessment.

92. The second point of view is a practical one. A determination under s 292-465 generally leads to an amended ECT assessment. If the determination is to be taken as part of the making of the amended ECT assessment, it would be reviewable by the Tribunal if the processes in Part IVC of the TA Act were followed. A decision not to make an amended ECT assessment would not lead to an amended ECT assessment. The decision to refuse to make a determination could not be said to have been made as part of making the original ECT assessment for, as is clear from s 292-465(2), it would necessarily predate it. It is not possible to apply for a determination before the ECT assessment is made.

93. In light of that and in the absence of a deeming provision, I am unable to see how a determination under s 292-465 can be regarded as part of the procedure or mechanism by which the excess non-concessional contributions are ascertained. That process has already taken place. If the determination is to be regarded as part of the procedure or mechanism by which excess non-concessional contributions and ECT are ascertained or assessed it would be expected that a decision not to make a determination should equally be regarded as part of the procedure or mechanism for making an assessment. But it cannot. There is no amended ECT assessment and the decision must come after the first assessment. If the determination were properly characterised as part of the assessment process, it would not matter whether it came before or after the ECT assessment. The fact that it does matter, supports the view that it is not properly characterised as part of the procedure or mechanism by which the excess concessional contributions are ascertained and the ECT ascertained but as a matter preceding the making of the ECT assessments.

Special circumstances

94. In order to exercise the power given to the Commissioner under s 292-465, I must be satisfied that there are both special circumstances and that a determination to disregard non-concessional contributions for a financial year to allocate them for the purposes of another would be consistent with the object of Division 292.

The submissions

95. On behalf of Mr and Mrs McMennemin, Mr Kolliou submitted that it is not possible to codify what may amount to special circumstances. Each case must be considered on its merits having regard to the circumstances surrounding the ECT assessments issued to Mr and Mrs McMennemin, to Division 292, to the matters in ss 292-465(5) and (6) and any other relevant matter including the Commissioner's Practice Statement PS LA 2008/1. Mr Kolliou acknowledged that Mr and Mrs McMennimen had control over the timing and amount of their contributions but submitted that they did so with lack of knowledge of the way in which the changes in the law would affect their situation. Having regard to their circumstances as long retired persons who prepared their own taxation returns without professional advice and without access to information and announcements, they could not have reasonably foreseen that they would exceed the non-concessional contributions cap. The 2007 financial year was one of change in the superannuation rules and one in which the new law had retrospective application.

96. Both Mr Kolliou and Mr Ure agreed that special circumstances are those that take a case outside the ordinary course and which make it unjust, unreasonable or inappropriate to impose liability for ECT. Mr Ure, though, submitted that a misunderstanding, or incomplete understanding, of the law, inadvertence or error on the part of a taxpayer, the effects of the change to a legislative scheme and the ordinary financial consequences of the imposition of a tax on a taxpayer did not constitute special circumstances. What is reasonably foreseeable is determined on an objective basis that assumes a taxpayer will have an accurate knowledge of the amounts of the non-concessional contributions cap and the way in which caps work.

Special circumstances: the authorities

97. Both Mr Kolliou and Mr Ure referred to a number of authorities regarding the meaning of the expression "special circumstances". It has been said by the Full Court of the Federal Court that it is not "… possible to lay down precise limits or precise rules."[107] Beadle v Director-General of Social Security (1985) 60 ALR 225 ; (1985) 7 ALD 670 at 228; 674 Bowen CJ, Fisher and Lockhart JJ In Groth v Secretary, Department of Social Security,[108] (1995) 40 ALD 541 Kiefel J considered its meaning in the context of s 1184 of the Social Security Act 1991, which permits the disregard of the whole or part of a person's compensation payments in assessment of his pension entitlement if there are special circumstances. Her Honour said of the expression "special circumstances":

"… although imprecise [it] is sufficiently understood not to require judicial gloss: Beadle's case [(1985) 60 ALR 225, 7 ALD 670] (at ALR 229; ALD 674), and for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case… It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.[109] (1995) 40 ALD 541 at 545. See also Minister for Community Services and Health v Chee Keong Thoo [1988] FCA 54 ; (1988) 78 ALR 307 ; 8 AAR 245 at [34]; 324; 262 per Burchett J

98. More recently, the expression was considered again by Kiefel J in adifferent context in Secretary, Department of Family and Community Services v Chamberlain.[110] (2002) 116 FCR 348; 68 ALD 357 Her Honour adopted similar principles and considered their application in the context of determining the length of a preclusion period when a person has received a compensation payment. In doing so, she clearly referred not only to the circumstances of the individual affected by the preclusion provisions of the Act but to the effect that those preclusion provisions were intended to achieve and the consequences for every person who was affected by them. Having regard to all of the circumstances, would the result be one that is unfair, unintended or unjust so that the circumstances may be described as special?

99. Both parties referred to the case of Tefonu Pty Ltd v Insurance and Superannuation Commissioner[111] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 (Tefonu). Beazley J considered whether the Tribunal had correctly rejected a submission that there were special circumstances in relation to each year of income so that it was reasonable, within the meaning of s 13(1)(b) of the Occupational Superannuation Standards Act 1987 (OSS Act) to treat a staff superannuation fund as having satisfied the superannuation fund conditions. If it were treated in that way, it would be a complying superannuation fund and attract a lower rate of income tax. Regulation 16(1)(b) of the Occupational Superannuation Standards Regulations 1987 (OSS Regulations) provided that the trustees of a superannuation fund should not borrow or maintain an existing borrowing of money otherwise than to secure temporary finance by way of overdraft with an eligible bank. It had been made on 22 December 1987 with retrospective operation to 1 July 1986. The appellant argued that the retrospective nature of the legislation, the trustee's conduct (once it had ascertained there was a breach of the regulation) and the trustee's ignorance of the proposed introduction of standards and their eventual implementation amounted to special circumstances.

100. Beazley J said:

"In my opinion, the fact that legislation is retrospective, does not of itself constitute 'special circumstances'. Rather, it is the consequences which flow to a particular trustee, having regard to the fact that the legislation is retrospective, which must be taken into account in determining whether 'special circumstances' exist in any given case."[112] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 at 373-374; 405; 249

101. As to the introduction of the OSS Act and the OSS Regulations, her Honour said:

"… the mere fact of the introduction of legislation cannot constitute 'special circumstances' for the purposes of that legislation. Rather, it is the starting point of the consideration whether there are 'special circumstances' in an individual case. …"[113] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 at 374; 406; 249; 466

102. The trustees of the staff superannuation fund in Tefonu had also argued that their ignorance of the law should have been taken into account in considering whether or not there were special circumstances. Beazley J did not accept that submission:

"…The effect of the Tribunal's finding was that the trustee's failure to either remember the information in Wyatt's newsletter, or to seek expert advice before it engaged in a major commercial project did not amount to 'special circumstances'. This was a finding which was open to it and no error of law is disclosed. The Tribunal's finding that the trustee should have known or had an obligation to find out is no more than a corollary of the concept that ignorance is no defence, a maxim which the applicant did not contest. Further, the Tribunal took the trustee's ignorance into account in determining whether there were 'special circumstances' but was not satisfied that that factor gave rise to 'special circumstances'."[114] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 at 376; 407; 251; 468

103. In this case, the object of Division 292 of ITAA97 is stated in s 292-5. It is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions made gradually over the course of a person's life. The pattern that Parliament has approved in Division 292 is one that seeks to achieve that end by the imposition of contribution caps of varying amounts at varying stages of a person's life. Clearly, the Treasurer's announcement and the consequent amendment of ITAA97 to permit $1 million of post-tax contributions to be made in the 2006/2007 financial year was, for most people, always going to represent a variation of the gradual pattern. It was a variation that was at odds with the pattern but one that was accommodated within it.

104. While I accept that Mr and Mrs McMennemin intended at all times to stay within the contributions cap and believed that they had done so, I do not accept that the circumstances leading to their doing so and otherwise relating to them and their contributions are special circumstances. I accept that Mr and Mrs McMennimen are among the ever diminishing minority of persons who prepare their own taxation returns and are among an even smaller number who do so in paper form. That they do does not amount to special circumstances. They simply are the circumstances in which they have chosen to place themselves. They are circumstances that have pluses and minuses. On the one hand, they may be sheltered from the consequences of their choosing a tax agent who does not have sufficient familiarity with their circumstances and its taxation treatment. Instead, they are left to make their own enquiries and mistakes. They can rely on the statement in the TaxPacks under the heading of "Our commitment to you" but that only provides complete protection from the imposition of penalties and interest. If a statement in TaxPack is incorrect or misleading, the Commissioner will still apply the correct law. If a person makes an honest mistake in trying to follow the advice in the TaxPack and owes the Commissioner money as a result, he will not impose a penalty but may charge interest.

105. In this case, the information on which Mr McMennemin relied was that in the 2007 TaxPack, the PSSS paper and the article in the Herald Sun. The PSSS paper should have put him on notice that the propositions it put forward were intended for discussion and comment. That was clear from its statements and from its call for comments. The article in the Herald Sun was accurate as far as it went. It did not suggest that no regard was to be paid to earlier contributions in the financial year when it told its readers that "… people will be able to make up to $1 million capital contributions up until 1 July, 2007." The TaxPack for 2007 certainly made no reference to it but the absence of a reference should have put a taxpayer who is used to do his own paper taxation returns on notice to make further enquiries. The Commissioner's commitment is very specific. Implicit in that commitment is an understanding that a taxpayer may rely on what is said in the TaxPack 2007 but should not make assumptions on the basis of what it does not say. Even the recognition that a taxpayer may make an honest mistake has as its premiss the fact that the taxpayer was "trying to follow the advice in the TaxPack". It does not have as its premiss the fact that the taxpayer was making an assumption about what the TaxPack would have said had it given advice on the subject or making an assumption that failure to mention a subject meant that there were no rules or limitations.

106. It is more difficult for a taxpayer in Mr and Mrs McMennemin to find out information but every TaxPack, including TaxPack 2007, tells the taxpayer that, as part of the Commissioner's commitment:

"We also have a range of advice and information services that can assist you when completing your tax return. The inside back cover provides details about how you can access our information services and how you can contact us."

107. It must also be remembered that TaxPack is a document that assists a taxpayer to complete a taxation return. It assumes that certain events have occurred that have led to the taxpayer's receiving income and incurring expenditure that may, or may not, be deductible. The advice it gives is directed to returning that income and claiming those deductions as well as providing certain other information, such as the payment of private health insurance, that enables the Commissioner to make an assessment. Its advice is not designed to assist a taxpayer make a decision on the way in which to structure his or her financial affairs in the future, however imminent that future might be. In the case of Mr and Mrs McMennemin, it was very imminent for there would have been little time between Mr McMennemin's reading TaxPack 2007 and 30 June 2007 when he made the $1 million non-concessional contributions.

108. I find that Mr McMennemin missed the Treasurer's Press Release of 5 September 2006 when he announced that "subject to any applicable work test people will be able to make up to $1 million of post-tax contributions between 10 May 2006 and 30 June 2007 …". He also missed the accompanying PSSS - outcomes paper to the same effect. Both were consistent with the article in the Sun Herald and both could, and I think should, be read as referring to a total contribution of $1 million contribution regardless of whether it was ultimately categorised as concessional or non-concessional contribution. That Mr McMennemin missed the PSSS - outcomes paper and the Treasurers' press release does not take his circumstances beyond the ordinary case.

109. Mr Kolliou referred me to the retrospective application of the relevant provisions of Division 292. They were retrospective in the sense that taxation law may be. Their first public airing often takes place in the form of a Press Release or a Budget Statement by the Treasurer and they are given formal expression in an Act of the Parliament. Retrospective legislation is not encouraged and nor is generally the subject of approbation. In the realm of taxation law, though, what I have described is given a limited imprimatur under the Senate Standing Orders (SSO). Under Procedural orders and Resolutions Expressing Opinions of the Senate is Senate Resolution 40:

  • "40 Taxation bills - retrospectivity

    Where the government has announced, by press release, its intention to introduce a bill to amend taxation law, and that bill has not been introduced into the Parliament or made available by way of publication of a draft bill within 6 calendar months after the date of that announcement, the Senate shall, subject to any further resolution, amend the bill to provide that the commencement date of the bill shall be a date that is no earlier than either the date of introduction of the bill into the Parliament or the date of publication of the draft bill.

    (8 November 1988 J.1104)"

The TLA Act, which introduced the changed regulatory regime and the amendments to the ITTP Act covering the transitional provisions, was introduced on 7 December 2006 and so within six calendar months of the Treasurer's Press Release. It had been passed and had come into operation on 15 March 2007 as had the changes it effected.

110. The retrospective nature of the changes effected by the TLA Act when it was passed by Parliament did not, of themselves, affect Mr and Mrs McMennemin at the time. They had already made their initial contributions on 14 December 2006 and had yet to make their second. The law that would regulate the way in which their contributions were treated for taxation purposes was already in place when Mr McMennemin made the second contributions that led to their having excess non-concessional contributions. Therefore, the retrospective nature of the TLA Act does not amount to special circumstances in this case.

111. I have looked also at whether it was reasonably foreseeable that Mr and Mrs McMennemin would have excess non-concessional contributions when a relevant contribution was made. In Secretary, Department of Employment, Education and Youth Affairs v Ferguson,[115] [1997] FCA 663; (1997) 76 FCR 426; 147 ALR 295; 48 ALD 593 Mansfield J considered whether the circumstances that prevented Mr Ferguson from complying with a case management activity agreement were "reasonably foreseeable" by him. Of that expression, his Honour said:

"The use of the expression 'reasonably foreseeable' is commonplace. It imports an objective assessment about a set of facts as they apply to a particular circumstance or to a particular person. To say that, as here, they direct attention to the particular person does not import the need to determine the actual state of mind of that person. It is to direct the objective assessment on the relevant facts in relation to a particular person, with that person's health, knowledge and background. Some persons would be able to reasonably foresee circumstances more readily than others. …"[116] [1997] FCA 663; (1997) 76 FCR 426; 147 ALR 295; 48 ALD 593 at 440; 308; 604

112. The circumstances in which Mr and Mrs McMennemin found themselves were those of retirement. In Mr McMennemin's case, he enjoyed retirement from his career as an accountant. As an accountant, he would have been expected to be familiar with the fact that the taxation laws regulate the circumstances in which tax is levied even if he had not been required to understand the minutiae of the taxation law during his professional life. He would have been expected to know that the laws change. With regard to the particular changes that were to be brought about by the TLA Act, I find that he had warning of them in the Herald Sun article dated 7 September 2006 and had been aware at an earlier time that changes were afoot when he read the PSSS paper. Although aware of pending changes, I find that he did not take any further steps to find out whether they had come into law other than to read TaxPack2007 and another publication of the Australian Taxation Office that he has been unable to locate. Mr McMennemin did not read the TLA Act after it was passed or suggest that he was even aware that it had been passed. It would have been on the internet and it was clear from the evidence given by Mr McMennemin that he had access to the internet.

113. Given these matters, I am satisfied that a person in the position of Mr and Mrs McMennemin would have foreseen when they made their second contributions on 26 June 2007 that they would have excess non-concessional contributions. The Herald Sun's article had advised that it would be possible to make "$1 million capital contributions to super up until July 1, 2007". Putting aside whether they were concessional or non-concessional contributions, such a person would have foreseen that a further contribution of $1 million each would very likely lead to their having an excess of one type of contribution or the other when each had already made an initial contribution of $138,484. Such a person would know, as Mr McMennemin knew, that the initial contribution made him and his wife each eligible for the maximum age-based deduction of $105,113. That left a balance of $33,371. A further payment of $1 million had to take each of them over the permitted amount of $1 million by that amount even on the basis of what was said in the Herald Sun. That was a payment that was entirely within their own discretion and control to make or not make. Therefore, I am satisfied that, when Mr McMennemin made the further contributions, it was reasonably foreseeable that he and his wife would each have excess non-concessional contributions for the financial year.

114. In the absence of any reference to the return of excess contributions after the publication of the PSSS paper, a reasonable person would not make an assumption that they would simply be returned by the Commissioner. A reasonable person would assume that benefits conferred by a taxation regime are also attended by restrictions and conditions and may have consequences, if not attract liabilities, if those restrictions and conditions are breached.

115. I have looked at the matters in s 292-465(5), to which the Commissoner may have regard in making the determination under s 292-465(3).[117] ITAA97, s 292-465(4) Those matters are whether a contribution made in the relevant financial year would be more appropriately allocated to another financial year. I do not think that this is a relevant consideration when considering whether there are special circumstances within the meaning of s 292-465(3)(a). A decision as to whether there are special circumstances (and whether the making of a determination would be consistent with the object of Division 292) is a decision that precedes the making of a determination and is quite separate from it. Section 292-465 is directed to the matters to which the Commissioner may have in making the determination and, as an integral part of doing so, deciding whether excess contributions should be disregarded or allocated for the purposes of another financial year.

116. Having regard to the matters to which I have referred, I am not satisfied that the circumstances in which Mr and Mrs McMennemin find themselves are special circumstances. There is nothing about that application that is unfair, unintended or unjust when regard is had to the ordinary application of the provisions of Division 292. Although not bound by the Commissioner's Practice Statement Law Administration PS LA 2008/1 guiding his delegates on the exercise of the power to make a determination under s 292-465,[118] See Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 at 640 per Brennan J and Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 ; 2 ALD 60 at 590; 70 per Bowen CJ and Deane J and at 602; 80 per Smithers J I note that my decision is consistent with it.

117. As both criteria in s 292-465(3) must be satisfied before the Commissioner may make a determination, my finding that there are no special circumstances in this case means that there is no basis on which a determination may be made.

Decision

118. For the reasons I have given, I have decided that:

  • 1. the Tribunal does not have jurisdiction to review the decision of the respondent dated 2 July 2009 to refuse to make a determination under s 292-465 of the Income Tax Assessment Act 1997 as part of its review of the respondent's objection decision dated 5 October 2009 or otherwise; and
  • 2. if the decision under [1] is incorrect and the Tribunal does have jurisdiction, I affirm the respondent's objection decision dated 5 October 2009.


Footnotes

[1] PSSS paper, Introduction and consultation process, p vii
[2] Supplementary T-documents at 122
[3] Exhibit A, FM3
[4] ITAA97, s 280-1(2)
[5] ITAA97, s 280-5(5)
[6] ITAA97, s 280-5(1)
[7] A “ superannuation plan ” means: (a) a superannuation fund; or (b) an approved deposit fund; or (c) an RSA: ITAA97, s 995-1(1).
[8] ITAA97, s 280-10(1)
[9] ITAA97, s 995-1(1)
[10] ITAA97, s 995-1(1)
[11] ITAA97, s 8-1(1)
[12] ITAA97, s 8-1(3)
[13] ITAA97, s 8-5(3)
[14] ITAA97, s 8-5(1)
[15] ITAA97, s 8-5(2)
[16] ITAA97, s 290-5
[17] ITAA97, s 290-60(2)
[18] ITAA97, s 290-60(3)
[19] ITAA97, s 290-70
[20] ITAA97, s 290-75
[21] ITAA97, s 290-80
[22] ITAA97, s 290-150(2)
[23] ITAA97, s 995-1(1)
[24] ITAA97, s 995-1(1)
[25] Section 12(11) of the SGA Act provides: “A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work.”
[26] ITAA97, s 292-15
[27] ITAA97, s 292-20(1)
[28] ITAA97, s 292-20(2)
[29] ITAA97, s 292-20(2)
[30] ITAA97, s 960-265, item 9
[31] ITAA97, s 292-25(1)
[32] ITAA97, s 292-25(2)
[33] ITAA97, s 292-90(2)(b)
[34] ITAA97, s 292-85
[35] ITAA97, s 292-230(1)
[36] ITAA97, s 292-230(2)
[37] ITAA97, s 292-230(3)
[38] ITAA97, s 292-385
[39] ITAA97, s 292-245
[40] ITAA97, s 995-1(1)
[41] ITAA97, s 292-305(2)
[42] ITAA97, s 292-310(1)
[43] ITAA97, s 292-310(2)
[44] ITAA97, s 292-325
[45] ITAA97, s 292-385
[46] ITAA97, s 292-390
[47] “The object of this Division[280] is to neutralise benefits that taxpayers could otherwise receive from shortfalls of … excess contributions tax, so that they do not receive an advantage in the form of a free loan over those who assess correctly.”: TA Act, s 280-50
[48] ITAA97, s 292-395
[49] ITAA97, s 292-405(1)(b)
[50] If for an excess non-concessional contributions tax, the person must give it to the superannuation provider and do so within 21 days: ITAA97, s 292-410(2)
[51] ITAA97, s 292-410(1)
[52] ITAA97, s 292-465(1)
[53] ITAA97, s 292-465(3)
[54] ITAA97, ss 292-465(4)–(6)
[55] TLA Act 2007, s 2(1), item 2
[56] TLA Act 2007, s 2(1), item 2
[57] Administrative Appeals Tribunal Act 1975 (AAT Act), s 25(1)
[58] The Social Security (Administration) Act 1999 (SSA) could be described as a companion enactment to the Social Security Act 1991 (SS Act). A decision may be made under the SS Act but, if it is reviewable by the Tribunal, provision for that review will be found in the SSA.
[59] Hansard, House of Representatives at 1187
[60] [1979] FCA 38; (1979) 40 FLR 462 per Sweeney, Evatt and Northrop JJ
[61] [1979] FCA 38; (1979) 40 FLR 462 at [9]; 467
[62] TA Act, s 14ZU(c)
[63] TA Act, ss 14ZY(3)
[64] TA Act, s 14ZQ
[65] TA Act, s 14ZS(1). The provision also provides that a decision is an ineligible income tax remission decision if s 14ZS(4) applies but s 14ZS(4) was repealed in 1992.
[66] TAA, s 14ZZK(a)
[67] TAA, s 14ZZK(b)(i). A “taxation decision” includes an assessment against which a taxation objection has been made: TAA, s 14ZQ.
[68] WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2008] HCA 33 ; (2008) 237 CLR 198 at [6]; 203-204 per Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ
[69] [1963] HCA 51; (1963) 109 CLR 243; Kitto, Menzies and Owen JJ
[70] [1963] HCA 51; (1963) 109 CLR 243 at [5]; 252 per Kitto J
[71] [1995] HCA 23; (1985) 183 CLR 168; 127 ALR 21; 95 ATC 4067; 29 ATR 644
[72] [1995] HCA 23; (1985) 183 CLR 168; 127 ALR 21; 95 ATC 4067; 29 ATR 644 at [6]; 178; 35; 4077; 657
[73] ITAA97, s 995-1(1)
[74] ITAA97, s 1-7
[75] [1963] HCA 51; (1963) 109 CLR 243 at [5]; 251-252
[76] ITAA36, s 177F(2)
[77] ITAA36, s 177F(2C)
[78] ITAA36, s 177G
[79] ITAA36, s 204(1)(a)(ii)
[80] [1995] HCA 23; (1995) 183 CLR 168 at 182; citations omitted
[81] [1995] HCA 23; (1995) 183 CLR 168 at 178
[82] [1981] FCA 121; (1981) 54 FLR 421
[83] ADJR Act, s 3(1)
[84] Customs Act, s 173(1)
[85] Customs Act, s 273(2)
[86] Customs Act, s 273(1)
[87] See [64] above
[88] [1981] FCA 121; (1981) 54 FLR 421 at 436
[89] [1984] FCA 297; (1984) 3 FCR 591; Smithers J
[90] [1988] FCA 124; (1988) 19 ATR 1083; Woodward, Jenkinson and Foster JJ
[91] (1990) 21 ATR 250; 90 ATC 4342 ; Jenkinson J. The Commissioner's decision fixed the date by which the taxpayer was required to lodge its return. It was held that “… In our opinion the decision sought to be reviewed in the present case, whilst being a decision which will normally precede the making of assessments, is not properly characterised as a decision forming part of the process of making assessment or leading up to the making of assessments. …”; at 254; 4346
[92] [2005] FCA 832; (2005) 144 FCR 194; Conti J.
[93] [1984] FCA 297; (1984) 3 FCR 591 at 592
[94] [1984] FCA 297; (1984) 3 FCR 591 at 593-594
[95] [1984] FCA 297; (1984) 3 FCR 591 at 595
[96] [1988] FCA 124; (1988) 19 ATR 1083; 79 ALR 249 at [29]; 1088; 256
[97] [1988] FCA 124; (1988) 19 ATR 1083; 79 ALR 249 at [35]-[37]; 1089-1090; 257
[98] (1990) 21 ATR 250; 90 ATC 4342 at 254-255; 4346-4347
[99] [2005] FCA 832; (2005) 144 FCR 194 at [68]; 223
[100] [2005] FCA 832; (2005) 144 FCR 194 at [71]; 224
[101] [2002] FCAFC 271; (2002) 125 FCR 308; 192 ALR 418; 50 ATR 528; 76 ALD 33; [2002] ATC 4730 Lee, Cooper and RD Nicholson JJ
[102] [2002] FCAFC 271; (2002) 125 FCR 308; 192 ALR 418; 50 ATR 528; 76 ALD 33; [2002] ATC 4730; at [43]-[44]; 320; 429; 538-539; 43; 4739
[103] ITAA97, s 6-1(1) and s 6-10(4)
[104] ITAA97, s 6-1(3)
[105] ITAA97, s 6-10(1)
[106] ITAA97, s 6-10(2)
[107] Beadle v Director-General of Social Security (1985) 60 ALR 225 ; (1985) 7 ALD 670 at 228; 674 Bowen CJ, Fisher and Lockhart JJ
[108] (1995) 40 ALD 541
[109] (1995) 40 ALD 541 at 545. See also Minister for Community Services and Health v Chee Keong Thoo [1988] FCA 54 ; (1988) 78 ALR 307 ; 8 AAR 245 at [34]; 324; 262 per Burchett J
[110] (2002) 116 FCR 348; 68 ALD 357
[111] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455
[112] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 at 373-374; 405; 249
[113] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 at 374; 406; 249; 466
[114] [1993] FCA 412; (1993) 44 FCR 361; 26 ATR 393; 18 AAR 236; 30 ALD 455 at 376; 407; 251; 468
[115] [1997] FCA 663; (1997) 76 FCR 426; 147 ALR 295; 48 ALD 593
[116] [1997] FCA 663; (1997) 76 FCR 426; 147 ALR 295; 48 ALD 593 at 440; 308; 604
[117] ITAA97, s 292-465(4)
[118] See Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 at 640 per Brennan J and Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 ; 2 ALD 60 at 590; 70 per Bowen CJ and Deane J and at 602; 80 per Smithers J

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