NORTHEY v FC of T

Members:
WG McLean M

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2001] AATA 1035

Decision date: 21 December 2001

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WG McLean (Member)

The Tribunal considered an application from Mr Donald Northey for the review of a decision made by the Commissioner of Taxation (the respondent) to disallow an objection against a notice of assessment that was issued on 21 February 2001 in respect of the year ended 30 June 2000. The respondent has disallowed Mr Northey's claimed deduction of $30,356 for superannuation contributions in his 30 June 2000 income tax return.

2. Mr Northey was self-represented and gave sworn oral evidence. The respondent was represented by Mr M Dwyer, a Legal Officer employed by the Australian Tax Office.

3. The Tribunal received into evidence the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (``the T documents'') and additional documentary exhibits tendered by the respondent numbered R1 to R4 inclusive.

4. Mr Northey has been a qualified Chartered Accountant since 1980. On 20 October 2000 he lodged with the respondent his income tax return for the tax year ended 30 June 2000. He declared the following information in his tax return:

• (a) That he was employed by the Walt Disney Company (Australia) Pty Ltd (``Walt Disney'') during the 2000 tax year from 1 July 1999 to 6 December 1999 and during that period of employment he received a gross salary of $33,786. He also received at the termination of his employment with Walt Disney on 6 December 1999, the amounts of $5,950 for taxable unused annual leave, $23,963 eligible termination payment and $7,287 representing the exempt portion of his unused leave payments. These amounts total $70,986 and represented Mr Northey's assessable and exempt income from eligible employment for the year ended 30 June 2000.
• (ii) Mr Northey also declared in his tax return for year ended 2000 that he received the following additional gross income:

$  3,864   Gross Interest
$    143   Unfranked Dividends
$  1,173   Franked Dividends
$    660   Imputation Credits
$ 15,583   Rent
$ 89,132   Income Protection Policy
$    400   Business Income
--------   ---------------
$110,955   Total other assessable income
========
      

• (iii) Mr Northey's total assessable income as declared by him on his income tax return for 30 June 2000 is therefore as follows:

Item (i) above       $ 70,986
Less exempt income  ($  7,287)
                     --------
                     $ 63,699
Item (ii) above      $110,955
                     --------
                     $174,654
                     ========
      

• (iv) Under his tax return item D13 - Non- Employer Sponsored Superannuation Contributions Mr Northey claimed as a deduction the amount of $30,356 paid by him to ``Portfolio Care (AMP)'' in respect of policy number 0905461-22-01. This is the disputed claimed deduction that has been disallowed by the respondent in view of superannuation support supplied by the applicant's employer.

Background

5. Mr Northey commenced his employment with Walt Disney on 24 February 1998 and on that date he became a member of the Walt Disney Company (Australia) Pty Ltd Superannuation Fund (``the Walt Disney fund''). Mr Northey nominated his wife as his 100% beneficiary of the Walt Disney fund.

6. Mr Northey became ill on 23 August 1998 and has been unable to carry out his duties as an employee of Walt Disney from that date. His employment was terminated with Walt Disney on 6 December 1999. A workcover claim was

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ATC 2003

made by Mr Northey and rejected by Walt Disney and the matter proceeded to conciliation in February 1999. The matter was settled in the Magistrates' Court of Victoria on 27 October 1999. Walt Disney and Mercantile Mutual Worksure Ltd, the joint defendants, agreed to pay Mr Northey compensation in accordance with the provisions of the Accident Compensation Act 1985 on the basis of ``no current work capacity'' from 4 September 1998 to 23 August 1999 inclusive.

7. On 23 October 1998 the Director, Finance and Administration, of Walt Disney Mr Andrew Rettie forwarded a letter to Mr Northey acknowledging his Workcover claim (Exhibit R2). The following extract is taken from Mr Rettie's letter:

``You have sought clarification of the company policy regarding each element of compensation when being covered by Workcover. Please be advised that:

• (a)...
• (b)...
• (c) SGC superannuation will be paid on the Workcover payments
• (d)...
• (e)...''

8. The Magistrate's Court of Victoria terms of settlement (Exhibit R3) clause 4 provides that the parties note that Mr Northey may have additional superannuation entitlements under relevant trust deeds and legislation and that any such entitlement will be paid to Mr Northey in accordance with the trust deeds and legislation. The Tribunal was not provided with a copy of the relevant trust deeds by the applicant.

9. In January 2000 Mr Northey received his Workcover net earnings of $33,786 and also his termination annual leave lump sum payment of $5,950 plus his eligible termination payment of $23,963. The Walt Disney Fund advised that Mr Northey's superannuation fund Leaving Service Benefit at 14 February 2000 was $124,166.86 and on 22 February 2000 Mr Northey rolled-over this amount into his new AMP Superannuation fund named Portfolio Care.

10. On 14 March 2000 Mr Northey decided to make a further personal contribution to his AMP Superannuation fund of $39,475. At that date he believed that $30,356 of this amount would be allowable as a tax deduction during the year ended 30 June 2000 and that the remaining $9,119 was not tax deductible.

11. Mr Northey received a letter dated 26 April 2000 from AMP Superannuation which included the following extract:

``We are pleased to advise that we have rolled over your Leaving Service
Benefit. In addition we would like you to be aware of the following
important information regarding your termination of membership:--

BENEFIT DETAILS
---------------
   Gross Leaving Service Benefit    $2,664.29
   Less Roll Overs                  $2,664.29''
      

Mr Northey says that this letter from AMP Superannuation dated 26 April 2000 was his first notification that the additional $2,664.29 had been added to his previously advised Walt Disney Fund Leaving Service Benefit of $124,166.86 to February 2000. Mr Northey contends that Walt Disney incorrectly calculated this additional $2,664.29 amount based upon his $33,786 Workcover payment for loss of weekly earnings. However, he was unable to explain why he had not endeavoured to repay the $2,664.29 to Walt Disney as a consequence of his contention. The Tribunal is unable to accept the veracity of Mr Northey's contention bearing in mind the above- mentioned letter dated 23 October 1998, which he received from Mr Rettie of Walt Disney, which states that Superannuation will be paid on Workcover payments, and also Mr Northey's total lack of endeavour to adjust by repayment the $2,664.29, if he truly believed that the amount should not have been credited to his Walt Disney Superannuation Fund and subsequently rolled over into his AMP Superannuation Fund on 4 May 2000.

12. Mr Northey commenced self-employed work on a part-time basis from 27 September 1999. He was able to only work limited hours due to medical restrictions so he commenced his own business called Small Business Financial Solutions, which he registered as a business name on 29 November 1999. He says that after a lengthy training period he was able to commence some chargeable work from his home in March 2000. On 14 March 2000 Mr Northey decided to make the above-mentioned $39,475 contribution to his AMP Super- annuation fund as a self-employed person.

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ATC 2004

Legislation

13. The following relevant legislation is provided by the Taxation Administration Act 1953 and the Income Tax Assessment Act 1936 (``the Act''):

The Taxation Administration Act 1953

``14ZZK Grounds of objection and burden of proof

On an application for review of a reviewable objection decision:

• (a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
• (b) the applicant has the burden of proving that:
  • (i) if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or
  • (ii) if the taxation decision concerned is a franking assessment - the assessment is incorrect; or
  • (iii) in any other case - the taxation decision concerned should not have been made or should have been made differently.

Income Tax Assessment Act 1936

- Sec 82AAT

Deductions for superannuation contributions by eligible persons

(1) A person who has made a contribution to a fund during a year of income is entitled to an allowable deduction for the contribution in the person's assessment for the year of income if all the following conditions are met:

• (a) the person is an eligible person in relation to the year of income;
• (b) the person made the contribution in order to obtain superannuation benefits for the person or for dependants of the person in the event of the person's death;
• (c) the fund is a complying superannuation fund for the fund's year of income in which the person made the contribution;
• (d) the person has given a notice under subsection (1A) in respect of the contribution and the trustee of the fund has acknowledged that notice under subsection (1A).

The deduction cannot be more than the amount covered by the notice under subsection (1A), and is also subject to the limits in subsection (2).

(1A) A person who is making or has made a contribution to a fund may give a written notice to the trustee of the fund, stating that the person intends to claim a deduction under this section for the whole or a specified part of the contribution. The trustee must, without delay, give the person a notice acknowledging receipt of the person's notice.

...

(2) The total of the deductions allowable to a taxpayer under this section for a year of income must not exceed the lesser of the following:

• (a) the sum of:
  • (i) $3,000; and
  • (ii) 75% of the amount (if any) by which the total amount of the contributions exceeds $3,000;

Sec 82AAS

(2) A person (in this subsection 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 in the event of the retirement of the relevant person or for dependants of the relevant person in the event of the death 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 benefit 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

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    ATC 2005

    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 super- annuation fund; or
    • (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-subparagraph (A) or (B); or
    • (D) income or accretions arising from contributions made to a superannuation fund in relation to the relevant person by a person other than the relevant person during an earlier year of income, where there is no reasonable likelihood that any such contributions will be made at any time after the beginning of the first-mentioned year of income.

(3) If:

• (a) during a period, or a combination of periods, in a year of income, a person was engaged in particular eligible employment; and
• (b) either:
  • (i) both
    • (A) the person's assessable income, or the person's exempt income, of the year of income, or the person's reportable fringe benefits total for the year of income, includes one or more amounts attributable to that eligible employment; and
    • (B) the total of the amounts mentioned in sub-subparagraph (A) is less than 10% of the total of the person's assessable income of the year of income and reportable fringe benefits total (if any) for the year of income;''

Findings and decision

14. Section 82AAT of the Act provides that a person who has made a contribution to a fund during a year of income is entitled to an allowable deduction for the contribution in the assessment for the year of income if the person is an eligible person in relation to the year of income. The deduction is subject to certain provisions specified in subsections 1A concerning the person giving written notice to the trustee of his fund and subsection 2 which establishes limits of the total of the deductions allowable to a taxpayer. In this case the respondent accepts that Mr Northey gave notice to the trustee of his fund pursuant to subsection 1A. However, the issue in dispute here is whether or not Mr Northey was an eligible person in relation to the year ended 30 June 2000 when he claimed a deduction of $30,356 for a superannuation contribution made by him to his AMP Superannuation fund as a self- employed person during that fiscal year. The respondent did not dispute that the amount claimed of $30,356 has been calculated in accordance with the limits prescribed by the above-mentioned subsection 2.

15. The Tribunal finds that due to the provisions of section 82AAS(2) Mr Northey was not an eligible person in relation to the year ended 30 June 2000. It was reasonable to expect that superannuation benefits would be and, in fact, were provided by an employer to him during a part of a year of income. The respondent referred to the determination in the matter of
Thornton V FC of T 97 ATC 2117 which contains certain similar considerations to the disputed issues in this case. The Tribunal concurs with the Thornton finding that section 82AAS(2) clearly contemplates that such benefit may be provided for only part of the year. Section 82AAS(2) is not concerned with the position of a person at the time when superannuation contributions were made but with the year of income as a whole. There is no discretion available to not apply the clear requirements of the legislation.

16. Subsection 82AAS(3) may allow a person to be considered an eligible person if the person was engaged in eligible employment and the total of the persons assessable income or the persons exempt income from eligible employment is less than ten per cent of the total of the persons assessable income for the year of income. In this case, as shown above, Mr

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ATC 2006

Northey declared in his income tax return for the year ended 30 June 2000 that he had assessable income of $174,654 for that pay year. Expressed as a percentage this means that his total assessable and exempt income from eligible employment of $70,986 represents 40.6 per cent of the total assessable income, which is greater than the 10% limit prescribed by subsection 82AAS(3) of the Act.

17. As the applicant was not an eligible person in relation to the year ended 30 June 2000, the deduction claimed by him under section 82AAT of the Act is not allowed as a deduction.

18. The Tribunal finds that the applicant did not satisfy the burden of proving that the taxation decision made by the respondent in the assessment under review is excessive for the year ended 30 June 2000. He has therefore failed to satisfy the burden of proof requirement provided under section 14ZZK of the Taxation Administration Act 1953.

19. The decision under review is affirmed.