ATO Interpretative Decision
ATO ID 2010/104
Superannuation
Excess contributions tax: restitution of a 'mistaken' contributionFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will the Commissioner include the full amount of a personal contribution of $500,000 made by an individual in the individual's non-concessional contributions under section 292-90 of the Income Tax Assessment Act 1997 (ITAA 1997), even though the trustee that received the contribution subsequently repaid $200,000 of it in purported restitution of a payment made for mistake?
Decision
Yes, the full amount of the $500,000 personal contribution will be included in the person's non-concessional contributions under section 292-90 of the ITAA 1997 even though part of it was returned.
Facts
An individual under the age of 65 made the following personal contributions to a complying superannuation fund:
| Date of contribution | Amount of contribution ($) |
| 1 Aug 2006 | 200,000 |
| 21 Jan 2007 | 500,000 |
| 10 June 2007 | 500,000 |
The contributions made in January and June 2007 were made after the individual obtained financial advice confirming that he was able to contribute $1 million by 30 June 2007.
The individual made the contributions voluntarily to obtain superannuation benefits for his retirement. He was not under any legal obligation to make the contributions, nor did he believe he was under any legal obligation to make them.
The individual did not deduct any of these personal contributions, nor did he at any time intend to deduct any part of these personal contributions.
The fund's trustees reported personal contributions of $1.2 million for the individual in the fund's Member Contributions Statement for the year ended 30 June 2007.
In October 2008 the individual requested the trustees return $200,000 of the $500,000 personal contribution made on 10 June 2007 on the ground that this portion of the contribution was made under a mistake.
He asserted to the fund trustees that his mistake was that he was unaware of the exact dates between which the relevant non-concessional contributions totalling $1 million could be made. That is, he effectively asserted he was unaware his August 2006 contribution would be counted towards the $1 million non-concessional contributions cap.
The trustee decided the individual would have contributed only $300,000 of his June 2007 contribution but for his mistake and paid him $200,000 purportedly under the law of restitution for mistake.
The fund adjusted the member's account by reducing the June 2007 contribution to $300,000 and amended their Member Contributions Statement to report $1 million personal contributions for the individual for the 2007 year.
Reasons for Decision
Treatment of the contributions
Each of the three personal contributions made by the individual in the transitional financial year (section 292-80 of the Income Tax (Transitional Provisions) Act 1997 provides that the period 10 May 2006 to 30 June 2007 is treated as a financial year for the purposes of section 292-90 of the ITAA 1997 (among other provisions)) 10 May 2006 to 30 June 2007 were to provide superannuation benefits for the individual and were correctly accepted in accordance with subregulation 7.04(1) of Superannuation Industry (Supervision) Regulations 1994 (SISR).
Each of the three personal contributions made by the individual in the transitional financial year were non-concessional contributions as defined in subsection 292-90(2) of the ITAA 1997. The contributions were not assessable income of the fund as they were not covered by a valid and acknowledged notice of intent to deduct (see section 274 of the Income Tax Assessment Act 1936 and section 295-190 of the ITAA 1997), and these contributions were not specifically excluded from being non-concessional contributions by paragraph 292-90(2)(c) or subsection 292-90(3) of the ITAA 1997.
Restitution for mistake
The High Court in David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48 at 40; (1992) 175 CLR 353 at 374; (1992) 109 ALR 57 at 73-74 (David Securities case) said that no distinction should be made between a mistake of law and a mistake of fact as a ground for restitution provided the mistake caused the payment. The majority judgment expressed the view that adopting a principle founded firmly on the policy that the law wishes to uphold bargains and enforce compromises freely entered into, would be more accurate and equitable than defining mistake as a supposition that a particular fact is true (David Securities case at HCA 44, CLR 374, ALR 74-75).
The majority of the High Court in the David Securities case did not identify the applicable test of causation, however, it is suggested that to establish that the mistake was a cause of the payment, the plaintiff would need to establish that the payment would not have been made if he had known of his mistake at the time of the payment (Erbacher S, Australian Restitution Law, 2nd ed. Cavendish Publishing, Australia, 2002, p 103).
The grounds for restitution for mistake concentrate on the principle of unjust enrichment which concerns whether it would be unjust for the recipient to retain the enrichment. It is prima facie unjust for the recipient to retain an enrichment conferred because of mistake, regardless of whether the mistake is a mistake of law or fact (David Securities case at CLR 376-377).
However, the payer's prima facie right of recovery may be rebutted to the extent that circumstances have removed any unjust enrichment (Mason & Carter, Restitution Law in Australia, 2nd ed, Lexis Nexis Butterworths, Australia, 2008 at [401]). A court will find that the recipient may justly retain a mistaken payment if any one of several defences applies in a particular case (see David Securities case at HCA 48, CLR 376, ALR 76).
Unjust enrichment based on the ground of mistake has been considered in the Australian superannuation context in one case in the Supreme Court of New South Wales and one Superannuation Complaints Tribunal case.
In Personalised Transport Services Pty Ltd v. AMP Superannuation Ltd and Anor [2006] NSWSC 5 (Personalised Transport case), the company paid superannuation contributions to AMP in the mistaken belief that the company had a legal obligation to make superannuation guarantee contributions on behalf of certain drivers who were independent contractors. If it did not make the payments the company believed that it would be subject to the Superannuation Guarantee charge.
In a claim by the company for recovery of a significant proportion (but not all of) the payments to the superannuation fund, Barrett J agreed that the payments in question were made by the company in the mistaken belief that the company would be liable for the charge if it did not. The mistake of law by the company caused the payment to be made and the enrichment of the fund. Barrett J found that there was 'an enrichment of the fund ... or more precisely, the relevant drivers for whose benefit moneys were paid into the fund' (see paragraph 13 of the judgement).
A case for restitution was also established where the trustee of a superannuation fund was not the intended recipient of a payment from a member in Superannuation Complaints Determination D06-07\129 (SCT case).
In the SCT case, the complainant intended to pay $1,000 rent to his landlord's real estate agent. Instead the complainant mistakenly paid $1,000 to his own superannuation fund. This was a payment made under a mistake of fact, the fact being the identity of the payee.
The Australian Prudential Regulatory Authority (APRA) has also acknowledged that unjust enrichment, and a prima facie case for restitution, occurs where the trustee of a superannuation fund is the recipient of an amount greater than was intended, for example, because of a clerical, transcription or arithmetic error (see Superannuation Circular No II.B.1 Payments to Standard Employer-Sponsors).
The circumstances of the individual in this case are very different from those in the Personalised Transport case. The individual did not make the contribution in the mistaken belief he was required to do so. There was no legal obligation for the individual to make the payment.
The circumstances of this individual are also different from those in the SCT case as the superannuation fund was the intended recipient of the payment. The individual obtained the benefit of increased superannuation entitlements for himself. That was the natural and probable consequence of his actions as discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (see paragraphs 7 and 129 to 131).
The individual's circumstances are also different from those contemplated by APRA in that the fund received exactly the amount the individual intended to contribute.
In this case, the individual claims that he made a mistake in making the contribution as he was unaware that this amount would count towards the relevant non-concessional contributions cap. The trustee refunded the claimed mistaken contribution purportedly under the law of restitution.
It is the Commissioner's view that in this case the individual formed an intention to make a superannuation contribution of a certain amount to the fund and gave effect to that intention by making a contribution of that amount. The fund was the intended recipient of the amount and the individual obtained the expected superannuation benefits. The individual was not mistaken in the sense that he thought he was required to make a contribution. In the circumstances of this case, there was a contribution (as discussed in TR 2010/1), and it would not have been unjust for the trustee of the fund to retain the contribution.
The individual made $1.2m non-concessional contributions for the transitional financial year.
Having concluded that the individual had excess non-concessional contributions, a question arises as to whether the Commissioner would exercise the discretion in section 292-465 of the ITAA 1997 to disregard the amount returned to the individual. That is an administrative decision the Commissioner must make if the individual applies for the discretion after receiving an assessment of excess contributions tax. It is not the subject matter of this interpretive decision.
Year of income: 10 May 2006 to Year ended 30 June 2007
Legislative References:
Income Tax Assessment Act 1936
section 274
section 292-90
section 292-465
section 295-190 Income Tax (Transitional Provisions) Act 1997
section 292-80 Superannuation Industry (Supervision) Regulations 1994
regulation 7.04
Case References:
David Securities Pty Ltd v Commonwealth Bank of Australia
[1992] HCA 48
175 CLR 353
(1992) 109 ALR 57
24 ATR 125
92 ATC 4658
[2006] NSWSC 5
Related Public Rulings (including Determinations)
Taxation Ruling TR 2010/1
Other References:
Superannuation Complaints Determination D06-07\129
Keywords
Complying superannuation funds
Contributions returned
Contributions standards
Excess non-concessional contributions
Non-concessional contributions
Restitution
Date reviewed: 6 November 2015
ISSN: 1445-2782
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