Case W106

Members:
PM Roach SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 27 October 1989.

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P.M. Roach (Senior Member)

This is a small matter but, should it happen that the applicant has been excessively assessed to income tax, it is a matter of some importance to her and to all others who might be adversely affected by the construction placed on the relevant legislation by the Commissioner and his officers. The case was presented by enthusiastic but inexperienced advocates, each concerned to advance the cause they represented. The applicant's brother, an accountant, represented her. The Commissioner was represented by one of his officers. The Commissioner's officer paid close attention to the provisions of the Income Tax Assessment Act (``the Act''), but neither he nor the applicant's representative made precise reference to the provisions of the relevant State legislation. They were content to rely on brochures published by the relevant statutory authority in later years as providing a sufficient indication of the scope and relevant effect of that legislation in the earlier year of income to which the reference relates. Fortunately they are agreed as to the entitlements which might arise under that State legislation.

2. The applicant is a member of the academic staff of a university. Her discipline is one of the social sciences. No evidence was called as to her age but, if it had been necessary to do so, I would have found her to have been substantially less than 55 years of age at 1 January 1984. It happens that, in passing, she had affirmed the accuracy of her income tax return and the statements in it. One statement identified the year of her birth. That being so I am able to be more precise and hold that at the present time she is in the fortieth year of her age. It is unnecessary to find whether that was an admission against interest or a self-serving statement.

3. The problem arises because the applicant during the year of income ended 30 June 1986 was a member of two superannuation funds: she contributed $269 to one fund and $1,500 to the other. She claimed the latter amount as an income tax deduction. The claim was presented by item 45 of the relevant form of return. The form identifies that item in the following terms:

``NON-EMPLOYER SPONSORED SUPERANNUATION FUND

A deduction is not allowable if your employer or any other person contributed, or agreed to contribute, to a fund on your behalf.''

Not surprisingly, the summation is not in all circumstances accurate.

4. The claim was disallowed by the Commissioner and the coded explanation provided to the applicant identified the reason for disallowance as being:

``disallowed in view of superannuation support provided by your employer.''

5. The applicant objected to the disallowance and, upon the objection being disallowed, she requested an independent review of the decision of the Commissioner upon the objection. She was fortunate that at the time she did so she was not called upon to pay a substantial fee as the price of challenging the claim so made upon her by the community.

6. She claims the benefits which she contends were provided for by sec. 82AAT of the Act which provides:

``(1) Subject to this section, there shall be allowed as a deduction from the assessable income of an eligible person of a year of income the amount of any contribution... made by the eligible person during the year of income... to a qualifying superannuation fund, being contributions made to obtain superannuation benefits for the eligible person, or, in the event of the death of the eligible person, for the dependents of the eligible person.

(2) The deduction allowable to a taxpayer under this section from the assessable income of the year of income shall not exceed $1,500.''

7. Had the question been canvassed in evidence she would probably have expressed her belief that the Parliament had made such provision in order to encourage persons such as herself to place portion of their current income out of reach in superannuation funds in order to advance current economic policy by supporting investment rather than consumption and to advance social policy for the future by setting aside some part of her current income to make provision for her own financial support in ultimate retirement. But the Commissioner disallowed her claim. In doing so he sought to give effect to the fiscal policy of confining the benefits conferred by sec. 82AAT of the Act to

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ATC 852

those persons defined as ``eligible persons'' by sec. 82AAS of the Act. It was accepted that the contributions had been made to a ``qualifying superannuation fund''.

8. To determine whether the applicant was ``an eligible person'' it is necessary to consider 82AAS(2) which provides:

``(2) Subject to sub-section (3), a person (in this sub-section referred to as the `relevant person') is an eligible person in relation to a year of income for the purposes of this Subdivision unless -

• (a) during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person upon retirement or for dependants of the relevant person (whether or not any condition other than the retirement or death of the relevant person would be required to be satisfied in order that those benefits be provided); and
• (b) to the extent to which those benefits would be attributable to the year of income -
  • (i) the benefits would be wholly or partly attributable to contributions made to a superannuation fund in relation to the relevant person by a person other than the relevant person; or
  • (ii) the benefits would, in whole or in part, be paid out of moneys that would not represent -
    • (A) contributions made by the relevant person to a superannuation fund;
    • (B) contributions made by the relevant person under a scheme for the payment of benefits upon retirement or death, being a scheme constituted by or under a law of the Commonwealth or of a State or Territory; or
    • (C) income or accretions arising from contributions referred to in sub-sub-paragraph (A) or (B).''

9. If the applicant is found to have been an eligible person as so defined, she will be entitled to succeed in the application. Alternatively, the objection called for the Tribunal to consider whether she should be deemed to be an eligible person by invoking sec. 82AAS(3) which provides:

``(3) Where, apart from this sub-section, a person would not be an eligible person in relation to a year of income for the purposes of this Subdivision by reason of the operation of sub-section (2) in relation to a part only of a year of income and the Commissioner, having regard to -

• (a) the period or periods during the year of income or during any preceding year of income during which circumstances of the kind specified in that sub-section existed in relation to the person; and
• (b) such other matters as the Commissioner thinks relevant,

is of the opinion that it is reasonable that the person should be treated as an eligible person in relation to the year of income for the purposes of this Subdivision, the person shall be deemed to be an eligible person in relation to the year of income for the purposes of this Subdivision.''

The point was not argued. That was appropriate. Nothing turns on any change of circumstances during the year.

10. Section 82AAS(2) speaks of reasonable expectations: a proposition which I would understand to be a reference to ``probabilities''. For the Commissioner the construction favoured is that, no matter how unlikely the prospect that she, or her dependants, would qualify for benefit, it is sufficient that, if it did happen that benefits would be payable, those benefits when paid would reflect the employer's contributions to the scheme. On the other hand it is contended for the applicant that, so long as it was improbable that she or her dependants would qualify for benefits, drawing on her employer's contributions she remains an ``eligible person'' entitled to the benefits provided for sec. 82AAT of the Act.

11. The view I have so expressed accords with the view adopted by a Full Bench of the Federal Court of Australia in
F.C. of T. v. Arklay 89 ATC 4563, where their Honours said (at p. 4567):

``We are of the opinion that the phrase with which we are concerned in the context of

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sec. 82AAS of the Act requires a determination whether or not circumstances exist by reason of which the decision-maker is able to expect on reasonable grounds that superannuation benefits would be provided as stipulated in the section. That test is an objective one. However, in applying the test the decision-maker, in considering the circumstances, should have regard to any relevant matters concerning the taxpayer personally. Put another way our understanding of the meaning of the expression is one which involves the application of an objective test, but, as one of the concomitant elements of that test, the subjective intentions of the taxpayer may be relevant.''

12. The problem arises in this way. In her thirty-fifth year the applicant secured an academic appointment lecturing at a State university. For the first time she qualified for admission to the relevant State superannuation fund. In addition it was a condition of her employment that, in the absence of being granted exemption from membership by that superannuation fund, she should become a member of that fund. For her own reasons she opted to make the minimum contributions permitted to her. Her appointment to the university was a fixed term appointment for five years only. She had no assurance that she would continue in the service of that university or any other employer beyond that term. There was no assurance that that position would be continued beyond that date by the university or that, if the university did choose to continue the position, she would be appointed to it. In the event the university did extend the position and advertised internationally seeking applications for the position. The present applicant applied and she was successful. With effect from 1 January 1989 she commenced a second five year appointment on the academic staff of the university. If she completes that current term of service and then retires, without her appointment having been extended or any other appointment provided, she will qualify for superannuation benefits; and, it is not disputed, the benefits to which she will then be entitled will reflect her employer's contributions to the fund.

13. But, had she retired from the service of the university upon the expiration of her initial appointment, or if she was to retire otherwise than by reason of ill health or disability before completing ten years of service to the university, she will not be entitled to the fullness of those benefits. In those events she will only be entitled to have returned to her her own contributions and an amount reflecting earnings thereon.

14. So it was that throughout the year of income ended 30 June 1986 the applicant and her dependants only stood in prospect of deriving superannuation benefits in three circumstances:

• (a) the applicant could retire upon the completion of her contract after five years of service, in which event she would receive benefits limited to her own contributions and earnings thereon and not in any way reflecting any employer contributions;
• (b) during the five years of her service she could become entitled to superannuation benefits by reason of ill health or disability: in which event the benefits would reflect her employer's contributions to the fund; or
• (c) she could die, in which event her dependants would come to be entitled to benefits which would reflect employer contributions to the fund.

15. Although any of those courses might have eventuated it was quite improbable, having regard to the age and seeming good health of the applicant, that any entitlement to superannuation benefits would arise before 31 December 1988 or arise by reason of ill health, disability or death. Throughout the year of income ended 30 June 1986 the only reasonable expectation was that this particular applicant would not serve the university beyond the term of her existing contract and that, following her retirement occasioned by the expiration of that contract, such benefits as would then come to her would relate only to her own contributions and would not in any way reflect employer's contributions.

16. I conclude that the applicant is not to be denied the status of an ``eligible person'' by reason of the exclusions provided for in sec. 82AAS of the Act. That being so, the order of the Tribunal will be that the determination of the Commissioner upon the objection under review shall be varied and the objection of the applicant wholly allowed.