PAGET v FC OF T

Members:
CR Walsh SM

Tribunal:
Administrative Appeals Tribunal, Perth

MEDIA NEUTRAL CITATION: [2012] AATA 334

Decision date: 5 June 2012

CR Walsh (Senior Member)

INTRODUCTION

1. Mr Paget seeks a review of the Commissioner's objection decision (dated 1 December 201) to disallow Mr Paget's objection (dated 13 October 2011) against an assessment of excess contributions tax assessment (issued to him on 1 June 2011) for the year ended 30 June 2012.

ISSUES

2. It is not disputed that the contribution of $8,285.71 by Mr Paget's employer, the Curtin Student Guild, to Mr Paget's superannuation fund, Colonial First State - First Choice Superannuation Fund, is a "concessional contribution" as defined in section 292-25(1) of the Income Tax Assessment Act 1997 ( ITAA 1997 ).

3. The main issues for determination by the Tribunal in this application are:

4. In deciding whether a determination should be made under 292-465(1) of the ITAA 1997, the Tribunal must determine that:

5. In deciding whether to make a determination, the Tribunal may have regard to the matters listed in section 292-465(5) and (6) of the ITAA 1997 and "any other relevant matters": section 292-465(4) of the ITAA 1997.

6. The Tribunal's jurisdiction to determine this issue arises under sections 292-245 and 292-465(9) of the ITAA 1997. Section 292-245 provides that a person dissatisfied with a an excess contributions tax assessment made in relation to them can object against the assessment in the manner set out in Part IVC of the Taxation Administration Act 1953 ( TAA ). Section 292-465(9) of the ITAA 1997 (which provision is set out in paragraph 16 below) was inserted into the ITAA 1997 by Schedule 1 of Part 4 of the Superannuation Amendment Act 2010, effective 17 November 2010, and overcomes the effect of the decision in
McMennemin v Commissioner of Taxation 2010 ATC 10-145; [2010] AATA 573.

LAW

Legislative framework

7. Part 3-30 of the ITAA 1997 concerns the taxation of superannuation benefits. Part 3-30 was introduced into the ITAA 1997 by Tax Laws Amendment (Simplified Superannuation) Act 2007, in the 2007 financial year, as part of the Federal Government's significant amendments to the law governing the taxation of superannuation: refer to the recent decisions of the Tribunal in
Leckie v Commissioner of Taxation [2012] AATA 129 and
Naude v Commissioner of Taxation [2012] AATA 129.

8. Of the three phases of the taxation of superannuation (being contribution, investment and benefit phases outlined in Division 280 of the ITAA 1997), this application is concerned with a specific aspect of the contribution phase of the taxation of superannuation and involves "concessional contributions" (as opposed to "non-concessional contributions") to a superannuation fund.

9. The amount of a taxpayer's "concessional contributions" for a financial year is the sum of each contribution covered by section 292-25(2) of the ITAA 1997 and each amount covered by section 252-(3) of the ITAA 1997: section 292-25(1) of the ITAA 1997. Broadly, "concessional contributions" are contributions that are taxed in the superannuation plan at the concessional rate (of 15%) because the plan complies with the requirements of the Superannuation Industry (Supervision) Act 1993 and would normally include employer contributions and deductible personal contributions.

10. Complying superannuation funds are assessed on their taxable income at the rate of 15%.

Excess contributions tax

11. Division 292 of the ITAA 1997 imposes a further tax, called an "excess contributions tax", (at the rate of 31.5%) on individuals if their annual concessional contributions exceed the "concessional contributions cap" for the year: section 292-20(1) of the ITAA 1997.

12. Since a 15% tax is payable by the fund on concessional contributions received by it, the additional excess contributions tax of 31.5%, brings the tax on concessional contributions, exceeding the concessional contributions cap in the relevant year, to 46.5%.

13. For individuals aged 50 or more, a transitional concessional contributions cap of $100,000 applies for the 2009 financial year and $50,000 applies for the 2010 financial year: see section 292-20(a) of the Income Tax (Transitional Provisions) Act 1999.

14. Section 292-230(1) of the ITAA 1997 provides that the Commissioner must make an "excess contributions tax assessment" where a

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person has excess concessional (or non-concessional) contributions in a financial year. The Commissioner must give the person a notice of the excess contributions tax assessment, in writing, as soon as practicable after making the assessment: section 292-230(3) of the ITAA 1997.

Commissioner's discretion

15. Section 292-465 of the ITAA 1997 allows a taxpayer to apply to the Commissioner to make a written determination to allocate concessional contributions to another financial year, for example to prevent the concessional contributions cap being breached in a particular financial year.

16. Section 292-465 of the ITAA 1997 relevantly 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:
    • (c) after all of the contributions sought to be disregarded or reallocated have been made; and
    • (d) 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:
    • (e) there are special circumstances; and
    • (f) 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 subsection (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:
    • (g) 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
    • (h) 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:
    • (i) 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
    • (j) for the purposes of paragraph (e) of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977, the making of a determination under this

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      section is a decision forming part of the process of making an assessment of tax under this Act      ."

17. Thus, section 292-465(1) of the ITAA 1997 enlivens the Commissioner's discretion to make a determination in relation to concessional contributions, upon the taxpayer making an application. Importantly, the requirements of section 292-465(3) of the ITAA 1997 are conjunctive. That is, section 292-465(3) requires that both : (a) "special circumstances" exist in relation to the taxpayer; and (b) the making of the determination is consistent with the "object" of Division 292.

18. Further, in making a determination under section 292-465(1) of the ITAA 1997, section 292-465(4) provides that regard may be had to the specific matters in sections 292-465(5) and (6) and "any other relevant matters". The use of the word "may" in section 292-465(4), clearly imparts a discretion on the decision-maker to refer to circumstances described in sections 292-465(5) and (6) and "any other relevant matters". In other words, regard to those matters is optional and not mandatory. In contrast, it is mandatory that the decision-maker be satisfied that both conditions in section 292-465(3) are been met before a determination can be made under section 292-465(1) of the ITAA 1997.

19. The discretionary considerations in sections 292-465(4) to (6) of the ITAA 1997 provide guidance as regards:

20. However, it is clear from the concluding words "any other relevant matters" in section 292-465(4) of the ITAA 1997 that the above considerations do not limit the decision maker's discretion to consider all relevant matters in determining whether section 292-465(3) of the ITAA has been satisfied.

Special circumstances

21. As stated above, the Commissioner cannot make the determination under section 292-465(1) of the ITAA 1997 unless "special circumstances" exist.

22. The meaning of "special circumstances" has been considered by this Tribunal and the courts in many contexts, including, in particular, in the context of the social security legislation.

23. As Burchett J commented in
Minister for Community Services & Health v Chee Keong Thoo (1988) 78 ALR 307 at 324: "The core of the idea of 'special circumstances' is that there is something unusual or different takes a case outside of the ordinary course." It is relevant in determining whether special circumstances exist, that the application of the general rule leads to a result that is unfair, unreasonable or inappropriate.
Beadle v Director General or Social Security (1985) 60 ALR 225 at 228 per Bowen CJ, Fisher and Lockhart JJ.

24. The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007, which amended the ITAA 1997 to, among other things, include section 292-465 of the ITAA 1997, supports such an interpretation of the term 'special circumstances'. It provides at paragraph 1.117:

  • "1.117 The courts have considered what 'special circumstances' means in many different contexts. 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 contact required, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax ."[Emphasis added]

25. In
Peaker v Commissioner of Taxation2012 ATC 10-238; [2012] AATA 140 at [13] Member Webb confirmed that as being the meaning of "special circumstances" and noted that the term "special circumstances" is a direction to the decision-maker that the discretion it has is not to be enlivened lightly. Importantly, in Peaker Member Webb held at [20] that ignorance of superannuation arrangements was not "special circumstances". Member Webb also noted that the information

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was publicly available and the applicant could have obtained it if he desired to do so. In reaching that decision Member Webb followed the earlier decision in
Schuurmans-Stekhoven v Commissioner of Taxation 12 ESL 03; [2012] AATA 62 where Senior Member McCabe made a similar finding.

26. In
AAT Case 11,379 [1996] AATA 406: (1996) 96 ATC 583; (1996) 34 ATR 1175, the Tribunal concluded that the mere fact that the applicant marginally exceeded the relevant Act's limit was not, of itself, "special circumstances", and stated at [5] to [6]:

"The term "special circumstances" has been the subject of numerous judgments and decisions in courts and tribunals. The ways in which people conduct their affairs are so numerous that legislators cannot predict, and hence allow for, every possible set of circumstances. Therefore, it is not possible, nor desirable, to attempt to codify the circumstances to be regarded as special. Each case is different to every other case and has to be treated on its merits. The point of legislation which allows for a discretion to be exercised in "special circumstances" is recognition of the fact that strict application of the legislation may be some unusual or unforeseen cases result in an unjust, unreasonable or inappropriate result : a result that the legislators did not intend.

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 or entitlements are created there is 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." [Emphasis added]

27. In
Tran v Commissioner of Taxation 2012 ATC 10-236; [2012] AATA 123 Member Hughes summarises the law in relation to section 292-465(3) of the ITAA 1997 at [15] as follows:

"The consistent interpretation adopted by the courts and this Tribunal in these decisions has been that whilst each case must turn on its merits, circumstances will not be special unless they are out of the ordinary . The prime determinant is not the extent of the taxpayer's misfortune but rather the uniqueness of the events which has given rise to that misfortune. It has consistently been observed that an innocent mistake or ignorance of the law does not, in itself, constitute special circumstances ". [Emphasis added]

28. Further, Member Hughes commented at [19]: "The legislation does not contemplate special circumstances as including simple error, albeit innocent errors or other mistakes which are made in good faith" and, referring to the facts of that particular case, Member Hughes said at [21]: "…it is notable that applicant apparently chose not to consult her existing financial adviser when making the final contribution which took her over the limit".

29. In
Chantrell v Commissioner of Taxation 2012 ATC 10-242; [2012] AATA 179 Member Hughes stated at [31] to [32]:

"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.

While the effect of the circumstances on the applicant could be described as unfortunate and unforeseen, this is not sufficient to render the imposition of the excess

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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."

30. In
Thommeny v Commissioner of Taxation 2006 ATC 2440; [2006] AATA 840; (2006) 64 ATR 1092, a superannuation fund erred in delaying the reporting of a benefit to the applicant. The Tribunal held the circumstances of the applicant could not be characterised as "special circumstances".

31. In
Kerr v Commissioner of Taxation 2007 ATC 2488; [2007] AATA 1732 circumstances, including incorrect advice of a financial planner, were held not to constitute "special circumstances".

Object of Division 292

32. As stated above, the Commissioner cannot make a determination under section 292-465(1) of the ITAA 1997 if he does not consider that the making the determination would be consistent with the object of Division 292 of the ITAA 1997.

33. The object of Division 292 of the ITAA 1997 is set out in section 292-5 of the ITAA 1997 as follows:

" Object of this Division

The object of this Division 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."

34. The "Guide" to Division 292, which is contained in section 292-1 of the ITAA 1997, provides:

" What this Division is about

This Division limits the superannuation contributions made in a financial year for a person that receive concessionally taxed treatment."

35. As a Guide provision, section 292-1 of Division 292 of the ITAA 1997 forms part of the ITAA 1997 but is to be kept separate from its operative provisions: see section 950-150(2) of the ITAA 1997. In interpreting the operative provisions of Division of the ITAA 1997, the Guide should only be considered for limited purposes, including "determining the purpose or object underlying the provision[s]" of Division 292: see section 950-150(2)(a) of the ITAA 1997.

36. Further guidance about the object of Division 292 of the ITAA 1997 may be found in Division 280 of that Act. Division 280, titled "Guide to the Superannuation Provisions", provides a guide to Part 3-30 of the ITAA 1997. Specifically, section 280-15(1) of the ITAA 1997 provides:

"There is a limit to 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 neutralizes the favourable tax treatment arising from the excessive contributions."

37. In Chantrell Member Hughes considered 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. In this regard, Member Hughes said at [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."

38. The policy context of Division 292 can be discerned from the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which provides at [1.11] and [1.12]:

  • "1.11 The removal of age-based deduction limits, reasonable benefit limits (RBLs) and tax on superannuation benefits from taxed funds for people 60 and over will increase the concessions provided to superannuation. These changes, in conjunction with the continuing tax exemption provided for

    ATC 4754

    income from superannuation assets supporting a pension, will make superannuation an attractive vehicle for retaining assets to minimise tax. There will be an incentive for people to transfer income producing assets currently held outside superannuation to the concessionally taxed superannuation system    .
  • 1.12 To ensure superannuation taxation benefits are targeted appropriately, limits will be placed on the amount of superannuation contributions a person can make that receive concessional treatment …." [Emphasis added]

39. Division 292 of the ITAA 1997 seeks to discourage excessive movement of assets into superannuation by creating a liability to pay tax on superannuation contributions exceeding annual caps. That is, imposition of an excess contributions tax on contributions that exceed a cap is an intended consequence of Division 292.

40. Further, excess concessional contributions tax has the object of limiting the revenue impact of the deductibility to the contributor of concessional contributions. Entities are entitled to a deduction for contributions they make in respect of employees or (in the case of personal contributions) themselves. This deduction is part of the concessional tax treatment of contributions provided for in Part 3-30 of the ITAA 1997. To the extent that a contribution of this kind is in excess of the applicable cap, the tax on the excess contributions neutralises the favourable tax treatment of the benefits ultimately paid.

41. The requirement of consistency with the "object" of Division 292 of the ITAA 1997 places a very significant limit on the circumstances which will warrant a determination being made under section 292-465(1) of the ITAA 1997. That is, it requires the Commissioner to assess whether, in the circumstances of a particular case, a section 292-465(1) of the ITAA 1997 determination would be consistent with the "object" of Division 292. The requirement of consistency with the "object" of Division 292 permits the Commissioner to consider whether the making of a determination in a specific case would undermine the achievement of the "object" of the Division if applied universally to applications under section 292-465(1) of the ITAA 1997.

Contribution more appropriately allocated towards another financial year

42. The first express discretionary consideration which may be taken into account is in section 292-465(5) of the ITAA 1997. It is whether a contribution made in a particular financial year would more appropriately be allocated towards another financial year instead.

43. In Chantrell Member Hughes stated at [36]:

"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."[Emphasis added]

Reasonably foreseeable when contribution was made that there would be excess contributions

44. The second express discretionary consideration which may be taken into account is in section 292-465(6) of the ITAA 1997. It is whether it was "reasonably foreseeable", when the relevant contribution was made, that the person would have excess concessional contributions for the relevant financial year, having regard to: (a) the terms of any agreement or arrangement between the person and the payer as to the amount and timing of the contribution; and (b) the extent to which you had control over the making of the contribution.

45. In
McMennemin v Commissioner of Taxation 2010 ATC 10-145; [2010] AATA 573 Deputy President Forgie at [111] cited
Secretary Department of Employment Education and Youth Affairs v Ferguson (1997) 76 FCR 426 at 440;
[1997] FCA 663 as to the meaning of "reasonably foreseeable" as it appears in section 292-465(4) ITAA 1997 as follows:

"The use of the expression ' reasonably foreseeable ' is commonplace. It imports an

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objective assessment about a set of facts as they apply to a particular circumstance or to a particular person . To say that, as here, they direct attention to the particular person does not import the need to determine the actual state of mind of that person. It is to direct the objective assessment on the relevant facts in relation to a particular person, with that person's health, knowledge and background. Some persons would be able to reasonably foresee circumstances more readily than others. …" [Emphasis added]

46. Thus, whether it was reasonably foreseeable that a person would have excess contributions is a matter of objective fact. A person's subjective understanding or misunderstanding is not relevant to the question of reasonable foreseeability.

Timing of contributions

47. The time a contribution is "made" is significant for the purposes Part 3-30 of the ITAA 1997 for a number of reasons.

48. First, it determines the income year in which the person making the contribution (the payer) may claim a deduction, if allowable, in respect of the relevant contribution. A deduction is available in respect of employer contributions and certain personal contributions under sections 290-60 and 290-150 of the ITAA 1997, but only in the income year in which the contribution is "made": see sections 290-60(3) and 290-150(3) of the ITAA 1997.

49. Second, it determines the income year in which the superannuation provider receiving the contribution must, if required, include the contribution in its assessable income: see Subdivision 295-C of the ITAA 1997. Section 295-160 provides that "The assessable income of an entity includes contributions or payments as set out in this table for the income year in which the contributions or payments are received ". In particular, a contribution to a complying superannuation fund by one person to provide superannuation benefits for another person is assessable income under Item 1 of the Table in section 295-160 of the ITAA 1997.

50. Third, and relevant for present purposes, is that it determines the financial year in which the contribution is included in a person's concessional (or non-concessional) contributions for the purposes of excess contributions tax. In this regard, section 292-25(2) of the ITAA 1997 provides that a person's concessional contributions for a financial year include contributions:

  • "(a) …… made in the financial year to a complying superannuation plan in respect of [the person]; and
  • (b) ……. included in the assessable income of the superannuation provider in relation to the plan …….;

    • (3) An amount in a complying superannuation plan is covered under this subsection if it is allocated by the superannuation provider in relation to the plan for [a person] for the year in accordance with conditions specified in the regulations."[Emphasis added]

51. The importance of a taxpayer ascertaining the timing of superannuation contributions was highlighted in the Explanatory Memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 at [1.119]:

"When considering whether an excess is reasonably foreseeable, the Commissioner may consider the terms of any agreement or arrangement between the individual and another person where those terms affect the amount or timing of the contribution. For example, where contributions are made by an employer under a workplace agreement, industrial award or an effective salary sacrifice agreement the Commissioner will need to consider the terms of those agreements. The Commissioner may also consider the extent to which the individual has control over the making of the contribution. For example, a person who is making a contribution towards the end of a financial year should ensure that the fund receives the contribution before the end of the financial year to ensure it is taken into account in that year and not the subsequent one . [Schedule 1, item 1, subsection 292-465(4)]" [Emphasis added]

52. The term "made" is not defined in the ITAA 1997 for the purposes of Division 292.

53.

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In Peaker and Chantrell the Tribunal held that for the purposes of Division 292 contributions are "made" when they are actually received by the superannuation fund and credited to the superannuation fund's account.

54. In Peaker Member Webb stated at [8] to [9]:

  • "8. …….concessional superannuation contributions are calculated with reference to the contributions made to complying superannuation funds, by way of assessable income. The origin of the liability to make a contribution is not germane to the assessment of contributions actually made during a financial year. Importantly, a contribution to a superannuation fund is 'made' when the contribution is received by the fund . If the contribution is made by cheque conveyed by post, the contribution is not 'made' until the cheque is received by the fund (unless it is dishonoured).
  • 9. It is accepted that Chamberlain Morris made a superannuation guarantee contribution of $7,215.83 in respect of Mr Peaker's employment and earnings in the April-June quarter of the 2006-2007 financial year. It appears that the payment was made by cheque conveyed by post. It does not appear in the records of REI Superannuation until 5 July 2007. That is the date the contribution was 'made '. Even though the liability to make the contribution arose in the preceding quarter, in 2006-2007, it does not follow that the contribution is deemed to have been made in that preceding quarter for the purposes of the Income Tax Assessment Act concessional contribution provisions."[Emphasis added]

55. In Chantrell Member Hughes stated at [19] to [21]:

  • "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 TR 2010/1. 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 the 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 not completed until 2 July 2007."

56. The Commissioner's views on when a contribution is "made" for the purposes of Division 292 of the ITAA 1997 are set out in Taxation Ruling TR 2010/1, titled "Income tax: superannuation contributions". That Ruling provides, in part:

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

57. Further, the Commissioner's view as provided in paragraph 13 of TR 2010/1 is that where funds are transferred by an electronic transfer of funds to the superannuation provider, the funds are received ("made") when the funds are credited to the superannuation provider's account. Paragraph 183 and paragraphs 185 to 186 of TR 2010/1 state:

  • "183. A contribution of funds as cash or an electronic funds transfer, is made when the account is received by the superannuation provider and credited to the relevant account.

    …….

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  • 185. Electronic payment systems operate through contractual arrangements between the:
    • • payer and the payer's financial institution;
    • • payer's financial institution and the payee's financial institution; and
    • • payee's financial institution and payee.
  • 186. When a financial institution agrees to accept a payment instruction it notifies the receiving institution of the details of the payment. In Australia there are several different clearing systems for the transferring of information and netting of amounts to be transferred between institutions. The clearing rules of these systems bind the financial institutions but not the customers. Most small payments between financial institutions are not processed in real time but are subject to deferred net settlement which occurs overnight [:Thomson Legal Online, Law Relating to Banker and Customer, paragraphs 4.1860, 4.1980, and 4.2090]. As such, it is not until an amount is credited to a bank account of the superannuation provider that a contribution will be taken to be made."

See also paragraph 187 of TR 2010/1.

58. Such an approach is consistent with the law relating to when a dividend is taken to have been "paid" for income tax purposes. That is, "paid" in relation to a dividend includes "credited" or "distributed": section 6(1) of the Income Tax Assessment Act 1996. Broadly, a dividend is "credited", so as to have been "paid", if a dividend has been declared, profits are appropriated to its payment and, importantly, the shareholder's account with the company is credited in such a way that it may be drawn on as and when the shareholder desires.

59. See also Halsbury's Laws of Australia 45 Banking and Finance in Australia (2) which states at [45-690]:

"If the transfer is made through an electronic funds transfer system or other [electronic banking] system which is governed by inter-bank rules as to the time of settlement, those rules may be relevant to the time of completion of the payment to the extent that they affect the time at which the payee has an unconditional right to the immediate use of the funds."

Onus on the Applicant

60. Section 14ZZK(b)(i) of the TAA provides:

"On an application for review of a reviewable decision he applicant has the burden of proving that if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive."

61. Accordingly, Mr Paget bears the onus of proving that his excess contributions tax assessment is excessive. To discharge this onus, Mr Paget must establish the necessary facts and explain why the assessment is excessive, and further, what the assessment should be: see
Leckie v Commissioner of Taxation [2012] AATA 129 at [21].

FACTS & EVIDENCE

62. Mr Paget was born on 10 November 1946 and so was over 50 years of age as at 30 June 2009 and 30 June 2010 respectively. As such, Mr Paget's concessional contributions cap for the 2010 financial year was $50,000 and for the 2009 financial year was $100,000.

63. Mr Paget was at all times during the each of the years ended 30 June 2009 and 30 June 2010 employed as the managing director of Curtin Student Guild ( Employer ).

64. Mr Paget was paid throughout the years ended 30 June 2009 and 30 June 2010 on a fortnightly basis.

65. At all times during financial years concerned, a "salary sacrifice" arrangement was in place between Mr Paget and the Employer whereby the Employer agreed to make certain superannuation contributions on Mr Paget's behalf, "salary sacrificed superannuation contributions", to a superannuation fund, Colonial First State - First Choice Superannuation Trust ( Fund ), managed by Colonial First State ( Colonial First State ).

66. The Fund was at all relevant times a complying superannuation fund within the meaning of section 292-25(2) of ITAA 1997 and section 45 of the Superannuation Industry (Supervision) Act 1993.

67.

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Mr Paget was at all relevant times a member of the Fund.

68. Pursuant to the salary sacrifice arrangement:

69. The salary sacrificed superannuation contributions were paid in addition to other superannuation contributions the Employer made to the Fund on behalf of Mr Paget during the 2009 and 2010 years, being:

70. The employer made its superannuation contributions for an employee as a single payment once each month. The contribution made in any particular month was calculated as a proportion of the gross salary earned by an employee in the previous month. In the case of Mr Paget, each monthly superannuation contribution was to be paid by the Employer to Colonial First State by the 11th day of the month. Mr Paget gave evidence that the contributions were always made by the 10th day of each month, with the exception of the June 2009 contribution.

71. The Employer's records of wage details and superannuation contribution entitlements for Mr Paget for July 2008 through to May 2009 show the following:

TABLE A
TABLE A
  Gross Wages 9% Super Employer 4 % Salary Sacrifice Total
Jul-08 $7,741.50 $696.74 $154.83 $5,147.38 $5,998.95
Aug-08 $7,741.50 $696.74 $309.66 $5,147.38 $6,153.78
Sep-08 $11,612.76 $1,045.10 $464.49 $7,721.07 $9,230.66
Oct-08 $9,483.01 $853.47 $379.32 $6,889.45 $8,122.24
Nov-08 $8,128.50 $731.57 $325.14 $5,535.52 $6,592.23
Dec-08 $8,128.51 $731.57 $325.14 $5,535.52 $6,592.23
Jan-09 $8,535.00 $768.15 $341.40 $5,943.06 $7,052.61
Feb-09 $8,535.00 $768.15 $341.40 $5,943.06 $7,052.61
Mar-09 $12,802.50 $1,152.22 $512.10 $8,914.59 $10,578.91
Apr-09 $8,535.00 $768.15 $341.40 $5,943.06 $7,052.61
May-09 $ 8,535.00 $ 768.15 $ 341.40 $ 5,943.06 $7,052.61
  $99,778.28 $8,980.01 $3,836.28 $68,663.15 $ 81,479.44

72. Therefore, the Employer's practice was to make contributions relating to salary earned in a particular month in the month immediately following that month in which the gross wages were earned.

73. At some time in June 2009 (on or around Thursday 25 June 2009), Mr Paget realised that he would not reach his 2009 concessional contributions cap of $100,000. He asked the Employer's payroll officer whether the salary sacrifice superannuation contribution payable in

ATC 4759

respect of his June wages could be paid before 30 June 2009, instead of in July 2009 as would normally be the case according to the Employer's practice. He was advised by his Employer's payroll officer that his Employer could give instructions that the payment occur on 30 June, but not before that date, for administrative reasons. Mr Paget asked the Employer's payroll officer to pay, on 30 June 2009, the superannuation contribution which was due to be made for him in July 2009. That is, he asked for his July 2009 superannuation contribution (in respect of his June 2009 wages) to be brought forward and paid on 30 June 2009.

74. On Tuesday 30 June 2009, the payroll officer, in accordance with Mr Paget's request, instructed the Employer's bank (BankWest) to make an electronic transfer of Mr Paget's July 2009 superannuation contribution (being $8,285.71), which included the June 2009 salary sacrifice contribution (of $7,176.16) as well as the SG contribution (of $768.15) and the additional employer 4%, to an account in the name of the Fund. The Employer and Fund operated accounts at different banks. The Employer banked with BankWest, in Perth, and the Fund's bank was based in Sydney. That is, the Product Disclosure Statement for the First Choice Superannuation Trust that appears of the Colonial First State Website provides instructions (at page 18) on how to make an electronic funds transfer payment and specifies the BSB of the receiving account as "082-154" and, according to the "BSB Number Search" website, that BSB number relates to "National Australia Bank, First State Managers Ltd, Flr 10, 52 Martin Place, Sydney, NSW 2000."

75. In accordance with Mr Paget's instructions, the Employer's bank debited the Employer's account for an equivalent amount on the same day as that request was made (i.e. 30 June 2009). However, the contribution for Mr Paget (being $8,285.71 in total) was not received by the Fund until 1 July 2009.

76. During the year ended 30 June 2010 the following concessional contributions were received by the Fund from the Employer for Mr Paget:

TABLE B
TABLE B
Date Contribution received SG 9 % Additional 4 % Salary Sacrificed Contribution Total
1/07/2009 $768.15 $341.40 $7,176.16 $8,285.71
6/08/2009 $768.15 $341.40 $5,643.03 $6,752.58
4/09/2009 $768.15 $341.40 $5,343.00 $6,452.55
12/10/2009 $1,152.22 $512.10 $8,014.50 $9,678.82
18/11/2009 $768.15 $341.40 $5,343.00 $6,452.55
8/12/2009 $768.15 $341.40 $5,343.00 $6,452.55
18/12/2009 $768.15 $ 341.40 $5,343.00 $6,452.55
10/02/2010 $767.19   $ 1,923.00 $2,690.19
16/03/2010 $726.81     $726.81
12/04/2010 $ 1,009.46     $ 1,009.46
  $8,264.58 $2,560.50 $44,128.69 $ 54,953.77

77. On 8 October 2010 the Fund lodged a member contributions statement with the Commissioner for the year ended 30 June 2010 detailing employer contributions in respect of Mr Paget of $54,953.77.

78. On 1 June 2011 the Commissioner issued a Notice of Assessment of excess contributions tax for the year ended 30 June 2010 to Mr Paget pursuant to section 292-230(1) of ITAA 97 for the reason that Mr Paget's contributions cap for the 2010 year (of

ATC 4760

$50,000) had been exceeded by $4,953.77. The excess concessional contribution assessed was $4,953.77 and the excess contributions tax was $1,560.40.

79. On 6 September 2011 the Commissioner received an undated letter from Mr Paget which the Commissioner treated as an application for a determination by the Commissioner, pursuant to section 292-465(1) of the ITAA 97, that the concessional contribution of $8,285.71 made on 1 July 2009 be allocated to 30 June 2009.

80. On 10 October 2011 the Commissioner advised Mr Paget that he had allowed Mr Paget an extension of time to lodge the above application (as it was made out of time) but nevertheless refused to make the determination sought.

81. By letter dated 13 October 2011 and headed "Appeal for Incorrect Tax Charge" Mr Paget advised the Commissioner that he wished to object to the above excess contributions tax assessment (as permitted by section 292-245 of ITAA 97). The grounds of his objection included the fact that he was dissatisfied with the Commissioner's decision to refuse to make the determination. Mr Paget's letter stated, in part:

"APPEAL

  • 1. Firstly the change in Superannuation policy from unlimited to limited was made in such a way as to cause confusion amongst the common person. I personally had great difficulty understanding what comprised the limit of $50,000 imposed on me.
  • 2. That notwithstanding, I asked the payroll staff to ensure the contribution taken from my pay was remitted in the financial year concerned, which they did (30th June 2009).
  • 3. When I calculated my allowed contributions the year in dispute I naturally did not include the amount I knew I had been paid in the previous year.
  • 4. Therefore it is not a mere oversight by me, nor a mere technicality which should be addressed by the Commissioner when considering my appeal. It's the equity of what the result has taken from me. As an individual I am being penalised for something that is within my power to assess but beyond my control to achieve. The money is significant to me and insignificant to the system. I am trying my best to provide for my future to avoid a burden on the state and you are treating me with distain and I feel like a criminal.

    In summary I appeal for you to regard the matter, which undeniably falls within a borderline grey area, where you clearly can use discretion without setting a precedent, as one of equity. What is fair for to the taxpayer? Did I as a citizen set out to defraud the Government? Clearly not. I calculated in good faith a payment to my superfund which took place in the correct year and have been penalised disproportionately by a mere technicality which can be waived by the Commissioner."

82. On 1 December 2011 the Commissioner advised Mr Paget that his objection had been disallowed in full.

83. On 15 December 2011 Mr Paget applied to the Tribunal for a review of the Commissioner's objection decision dated 1 December 2011.

ANALYSIS

Timing of Mr Paget's Concessional Contribution

84. Before the Tribunal, Mr Paget argued that when his Employer's payroll officer debited the Employer's account for the amount of his contribution (being $8,285.71 in total) in accordance with his instructions on 30 June 2009 the contribution had been "made" for Division 292 purposes. That is, the contribution of $8,285.71 was "made" as soon as his Employer had done everything necessary to effect an electronic funds transfer of the amount to Mr Paget's Fund. The fact that the contribution of $8,285.71 was not received by the Fund or credited to Fund's account until 1 July 2009 did not mean, in Mr Paget's view, the contribution had not been "made" on 30 June 2009.

85. Mr Paget explained that the only reason for the delay in the amount of $8,285.71 (which had been taken out of his Employer's account on 30 June 2009) reaching his Fund's bank account was because his Fund's bank account was in Sydney. He said that contributions which had been made by his Employer (on 30 June 2009) in respect of other employees had

ATC 4761

reached the accounts of those employee's funds by 30 June 2009 because the funds' bank accounts were located in Perth.

86. In written submissions, Mr Paget summarised his position as follows:

" SUMMARY

  • • Cliff Paget's Superannuation contributions for June 2009 were held by the Student Guild on 29th June 2009.
  • • They were no longer held by the Guild on the 30 th June .
  • • They were available for the Superannuation Fund on 30th June (held in Trust by the bank) and in fact many funds locally receive those remittances.
  • • Clerically they were recorded by the Super Fund on 1st July, but in fact were their funds on 30th June 2009."

87. Mr Paget questioned who had 'ownership' of the money (i.e. the contribution) in the period in between when his Employer's account was debited on 30 June 2009 and the Fund's account was credited on 1 July 2009. Mr Paget argued that logic must dictate that the contribution was "made" as soon as the funds left his Employer's account. In written submissions, Mr Paget asserted:

"They are no longer in the possession of the [Employer], ownership having clearly passed to the [Fund], albeit they are 'held in trust' at that time by the bank.

……….

The funds have been remitted by the employer on behalf of the employee and therefore clearly no longer 'belong' to the employer/employee.

Clearly they now belong to the Superfund/employee.

If not, then the bank 'owns' those funds and should record them as income in June and pay tax on them, as they do not 'remit' them until the next financial year. Ludicrous!"

88. Mr Paget also submitted that the Commissioner's approach to the issue of whether a contribution had been "made" for Division 292 purposes was inequitable and was inconsistent with the "accruals basis" on which the Australian Taxation Office ( ATO ) normally operates.

89. In the context of when superannuation contributions are "made" for the purposes of Division 292 (as opposed to when income is "derived" for income tax purposes), the Tribunal agrees with the approach of the Tribunal in the recent cases Peaker and Chantrell, namely that superannuation contributions are "made" when they are actually received by the superannuation fund and credited to the superannuation fund's account.

90. In the case of contributions of money (cash) to a superannuation fund, the superannuation provider does not commence to hold a benefit for a fund member until the cash contribution in respect of that member has been received or made available to the fund provider by way of an increase in the capital of the fund and an immediate right to the cash. cf
Case 1/97 97 ATC 101 where the Tribunal found that, at the time the relevant salary payments were electronically transferred, they were 'constructively' received by the taxpayer as they were dealt with on his behalf or as he directed.

91. Such an approach would seem consistent with the legislative scheme of Part 3-30 of the ITAA 1997 generally, the law on when a dividend has been "paid" for income tax purposes and with Australian banking and finance law and practices. It is also consistent with the Commissioner's views as set out in TR 2010/1.

92. In relation to Mr Paget's submission that the ATO ordinarily operates on an "accruals" basis and that its approach to when a superannuation contribution has been "made" for Division 292 purposes is at odds with that, with respect, for income tax purposes the income "derived" by a taxpayer is determined using two basic methods of tax accounting, being the receipts (or cash) basis and the accruals (or earnings) basis. Broadly, under the receipts/cash basis, income is not derived until it has been received by the taxpayer (this includes constructive receipt under section 6-5(4) of the ITAA 1997) and under the accruals/earnings basis, actual receipt is not necessary for derivation and an amount is "derived" when it becomes "due" to the taxpayer. The choice of which method of tax

ATC 4762

accounting is used is not dictated by the Commissioner, nor, is it a choice of the taxpayer. It is well established that the appropriate method of tax accounting to be used to determine when income has been "derived" for income tax purposes is the method "calculated to give a substantially correct reflex of the taxpayer's income":
CT v Executor & Trustee Agency Co of South Australia (1938) 63 CLR 108 (Carden's case). This may be determined by commercial and accounting practices.

93. Mr Paget was aged 50 years or over on both 30 June 2009 and 30 June 2010. His concessional contributions cap for the 2009 year was $100,000 and for the 2010 year was $50,000. In the year ended 30 June 2010, employer concessional contributions totalling of $54,953.77 were "made" in respect of Mr Paget by the Employer (including the contribution at issue in this application of $8,285.71). Therefore, Mr Paget's excess concessional contributions for the 2010 year were $4,953.77.

Special circumstances

94. In summary, Mr Paget's case is not attended by "special circumstances" because:

95. The Employer made all relevant concessional contributions on a monthly basis. Each monthly contribution represented a proportion of the previous month's salary of Mr Paget. The Employer agreed that the contributions would be made by the 11th of the month. This obligation was usually, but not always met. That it was occasionally paid later than the 11th is not relevant to whether a determination should be made.

96. Mr Paget asked the Employer to alter the usual pattern of the Employer's monthly contributions by bringing the July 2009 contribution (being the one based on Mr Paget's salary for June 2009) forward from July 2009 to June 2009. This would have allowed Mr Paget to maximize the total contributions made on his behalf in the two year period from 1 July 2008 to 30 June 2010 without exceeding the relevant cap.

97. The Employer' payroll officer advised Mr Paget that the relevant contribution could not be paid before 30 June 2009 for the reason that the payroll office ordinarily paid all contributions for all employees at once after the end of the calendar month. Mr Paget was told that it was not possible to pay the amount earlier due to limited staff. However, the Employer's payroll clerk agreed that she would attempt to pay Mr Paget's contribution based on the salary he earned in June 2009 (but which would normally be paid in July 2009) on 30 June 2009. Mr Paget's attempt to change the timing of the contributions made for him was unsuccessful in achieving what he desired as the Fund did not receive the contribution concerned until 1 July 2009.

98. As stated above, the Tribunal considers that a contribution of superannuation funds by electronic transfer is made when the amount is received by the superannuation provider or credited to the relevant account. It is normal banking practice for the electronic transfer of funds from one financial institution not to be credited to the receiving financial institution until the next business day as such transfers do not occur in real time. Consequently it is not unusual, exceptional or uncommon that an electronic transfer of funds requested on 30 June 2009 was not received by the Fund until 1 July 2009. As such, it is not "special circumstances" for Division 292 purposes.

99.

ATC 4763

The mere fact that it might be argued that Mr Paget has only exceeded the relevant cap by a relatively small amount (i.e. by $4,953.77) is not "special circumstances": Case 11,379.

100. Mr Paget contends that he had difficulty understanding what comprised "the limit of $50,000". Ignorance of the law or of superannuation arrangements is not "special circumstances": Tran, Tefonu, Case 23/96 and Peaker. In any event, on the evidence before the Tribunal Mr Paget's knowledge of the caps was such that he was aware that he needed to modify his salary sacrifice agreement in order to maximize his ability to contribute up to the concessional contributions cap. Further, it is clear that Mr Paget he took steps to cease salary sacrifice contributions in the 2010 financial year when approaching the cap.

101. Mr Paget contended that the reasons for him exceeding his concessional contributions cap for the 2010 financial year was his mistaken belief that his Employer's attempt to pay the July 2009 contribution on 30 June 2009 meant that it would be counted towards the contributions cap for the 2009 financial year. To reiterate, ignorance of the law does not, in itself, constitute "special circumstances": Tran, Case 23/96 and Tefonu.

Object of Division 292

102. The Tribunal considers that the making of a determination in Mr Paget's circumstances would not be consistent with the "object" of Division 292 of ITAA 97 as required by section 292-465(3)(b) of the ITAA 1997.

103. As stated above, according to section 292-5 of the ITAA 1997 the "object" of Division 292 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. To that can be added the object of imposing a limit on the rate of transfer of assets into the concessionally taxed environment of superannuation. The imposition of excess contributions tax is an intended consequence of the Division where excess contributions have been made in a financial year. As discussed above, the tax both discourages excess contributions and neutralizes the benefit that excess contributions would otherwise confer on a member of a fund.

104. In Mr Paget's case, the regular payment of monthly superannuation contributions by the Employer one month in arrears is entirely consistent with the "object" expressed in section 292-5 of the ITAA 1997. But allowing Mr Paget, whose circumstances are not unusual or special, to reallocate the July 2009 contribution to the year ended 30 June 2009 is not consistent with the "object" of the Division because if timing adjustments like this are routinely allowed the deterrent effect of the caps and the legislative intent of the Division would be undermined.

More appropriately be allocated towards another financial year instead

105. As stated above, pursuant to section 292-465(5) of ITAA 1997, regard may be had to whether a contribution made in a particular financial year would more appropriately be allocated towards another financial year instead.

106. In Mr Paget's case, the Tribunal considers that the July 2009 contribution would not be more appropriately allocated towards the financial year ended 30 June 2009 (i.e. instead of the year ended 30 June 2010). This is because contributions have been made by the Employer on a regular and consistent pattern throughout the years ended 30 June 2009 whereby those contributions are made in the calendar month immediately following the pay periods to which they relate. The July 2009 contribution was made in accordance with that pattern, despite Mr Paget's wish to bring it forward.

Reasonably foreseeable when contribution made that Mr Paget would have excess contributions

107. Under section 292-465(6) of the ITAA 1997, regard may be had to whether it was reasonably foreseeable, when the relevant contribution was made, that Mr Paget would have excess concessional contributions in the year ended 30 June 2010 having regard to:

108.

ATC 4764

As stated above, the expression "reasonably foreseeable" in section 292-465(6) of the ITAA 1997 imports an objective assessment about a set of facts as they apply to a particular circumstance or to a particular person; McMennemin. Viewed objectively, it was reasonably foreseeable, given that Mr Paget was aware that the Employer would only be able to make the July 2009 contribution on 30 June 2009, at the earliest, that the Fund would not receive that contribution by close of business on 30 June 2009 and that accordingly that contribution would be a concessional contribution for the year ended 30 June 2010. It is evident Mr Paget had some concerns about fact that the payroll office would not make the payment until 30 June 2009 as he requested that they make the payment earlier, but he was told that would be unable due to administrative constraints.

109. Further, it is, in many respects, an incorrect approach to fix on the $8,285.71 contribution made on 1 July 2009 as the reason why Mr Paget exceeded the contributions cap for the financial year ended 30 June 2010. It was really a miscalculation in relation to the contributions made subsequently by the Employer that caused Mr Paget to exceed the contributions cap. Not only were those consequences 'reasonably foreseeable' but they could have been adjusted.

110. It is clear that Mr Paget was otherwise monitoring the level of contributions made for him by his Employer. It was open to him to check the superannuation statements his Fund was obliged to give him to determine when contributions were made for him. To adopt Deputy President Forgie's language in McMennemin, that was simply the circumstances in which Mr Paget placed himself.

DECISION

111. For the above reasons, the Tribunal affirms the Commissioner's objection decision dated 1 December 2011.

 

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