AZER v FC of T

Members:
FD O'Loughlin SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2016] AATA 472

Decision date: 1 July 2016

FD O'Loughlin (Senior Member)

1. Mr Azer sought review of a decision of the Commissioner of Taxation disallowing an objection concerning excess concessional superannuation fund contributions for the financial year ended 30 June 2014. Mr Azer sought to have excess contributions ignored.

FACTS

2. Many of the facts as recorded in the Commissioners SFIC[1] Statement of Facts, Issues and Contentions. were not controversial.

3. Mr Azer accepted the following facts outlined in the Commissioner's SFIC:[2] Adopting the SFIC paragraph numbering.

  • 4. The Applicant was born on 7 March 1958 and was 56 years of age at 30 June 2014.
  • 5. The Applicant was a member of the HOST PLUS and Emergency Services Super for the 2012-13 and 2013-14 financial years.

  • 7. The Applicant had salary sacrifice arrangements with a number of these employers, including: Department of Education and Training, Delaware North Management Services Pty Limited, and Spotless Services Australia Ltd.

  • 10. On the 13 May 2014 the Applicant lodged an Application - excess contributions determination requesting the Commissioner to disregard the excess concessional contributions for the 2012-13 financial year.
  • 11. On the 10 June 2014 the Commissioner issued a Notice of decision advising the Applicant that he had decided not to disregard or allocate to another period any of the Applicant's concessional contributions.

  • 17. On 19 June 2015 the Commissioner issued to the Applicant a Notice of amended assessment for the financial year ended 2014 that included the excess concessional contributions of $11,055.21. This amended assessment detailed the increase of taxable income from $88,075 to $99,130, an excess concessional contributions tax offset $1,658.28 and an excess concessional contributions charge (ECCC) of $250.11.
  • 18. On 1 July 2015 the Commissioner received the Applicant's objection to the amended income tax assessment. On 28 July 2015, after a telephone conversation with the Applicant, the Commissioner treated this objection as an Application - ECT determination.
  • 19. On 7 August 2015 the Commissioner issued a notice of decision advising the Applicant that the Commissioner had decided not to disregard or allocate to another period, any of the Applicant's excess concessional contributions for the 2013-14 financial year.
  • 20. On 20 August 2015 the Applicant lodged an objection to the Commissioner's decision to disallow the ECT determination.
  • 21. On the 24 September 2015 the Commissioner issued the Applicant with a notice of objection decision disallowing the objection.

4. The facts set out in these paragraphs are found.

5. Mr Azer assumed that other facts outlined in the Commissioner's SFIC (which included dates and amounts) were correct but did not have the materials in front of him to be assured they were correct. Those facts are as follows:[3] Again adopting the SFIC paragraph numbering..

  • 8. On 21 January 2014 the Commissioner issued a letter to the Applicant advising him he had excess concessional contributions (ECC) for the 2012-13 financial year. This letter gave the Applicant the option of having the excess included in his assessable income and taxed at his marginal tax rate, or alternately, paying the excess contributions tax (ECT) of $7,656.04.
  • 9. On 2 April 2014 a Notice of Assessment was issued to the Applicant for 2012-13 financial year detailing excess concessional contributions of $7,656.04 and excess concessional contributions tax of $2,411.65.
  • 12. On 29 October 2014, the Commissioner received a Member contributions statement (" MCS ") from the trustee of the Emergency Services superannuation fund detailing concessional contributions received in respect of the Applicant for the year ended 30 June 2014, totalling $20,034.48.
  • 13. On 31 October 2014, the Commissioner received a MCS from the trustee of HOST PLUS superannuation fund detailing concessional contributions received in respect of the Applicant for the year ended 30 June 2014 totalling $16,020.73.
  • 14. The Applicant's concessional superannuation contribution cap for the year ended 30 June 2014, was $25,000 (section 291-20 of the Income Tax Assessment Act 1997 (ITAA 1997).
  • 15. Based on the information reported by the Funds in the MCSs, the Commissioner determined the Applicant had the following concessional contributions made on his behalf during the year ended 30 June 2014.
    Concessional Contributions Concessional Contributions Cap Excess Concessional Contributions
    $36,055.21 $25,000 $11,055.21
  • 16. The Applicant exceeded the concessional contributions cap by $11,055.21.

6. The facts set out above are included in the documents provided pursuant to s 37 of the Tribunal Act,[4] The Administrative Appeals Tribunal Act 1975 (Cth). and are correctly stated. These facts are found.

7. Mr Azer also gave oral evidence, which the Commissioner did not seek to challenge. Part of that evidence, the Commissioner accepted, shows admirable qualities and motives in Mr Azer seeking to provide for retirement income for himself and his family.

8. Mr Azer also suggested, not unreasonably, that there is a government preference for people to provide for their retirement income themselves, and that that would be a necessary thing for him to do.

9. Mr Azer gave evidence that:

  • (a) he was a full-time employee in the Victorian Public Service and does not earn a high salary;
  • (b) he worked a number of part-time, casual jobs with approximately four employers, two of which were reasonably regular;
  • (c) he salary sacrificed $100 per week of his full-time earnings into one of his superannuation funds;
  • (d) he salary sacrificed all of his casual earnings with the two more regular casual jobs into another of his superannuation funds;
  • (e) he received pay slips for his employment, which he believed included running balances;
  • (f) his casual employment was not predictable; some weeks he may have one four hour shift, others, two shifts totalling 12 hours, and some weeks, none at all;
  • (g) he is married with three children, but he and his wife are now empty nesters;
  • (h) he wants to be able to give his children a head start in life;
  • (i) the salary sacrifice arrangements he set up were relatively routine or easy things to do by completing a form and giving it to his employer, and the same process would have applied, and it would have been relatively easy, to alter or terminate the salary sacrifice arrangements by filling in another form and giving it to his employer;
  • (j) he did not check the balances of his superannuation contributions, and, in receiving the 2013 year notice of excess contributions in January 2014, he did not then check the current balance of his 2014 year contributions, which he could have done;
  • (k) had he been aware of the balances, he would have stopped the contributions and would have received the earnings in cash; and
  • (l) he had not sought financial planning retirement advice.

10. Had Mr Azer been aware of the balances and stopped the contributions, as suggested in his evidence, the effect of receiving earnings in cash in excess of the limits would have produced the same ultimate tax bill that he has now in his assessments, however the tax bill would not have been received in a lump sum, rather, the tax liability would have been met by PAYG deductions progressively as the earnings were received.

11. Against that fact background, it is necessary to turn to the rules.

LAW

12. For the excess contributions to be disregarded, the circumstances need to be special. That is the statutory test under s 291-465(2) of the Assessment Act.[5] The Income Tax Assessment Act 1997 (Cth). Neither the Commissioner nor the Tribunal can simply choose to disregard excess contributions because the outcome is unfortunate, or otherwise unplanned. For the circumstances to be special, they need to be unusual, uncommon or exceptional in the circumstances in which they occur. Special circumstances need to be those that distinguish an applicant's case from others, and take it out of the usual or ordinary case. Kiefel J said in Groth[6] Groth v Secretary, Department of Social Security (1995) 40 ALD 541 . that the circumstances can be presumed to be special if the conclusion reached is unjust or unfair.[7] At (1995) 40 ALD 545 .

13. Whilst a social security case, Groth has been adopted in relation to what constitutes special circumstances in a tax setting.[8] Commissioner of Taxation v Dowling [2014] FCA 252 .

14.


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The discretion to disregard excess contributions is not lightly engaged,[9] Thompson v Commissioner of Taxation [2014] AATA 339 per Professor Deutsch and Boscolo v Secretary Department of Social Security (1999) 90 FCR 531 at [18] per French J. and care must be taken not to overstate the test.[10] Angelakos v Secretary Department of Employment and Workplace Relations [2007] FCA 25 per Beksano J. A balance needs to be struck.

ANALYSIS

15. Mr Azer's case is that he worked additional jobs without receiving any immediate cash so as to provide for his retirement and for his family. He did not have the benefit of predictability of what he earned. As described above, some weeks he might not have any shifts, others he might have two shifts totalling 12 hours, and other weeks it might be something in between.

16. Mr Azer submitted that the special circumstances that are applicable for him are that:

  • (a) he was not self-employed earning a high income;
  • (b) he was not trying to avoid paying any tax;
  • (c) he was doing what he did to support himself and his family and to provide for his retirement;
  • (d) he seeks to look after himself and his family without help;
  • (e) he was trying his best; and
  • (f) the particular rules governing superannuation are hard to understand from year to year, and they change from year to year.

17. During the hearing Mr Azer suggested that the ATO[11] Australian Taxation Office. might do more to advise what was required. Mr Azer suggested that in other settings there are apps available for use with modern technology that let people know their progressive use of facilities such as data volume downloaded from the internet, and something similar could be adopted in a taxation setting. That submission is not one for the Tribunal, and is possibly one that the ATO might wish to explore for the future.

18. Mr Azer says that the rules are difficult to comprehend, and that he has made an inadvertent mistake. He suggested a warning is the appropriate course of action.

19. The Commissioner says that:

  • (a) Mr Azer's circumstances are neither uncommon nor unusual;
  • (b) it is quite common these days to have more than one job;
  • (c) salary sacrificing is not uncommon;
  • (d) Mr Azer could have checked his payslips;
  • (e) Mr Azer, did not make enquiries and he chose to make the salary sacrifice arrangements himself;
  • (f) the assessments reflecting the excess contributions only put Mr Azer in the situation that he would have been in had he received his remuneration in cash.

20. The Commissioner submitted that Mr Azer was aware of the fact that the caps existed and had the burden to ensure that he stayed within those caps. There is no evidence of any enquiries being made. The cap was within Mr Azer's control, and he could have amended his salary sacrificing arrangements at any time.

21. The Commissioner acknowledges that Mr Azer's motives were admirable, but that is not the relevant statutory test. Honest mistakes and ignorance of the law, the Commissioner submits, are not special circumstances.

22. A very useful touchstone as to whether or not there were special circumstances is found in the decision of Kiefel J in Groth: is the result unfair or unjust? Here, had Mr Azer known of his approaching limit, his own evidence was that he would have stopped the salary sacrifice arrangements, and he would have received the earnings as taxable income. If he had done this, the aggregate tax liability he would have sustained is the same as he has currently sustained, except that that tax liability would have come progressively, it would not have been in a lump sum. It would have been met through PAYG deductions from time to time.

23. His circumstances now are that he has the same aggregate tax liability but he also has the additional amount that forms part of his superannuation balance. In a system where there are limits on what can be contributed to a superannuation fund while retaining concessional treatment, to waive compliance in this case would effectively provide Mr Azer with an advantage in the form of being allowed to contribute extra to his superannuation funds, and to enjoy the benefit of that without any cost associated with the excess, to the advantage of


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other taxpayers in the community who observe the limits.

24. Looked at in that way, it could be said that to waive the contributions cap, or the contributions in excess of the cap, in this case might produce an unfair result in Mr Azer's favour.

CONCLUSION

25. The Tribunal's conclusions are that, while Mr Azer's circumstances are understandable, and his motives for working hard and stowing money away for retirement income are admirable, his predicament does not amount to a special circumstance. Inadvertent mistakes are not special circumstances. The complexities of the system of taxation of retirement income and providing for retirement income are complexities the whole community has to deal with. The policy of the system is said to encourage gradual self-provision for retirement. That policy should be accepted in the context of a system that has allowed very lumpy contributions to be made from time to time.

26. Accordingly, the tribunal conclusion is that there are not special circumstances, and the decision under review will be affirmed.


Footnotes

[1] Statement of Facts, Issues and Contentions.
[2] Adopting the SFIC paragraph numbering.
[3] Again adopting the SFIC paragraph numbering..
[4] The Administrative Appeals Tribunal Act 1975 (Cth).
[5] The Income Tax Assessment Act 1997 (Cth).
[6] Groth v Secretary, Department of Social Security (1995) 40 ALD 541 .
[7] At (1995) 40 ALD 545 .
[8] Commissioner of Taxation v Dowling [2014] FCA 252 .
[9] Thompson v Commissioner of Taxation [2014] AATA 339 per Professor Deutsch and Boscolo v Secretary Department of Social Security (1999) 90 FCR 531 at [18] per French J.
[10] Angelakos v Secretary Department of Employment and Workplace Relations [2007] FCA 25 per Beksano J.
[11] Australian Taxation Office.

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