PITTS v FC of T

Members:
CR Walsh SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2017] AATA 685

Decision date: 12 May 2017

CR Walsh (Senior Member)

1. Mr Pitts seeks review of the Commissioner's objection decision, dated 14 March 2016, which disallowed, in full, Mr Pitts' objection against an excess non-concessional contributions tax assessment for the year ended 30 June 2013, totalling $94,542.

2. In short, Mr Pitts' position is that the assessment was excessive because:

• applying the principles set out by the Commissioner in Practice Statement Law Administration PSLA 2008/1 ( PSLA 2008/1 ), no "contribution" of $328,316.18 was "made" in the financial year ended 30 June 2011;
• the funds of $328,316.18 remained "internally" with the fund provider and were simply "rolled-over"; and

ATC 7415
• normal and correct accounting principles were not followed in his case.

3. For the reasons provided below, the Tribunal disagrees.

FACTUAL & PROCEDURAL BACKGROUND

The Re-contribution Strategy

4. On about 5 August 2010 Mr Pitts noticed that a black band had appeared on his left index finger.

5. On 14 August 2010, Mr Pitts had a biopsy of his left index finger fingernail and the results of the biopsy, dated 13 September 2010, confirmed the existence of a melanoma on his left index finger.

6. In early October 2010, it was recommended that Mr Pitts have part of his left index finger surgically removed and, consequently, he returned to Perth from Indonesia (where he lived at that time) to have that procedure done.

7. In early October 2010, Mr Pitts had a balance of approximately $328,316.18 in his account, "LSF 00118915 LS01" ( LSF 01 ) with Lifetime Superannuation Fund ( LSF ), being a "complying superannuation fund" (within the meaning of s 292-25(2) of Income Tax Assessment Act 1997 ( ITAA 1997 ) and s 45 of the Superannuation Industry (Supervision) Act 1993 ( SISA )) administered by Plan B Wealth Management Ltd ( Plan B ).

8. On 8 October 2010, Mr Pitts attended an annual review meeting with his Plan B financial advisor, Mr Mike Dowling (Mr Dowling), in relation to his investment with LSF.

9. At the meeting on 8 October 2010, a strategy was suggested by Mr Dowling ( Re-Contribution Strategy ), which was designed to achieve a specific object for Mr Pitts's benefit, namely to ensure that in the event that his wife pre-deceased him, any amounts paid to his mature-aged children from the fund on his death would be income tax free in their hands.

10. A document titled "Statement of Advice Plan B Wealth Management Ltd", prepared by Mr Dowling for Mr Pitts in October 2010 (Statement of Advice), provides:

Recommendations

Re-contribution strategy

…

1. Establish an account within the Lifetime Investment Service.

2. Utilise the Market 75 Investment Strategy for funds invested within this vehicle. This is the same Investment Strategy as the one in which your benefits within the Lifetime Superannuation Fund are invested and will ensure that you remain invested into the market.

3. Withdraw the entire balance of your existing account within the Lifetime Superannuation Fund and transfer in-specie transfer (sic.) this amount into your new account within the Lifetime Investment Service.

4. Withdraw the entire amount from your account within the Lifetime Investment Service and re-contribute the funds back into the Lifetime Superannuation Fund as a non-concessional contribution via an in-specie transfer. The contribution will count towards your non-concessional contribution cap.

5. Close your account within the Lifetime Investment Service once the re-contribution is complete.

11. The Statement of Advice also outlines the benefits Mr Pitts would achieve by implementing the above recommendations, as follows:

The taxable component of a lump sum death benefit paid to a non-dependant will be taxed at 16.5% (including Medicare Levy of 1.5%). The tax-exempt component is tax free. By increasing the tax-exempt component of your superannuation fund by $328,000 you can reduce the taxable component of your superannuation benefits to nil. This represents a potential saving to any of your non-dependent beneficiaries of $54,120 (taxable component of $328,000 × 16.5%).

12.

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Attached to the Statement of Advice was an "Authority to Proceed" with the recommended Re-Contribution Strategy ( Authority to Proceed ). The Authority to Proceed specifically stated that the re-contribution would count towards Mr Pitts' three year, $450,000, non-concessional contribution limit (or cap).

13. On 10 October 2010, Mr Pitts consulted a plastic surgeon in relation to the removal of the melanoma on his left index finger.

14. On 12 October 2010, Mr Pitts had surgery, under general anaesthetic, to remove the top half of his left index finger.

15. Three days after Mr Pitts' surgery, on 15 October 2010, Mr Pitts and Mr Dowling both signed the Authority to Proceed.

16. On 21 October 2010, in accordance with the Authority to Proceed, and to give effect to the Re-Contribution Strategy, the following occurred:

• $328,316.18 was withdrawn from LSF 01, being a "complying superannuation fund" with the meaning of s 292-25(2) of the ITAA 1997 and s 45 of the SISA;
• a new superannuation account with LSF, called "LSF 0011895 LS02" ( LSF 02 ) was opened on behalf of Mr Pitts;
• the withdrawn funds from LSF 01 (i.e. $328,316.18) were deposited into an account with Plan B in Mr Pitts's name, called "00614882 IV01 Lifetime Investment Service", being a "complying superannuation fund" within the meaning of s 292-25(2) of the ITAA 1997 and s 45 of the SISA ( Lifetime Investment Service account ); and
• $328,316.18 was withdrawn from the Lifetime Investment Service account and paid, as a personal superannuation contribution, on Mr Pitts's behalf, to LS 02 (being a "complying superannuation fund" within the meaning of s 292-25(2) of the ITAA 1997 and s 45 of the SISA), administered by Plan B.

17. On 26 October 2010, copies of the account closure, funds transfer and account opening were emailed to Mr Pitts.

The BT Portfolio Wrap Superannuation fund

18. On 8 July 2012, Mr Pitts sold an investment rental property in Duncraig, Western Australia ( Duncraig Property ) for $560,000 and deposited the net proceeds with Westpac.

19. On 5 September 2012, at a meeting with Mr Anthony Feighan, a financial adviser employed by BT Financial Group (which is a subsidiary of Westpac), Mr Pitts signed a "Client Authorisation for Information from Other Institutions or Advisers" form ( Authorisation Form ). The Authorisation Form authorised BT Financial Group/Westpac to obtain information about Mr Pitt's financial affairs from other institutions or advisers for the purposes of advising the applicant on investing in superannuation.

20. On 5 October 2012, the Authorisation Form was forwarded to Plan B by BT Financial Group/Westpac. However, there was no accompanying request for information.

21. Also on 5 October 2012, Mr Pitts contributed $325,000 from the proceeds of the sale of the Duncraig Property to his superannuation fund, "BT Portfolio Wrap", a complying superannuation fund managed by BT Financial Group/Westpac ( BT Portfolio Wrap ).

22. The table below summarises the non-concessional contributions made by Mr Pitts in the financial years ended 30 June 2011, 30 June 2012 and 30 June 2013.

Year Ended 30 June	Non-concessional contributions
2011	$328,316.18
2012	$0.00
2013	$325,000.00
Total	$653,316.18

23.

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On 2 April 2014, BT Financial Group/Westpac lodged a member contributions statement with the Australian Taxation Office reporting that they had received $325,000 personal contributions on behalf of Mr Pitts in the financial year ended 30 June 2013.

24. On 4 March 2015, the Commissioner wrote to Mr Pitts advising him that:

You may have to pay excess contributions tax - 2012-13 financial year

For your information and action

…

Based on our current information, you have exceeded at least one of the superannuation contribution caps and you may have to pay excess contributions tax.

…

Concessional Contributions Your concessional contributions cap Your excess concessional contributions

$24,189.00 $25,000 $0.00

Non-concessional contributions Your non-concessional contributions Your excess non-concessional contributions

$325,000 $121,683 $203,316.18

25. Mr Pitts' non-concessional contributions cap of $121,683 was calculated by subtracting the amount of the contribution he made on 21 October 2010 (i.e. $328,316.18) from the relevant three year contributions cap of $450,000.

Written determination

26. On 8 June 2015, Mr Pitts wrote to the Commissioner requesting, pursuant to s 292-465(2) of the ITAA 1997 that the Commissioner make a written determination under s 292-465(1) of the ITAA 1997 to disregard Mr Pitts's excess non-concessional contributions for the 2013 financial year (of $203,316.18) or to allocate them to another financial year.

27. On 13 August 2015, the Commissioner notified Mr Pitts that he refused to make a written determination under s 292-465(1) of the ITAA 1997 to disregard Mr Pitts's excess non-concessional contributions for the 2013 financial year (of $203,316.18) or to allocate them to another financial year. The Commissioner's letter, dated 13 August 2015, states:

In your application you contend there are special circumstances because you were very stressed following a melanoma diagnosis and in the time leading up to your surgery. You contend that this stress has caused you to not recall the discussions surrounding your re-contribution strategy that was implemented in October 2010. You believe the re-contribution strategy is of no benefit to you and you cannot understand why your super fund suggested and implements it and feel they have misled you. You also contend that your contribution in October 2012 from the sale of your investment property was carried out to utilise the 'bring forward' provisions before you turned 65.

…

In support of your case you provided a chronology of health events from 2002 to September 2014, along with various test result reports and medical certificates, one of which confirms the dates of the consultations regarding the melanoma and date of operation. Also provided is the Plan B Authority to Proceed advising of the re-contribution strategy and signed by you.

Whilst we recognise you did not intend to exceed your contributions cap, such intent alone does not establish 'special circumstances'. ECT is simply a consequence of your financial transactions and is not unjust, unfair or inappropriate in and of itself.

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The second contribution was the one that caused you to exceed your non-concessional contributions cap in the 2012-13 financial year . You have not provided any information or evidence to suggest that this decision was impacted by any medical condition at that time. Your chronology of health events does not list any medical events taking place at or around 5 October 2012 when the contribution took place. You have stated that you made this contribution to utilise the 'bring forward' provisions before turning 65. As noted by Greenwood J in Dowling the question of whether there are special circumstances requires consideration of the circumstances of the financial year giving rise to the assessment of ECT. Whilst we acknowledge you had several health events prior to this contribution we do not consider this is sufficient evidence detailing a direct link between the actual timing of your condition or treatments and the timing of your contribution in the 2012-13 financial year.

We requested a letter from your doctor advising whether your illness or medications would have had an impact on your decision making ability and/or memory at the time of the first contribution in October 2010. You have provided a letter from your doctor, dated 16 July 2015. Your doctor advises that he cannot support your assertions regarding your mental state at the time of having the melanoma.

Whilst your doctor has listed your prescribed medications, there is no statement from your doctor to show how the medication affects you or that any of this medication causes memory loss.

You have provided some information on signs and symptoms of stress overload. This does list memory problems and poor judgment. Although we appreciate that stress can cause these symptoms we consider this is general information rather than evidence directly applicable to your particular situation.

We acknowledge your health issues and the personal circumstances you have encountered in the past and continue to experience and readily sympathise. However experiencing difficult personal circumstances is not in itself special circumstances for the purposes of section 292-465 of the ITAA 1997….

…

You have provided emails between you and your financial adviser at Plan B. In the email from Plan B on 17 April 2015 Mr Dowling states that you were provided with the Statement of Advice and Strategic Information Document in October 2010. He advises that they only implemented the strategy after receiving your Authority to Proceed dated 15 October 2010. In the email he also states that the Statement of Advice advised you how the 'bring forward' rule works and also that contributions exceeding $450,000 would be taxed at 46.5%. This is also stated on the Authority to Proceed document that you signed.

…

Conclusion

We have considered the facts of your particular case and have concluded that taken together they do not fall within the scope of 'special circumstances'. We also consider that providing a determination would not be in line with the Object of Division 292 of the ITAA 1997. Therefore, as the required pre-conditions have not been satisfied the Commissioner will not make a determination to disregard or allocate to another financial year $203,316.18 of your non-concessional contributions.

(emphasis added)

Assessment

28. On 9 November 2015, the Commissioner issued Mr Pitts with an excess non-concessional contributions tax assessment for $94,542 for the year ended 30 June 2013, which represents $203,316.18 (being the excess non-concessional contribution for the 2013 financial year) multiplied by 46.5% (being the maximum marginal rate of tax) ( Assessment ).

Deed of Settlement and Release

29. Following receipt of the Assessment, Mr Pitts complained to both Plan B and BT Financial Group/Westpac about the advice they had respectively given him.

30.

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On 15 January 2016, Mr Pitts entered into a Deed of Settlement and Release with Westpac Banking Corporation pursuant to which he received a "Settlement Sum" of, representing 50% of his excess non-concessional contributions tax liability, in satisfaction of any claims he might have against Westpac for incorrect financial advice, in relation to his incurring the excess non-concessional contributions tax liability ( Deed of Settlement and Release ). The settlement sum is refundable by Mr Pitts in proportion to any reversal, or part reversal, of the Assessment.

Objection, Objection Decision & Application for Review

31. On 9 January 2016, Mr Pitts objected to the Assessment on the ground that he was dissatisfied with the Commissioner's refusal to make a written determination under s 292-465(1) of the ITAA 1997 to disregard or allocate to another financial year part or all of his non-concessional contributions for the 2013 financial year ( Objection ).

32. On 14 March 2016, the Commissioner disallowed the Objection in full ( Objection Decision ).

33. On 10 May 2016, Mr Pitts applied to the Tribunal for a review of the Objection Decision.

34. In a letter attached to his review application, dated 10 May 2016, Mr Pitts states:

The Taxation issue seems to be focusing on the 2012/13 payment when in fact this was carried out exactly as it should have been, assuming that I am reading the bring forward rule correctly. The problem is the 2010/11 actions by my Plan B superannuation fund. It is this one that really requires your attention and action to try and sort the problem out.

…

There are a number of options I ask the appeal process to look at:

• The medical situation in October should be sufficient grounds to have the 2010/11 transaction ignored. Despite all of the legal and so called precedence arguments.

○ This would allow the second transaction in 2012/13 to be allowed to go forward as what it was. A top of my superannuation under the bring forward rule.

○ This is the simplest option.

• The initial 2010/11 so called reinvestment Strategy I believe was not carried out in a lawful manner in respect to the way the transaction was carried out. It should there (sic.) be ignored.

○ In order to open a Superannuation Fund you need to (Attachment 4 from PS LA 2008/1) Transfers funds to the superannuation provider.
The word used is TO not within. This I think is a critical point in that at no stage did I pay funds to my Superannuation Provider. I think I have made that obviously clear. I think I would have remembered doing that even with the stress of my impeding (sic.) and post operation.

○ If what I say is legally correct and I will need some convincing that it isn't, then Plan B should be contacted to change the paperwork of my and possibly many other transactions, they have done for other clients. This is particularly in light of Plan B's statement.

( 10 May 2016 Letter )

ISSUES

35. The central issue for determination by the Tribunal in this application is whether the Tribunal should exercise the discretion in s 292-465(1) of the ITAA 1997 and make a written determination disregarding, or allocating to another financial year, all or part of Mr Pitts's non-concessional contributions for the year ended 30 June 2013.

36. In order to determine the central issue, it is first necessary to consider whether the contribution amount of $328,316.18, made by Mr Pitts on 21 October 2010 (First Contribution Amount), was a "non-concessional contribution" made in the year ended 30 June 2011.

37. If "yes", the broad issue for determination is whether the Tribunal should exercise the discretion under s 292-465(1) of ITAA 1997 to:

• disregard or allocate to another financial year (i.e. other than the year ended 30 June 2011) any part of the First Contribution Amount; or
• disregard or allocate to another financial year (i.e. other than the year ended 30 June 2013) any part of the non-concessional contribution of $325,000 made by Mr Pitts on 5 October 2012 ( Second Contribution Amount ).

38. In determining that broad issue, the following two specific issues must be determined:

(i) whether the discretion in s 292-465(1) of the ITAA 1997 is enlivened having regard to the considerations in s 292-465(3) of the ITAA 1997, namely whether:
- (a) there are "special circumstances"; and
- (b) the Tribunal considers that exercising the discretion is consistent with the "object" of Division 292.
(ii) if "yes" to (i)(a) and (b) above, whether the discretion in s 292- 465(1) of the ITAA 1997 ought be exercised, whereby regard "may" be had to the matters in s 292-465(5) and (6) of ITAA 1997, and any "other relevant matters".

CONSIDERATION

The Law

39. The provisions dealing with the taxation of superannuation are contained in Pt 3-30 of the ITAA 1997. This Part contains a number of "tax concession" provisions. Section 280-1(2) of Pt 3-30 of the ITAA 1997 provides:

(2) 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.

40.

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However, s 280-15(1) of Pt 3-30 of the ITAA 1997 provides:

280-15 Contributions phase - limits on superannuation tax concessions

(1) There is a limit on contributions that can be made in respect of an individual in a year that receive favourable tax treatment. This limit takes the form of a tax on excessive contributions, and neutralises the favourable tax treatment arising from the excessive contributions.

41. Division 292 of Pt 3-30 of the ITAA 1997, titled "Excess non-concessional contributions tax", limits the superannuation contributions made in a financial year that receive concessional tax treatment.

42. Its "Object", as expressed in s 292-5 of the ITAA 1997 (as it read at the relevant time), 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.

43. That object is fulfilled, in part, by placing limits on the amount of "concessional contributions" and "non-concessional contributions" that can be made. That limit takes the form of a tax on excessive contributions. The "object" of Division 292 is discussed in further detail in paragraphs 143-155 below.

44. The "Definitions" in s 995-1 of the ITAA 1997 provides that the term "concessional contributions" has the meaning given by s 291-25 and s 291-165 of the ITAA 1997. Broadly, personal contributions to a complying superannuation plan which are deductible from the individual's assessable income and deductible contributions by employers are "concessional contributions".

45. The "Definitions" in s 995-1 of the ITAA 1997 provides that the term "non-concessional contributions" has the meaning given by s 292-90 of the ITAA 1997. Broadly, non-deductible contributions are "non-concessional contributions", being, generally, contributions made by or on behalf of an individual in a financial year that are not included in the assessable income of a complying superannuation fund, subject to certain qualifications.

46. Relevantly, s 292-80 of the ITAA 1997 provides:

292-80 Liability to excess non-concessional contributions tax

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.

Note: The amount of the tax is set out in that Act.

47. The highest marginal rate of income tax (i.e. 46.5%) is imposed on "excess non-concessional contributions".

48.

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Section 292-85(1) of the ITAA 1997 provides:

292-85 Your excess non-concessional contributions for a financial year

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

(emphasis added)

49. Section 292-85(2) of the ITAA 1997 provides:

(2) Your non-concessional contributions cap is:

…

(c) for the 2009-2010 financial year or a later financial year - the amount that is 6 times your concessional contributions cap for the year.

50. The amount of an individual's non-concessional contributions cap for a financial year may be affected by the operation of the "bring- forward" rule in s 292-85(3) and (4) of the ITAA 1997, as follows:

(3) However, subsection (4) applies instead of subsection (3) in determining your non-concessional contributions cap for a *financial year (the first year ) if:

(a) your *non-concessional contributions for the first year exceed the amount mentioned in subsection (2) for that year; and

(b) you are under 65 years at any time in the first year; and

(c) a previous operation of subsection (4) does not determine your non-concessional contributions cap for the first year.

(4) Work out your non-concessional contributions cap for the first year and for the following 2 *financial years (the second year and third year ) as follows:

(a) your cap for the first year is 3 times the amount mentioned in subsection (2) for the first year;

(b) your cap for the second year is:

(i) if your *non-concessional contributions for the first year fall short of your cap for the first year (worked out under paragraph (a)) - the shortfall; or

(ii) otherwise - nil;

(c) your cap for the third year is:

(i) if your *non-concessional contributions for the second year fall short of your cap for the second year (worked out under paragraph (b)) - the shortfall; or

(ii) otherwise - nil.

51. In the financial years ended 30 June 2011, 30 June 2012 and 30 June 2013, individuals under the age of 65 years were liable for excess non-concessional contributions tax if their non-concessional contributions for each year exceed $150,000 (i.e. the "non-concessional contributions cap" for those particular financial years) or a total of $450,000 in three consecutive years, in accordance with the "bring-forward" rule in s 292-85(3) and (4) of the ITAA 1997, as set out above.

52. The "bring forward" rule was inserted into the ITAA 1997 by the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Amendment Act). Paragraphs 1.85 and 1.86 of the Explanatory Memorandum (EM) to the Tax Laws Amendment (Simplified Superannuation) Bill 2006, which Bill was enacted as the Amendment Act, states the following in relation to the "bring forward rule":

As a concession, to accommodate larger contributions, people under age 65 in a financial year will be able to bring forward future entitlements to two years' worth of non-concessional contributions… The bring forward rule will be triggered automatically…

The First Contribution Amount

The Commissioner's position

53. The "Respondent's Written Outline of Submissions", dated 5 April 2017 ( Commissioner's Written Submissions ), state:

14. On 21 October 2010, to give effect to the re-contribution strategy the Applicant accordingly withdrew all of his entitlement from LSF as a lump sum. The withdrawn funds were held temporarily in another non-superannuation account in the Applicant's name ('00614882 IVO1 Lifetime Investment Service') and then, on the same day, contributed (as non-concessional contributions) to a new complying superannuation fund account ('LSF a/c no. 00118915 LS02').

15. By immediately re-investing that amount as personal contributions to LSF this gave effect to Plan B's re-contribution strategy whereby the Applicant could simultaneously also make use of the bring-forward rule. Because he was over 60 at the time, the withdrawal of those funds from superannuation did not attract any tax and the subsequent re-contribution to superannuation had the effect of changing the character of the funds in the super funds, from a "taxable component" to "tax free component".

16. In total, the Applicant had made non-concessional contributions for the 2011 financial year of $328,316.18. This amount was over the non-concessional contribution cap for the 2011 financial year and triggered the bring-forward provisions in s 292-85 of the ITAA 97.

17. Accordingly, he effectively used his $150,000 cap for the following year (i.e. ended 30 June 2012) and part (i.e. $28,316.18) of his cap for the year ended 30 June 2013, however, thereby reducing his unused contributions cap for the year ended 30 June 2013.

18. The residual non-concessional contributions cap for the 2013 financial year available to the Applicant, taking into account the contributions the Applicant had already made during the 2011 and 2012 financial years, was therefore only $121,683.82 (i.e. $450,000 less $328,316.28).

…

40. For the financial year ended 30 June 2013, the Applicant had a non-concessional contributions cap of $121,683.82 (i.e. $450,000 less the first contribution amount of $328,316.28), as a result of the operation of the bring forward rule triggered in the financial year ended 30 June 2011. No contribution was made in the year ended 30 June 2012. He therefore exceeded the cap for the financial year ended 30 June 2013 by $203,316.18 (i.e. by payment of the second contribution amount of $325,000 less $121,683.82).

Mr Pitt's position

54. In short, Mr Pitts' position is that he did not make a non-concessional contribution of $328,316.18 on 21 October 2010. Put differently, Mr Pitts says that the First Contribution Amount is not a non-concessional contribution.

55.

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In addition to the 10 May 2016 Letter (refer to paragraph 34 above), Mr Pitts provided the following submissions in support of his position:

(i) a letter from Mr Pitts to the Tribunal, dated 14 April 2017 (which was received on 18 April 2017) ( 14 April 2017 Letter ); and
(ii) a further document, being an annotated version of the Commissioner's Written Submissions containing yellow highlighted comments by Mr Pitts, received by the Tribunal on 28 April 2017 ( Annotations ).

56. It is apparent from the 10 May 2016 Letter, the 14 April 2017 Letter and the Annotations that Mr Pitts' position is that the First Contribution Amount is not a non-concessional contribution. In summary, Mr Pitts considers that:

• applying the principles set out in PSLA 2008/1, no "contribution" was "made" on 21 October 2010 ( PSLA 2008/1 Argument );
• the First Contribution Amount (i.e. of $328,316.18) remained "internally" with the fund provider (i.e. LSF) and was simply "rolled-over" ( Rollover Argument ); and
• normal and correct accounting principles were not followed in his case ( Incorrect Accounting Practices Argument ).

57. The Tribunal's view on each of these arguments is considered, in turn, below.

The Tribunal's view

(i) The PSLA 2008/1 Argument

58. Throughout both the 14 April 2017 Letter and the Annotations, Mr Pitts refers to PSLA 2008/1 at [14], which contains the following

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Table summarising when a superannuation contribution is "made" ( PSLA 2008/1 Table ):

If the funds are transferred by …	A contribution is made when …
Making a cash payment (either in Australian or foreign currency) to the superannuation provider	The cash is received by the superannuation provider.
An electronic transfer of funds to the superannuation provider	The funds are credited to the superannuation provider's account.
Giving the superannuation provider a money order or bank cheque on which payment is made	The money order or bank cheque is received by the superannuation provider, unless the order or cheque is dishonoured.
Giving the superannuation provider a personal cheque (other than one that is post-dated) that is presented and honoured with cash or its electronic equivalent	The personal cheque is received by the superannuation provider, so long as the cheque is promptly presented and is honoured.
Giving the superannuation provider a personal cheque that is post-dated and that is presented and honoured .with cash or its electronic equivalent	The cheque is able to be presented for the payment (that is, the date on the cheque), so long as the cheque is promptly presented and is honoured.
A related party (as maker) issuing a promissory note, payable on demand at face value, to the superannuation provider and the note is paid with cash or its electronic equivalent.	The promissory note is received, so long as payment is demanded promptly and the note is honoured.
A related party (as maker) issuing a promissory note, payable on a future date at face value, to the superannuation provider and the note is paid with cash or its electronic equivalent	Payment is able to be demanded or required to be made, so long as the demand (if required) is promptly made and the note is honoured.

59. The argument advanced by Mr Pitts in relation to paragraph 14 of PSLA 2008/1, appears to be based on the following two contentions:

• the PSLA 2008/1 Table points to examples of "new" money coming into superannuation whereas Mr Pitts says that the First Contribution Amount was effectively "old" money returning to superannuation, because it was an "internal transfer" (i.e. "roll-over") within the same fund provider (i.e. LSF); and
• the PSLA 2008/1 Table provides an exhaustive list of examples when "contributions" are said to be properly "made" for superannuation purposes and the Re-Contribution Strategy is not contained on this list.

60. In this regard, the 14 April 2017 Letter states:

Now taking this into account and looking at the document PS LA 2008/1 which was also given to me by the Taxation office section then what the Tax office should have laid out was a clear procedure to do what they were advocating above. This is where I believe lOOF have not followed section 14. You think they have but at no stage was my Super cashed out and paid to me and I at no stage paid it back to IOOF. It was all an internal transaction. This does not follow the intent of section 14 and whilst IOOF may look like they have with the internal cash account supposedly belonging to me it does not follow section 14 of PS LA 2008/1.

(emphasis added)

61. The stated "Purpose" of PSLA 2008/1 is:

To guide tax officers in the exercise of the discretion contained in section 292-465 of the Income Tax Assessment Act 1997.

…

62. PSLA 2008/1 contains the following "Introductory Statement":

This practice statement is issued under the authority of the Commissioner of Taxation and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. It must be followed by tax officers unless doing so creates unintended consequences or is considered incorrect. Where this occurs tax officers must follow their business line's escalation process.

63. As submitted by the Commissioner, Mr Pitts appears to interpret the PSLA 2008/1 Table as an exclusive code, if not a statutory direction, on how a "contribution" can or must be "made" to a superannuation fund. Instead, all it does is summarise the Commissioner's understanding on the ways in which funds are typically (commonly) transferred and when the corresponding "contribution" is accordingly accepted as having been "made".

64. In the paragraph immediately the PSLA 2008/1 Table appears the following statement:

For additional discussion of when a superannuation contribution is made, refer to paragraphs 181 to 210 of Taxation Ruling TR 2010/1 Income tax: Superannuation contributions.

65. It is clear from this statement that the PSLA 2008/1 Table is not intended by the Commissioner to provide an exclusive or prescriptive code as to the only circumstances which would constitute how a "contribution" can be "made" for superannuation purposes, but, rather, provides a "guide" to tax officers on how this ordinarily occurs.

66. Further, footnote 25 in paragraph 14 of PSLA 2008/1 refers to an identical Table in paragraph 13 of Taxation Ruling TR 2010/1 Income tax: Superannuation contributions ( TR 2010/1 ) which, unlike PSLA 2008/1, is a "public ruling" which is binding on the Commissioner, specifically dealing with the question of how contributions are made to super funds. Paragraph 13 of TR 2010/1 provides:

The following table summarises the ways in which funds are typically transferred and when the contribution is made.

( TR 2010/1 Table )

67. As contended by the Commissioner, the TR 2010/1 Table, like the PSLA 2008/1 Table, merely summarises the typical ways in which superannuation funds are transferred and when the corresponding "contribution" is "made". It does not operate as a prescriptive or exclusive code on how contributions must or shall be made.

68.

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Relevantly, both the PSLA 2008/1 Table and the TR 2010/1 Table confirm that a "contribution" is "made" (among other circumstances) when either the cash is received by the superannuation provider or the funds are credited to the superannuation provider's account.

69. Mr Pitts has not established that the First Contribution Amount was not, in fact, received (credited) into the relevant superannuation provider's account. Furthermore, as submitted by the Commissioner, there is nothing in either of PSLA 2008/1 or TR 2010/1 that in any way excludes what was happened in this case under the Re-Contribution Strategy.

70. In any event, as contended by the Commissioner, PSLA 2008/1 is not a public ruling and so is not binding on the Commissioner but, rather, merely a "guide" for tax officers on the exercise of the discretion in s 292-465.

71. As stated above, unlike PSLA 2008/1, TR 2010/1 is a public binding ruling. However, it is well-established that public binding rulings, whilst binding on the Commissioner, are not binding on courts and tribunals as they do not have force of law: see
BHP Billiton Direct Reduced Iron Pty Ltd v Deputy Commissioner of Taxation [2007] FCA 1528 per French J at [98] to [104].

(ii) The Rollover Argument

72. As regards the Rollover Argument, the Annotations provide:

14. …

This SO Called withdrawal was done totally inside the Superannuation provider, and to a layman (me) looks like a Roll over, a number of which have occurred but Plan B and LSF in Past. I contend this is not in accordance with PS LA 2008/1.

…

55. …

The evidence Does not show that the money was WITHDRAWN from my superannuation provider or paid to my bank account outside the Fund Provider. It shows and (sic.) internal transfer just like numerous roll overs that have occurred with me in the past.

73. Mr Pitts contends that the First Contribution Amount (of $328,316.18) was not "contributed" based on the following two propositions:

• what occurred on 21 October 2010 was that there was an "internal transfer" of the funds within LSF (i.e. there was a "roll-over" or a "de facto roll-over"); and
• this type of transaction, whereby the funds are withdrawn out of a complying superannuation fund, then placed into an interim investment account outside of the superannuation system, and then re-contributed back into a complying superannuation fund, is not a transaction which is contemplated by PSLA 2008/1 or TR 2010/1.

74. This raises the following two questions:

• what constitutes a "contribution" for the purposes of Division 292 of the ITAA 1997; and
• when is a contribution "made" for the purposes of Division 292 of the ITAA 1997.

75. "Contribution" and "made" are not defined terms in the ITAA 1997 and therefore take their ordinary meaning.

76. Paragraph 4 of TR 2010/1 sets out the Commissioner's views on the ordinary meaning of the term "contribution" for superannuation purposes, as follows:

Ordinary meaning of contribution

4. In the superannuation context, a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

77.

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The Statement of Advice, provided to Mr Pitts by Plan B, states:

Your Goals and Objectives

You are seeking advice to assist you to:

• Decrease the tax payable on any future income stream commenced from your superannuation fund and to provide an Estate to your children in the most tax-effective manner.

78. According to the Statement of Advice, these goals and objectives would be achieved by implementing the Re-Contribution Strategy.

79. As stated in the "Heading" to paragraph 182 of TR 2010/1, the:

General rule - a contribution is made when received by the fund.

80. As contended by the Commissioner, whether or not the funds (totalling $328,316.18) first went elsewhere, is irrelevant. As set out above (in paragraph 16), in this case, on 21 October 2010, the funds comprising the First Contribution Amount (totalling $328,316.18) were withdrawn from LFS 01 (a complying superannuation fund account) and deposited into the Lifetime Investment Service account (a non-complying superannuation fund account) and subsequently transferred out of the Lifetime Investment Service account and into LSF 02 (a complying superannuation fund account). The evidence shows that this process was complete at least by 22 October 2010 and that the funds comprising the First Contribution Amount were received by the superannuation provider into LSF 02 (and the capital of that fund was increased) by that date.

81. In
Liwszyc v Commissioner of Taxation [2014] FCA 112 ( Liwszyc ), McKerracher J held:

63. … in the case of a contribution of funds by way of an electronic funds transfer, the contribution will be made when the amount is received by the superannuation provider or credited to augment the relevant account…

82. In considering a similar argument concerning (in part) so-called "old" funds being re-contributed, in
McLennan v Federal Commissioner of Taxation [2013] AATA 311 ( McLennan ), Senior Member Dr Levy held (at [33]) that the question of when the money was originally withdrawn was irrelevant and hypothetical, and that the only relevant question was when the taxpayer redeposited the disputed contribution amounts.

83. It follows, in the Tribunal's view, that the First Contribution Amount must be regarded as a "contribution" for the purposes of Division 292 of the ITAA 1997.

84. Section 306-10 of the ITAA 1997, titled "Roll-over of superannuation benefit", provides:

A *superannuation benefit is a roll-over superannuation benefit if:

(a) the benefit is a *superannuation lump sum and a *superannuation benefit; and

…

(c) the benefit satisfies any of the following conditions:

(i) it is paid from a *complying superannuation plan;

…

(d) the benefit satisfies any of the following conditions:

(i) it is paid to a complying superannuation plan;

…

85. It is clear from s 306-10 of the ITAA 1997 on its face that there can only be a "roll-over" over a superannuation benefit under s 306-10 of the ITAA 1997 if there is a payment directly from one "complying superannuation plan" to another "complying superannuation plan".

86. That is not what happened here. As set out above, LSF 01 and LSF 02 were at all material times "complying superannuation funds" within the meaning of s 292-25(2) of ITAA 1997 and s 45 of the SISA. In contrast, the Life Investment Service account was not. Mr Pitts withdrew all of his entitlement from LSF 01, a complying superannuation fund account as a lump sum (i.e. $328,316.18) which consisted entirely of a taxable component. Those funds left the superannuation system, albeit temporarily, by being withdrawn and held in a non-complying superannuation fund (plan) account in Mr Pitts' name, being the Life Investment Service account. Then, on the same day, the funds were re-contributed (as non-concessional contributions) to a new complying superannuation fund account, namely LSF 02, thereby increasing the fund's capital. In such circumstances, there was no "roll-over" of the funds for the purpose of s 306-10 of the ITAA 1997.

87. This conclusion is consistent with Edmonds J's decision in
Player v Commissioner of Taxation [2011] FCA 869 ( Player ). Broadly, the issue for determination in Player was whether a payment which was made by the trustee of the first superannuation fund to the taxpayer, by cheque paid into the taxpayer's bank account, which was immediately drawn on by the taxpayer purchasing a bank cheque for the same amount in favour of, and banked to the credit of, the trustee of another (the second) superannuation fund, qualified as a "roll-over superannuation benefit" for the purposes of s 306-10 of the ITAA 1997.

88.

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Edmonds J clarified the issue of what is and what is not a "roll-over" for the purposes of s.306-10 of ITAA 1997 and agreed with the Tribunal's view that the real issue related to the question of whether the taxpayer had received the payment both legally and beneficially or legally only and in trust for the second fund. Edmonds J fund that if the taxpayer had received the amount both legally and beneficially, then s 306-10 could not apply.

89. As contended by the Commissioner, while it is possible to conceive of a case where an "indirect" contribution to a new super fund (i.e. by way of a transfer from another super fund via an interposed fund/account) could be a "roll-over" (for example, where funds are withdrawn from a complying superannuation fund and paid into a solicitor's trust account with a direction that the amount be on-paid to another complying superannuation plan) that will not be so where funds are received by the taxpayer in the interposed account both legally and beneficially.

90. As submitted by the Commissioner, the evidence in this case clearly shows that the First Contribution Amount was received both legally and beneficially by Mr Pitts when the money was deposited into his Lifetime Investment Service account. Furthermore, this is what was necessary in order to give effect to the Re-contribution Strategy that Mr Pitts agreed to in writing by signing the Authority to Proceed.

91. In McLennan the Tribunal held, in similar circumstances to Mr Pitts, that the First Contribution Amount did not amount to a roll-over benefit under s 306-10 of the ITAA 1997. The Tribunal adopted the view expressed by the Federal Court in Player that where an amount had been received by taxpayer from a superannuation fund "legally and beneficially" before then redepositing the money into a second fund, this would not amount to a "roll-over" of the benefit.

92. Accordingly, contrary to Mr Pitts' submission, the Tribunal finds that there was no "roll-over" in the circumstances of this case.

(iii) The Incorrect Accounting Practices Argument

93. Mr Pitts maintains that there was no excess non-concessional contribution made in the 2011 year. This is clear from the 10 May 2016 Letter, the 14 April 2017 Letter, the Annotations and his evidence at the hearing. For example, paragraphs 33, 34 and 36 of the Annotations state:

I still claim there was not excess contributions.

94. Alternatively, Mr Pitts claims that there was in fact no contribution made at all in the 2011. For example, paragraphs 40, 75, 83, 87, 102, 115 and 120 of the Annotations state:

I contest this was not a contribution

There was NO contribution in 2010.

95. These contentions appear to be based on the assertion that if PSLA 2008/1 had been "followed", alternatively, if "normal accounting principles" had been followed, then the First Contribution Amount would not have amounted to a "contribution". For example, paragraphs 6, 17, 18, 22, 29, 58, 72, 77, 87, 88, 93 and 120 of the Annotations state:

Not if PS LA 2008/1 has not been followed and normal accounting principles are followed.

96. As contended by the Commissioner, Mr Pitts has not provided any evidence or explanation in support of his contention that these practices were "erroneous" or "incorrect" or "not normal accounting principles". He merely asserts that they are irregular, for no reason other than that "PSLA 2008/1 has not been followed", presumably because it is not featured on either the PSLA 2008/1 or TR 2010/1 and the tables therein.

97.

ATC 7428

In relation to the First Contribution Amount, the evidence shows that was an electronic transfer of funds to the superannuation provider (i.e. LSF 02) and the funds were credited to the superannuation provider's (i.e. LSF 02) account, thereby increasing the capital of the fund. There is nothing erroneous or abnormal about this from an accounting perspective: McLennan at [33].

98. As contended by the Commissioner, Mr Pitts does not advance any alternative view regarding how the First Contribution Amount were otherwise to be regarded within the superannuation system, if not as a non-concessional contribution. Further, as submitted by the Commissioner, Mr Pitts offers no explanation to support his contention that the corresponding transfer transactions did not follow standard accounting principles, or indeed what those standard principles would amount to if they had somehow been followed.

99. The accounting practices which were used by Plan B in transferring the funds from LSF 01 into the Lifetime Service Investment account (in Mr Pitts') name and subsequently into LSF 02, appear to the Tribunal to be standard industry-wide practices and Mr Pitts has provided no evidence to the contrary.

100. Consequently, the Tribunal finds Mr Pitts' contentions that incorrect or abnormal accounting principles were applied to give effect to the Re-Contribution Strategy to be entirely without merit.

Discretion in s 292-465 of the ITAA 1997

101. Section 292-465 of the ITAA 1997, as it read at the relevant time (being the financial year ended 30 June 2013), provided:

292-465 Commissioner's discretion to disregard contributions etc. in relation to a financial year

(1) 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.

102. However, an exercise of the discretion in s 292-465(1) of the ITAA 1997 is limited by s 292-465(3) of the ITAA 1997 which, at the relevant time, read:

(3) 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 .

103. It is clear from the use of the word "and" at the end of s 292-465(3)(a) that the two conditions in s 292-465(3)(a) and (b) of the ITAA 1997 are cumulative. That is, the discretion to disregard contributions or allocate them to another year may only be exercised if the Commissioner (and, on review, the Tribunal) considers both that there are "special circumstances" and making the determination is consistent with the object of Division 292.

104. In
Commissioner of Taxation v Dowling [2014] FCA 252 (Dowling), Greenwood J made the following observation in relation to the constraint on the discretion in s 292-265(1) of the ITAA 1997:

93. …The Commissioner's power to exercise the discretion is constrained, at the threshold' by the mandatory requirement that he or she "considers" that there are "special circumstances" warranting a constructive change to the actuality of the contributions either by disregarding or re-allocating some or all of those contributions giving rise to the liability, and that he or she considers that doing so is consistent with the object of Div 292.

94. These s 292-465(3)(a) and (b) considerations are absolute pre-conditions to the exercise of the discretion.

105. His Honour later added:

125. …Once the Tribunal is satisfied of the pre-conditions under s 292-465(3) (a) and (b), the question arose of whether the Tribunal ought to exercise the discretion and that matter gave rise to a consideration of the s 292-465(5) and (6) factors and any other factor the Tribunal regarded as a relevant matter.

Meaning of "special circumstances"

106.

ATC 7429

The expression "special circumstances" is not defined in the ITAA 1997.

107. However, the meaning of "special circumstances" has been considered extensively by the Federal Court and the Tribunal in the context of social security and family assistance law. In summary, it has been held that for circumstances to constitute "special circumstances" they must be circumstances which are "unusual, uncommon or exceptional," "markedly different from the usual run of cases," "special" or "out of the ordinary" and they include events which would render the strict application of the rule in question unfair, inappropriate or unjust: see for example,
Re Ivocic and Director General of Social Services [1981] AATA 57 at [45];
Re Beadle and Director-General of Social Security (1984) 6 ALD 1 ( Re Beadle ) at 3 per Toohey J;
Beadle and Director General of Social Security (1985) 60 ALR 225 at 228 as per Bowen CJ, Fisher and Lockhart JJ; Groth and
Secretary, Department of Social Security (1995) 40 ALD 541 ( Groth ) at 545 per Kiefel J;
Dranichnikov v Centrelink [2003] 75 ALD 134 at [66] per Hill J;
Angelakos and Secretary, Department of Employment and Workplace Relations [2007] FCA 25 ( Angelakos ) at [33];
Davy and Secretary, Department of Employment and Workplace Relations [2007] AATA 1114; (2007) 94 ALD 693 ( Davy ) at [80] and
Re Topp and Secretary, Department of Families, Housing, Community Service and Indigenous Affairs [2010] AATA 99 at [39]. Circumstances might be "special", although they apply to more than one person or class of persons, provided they are not of universal application: see
Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2010) 185 FCR 52 at [65]. However, ultimately, whether circumstances answer any of these descriptions depends on the context in which they occur: Re Beadle; Groth; Angelakos; Davy.

108. From the cases which have considered what constitute "special circumstances" for the purpose of s 292-465 of the ITAA 1997, the following general principles emerge:

• Ignorance of the existence or effect of the law does not, by itself, amount to "special circumstances": Liwszyc at [77] per McKerracher J;
Schuurmans-Stekhoven and Commissioner of Taxation [2012] AATA 62;
Tran and Commissioner of Taxation [2012] AATA 123 ( Tran ) at [15] per Dr Hughes, Member;
Brady and Commissioner of Taxation [2016] AATA 97 ( Brady ) at [44] per Senior Member Lazanas;
• "Special circumstances" does not extend to an error on the taxpayer's part, even if the error was innocent and made in good faith: Liwiszyc at [77]; Tran at [15];
• An error on the part of a third party will not, of its own force, amount to "special circumstances": Liwiszyc at [77];
• Incorrect or deficient financial advice from a third party professional will not, on its own, satisfy the requirement for "special circumstances":
Kerr and Commissioner of Taxation [2007] AATA 1732 at [34] and [35] per Senior Member Ettinger;
Mills and Commissioner of Taxation [2017] AATA 362 at [44] and [45] per Senior Member Lazanas;
Davenport and Commissioner of Taxation [2012] AATA 760 at [79] per Senior Member Walsh and
Re Lynton and Commissioner of Taxation [2012] AATA 667 at [17] per Dr Hughes, Member; Brady at [44];
• While the effect of the circumstances on a taxpayer may be described as unfortunate and unforseen, this is insufficient to render the imposition of the excess contributions tax unjust, unreasonable or inappropriate and to constitute "special circumstances:
Chantrell and Commissioner of Taxation [2012] AATA 179 ( Chantrell ) at [32] per Dr Hughes, Member; and
• It is the circumstances that must be "special", not the individual's experience of them: Tran at [15].

109. In Brady, Senior Member Lazanas commented (at [45]):

The cases where special circumstances have been found for the purposes of Division 292 and, therefore, the discretion enlivened, are very few.
In Re Hamad and Commissioner of Taxation [2012] AATA 530, Senior Member Allen found that there were special circumstances as the taxpayer had been misled by his employer as to the timing of the employer's contributions. In
Re Bornstein and Commissioner of Taxation [2012] AATA 424, Senior Member McCabe was satisfied that there were special circumstances as there was ambiguity on the ATO's website about the timing for the making of contributions because the time permitted for contributions by employers is different to that for employees which led to confusion. Also influential was the fact that the taxpayer "was denied the opportunity to avoid compounding the earlier error he had made because the Commissioner did not alert him to the true position before the further payment was made" (at [11]). In
Re Longcake and Commissioner of Taxation [2012] AATA 576, Deputy President Groom referenced the facts that the taxpayer did not know that his employer had not made the contributions in a timely manner and that there was confusion arising from the fact that employers have additional leeway for making contributions whereas there are stricter time limits for employees and, additionally, the fact that the employer had difficulties with cash flow that may have been a cause of the delay in making the contributions.

110. The above approach to the construction of the discretion in s 292-495 of the ITAA 1997 is supported by the EM. Relevantly, the EM states:

1.117 …it is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case to case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

111. On 5 October 2016, the Full Federal Court (Robertson, Davies and Wigney JJ) handed down their joint judgment in
Ward v Commissioner of Taxation [2016] FCAFC 132 ( Ward ). This was an appeal from the decision of Deputy President Humphries in
Ward v Commissioner of Taxation [2015] AATA 919 ( Ward AAT ) which concerned the existence of "special circumstances" for the purpose of exercising the discretion in s 292-465 of the ITAA 1997.

112. In Ward, the Full Court found (at [41]):

In our opinion, it was open to the Tribunal to find that there were "special circumstances" if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.

113. In reaching this conclusion, the Full Court held at [40] that in Ward AAT:

… the Tribunal erred at [49] and following in proceeding on the basis that because the imposition of the tax [i.e. the excess contributions tax] was the natural and foreseeable consequence of the decisions of Mr Ward and his advisers, it was necessarily outside the scope of "special circumstances". This misconception also pervades the following paragraph, [50], leading the Tribunal to interpret what Kiefel J had said in Groth as meaning that there could not be "special circumstances" unless something unintended had occurred, that is, on the Tribunal's approach, something other than the natural and foreseeable consequence of the decisions Mr Ward and his advisers made . Then, at [52], the notion of "unintended" is given a further application by the Tribunal in its statement that the legislative provisions operated as they were intended to. On those bases, the Tribunal found it could not exercise the discretion because special circumstances were absent."

(emphasis added)

114. Importantly, the Full Court said (at [43]):

In our opinion, the Tribunal erred in law by taking too narrow a view of what may constitute "special circumstances" within the meaning of the statute. This may have been caused by unnecessarily considering factors in isolation before focusing on the entirety of the circumstances said by the applicant to be special . It was certainly caused, in our opinion, by looking at expressions in other decisions and taking those expressions out of their factual and legal context.

(emphasis added)

115. The Tribunal is cognisant of the Full Court's criticism of the Tribunal's reasoning in Ward AAT, central to Full Court's finding in Ward was that, on those peculiar facts, and in light of the very specific reasoning

ATC 7431

process undertaken by the Tribunal in Ward AAT, the Tribunal took too narrow a view of "special circumstances". However, for the following reasons, the Tribunal finds that there are no "special circumstances" justifying the exercise of the discretion in s 292-465(1) on the particular facts of this particular case.

First Contribution Amount & "special circumstances"

116. It is apparent from the 10 May 2016 Letter (refer to paragraph 34 above) that Mr Pitts seeks only the First Contribution Amount of $328,316.18, made on 21 October 2010, to be disregarded because of "special circumstances" said to consist of a combination of:

• Ill health , which Mr Pitts says he suffered at the time of making the First Contribution Amount; and
• Poor financial advice , which Mr Pitts says he received from Plan B and which led to the making of the First Contribution Amount.

117. However, in considering Mr Pitts's contentions in relation to the question of whether there are "special circumstances" pertaining to the First Contribution Amount of $328,316.18, made on 21 October 2010, consideration is instead required of the circumstances of the financial year giving rise to the assessment of excess contributions tax , being the 2013 financial year - not the 2011 financial year.

118. This is confirmed in
Federal Commissioner of Taxation v Dowling [2014] FCA 252 ( Dowling ), wherein Greenwood J held:

36. …. [former] Section 292-465(1)(b) does not contemplate an application by an individual for a written determination that non-concessional contributions made in a financial year other than the financial year in which excess contributions have given rise to an excess contributions assessment (for example, an earlier year where contributions did not exceed the applicable cap for that year), be disregarded or allocated for the purposes of another financial year.

38. The statutory question, so far as it relates to s 292-465(3), is whether the Commissioner considers that there are special circumstances in relation to the application to disregard or reallocate all or part of the individual's non-concessional contributions for the financial year giving rise to the excess contributions tax assessment…

(emphasis added)

119. However, in Dowling Greenwood J commented:

37. That is not to say that circumstances relating to non-concessional contributions made by the individual in the first and second years (years other than the financial year giving rise to the assessment) are not to be taken into account in considering the circumstances relevant to the making of contributions in the financial year the subject of the excess contributions assessment. However, the circumstances relating to the contributions made in the first and second years must have some relevant relationship with the circumstances considered by the Commissioner in relation to the contributions made in the financial year giving rise to the assessment , about which the individual seeks to secure a determination that all or part of the contributions in that year be disregarded or reallocated to another financial year.

(emphasis added)

120. As noted by Greenwood J in Dowling, the question whether there are "special circumstances" requires consideration of the circumstances of the financial year giving rise to the assessment of excess contributions tax.

121. Here, the 2010 contribution (i.e. the First Contribution Amount) caused Mr Pitts to trigger the "bring-forward" provisions which had the effect of giving him a reduced cap in the following 2 years. As contended by the Commissioner, the trigger of the "bring-forward" provision is the operation of the legislative scheme and is part of the factual matrix of the case but does not create a relationship between the 2010 contribution (i.e. the First Contribution Amount) and the 2012 contribution (i.e. the Second Contribution Amount). In this regard, Greenwood J said the following in Dowling:

122. If the focus of the enquiry by the Tribunal is the 2009 contribution, the position is that once the contribution of $293,858.00 was made to Mrs Dowling's Sunsuper superannuation account, that contribution crystallised, as a matter of law, the non-concessional contributions cap for that year and the following two years. The

ATC 7432
statutory question asked by [former subsection] 292-465(6) is whether it was reasonably foreseeable, when a relevant contribution was made (in this case the Tribunal's examination of the 2009 contribution) that Mrs Dowling would have excess non-concessional contributions for the relevant financial year (being the 2008/2009year). The answer to that question is that there were no excess non-concessional contributions as [former subsection] 292-85(4) made it plain at that time that the non-concessional contributions cap was $450,000.00. The statute brought about that result and there was nothing unfair or unjust about it and nor was it an unintended outcome. The statute simply worked its orthodox result.

…

124. The question of whether there were special circumstances in relation to the contribution of 30 August 2010 is partly informed by the circumstances of the contribution on 10 February 2009 because that contribution had the effect of determining the non-concessional contributions cap for the 2010/2011 financial year. The Tribunal concluded, correctly, that there were no special circumstances in relation to the contribution on 30 August 2010. Nothing about the circumstances of the contribution on 10 February 2009 has the effect of rendering the circumstances in which the 30 August 2010 contribution was made "special circumstances".

ATC 7433
(i) Ill-health

122. On 5 August 2010, Mr Pitts noticed that a black band had appeared on his left index finger. On 14 August 2010, Mr Pitts had a biopsy on his left index finger fingernail and the results of this biopsy, dated 13 September 2010, confirmed the existence of a melanoma on his left index finger. In early October 2010, it was recommended that Mr Pitts have part of his left index finger surgically removed. In early October 2010, Mr Pitts returned to Perth from Indonesia (where he lived at that time). On 8 October 2010, Mr Pitts attended his annual meeting with his Plan B adviser, Mr Dowling, at which the Re-Contribution Strategy was discussed. On 10 October 2010, Mr Pitts consulted a plastic surgeon in relation to the removal of the melanoma on his left index finger. On 12 October 2010, Mr Pitts had surgery, under general anaesthetic, to remove the top half of his left index finger. Mr Pitts claims to have little recollection of this trip to Perth and of his meeting with Mr Dowling on 8 October 2010 at which the Re-Contribution Strategy was discussed. Mr Pitts claims that his memory loss was purely stress related. Further, although Mr Pitts acknowledges that it is his signature which appears on the Authority to Proceed, he claims that he does not remember receiving any paperwork in relation to the Re-Contribution Strategy from LSF.

123. Despite Mr Pitts's illness he arranged his annual meeting with his Plan B financial advisor, Mr Dowling, to coincide with his visit to Perth (in October 2010) and he managed to attend that meeting. Mr Pitts has also acknowledged, in writing, Mr Dowling's written record of the advice given at that meeting.

124. Mr Pitts has provided a letter from his doctor, dated 16 July 2015, which records the treatment he received in October 2010. Although the letter lists prescribed medication, it does not support Mr Pitts' assertions concerning stress related memory loss at that time.

125. Mr Pitts has also provided general information on signs and symptoms of stress overload said to result in memory problems and poor judgment. Unfortunately, however, Mr Pitts has not provided any evidence which directly supports his claims concerning his mental state in October 2010.

126. Whilst the Tribunal acknowledges that Mr Pitts faced some personal difficulties at the time of making the First Contribution Amount, that alone is insufficient to amount to "special circumstances" for the purpose of s 292-465 of the ITAA 1997.

127. In this regard, the Tribunal adopts the following comments of Dr Hughes, Member, in
Lynton v Commissioner of Taxation [2012] AATA 667 ( Lynton ):

15. The applicant's difficult personal situation is not which, in an unusual or uncommon way, would have directly affected his ability to manage his financial affairs. In this regard, it is important to emphasise that the Tribunal is not unsympathetic towards the personal challenges confronting the applicant in his daily life - but put simply, such circumstances are not what the legislation contemplates when it refers to special circumstances. The legislation contemplates circumstances which are inconsistent with a natural and foreseeable sequence of events. It does not contemplate circumstances which are of special significance to the taxpayer but not unique to an individual in the taxpayer's position.

128. In finding that Mr Pitts' ill-health around the time of the First Contribution Amount is not a "special circumstance" for the purpose of s 292-465 of the ITAA 1997, the Tribunal also adopts the following comments of Deputy President Deutsch in
Thompson v Commissioner of Taxation [2014] AATA 339 ( Thompson ):

50. … While I readily sympathise with the Applicant, and recognise that she has endured more than her fair share of personal problems, these are not matters that can ultimately be factored into the application of s292-465(3).

…

52. First, there is nothing 'unusual or different' about someone experiencing difficult or trying personal circumstances. That is simply one of the vicissitudes of life; it is not something that can be described as "special".

(ii) Poor financial advice

129. Mr Pitts also contends that he received poor financial advice from his Plan B financial advisor, Mr Dowling, because the Re-Contribution Strategy was of little or no benefit to a person in his circumstances at the time (i.e. being already over 60 years of age and thus not subject to income tax on receipt of any lump sum or pension payments from LSF) and that any benefits were far outweighed by the detrimental effect of reducing the amount of non-concessional contributions he could make before he turned 65 in February 2013 without exceeding his 3 year non-concessional gap. Mr Pitts claims that he intended to leave everything to his (much younger wife) in his will and to leave nothing to his adult children. Because his wife was his "dependant" for tax purposes, Mr Pitts contends there was little to be gained from the re-contribution strategy. That is, his wife would not be taxed on anything she inherited from his super fund. The re-contribution strategy would have only provided an advantage in the unlikely event that his (much younger) wife died before him and his adult children inherited his superannuation entitlements.

130. As contended by the Commissioner, the evidence suggests that it is only with the benefit of hindsight that the re-contribution transaction appears to be less than optimal. The rapid rise in real estate values in the intervening period between October 2010 and 2012 appears to have made retaining the Duncraig Property less attractive than realising the capital gain and investing that gain into superannuation. Furthermore, there is also no evidence that in 2010 the Applicant intended to sell either of his properties and to invest the proceeds of sale into superannuation, and there is no evidence that he had ever expressed an intention or desire to Mike Dowling or Plan B to sell the Duncraig property and to place the net proceeds into superannuation.

131.

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As set out above (in paragraph 108), it has been held that incorrect, erroneous, or negligent financial advice does not of itself constitute "special circumstances" sufficient to enliven the discretion in s 292-495(1) of the ITAA 1997.

132. In relation to this issue, Deputy President Deutsch commented in Thompson, as follows:

47. … there is nothing "special" in having received incorrect advice. In that

respect, the Applicant's appropriate potential remedy is with the Financial Ombudsman Service.

48. … there is an argument that rather than as a consequence of incorrect advice, the Citibank Contribution was made as a result of her own wrong assumptions and ignorance of the law, neither of which gives rise to anything "special".

Conclusion - the First Contribution Amount & "special circumstances"

133. For the above reasons, the Tribunal finds that the circumstances surrounding the First Contribution Amount (i.e. ill-health and poor financial advice) are not, in themselves, "special circumstances" because they are not so unusual or different as to take them out of the ordinary course: refer to paragraphs 107 and 108 above.

134. As contended by the Commissioner, all that has happened is that an investment strategy, that was reasonable to adopt at the time that it was made (i.e. the Re-Contribution Strategy adopted in October 2010), subsequently proved to be less than optimal with the benefit of hindsight. Nor do Mr Pitts's particular personal circumstances, in the context of the purpose of the excess contributions tax, make it unjust, unreasonable or inappropriate for a liability for excess contributions tax to be imposed on Mr Pitts. This outcome is, as contended by the Commissioner, an intended application of the law: Thompson.

135. In any event, in the absence of a direct connection or relevant relationship being established by Mr Pitts between these earlier, October 2010, circumstances (i.e. ill-health and poor financial advice) and the making of the excess non-concessional contributions in the 2013 financial year, the Tribunals' views pertaining to the First Contribution Amount in the year ended 30 June 2011, are that these earlier circumstances are not "special circumstances" for the purposes of s 292-465(3) of the ITAA 1997: Dowling.

136. Finally, as noted above (in paragraphs 29 and 30), Mr Pitts entered into a Deed of Settlement and Release with Westpac Banking Corporation on 15 January 2016, in which it is stated that it was the Westpac advice that caused Mr Pitts to exceed the cap in the 2013 financial year and he was paid compensation from Westpac in respect of that incorrect advice. Yet, now, Mr Pitts asserts that it was the earlier advice, given by Mr Dowling of Plan B in October 2010 that caused him to exceed the cap. This assertion is inconsistent with him entering into a Deed of Settlement and Release with Westpac concerning the incorrect financial advice he received in relation to the Second Contribution Amount. .

Second Contribution Amount & "special circumstances"

137. The Second Contribution Amount (being the contribution of $325,000 by Mr Pitts to the BT Portfolio Wrap on 5 October 2012) was the contribution that caused Mr Pitts, as a matter of law, to exceed his non-concessional contributions cap in the 2013 financial year.

138. As submitted by the Commissioner, Mr Pitts has not provided any information or evidence to suggest that this decision was impacted by any medical condition at that time. A chronology of health events, provided by Mr Pitts, does not list any medical events taking place

ATC 7435

at or around 5 October 2012 when the Second Contribution Amount occurred. Indeed, the evidence before the Tribunal shows that Mr Pitts specifically made the Second Contribution Amount to utilise the "bring forward" provisions before turning 65.

139. Whilst the Tribunal acknowledges that Mr Pitts had several health issues prior to the making of the Second Contribution Amount (specifically in the 2010 and 2011 financial years), it does not consider there is sufficient evidence of a direct link between the actual timing of Mr Pitts' condition or treatments in 2010 and 2011, and the timing of the Second Contribution Amount in the 2013 financial year, being the relevant financial year requiring consideration of the circumstances of the giving rise to the assessment of excess contributions tax for the question of whether "special circumstances" exist: Dowling.

140. Mr Pitts does not contend that the Second Contribution Amount of $325,000, made on 5 October 2012, should be disregarded or allocated to another year. As submitted by the Commissioner, Mr Pitts' evidence does not attempt to show the existence of "special circumstances" and he squarely contends that the contribution should be properly recognised for what it was, and that it was intended.

141. Consequently, as contended by the Commissioner, it appears undisputed, that the $325,000 contribution made in the 2013 financial year (i.e. the Second Contribution Amount) by Mr Pitts that gave rise to a non-concessional contribution in excess of the non-concessional contributions cap, thus giving rise to a liability for excess contributions tax in the 2013 financial year, ought not be disregarded or allocated to another financial year as there exists no basis for enlivening the discretion having regard to the two considerations in s 292-465(3) of the ITAA 1997, namely whether: (i) there are "special circumstances"; and (ii) the Tribunal considers that exercising the discretion is consistent with the object of Division 292.

142. As evidenced by the Deed of Settlement and Release (refer to paragraphs 29 and 30 above), it is accepted that incorrect financial advice was provided to Mr Pitts by Westpac, albeit in relation to the Second Contribution Amount. Based on the evidence, that advice was given to Mr Pitts by Westpac, without knowledge of the First Contribution Amount being made in the 2011 financial year. As contended by the Commissioner, the receipt of compensation from Westpac in the form of a payment equal to 50% of the excess non-concessional tax liability, to the extent that it relieves any perceived harshness or unfairness in the overall result for Mr Pitts, is relevant to the question of whether or not "special circumstances" exist, in Mr Pitts' case, in relation to the Second Contribution Amount. The Tribunal agrees with the Commissioner, that the receipt of that compensation does not leave Mr Pitts in an unduly disadvantageous position when compared to the position he would have been if he had not exceeded his non-concessional contributions cap in the 2013 financial year. This is especially the case when the receipt of the compensation is added to the circumstance that any future income derived from the excess contributions will not be subject to income tax.

Object of Division 292

143. Section 292-465(3)(b) of ITAA 97 requires the Tribunal to consider whether a written determination allocating to another year or disregarding all or part of an individual's non-concessional contributions is consistent with the "object" of the Division.

144. To reiterate, s 292-5 of Division 292 of the ITAA 1997 provides:

292-5 Object

The object of this Division is to ensure, in relation to non-concessional contributions to superannuation, that the amount of concessionally taxed *superannuation benefits that an individual receives results from contributions that have been made gradually over the course of the individual's life.

145. The superannuation lump sum benefit Mr Pitts received (withdrew) from LSF 01 on 21 October 2010 (totalling $328,316.18) was received tax free as he had reached age 60 at the time of the withdrawal. That is, at the time Mr Pitts withdrew that amount from LSF 01 on 21 October 2010 (i.e. invested on his behalf in Lifetime Investment Service account) he enjoyed the concessional tax treatment that Parliament intended for those superannuation benefits in accordance with the "object" of Division 292.

ATC 7436

146. Consequently, as submitted by the Commissioner, the subsequent superannuation contributions made by Mr Pitts, firstly to LSF 02 and, later, to BT Portfolio Wrap, should not be disregarded as they are new amounts of superannuation benefits that will enjoy concessional tax treatment and must accordingly be measured against the non-concessional contributions cap in accordance with the "object" of Division 292.

147. As contended by the Commissioner, by contributing the First Contribution Amount of $328,316.18 on 21 October 2010 to LSF02 and the Second contribution Amount of $325,000 to the BT Portfolio Wrap in October 2012, above the legislated cap, Mr Pitts acted contrary to the "object" of the legislation and has engaged in conduct which the legislation is specifically designed to discourage.

148. If the discretion was to be exercised by the Tribunal in Mr Pitts' favour, the result would be that Mr Pitts would have more money in superannuation than those that do not exceed their cap. The imposition excess contributions tax ensures, in keeping with the object of Division 292, that the excess amount in superannuation does not result in Mr Pitts receiving a larger amount of concessionally taxed superannuation benefits than others would be entitled to: refer to paragraphs 41 to 43 above.

149. Despite Mr Pitts' contention to the contrary, there is no evidence from which the Tribunal can infer that the relevant contributions were made gradually over Mr Pitts' life, consistently with the object of Division 292. That is, as submitted by the Commissioner, based on the evidence Mr Pitts has not sought to make gradual contributions in line with the "bring-forward" provisions and has therefore has been the beneficiary of tax concessions above and beyond those legislated.

150. As contended by the Commissioner, a comparison of what the financial position of the Mr Pitts would have been, had he limited his contributions to the relevant cap, to what his financial position will be if the excess contributions are disregarded, further demonstrates that the exercise of the discretion in Mr Pitt's favour would be inconsistent with the "object" of Division 292. That is, if Mr Pitts had not exceeded the relevant cap then any income earned by the "excess" amount of $203,316.18 not invested in superannuation, would have been subject to income tax at ordinary rates. Conversely, given that those excess contributions are now invested in a superannuation fund, any income they earn in the fund and which is then paid to Mr Pitts, will be income tax free in his hands.

151. The imposition of excess contributions tax can be properly regarded, in such circumstances, as an attempt to Mr Pitts in the same position that he would have been had he not made the excess contributions: refer to paragraphs 41 to 43 above. As asserted by the Commissioner, to disregard the excess contributions would therefore compromise the effectiveness of Division 292 as a means of limiting the amount of contributions that can receive favourable tax treatment and Mr Pitts will be conferred a benefit not shared by other taxpayers.

152. In Chantrell, the Tribunal commented (at [34]):

… that it would be inconsistent with the object of Division 292 for relief to be provided in circumstances where a taxpayer has, in effect, made a miscalculation, albeit an innocent one.

153. Similar considerations apply here.

154.

ATC 7437

As stated by the Tribunal in Lynton:

17. … it would be inconsistent with the object of Division 292 for the Commissioner to exercise his discretion in circumstances where the excess contributions result from inadvertence, ignorance of the law or incorrect advice. The object necessarily leaves the taxpayers with a responsibility to ensure compliance with the legislative requirements which are designed to realise the object.

155. It follows that even if the Tribunal was satisfied that "special circumstances" exist in Mr Pitts' case (which it is not), the exercise of the discretion in s 292-465(1) of the ITAA 1997 would, for the above reasons, be inconsistent with the stated "object" of Division 292. Consequently, the discretion to make a written determination under s 292-465(1) of the ITAA 1997 is simply not enlivened in Mr Pitts' case.

Other relevant matters

156. Further, s 292-465(4) of the ITAA 1997 (as it read at the relevant time) provided:

(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters .

(emphasis added)

157. Section 292-465(5) of the 1TAA 1997 provides:

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

158. Section 292-465(6) of the ITAA 1997 provides:

(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 .

(emphasis added)

159. For the above reasons, the Tribunal has found that the preconditions to the exercise of the discretion in s 292-465(1) of the ITAA 1997, contained in s 292- 465(3) of the ITAA 1997, are not met in Mr Pitts' case. Accordingly, it is strictly unnecessary for the Tribunal to have regard to the matters set out in s 292-465(5) and (6) of the ITAA 1997 (as set out above), or to any other relevant matters in making a determination to disregard or reallocate.

160. However, for completeness, the Tribunal makes the following observations.

161. As regards s 292-465(5) of the ITAA 1997, there is, as contended by the Commissioner, no basis on which to treat either the contributions made in the 2011 financial year or those made in the 2013 financial year as more appropriately being allocated to a different financial year. There is no inherent connection between either of those contributions and any financial year other than the respective financial years in which they were made: refer to paragraphs 117-121 and 135 above.

162. Under s 292-465(6) of the ITAA 1997, whether it was reasonably foreseeable when a relevant contribution was made, that a person would have excess contributions for the relevant financial year is a question of objective fact.

163. As argued by the Commissioner, regardless of what Mr Pitts' mental state was when making the First Contribution Amount, in October 2010, it was nonetheless, "reasonably foreseeable" that he would exceed the remaining non-concessional contributions cap when making the Second Contribution Amount in October 2012.

164. This is because Mr Pitts was provided with all documentation relevant to the First Contribution Amount by Mr Dowling of Plan B at the time the First Contribution Amount was made. The relevant documents clearly set out the amount of cap and the amount of contribution to be made in the 2011 year and Mr Pitts signed the relevant documents confirming he was aware that the re-contribution would count towards his 3-year, $450,000 non-concessional contribution limit: refer to paragraph 12 above. As contended by the Commissioner, in such circumstances it should have been "reasonably foreseeable" that a further contribution of $325,000, within the same three year period (i.e. the Second Contribution Amount), would result in excess contributions.

165.

ATC 7438

Further, the evidence demonstrates that in the 2013 year Mr Pitts had full "control" over the amount and timing of the contributions to BT Portfolio Wrap (i.e. the Second Contribution Amount). He gave authority to his Westpac advisor to obtain information from Plan B: refer to paragraph 19 above. While the Westpac advisor may have given different advice in relation to Second Contribution Amount (for example, if more due diligence had been done) it is well-recognised that the proper recourse for incorrect advice is to seek compensation from the advisor, which Mr Pitts has already done by entering into a Deed of Settlement and Release and receiving compensation: refer to paragraphs 29 and 30 above.

DECISION

166. For the above reasons, the Tribunal affirms the Objection Decision.

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*Concessional Contributions*	*Your concessional contributions cap*	*Your excess concessional contributions*
$24,189.00	$25,000	$0.00

*Non-concessional contributions*	*Your non-concessional contributions*	*Your excess non-concessional contributions*
$325,000	$121,683	$203,316.18