CHANTRELL v FC of T

Members:
Dr G Hughes M

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2012] AATA 179

Decision date: 23 March 2012

---

G Hughes (Member)

1. The principal issue for consideration was whether special circumstances existed for the purposes of Division 292 of the Income Tax Assessment Act 1997 which warranted the exercise of discretion to disregard a concessional superannuation contribution by the applicant or alternatively to allocate that contribution to a different financial year.

Background

2. In the financial year ending 30 June 2007, the applicant was a member and trustee of the Chantrell Family Superannuation Fund and he controlled Chantrell Investments Pty Ltd, the trustee of the Chantrell Discretionary Trust.

3. On 30 June 2007, the applicant attempted to transfer $60,000 from the Chantrell Discretionary Trust into the Chantrell Family Superannuation Fund in order to take advantage of the concessional rate which applied for the year ending 30 June 2007. It was common ground that the transfer was a concessional contribution and that the applicant intended to allocate $40,000 to himself and $20,000 to his spouse.

4. Because 30 June 2007 was a Saturday, however, the amount was not credited by Westpac to the applicant's superannuation fund until 2 July 2007. The respondent accordingly included the contribution in its calculation of the applicant's concessional contributions for the year ending 30 June 2008. This deprived the applicant of the benefit of the contribution for the financial year ending 30 June 2007 and exposed him to excess contributions tax for the year ending 30 June 2008.

5. The excess concessional contributions for the financial year 30 June 2008 amounted to $53,999.22 and excess contributions tax of $17,009.75 was imposed.

6. On 7 March 2011, the applicant requested that respondent amend the 2008 excess contributions assessment to reflect $40,000 contributed in the previous year. The respondent treated this request as an application for the exercise of discretion pursuant to section 292-465 of the Income Tax Assessment Act 1997.On 2 June 2011 the respondent advised the applicant that it would not exercise its discretion to reallocate the contribution.

7. The applicant lodged an objection, contending in effect that it was unfair and illogical that 30 June 2007 happened to be a Saturday. The applicant also noted that had the transaction occurred on a weekday, the amount in question would have been credited immediately to his superannuation fund.

Legislation

8. Section 292-465 of the Income Tax Assessment Act 1997 provides:

"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.
• (2) You may apply to the Commissioner in the approved form for a determination under subsection (1). The application can only be made:
  • (a) after all of the contributions sought to be disregarded or reallocated have been made; and
  • (b) if you receive an excess contributions tax assessment for the financial year-before the end of:
    • (i) the period of 60 days starting on the day you receive the assessment; or
    • (ii) if the Commissioner allows a longer period-that longer period.
• (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.
• (4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
• (5) 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.
• (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.
• (7) The Commissioner must give you a copy of the determination.
• (8) A determination under this section may be included in a notice of assessment.

• Review of determinations

• (9) To avoid doubt:
  • (a) you may object under section 292-245 against an excess contributions tax assessment made in relation to you on the ground that you are dissatisfied with a determination that you applied for under this section; and
  • (b) for the purposes of paragraph (e) of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977, the making of a determination under this section is a decision forming part of the process of making an assessment of tax under this Act."

Consideration

9. The applicant contended that the transaction took place on 30 June 2007. Failing that, he contended that special circumstances existed for the purposes of subsection (3) of section 292-465, which warranted the reallocation of the $40,000 contribution to the financial year ended 30 June 2007. He contended that a determination to that effect would be consistent with the object of Division 292.

10. The applicant submitted that it was reasonable for him to have expected that the transfer of funds would have been instantaneous. It was clear that his intention had been to allocate the additional $60,000 to the financial year ending 30 June 2007, not the financial year ending June 2008. He was aware that employer contributions to his superannuation fund for the financial year 2008 meant that any substantial contribution would breach the concessional allocation allowance for that year.

11. The Tribunal was provided with bank records which indicated, in respect of 2 July 2007:

"WITHDRAWAL - INTERNET

ONLINE BANKING 1597203

FNDS TFR TO JC SUPER

30 JUN - 60,000"

The records also showed, in respect of the same day:

"DEPOSIT - INTERNET

ONLINE BANKING 2597211

FNDS TFR FROM CDT AS SUPER

30 JUN - 60,000"

The applicant's contention was that this made it clear that the transaction had been recognised by the bank as having been effected on 30 June 2007, even if the withdrawal and deposit of funds had not taken place until 2 July 2007.

12. The applicant referred the Tribunal to the results of a test which he had conducted on 18 September 2008 showing that, in the normal course of events, a transfer on a business day would be effective virtually instantaneously.

13. The applicant further asserted that, for the purposes of section 292-465(3), a reallocation of his $40,000 contribution into the financial year ending 30 June 2007 would be consistent with the object of Division 292, as it would affect a broader spread of the timing of his contributions. This would be consistent with the objective of encouraging individuals to make contributions gradually over the course of the person's life.

14. The respondent, relying upon Taxation Ruling TR2010/1, entitled Income Tax: Superannuation Contributions, asserted that a contribution is anything of value provided to a fund that increases the capital preserved for the benefit of a member of the fund. Accordingly, a contribution could not be regarded as having been made until the funds were actually received. Furthermore, Taxation Ruling TR2010/1 provides that, in the case of electronic funds transfers between bank accounts, a contribution is not made until the funds are credited to the superannuation provider's account.

15. The respondent submitted that the bank statements were the only evidence of the time at which the capital of the applicant's fund was increased. They showed that the sum of $60,000 was credited to the account of the fund on 2 July 2007, and that the same sum was deducted from the account of the Chantrell Discretionary Trust on the same day. Accordingly, the contribution had to be regarded as having been made in the 2008 taxation year.

16. The respondent contended that for special circumstances to exist, it was necessary to conclude that those circumstances, assessed on a case by case basis, would make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax. These requirements were not satisfied in the present instance.

17. With respect to satisfying the object of Division 292, the respondent's contention was to the effect that by failing to ensure that his contribution was made in the correct financial year, the applicant had acted inconsistently with the object of the legislation. This meant that he had in fact engaged, wittingly or otherwise, in conduct which the legislation was specifically designed to discourage.

18. The Tribunal finds in favour of the respondent. In doing so, it is mindful that the applicant appears to have acted with good intentions at all times but finds that the circumstances simply do not enliven the legislative provisions which would grant him the relief which he seeks.

19. On the question of the timing of the contribution, the Tribunal is satisfied that the $60,000 contribution by the Chantrell Discretionary Trust cannot be regarded as having been made until 2 July 2007.

20. It is instructive to refer to TR2010/1. At paragraph 13, the Ruling includes a table which summarises the ways in which funds are typically transferred and when the contribution is deemed to have been made. In relation to electronic funds transfers to a superannuation provider, the Commissioner's practice is to deem the contribution as having been made when the funds are credited to the superannuation provider's account. In this instance, the funds were not credited to the superannuation provider's account until 2 July 2007.

21. The applicant stressed that it would be illogical to ignore the fact that he did all that was possible to effect the transfer on 30 June 2007. However, it can be argued with equal persuasiveness that it would be illogical to deem a contribution to have been made until the value of the superannuation fund has increased as a consequence of that contribution having been made. The bank records, relied upon by the applicant as evidence of his intention to complete the transaction on 30 June 2007, equally constitute evidence that the transaction was in fact not completed until 2 July 2007.

22. It follows that the applicant must turn for relief to section 292-465, in particular subsection 3, for relief. In other words, the Commissioner must be satisfied that:

• "(a) there are special circumstances; and
• (b) making the determination is consistent with the object of Division 292."

23. In making a determination pursuant to section 292-465, the decision maker may have regard to the factors specifically referenced in subsections (5) and (6). Subsection (4) also allows the decision maker to consider any other relevant matters.

24. With respect to the exercise of discretion pursuant to section 292-465, the respondent invited the Tribunal to interpret the phrase in making the determination, as used in subsection (4), to mean that the factors referred to in subsections (5) and (6) should be taken into account when determining whether special circumstances exist. Such an interpretation would be contrary to the view of the Tribunal as expressed in
McMennemin v Federal Commissioner of Taxation 2010 ATC ¶10-145; (2010) 53 AAR 187. In that matter, Deputy President Forgie expressed the opinion that it was necessary for the decision maker to first decide whether special circumstances existed (and whether the making of a determination would be consistent with the object of Division 292) and to then make a separate and distinct discretionary determination as to whether the relief sought by the taxpayer should be granted. The respondent contended that the comments in McMennemin were obiter and inconsistent with the Explanatory Memorandum.

25. The Tribunal does not consider it necessary, in this case, to decide whether to follow McMennemin. A determination of that issue will not affect the Tribunal's conclusions. For the reasons set out below, the Tribunal considers in this instance that on either approach, special circumstances do not exist and a determination under subsection (1) should not be made.

26. The respondent referred the Tribunal to a number of judicial pronouncements on the interpretation of the expression special circumstances or like wording.

27. In
Baker v The Queen (2004) 223 CLR 513, Gleeson CJ stated (at 523):

"There is nothing unusual about legislation that requires courts to find 'special reasons' or 'special circumstances' as a condition of the exercise of a power. This is a verbal formula that is commonly used where it is intended that judicial discretion should not be confined by precise definition, or where the circumstances of potential relevance are so various as to defy precise definition. That which makes reasons or circumstances special in a particular case might flow from their weight as well as their quality, and from a combination of factors."

28. In Baker, Callinan J cited with approval the observations of Lord Bingham CJ in
R v Kelly [2000] 1 QB 198:

"We must construe 'exceptional' as an ordinary, familiar English adjective, and not as a term of art. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual, or special, or uncommon. To be exceptional a circumstance need not be unique, or precedented, or very rare; but it cannot be one that is regularly, or routinely, or normally encountered."

29. The Tribunal was also referred to the observations of Burchett J in
Minister for Community Services and Health and Another v Chee Keong Thoo (1988) 78 ALR 307, cited with approval
Tefonu Pty Ltd v Insurance and Superannuation Commissioner 93 ATC 4727; (1993) 26 ATR 393:

"[The] core idea of 'special circumstances' is that there is something unusual or different to take the matter out of the ordinary course, according to which the presumption set out in the clause would be expected to apply. As a result, the ordinary course appears less appropriate or fair."

30. Taking the above observations into account, the Tribunal concludes that the circumstances under consideration are not special circumstances as contemplated by the legislation.

31. Unquestionably, the applicant's intention was to make the contribution in question during the 2007 financial year. The fact that even with the best of intentions this did not occur does not of itself amount to special circumstances. It was the applicant's responsibility to ensure that the steps taken to realise that intention were effective. The fact that the transfer was not effective on 30 June 2007 reflected the reality of the extent to which funds could be transferred electronically on a Saturday, specifically within the limitations of the Westpac system at the time. The applicant chose to trust the technology or, more specifically, to speculate as to the effectiveness of the manner in which he was anticipating that the technology would operate. Every other taxpayer was faced with the same situation. These were not special circumstances unique to this applicant or this situation. It was incumbent upon the applicant to ensure that the transfer was effective.

32. While the effect of the circumstances on the applicant could be described as unfortunate and unforseen, this is not sufficient to render the imposition of the excess contributions tax unjust, unreasonable or inappropriate. The applicant had a responsibility to ensure that his concessional contribution was paid into his superannuation fund on or before 30 June 2007. He thought he had discharged this responsibility but in fact he had not. It was essentially within his control to ensure that the transaction achieved his own objective.

33. Comments made by Senior Member DW Muller in
AAT Case 11,379 96 ATC 583; (1996) 34 ATR 1175 (at 1177) are pertinent:

"There is no doubt that the applicant is unlucky to have fallen over the wrong side of the boundary line by such a small margin. I do not regard this fact as being special enough to invoke the desired discretion. In every piece of legislation where rights and entitlements are created there will be a division between those who qualify and those who do not. Those people whose cases fall marginally one side or the other may regard themselves as either lucky or unlucky as the case may be. So be it."

34. On the question of whether, for the purposes of section 292-465(3)(b), a determination to disregard or reallocate the applicant's excess contribution would be consistent with the object of this division, it is clear, as emphasised by both parties, that the object of Division 292 is to ensure that contributions are made gradually over the course of a person's life. The applicant asserted that this object, of itself, justified a reallocation. The Tribunal disagrees. To the contrary, the Tribunal considers 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.

35. While the applicant undoubtedly acted in good faith, he elected to take a variety of risks inherent in leaving the transaction until the last day of the financial year. To again use the words of Senior Member Muller in AAT Case 11,379, the applicant has fallen over the wrong side of the boundary line for reasons which, while not immediately in his control from a technical perspective, were within his control from an organisational perspective.

Decision

36. For the above reasons, the Tribunal is of the opinion that there are no grounds for the Commissioner to make a determination under section 292-465 (1) to the effect that the applicant's excess contribution for the financial year ended 30 June 2008 should be disregarded or reallocated to the 2007 financial year. On the question of reallocation, it is not in contention that the applicant intended the contribution to be allocated to the 2007 financial year. However, this is not enough. As submitted by the respondent, there is no inherent connection between the contribution and the 2007 financial year other than the applicant's subjective (albeit undisputed) intention to allocate the funds to the 2007 year. The applicant's intentions were plain but they were not executed effectively. The Tribunal accordingly affirms the decision under review.