CASE 64/96

Members:
DW Muller SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 12 November 1996

DW Muller (Senior Member)

This is an application to review a decision of the Deputy Commissioner of Taxation dated 6 February 1996 who decided not to exercise his discretion under section 15R of the Occupational Superannuation Standards Act 1987 (the Act) to deem a benefit not to be in excess of the applicant's Reasonable Benefit Limit (RBL).

2. There is no dispute as to the facts and I find as follows:

(a) The applicant was born on 25 May 1938.
(b) The applicant joined the Commonwealth Bank of Australia (the Bank) in 1956.

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(c) Employees of the Bank were required to join the Commonwealth Bank Officers' Superannuation Fund (the Fund). Contributions to the Fund were taken from each employee's pay at the rate of 5% of each person's salary.
(d) The applicant resigned from the Bank on 9 September 1987.
(e) The applicant's highest average salary (HAS) for the three years before he resigned was $29,060.
(f) Upon resignation the applicant elected to preserve his contributions in the Fund until he attained the age of 55 years. He could have taken his contributions plus interest, had he wished to do so.
(g) On 25 May 1993, the applicant turned 55.
(h) On 26 May 1993, the applicant received from the Fund, a lump sum payment of $98,219, plus an indexed pension of $14,610 per annum.
(i) The applicant had not heard of RBL until July 1994.
(j) The applicant's RBL, based on his HAS of $29,060 and his ``reasonable benefit multiple'' of 11.25, is $326,925, rounded up to $326,930 .
(k) The value of the applicant's pension calculated in accordance with Regulation 4D, is:
- (i) Lump sum payment of $98,219, plus
- (ii) The capital value of the superannuation pension which is $14,610 (Annual value) x 16 (Pension Valuation Factor) ie $233,760. This gives a total value of $331,979.
(l) The total value of the applicant's entitlements exceeded his RBL by $5,049.
(m) The detriment to the applicant is that he has had to treat the $5,049 as ordinary income for taxation purposes. He has had to pay income tax at the rate of 38% on the $5,049 instead of the concessionary 15%. The difference is $1,161.27.

3. The applicant seeks to invoke the discretion allowed for in section 15R of the Act, which reads as follows:

``15R Where:

(a) part of an eligible termination payment, a superannuation pension or an annuity would, apart from this section, exceed the reasonable benefits limits; and

(b) the Commissioner is satisfied, that because of the special circumstances of the case, the whole or part of the payment, superannuation pension or annuity should be treated as if it were within the reasonable benefit limits;

the Commissioner may make a determination under subsection 15K(1) or an interim determination under section 15L, accordingly.''

4. The applicant contends that there are circumstances sufficiently special in his case to warrant the treating of his benefit as being within his RBL. In particular his points are:

(a) His preserved benefit was established in 1987 which was three years before the RBL legislation came into force.
(b) The HAS used to calculate his RBL was based on salaries that he earned in 1985, 1986 and 1987, which were at least seven years before his RBL was calculated, and was not indexed.
(c) He received no taxation advantage from the funds after 1987.
(d) He placed no large sums in the Fund, nor did he take any money out of the Fund until he was 55.
(e) Had he taken his contributions in 1987 he would have avoided the RBL laws and would have been eligible for ``unemployment benefits'' and later an ``aged pension''. Thus he has saved the Commonwealth a large amount in social security benefits to which he may have been entitled.
(f) He was unable to roll funds into an ``approved deposit fund'' without losing his pension.
(g) Had he stayed with the Bank, the applicant would have had a larger superannuation payment, a larger pension, a larger salary for HAS purposes and possibly no excess component.

5. 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

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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 in some unusual or unforeseen cases result in an unjust, unreasonable or inappropriate result: a result that the legislators did not intend.

6. 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 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.

7. The RBL legislation contains an element of retrospectivity. The applicant complains of this retrospective element. It is my view that upon the legislation coming into force, each Fund member had a chance to assess their position and to decide whether it was advantageous for them to stay in the Fund or not. Those who remained in the Fund did so either because they considered the benefits outweighed the detriments, or, because they were ignorant of the benefits or detriments. It seems to me that the benefits which the applicant received, namely, the lump sum plus indexed pension, far outweighed the small detriment of which he complained. Whether he could have done better by getting out of the Fund in 1990 would be pure speculation.

8. On the question of the lack of indexation of the applicant's HAS, I note that the question of indexation, has been covered in regulation 4B(2) which reads:

``4B(2) [Indexation of HAS] Subject to subregulations (4) and (5), where the Commissioner is to calculate a person's reasonable benefit limits in relation to a benefit paid, or commenced to be paid, to the person at a particular time (in this subregulation called the `commencement time' ), the person's HAS is to be indexed in accordance with subregulation (3) if any of the following paragraphs applies to the person:

(a) the person had reached the age of 55 years on or before 1 July 1990;

(b) the person had, after reaching the age of 55 years, been engaged in gainful employment during each of at least 3 consecutive years;

(c) the person had not, before reaching the age of 65 years:

(i) received an ETP, other than:

(A) an ETP that was paid before 16 February 1990; or

(B) an ETP that was paid on or after that day and before 1 July 1990 from an employer of whom the person was not an associate; or

(C) an ETP that consisted wholly of undeducted contributions, concessional components or non- qualifying components or wholly of a combination of undeducted contributions, concessional components and non-qualifying components;

(D) an ETP that is a result of the commutation of a deferred annuity and is paid within 7 days of a person's 65th birthday; or

(E) an ETP that is a result of the commutation of a superannuation pension or annuity the commencement day of which is before 16 February 1990; or

(F) an ETP paid on or after 1 July 1992 to which subsection 27A(12B) or (12E) of the Tax Act applies; or

(G) an ETP paid on or after 1 July 1992 that the Commissioner determines to be in excess of reasonable benefit limits;

that the person has not rolled over; and

(ii) commenced to receive a superannuation pension or annuity, other than:

(A) a superannuation pension or annuity the commencement day of which is before 16 February 1990; or

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(B) a pension or annuity that meets the pension and annuity standards;

(d) the person has received or become entitled to receive an invalidity payment, a disability superannuation pension or a disability annuity;

(e) the person has received or become entitled to receive an approved early retirement scheme payout or a bona fide redundancy payout.''

[Emphasis added]

The applicant does not come within the ambit of the regulation because he had not reached the age of 55 years on or before 1 July 1990 and he does not satisfy the other provisions. Because of the specific rules relating to indexation of HAS, I can only conclude that situations like those of the applicant must have been considered, and rejected, as candidates for indexation. It is not one of those situations that could be regarded as unforeseen, unusual or a result that the legislators did not intend.

9. In the applicant's case there is no unintended result. There is no unjust, unreasonable nor inappropriate result. There are no ``special circumstances'' warranting the exercise of any discretion to not adhere to the strict application of the law.

10. The objection decision under review is affirmed.

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