Case U114

Members:
RK Todd DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 21 May 1987.

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R.K. Todd (Deputy President)

This review concerns a claim by the applicant in his taxation return in respect of a sum of $10,425 which he contended had been used by him to purchase an annuity. The applicant sought to deduct this amount, in respect of the year of income ended 30 June 1982, under sec. 51(1) of the Income Tax Assessment Act 1936 ("the ITAA") or, alternatively, claimed that the amount should be, pursuant to the then sec. 26AA of the ITAA, excluded from assessable income over the remaining lifetime of the taxpayer.

2. As a Commonwealth public servant who had been invalided out of the service in 1982, the applicant was eligible to receive a pension calculated as a percentage of his final salary and a refund of his accumulated supplementary contributions. Alternatively, he had been entitled to elect, within one month of becoming entitled to the invalidity pension, to receive a lesser pension and, in addition, a lump sum

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ATC 683

equal to his total accumulated contributions. His total accumulated contributions consisted of $10,099 plus his accumulated supplementary contributions. The relationship of the sum of $10,099 to the sum of $10,425 mentioned in the applicant's return is as follows: In his return the applicant included against the item "Undeducted Purchase Price of Annuity" the sum of $10,425. In further documentation the applicant indicated how he had claimed this figure:

"Also at item 19, I have claimed the following previously unclaimed life insurance deductions:

      1973/1974        $52
      1974/1975       $274
          

thus making the total claimed at item 19 of $10,425."

3. In fact the respondent treated the sum referable to the 1974/1975 year as being not $274 but $288, and calculated the applicant's undeducted purchase price as follows (Ex. 1):

"Year       Undeducted      Insurance      Superannuation     Total    Allowable
            purchase       premiums       contributions      paid       claim
             price
               $               $                $              $           $
1974           52             517              735           1252        1200
1975          236             517              919           1436        1200
             ----
Total        $288."
        

The applicant having retired aged 47, his life expectancy as calculated by reference to the prescribed Australian Life Tables for 1965-67 was 25.27 years. The amount that the Commissioner determined as excluded from the applicant's assessable income for the year ended 30 June 1983 was $11, calculated as follows:

      "Undeducted Purchase Price/Life Expectancy

      288/25.27 = $11.40 per annum."
      

4. The options available to the applicant had been advised to him by the Australian Government Retirement Benefits Office as being:

"(i) `Government financed' pension of $10,435.00 p.a.

plus a lump sum of $11,900.

OR

(ii) `Government financed' pension of $10,435.00 p.a.

      plus a contributor
      financed pension of       $4,174.00 p.a.
                               ----------
      total pension            $14,609.00 p.a.
          

plus a lump sum of $2,310."

The applicant chose to receive the larger pension and argued that he used the extra lump sum which he could have elected to receive ($10,099) to "purchase" the additional pension.

5. The sections of the Superannuation Act 1976 ("the 1976 Act") which give rise to relevant entitlements are sec. 66, 67 and 68, the material portions of which read:

"66(1) Subject to sub-sections (3), (3A) and (4) of this section and to section 79, where a person ceases to be an eligible employee by reason of retirement on the ground of invalidity before attaining his maximum retiring age then, except in a case where sub-section (2) of this section applies, the person is entitled -

• (a) if the person does not make an election under section 68 or 69 - to invalidity pension in accordance with section 67 and, where the person has paid supplementary contributions, a lump sum benefit in accordance with that section;
• (b) if the person makes an election under section 68 - to invalidity pension, and a lump sum benefit, in accordance with that section; or
• (c) if the person is entitled to make an election under section 69 and makes such

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  ATC 684

  an election - to a lump sum benefit in accordance with sub-section 69(2) and, where the person has paid supplementary contributions, an additional lump sum benefit in accordance with sub-section 69(3).

...

67(1) This section applies to a person who -

• (a) is entitled to invalidity benefit by virtue of sub-section 66(1); and
• (b) does not make an election under section 68 or 69.

...

(4) Where the period of prospective service of a person to whom this section applies is less than 30 years, the annual rate of the pension to which the person is entitled is such percentage of the person's final annual rate of salary as, having regard to the number of complete years included in the person's period of prospective service, is applicable in accordance with columns 1 and 2 of Schedule 4.

(5) Where a person to whom this section applies has paid supplementary contributions, the lump sum benefit to which the person is entitled is an amount, payable out of the Fund, equal to the person's accumulated supplementary contributions.

68(1) A person who becomes entitled to invalidity pension by virtue of sub-section 66(1) may, not later than 3 months after becoming so entitled, elect, by notice in writing to the Commissioner, that, in lieu of benefit being payable in accordance with section 67, pension and lump sum benefit be paid in accordance with this section.

...

(4) Where a person makes an election under sub-section (1) and the period of prospective service of the person is less than 30 years, the annual rate of the pension to which the person is entitled is such percentage of the person's final annual rate of salary as, having regard to the number of complete years included in that period of prospective service, is applicable in accordance with columns 1 and 3 of Schedule 4.

(5) Where a person makes an election under sub-section (1), the lump sum benefit to which the person is entitled is an amount, payable out of the fund, equal to the person's accumulated contributions.

..."

6. It is clear that at the time of retirement the applicant's entitlement was to a pension, part of which could be commuted to a lump sum benefit. At no stage did the applicant ever receive any such lump sum benefit, nor did he ever make an election to receive such benefit under sec. 68 of the 1976 Act. In addition, he never had an equitable interest in the Superannuation Fund equivalent to such lump sum. As Mason J. (as he then was) stated in
Superannuation Fund Investment Trust v. Commr of Stamps (S.A.) 79 ATC 4429 at p. 4441:

"The Act prescribes the amounts of the benefits to which contributors become entitled but it does not, as I read its provisions, give them any property or equitable interest in the Fund. To a very substantial extent benefits payable under the Act are payable out of the Consolidated Revenue Fund, that Fund being reimbursed in appropriate cases by the Superannuation Fund. The moneys standing to the credit of the Superannuation Fund are Commonwealth public moneys in an account within the Treasury (sec. 60 of the Audit Act 1901 (as amended)). To the extent to which the Trust is a trustee of the moneys it is a trustee for the Commonwealth, not for the contributors."

7. To support his submission that he had in fact purchased his pension, the applicant relied heavily on the Second Reading speech introducing, and the parliamentary debates on, the Bill for the 1976 Act. He submitted that the Tribunal should refer to these materials for the purpose of interpreting the legislation. What he sought to establish was that the reference in sec. 67(2) of the 1976 Act to a person being entitled to an annual rate of pension that is "70 per centum" of that person's final annual rate of salary was ambiguous. There was, he said, a need to look at sec. 68 of the 1976 Act and the parliamentary debates on the Act in order to demonstrate that the 70 per cent pension is partly a government financed pension of 50 per cent and partly, as to 20 per cent, a pension financed by a person's contributions.

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ATC 685

8. Before the Tribunal adopts the course of referring to extrinsic materials, consideration must be given to the common law rules and to the relevant provisions of the Acts Interpretation Act 1901. Section 15AB of that Act provides as follows:

"15AB(1) Subject to sub-section (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material -

• (a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
• (b) to determine the meaning of the provision when -
  • (i) the provision is ambiguous or obscure; or
  • (ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.

..."

9. As sec. 15AB(1)(b) envisages that the "meaning of the provision" must be determined, it presupposes a situation in which the meaning of the provision is ambiguous or obscure. If, however, the provision in question has an "ordinary meaning", which I take to mean a natural or literal reading, there is neither need nor warrant for resorting to extrinsic material, other than for the purpose of confirming that ordinary meaning. The only result of so doing would be to create a doubt that was not present when the "ordinary meaning" of the provision was apparent on its face. The fact is that if the words of the legislation are clear, it is simply not correct to resort to extrinsic materials, or to experience and/or knowledge of the circumstances in which the legislation was drawn, to create a doubt that is not apparent on the face of the legislation. There is no warrant for the use of extrinsic materials to create ambiguities that are not there.

10. There is no ambiguity, for present purposes, in such of the provisions of the 1976 Act as are here under consideration, and it is therefore not open to the applicant to produce extrinsic material in an attempt to show that he "used his lump sum to purchase the additional pension". It follows also that neither is there any room for application of the common law rules as to construction of ambiguous or obscure statutory provisions.

11. It is the finding of the Tribunal that the applicant cannot be said to have used the notional lump sum, which he could have elected to receive pursuant to sec. 68 of the 1976 Act, to purchase his additional pension. No part of the notional $10,099 is deductible under sec. 51(1), or is excluded from assessable income pursuant to sec. 26AA of the ITAA.

12. It must also be added that even if the applicant be regarded as having purchased the pension with the notional lump sum, it would not have been deductible under sec. 51(1) as it would have been an expense of a capital nature and therefore not deductible. I respectfully agree entirely with the decisions of Taxation Board of Review (No. 1) in Case P130,
82 ATC 651 and Case P131,
82 ATC 658. On the footing that the applicant's claim is based on the sum of $10,099 having represented contributions to the Superannuation Fund, those contributions, or any other contributions which he has made, were contributions made in respect of a number of statutory rights and were of a capital nature.

13. This appeal was heard before Taxation Decision No. 3426 (5 May 1987) [reported as Case U106,
87 ATC 642] had been handed down and the above finding renders unnecessary a re-examination of the question of whether any pension paid pursuant to the 1976 Act is in fact, in the context of the now superseded sec. 26AA of the ITAA, "purchased". In Taxation Decision No. 3426 it was found that such pensions are not purchased and I simply refer to the reasoning set out in that case.

14. For the reasons set out above, the objection decision under review is affirmed.