• The impact of this case on ATO policy is discussed in Decision Impact Statement: Hamad and Commissioner of Taxation (2012/0487).

HAMAD v FC of T

Members:
M Allen SM

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2012] AATA 530

Decision date: 9 August 2012

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MD Allen (Senior Member)

1. By application made the ninth day of February 2012 the Applicant sought review of an objection decision by the Respondent, refusing to ignore or reallocate to another tax year the Applicant's excess contributions to his superannuation fund in the tax year 2009/2010.

2. Section 292-15 of the Income Tax Assessment Act 1997 (ITAA) provides inter alia:

You are liable to pay excess concessional contributions tax imposed by the Superannuation Excess Concessional Contributions Tax Act 2007 if you have excess concessional contributions for a financial year.

3. Excess concessional contributions are defined by subsection 292-20(1) of the ITAA as the amounts of concessional contributions for the year exceeds the concessional contributions cap for the year.

4. There is no dispute in this matter that the Applicant exceeded the concessional contributions cap for the tax year ended 30 June 2010, which was $50,000, by the sum of $10,068.54. The excess contributions tax levied against the Applicant was the sum of $3,171.55.

5. Some amelioration to the harshness of s 292-15 ITAA is given by s 292-465 of the ITAA which reads inter alia:

If you make an application in accordance with subsection 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.

6. Subsection 3 then provides:

The Commissioner may make the 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.

7. Subsection 6 of section 292-465 then goes on to provide that:

(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…

8. The facts in this matter are straight forward:

• (i) The Applicant at all relevant times was a member of AustralianSuper
• (ii) The Applicant was employed by Intertek Testing Services (Australia) Pty Ltd.
• (iii) At the request of the Applicant, a Salary Sacrifice arrangement existed between the Applicant and his employer, whereby funds were paid on his behalf, to AustralianSuper.
• (iv) Originally, the Applicant made salary sacrifice payments in the sum of $5,000 per month, but when the concessional cap was reduced to $50,000 he reduced his payments to $4,000 per month initially, then to $3,000 per month.
• (v) The Applicant stated that he regularly monitored his pay sheets and was well aware of the concessional cap of $50,000 and sought to readjust his salary sacrifice amounts accordingly.
• (vi) As pointed out by the Respondent, no agreement existed between the Applicant and his employer as to when salary sacrifice amounts would be transferred by the employer to the superannuation fund.
• (vii) The disputed payments occurred because salary sacrifice amounts for the months of April, May and June 2009 were not transferred by the employer to the superannuation fund until July 2009.

9. The Applicant, for his part, says that he was unaware of this delay at the time and that he, operating from his monthly payslips, was of the belief that the sums allocated as salary sacrifice had in fact been transferred.

10. This matter therefore raises the issue of whether the facts outlined above amount to "special circumstances", such as to invoke the discretion in subsection 292-465(1) of the ITAA

11. Pursuant to s 14ZZK of the Taxation Administration Act 1953 the onus of satisfying me that "special circumstances" exist, lies upon the Applicant.

12. The term "special circumstances" has raised considerable discussion both in this Tribunal and the Federal Court. With respect to some of the recent decisions in the Taxation jurisdiction, the members comprising the Tribunal seem to have adopted an unduly narrow interpretation of what may constitute special circumstances. In particular, the suggestion in
Tran and Commissioner of Taxation [2012] AATA 123 that circumstances will not be special unless they are out of the ordinary is, in my respectful opinion, misconceived.

13. The extent of what might constitute "special" was discussed by me in
Jones and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 77. My remarks in that matter were approved by the Federal Court in
Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs v Jones [2012] FCA 639.

14. In Re Jones supra, I said, commencing at paragraph 9:

as was pointed out by Keifel J, as she then was, in
Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545, namely:

It would, of course, follow that if one were to conclude that something unfair, unintended or unjust had occurred, then there must be some feature out of the ordinary.

Unfairness per se, as a ground for finding special circumstances, was referred to by Mr Mansfield J in
Kirkbright v Secretary, Department of Family and Community Services [2000] FCA 1876; 65 ALD 211 , a case referred to me very properly by the respondent. His Honour, in the course of his judgment said starting at para 22:

In my view that misapprehension of the legislative policy has influenced the tribunal into excluding from consideration unfairness in the strict application of the legislation as possibly demonstrating that special circumstances exist in the applicant's case. Indeed, in my view section 1184 is designed specifically to enable the respondent, and on review the tribunal, to ameliorate such unfairness or injustice when it appears by virtue of the strict application of the Act.

That view was effectively expressed by von Doussa J in
Secretary, Department of Social Security v Smith (1991) 30 FCR 56:

By its terms the discretion given by section 156 may be exercised where the Secretary or a body standing in the place of the Secretary on appeal, considers it appropriate to do so in the special circumstances of the case. These are wide words, intended as the tribunal in
Re Ivovic v Director-General of Social Services (1981) 3 ALN in 95 pointed out: To allow the decisionmaker the fullest opportunity to consider the particular circumstances of each case.

His Honour continued at paragraph 25:

It is clear in my view that the Tribunal instructed itself as a matter of law that unfairness by virtue of the operation of section 1165(1A) and the other provisions to which I have referred cannot constitute special circumstances. In my judgment it was in error in so doing.

In
Kertland v Secretary, Department of Family and Community Services, Merkel J said,
FCR 71 ALD 607 :

In Smith, to which I will return later, von Doussa J rejected a contention put on behalf of the Secretary that the circumstances of the case should be confined to matters which are external to the operation of the statutory scheme. His Honour made the point, with which I respectfully agree, that a distinction cannot meaningfully be drawn between matters external to the operation of the scheme, and matters which are the product of the strict application of the scheme.

His Honour expressly referred with approval to the observation of von Doussa J in Smith, to which I have already referred. I respectively agree and adopt their Honours reasons for that conclusion. I think they are also consistent with the observation of Carr J in
Ellis ((1997) 46 ALD 1) , and Kiefel J in Groth. Finally, at paragraph 31, his Honour concluded by stating:

Finally, I mention an argument which was advanced on behalf of the respondent through its counsel, namely that the unfairness or injustice by the strict application of the Act cannot qualify as a special circumstances, unless in some way the unfairness or injustice itself arises out of some other special circumstance. In my view that submission is not supported by authorities. It is a somewhat circuitous proposition. It fails to have regard to the role of section 1184 in the Act, and to its plain words. It is but another way of putting the proposition that injustice or unfairness by the strict application of the Act cannot of itself amount to a special circumstance for the purposes of section 1184. That is a proposition which, as I have noted, has been rejected by a number of decision of the courts as far back as Smith and Beatle. It has also been rejected more recently by justice RV Nicholson in
Martinez v Secretary, Department of Family and Community Services (2000) FCA 1090.

15. In
Bornstein and Commissioner of Taxation [2012] AATA 424 SM McCabe said, at paras 13 and 14 of his decision:

It then becomes necessary to consider whether the exercise of the discretion would be consistent with the objectives of Division 292: s 292-465(3)(b)…

The taxpayer in this case has made regular contributions to his superannuation over a period of years. It was apparent he intended to make a contribution in the ordinary way towards his superannuation at the end of the 2006-2007 year, and that he made a further contribution at the end of the 2007-2008 year. His behaviour confirms he was building up his superannuation by making gradual contributions over the course of his life, as the Division intends. The second limb of the test in s 292-465(3) is made out.

16. The taxpayer, in this case, has made regular contributions to his superannuation over a period of years. It was apparent that he intended to make a contribution in the ordinary way towards his superannuation at the end of the 2006/2007 tax year, and that he made a further contribution at the end of the 2007/2008 tax year. His behaviour confirms that he was building up his superannuation by making gradual contributions over the course of his life, as the division intends.

17. The second limb of the test in section 292-465(3) is made out. In my opinion, similar circumstances apply here and, with respect, I apply the reasoning of SM McCabe Similarly, I adopt part of what SM McCabe said at paragraph 15, namely:

I turn then to the question (posed by sub-section (5)) as to whether it was more appropriate to attribute the contributions to the earlier period. Clearly, it is: the taxpayer intended to make a contribution in the earlier period, and only just missed the deadline for doing so as a result of a misunderstanding.

18. I simply state that this is a different situation, in that the taxpayer intended to make a contribution in the earlier period but it was his employer that, for reasons best known to the employer, did not transfer the monies until the new financial year. SM McCabe continued by stating:

While he might have failed to comply with the letter of the rules, he has clearly complied with their spirit, and it would be perverse to penalise him in all the circumstances.

19. With respect, I think similar comments are applicable here. In particular, if the July 2009 payments were credited to the 2008/2009 tax year, as intended, then the Applicant's concessional deductions would amount to $48,000, that is to say under the concessional gap.

20. The Respondent says that the overpayment was reasonably foreseeable as the Applicant had notice by way of the Superannuation Funds Benefit Statements issues for the periods ended 30 June 2009 and 31 December 2009, which clearly showed that payments attributable to April, May and June 2009 had been made in July 2009, and excess payments were inevitable if the Applicant continued to contribute to superannuation at his current rates. I agree. Notwithstanding this, however, I believe it was perfectly reasonable for the Applicant to envisage that his employer would make the payments when they were shown in the payment advices issued to him each month.

21. I find that special circumstances do exist in this matter in that, despite his checking from his payment advices, the Applicant was positively misled by his employer, improperly in my opinion, retaining amounts directed to superannuation and making late payments.

22. The decision under review is set aside and I substitute my decision that the payments made to the Applicant's superannuation fund on 28 and 29 July 2009 should be attributed to the financial year ended 20 June 2009.