CASE 7/2013

Members: BJ McCabe SM

BJ McCabe SM [2nd]

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2013] AATA 577

Decision date: 16 August 2013

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Senior Member Bernard J McCabe

1. The Commissioner said the taxpayer contributed too much into his superannuation fund. The Commissioner said the amount of the excess contribution attracts a higher rate of tax, and raised an assessment on that basis. The taxpayer agreed he paid the amounts into his fund, but he said he also made withdrawals that should be offset against the payments. He said he should be assessed on the basis of his net contributions to the fund. In the alternative, he argued his excess contributions should be ignored because of special circumstances.

2. The applicant cannot succeed. I explain my reasons below. It follows the objection decision must be affirmed.

THE FACTS

3. Australia ' s superannuation system encourages individuals to put money aside during the course of their working lives to see them through their retirement rather than relying on the aged pension. To that end, payments into a super fund attract favourable tax treatment. But there can be too much of a good thing. The law sets limits on tax-effective contributions to superannuation to contain what might otherwise be a drain on the public purse. If a taxpayer makes excess contributions, those contributions are taxed at a higher rate.

4. The taxpayer in this case is a retired public servant. He wanted to manage his financial resources carefully and provide for his future. To that end, he paid $ 430,000 into his AGEST super account in the course of the 2007/2008 financial year. That was fair enough: the so-called " bring forward " provisions said he could make up to $ 450,000 in non-concessional contributions over a three year period. The taxpayer said he liked the AGEST super fund because he could regularly check on the performance of the various funds in which his money was invested, and move money about when he thought there was an advantage in doing so. He also liked the fact he was able to withdraw the money at short notice.

5. The Global Financial Crisis (GFC) disrupted all of this. The equity markets in which the taxpayer ' s funds were invested dropped precipitously as the crisis took hold. The taxpayer said he was checking on his investments on a daily basis and became alarmed at what was occurring. He felt he was losing thousands of dollars a day at the height of the crisis. He explained in his evidence (which was uncontradicted) that he withdrew about half of the money in his superannuation account on 29 September 2008. At first, he put the money in the bank. He pointed out the Commonwealth guaranteed bank deposits, so it

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was a much safer investment. But after a while, he began to look around for investments that might yield a better rate of return. He proceeded to spend around $ 100,000 of the money he had taken from the super fund on renovations to a property he believed might increase in value.

6. The taxpayer ' s appetite for risk appeared to return the following year. On 16 September 2009, he paid $ 100,000 (in other words, half of the money he had taken out of his super account in September 2008) back into his AGEST super account.

7. I was provided with copies of the correspondence from AGEST recording the withdrawal of funds in 2008 and the deposit of funds in 2009. The letters include statements of account. While there are references in the statements of account to tax liabilities, none of the correspondence addresses whether the taxpayer was likely to breach the non-concessional contributions cap when he deposited the $ 100,000 amount in September 2009. The taxpayer agreed he did not ask his super fund any questions about that issue: he said in his evidence that he was generally aware the government was encouraging individuals to save money through the super system to fund their retirements. He said it did not occur to him there would be a tax problem because - as far as he was concerned - he was simply returning to the super fund money he had taken out earlier. If there was no problem making the contribution in the first place, he said there was no basis for thinking there would be a problem when he effectively re-contributed the same money the following year.

8. The Commissioner said the taxpayer tipped over the $ 450,000 contributions limit when he deposited the $ 100,000 payment within the three-year period following the initial contribution of $ 430,000. The Commissioner said the taxpayer was liable to pay tax on the $ 80,000 excess. The taxpayer was horrified. He argued he had not exceeded the contributions limit because the statute should be interpreted in a way that it only catches the net contribution into the fund. Alternatively, he argued there are special circumstances that permit the Commissioner to exercise the discretion in s 292-465 of the Income Tax Assessment Act 1997 to treat the contributions as if they had not been made, or if they had been made in a different period. The taxpayer was unsuccessful at the objection stage, and has come to the Tribunal for relief.

HOW SHOULD CONTRIBUTIONS BE DEFINED FOR THE PURPOSES OF DIV 292?

9. Division 292 sets out the limits on superannuation contributions. Importantly, it explains at s 292-5 that the object of the division is to ensure superannuation benefits received by taxpayers result from " superannuation contributions that have been made gradually over the course of the person ' s life. "

10. An individual may make concessional contributions and non-concessional contributions . We are dealing with non-concessional contributions in this case. Section 292-80 imposes a liability to pay excess non-concessional contributions tax on any excess non-concessional contributions in a financial year. Section 292-90 explains how to calculate the non-concessional contributions in a given year. Section 292-90(1) refers to each contribution or amount paid . The legislation does not refer to the net amount paid into a fund, nor does it provide a mechanism for calculating a balance of funds paid in and taken out as the basis for determining a taxpayer ' s non-concessional contributions .

11. The taxpayer argued the legislation should be interpreted broadly given the objectives of the superannuation system. He said he was left with a large tax bill that feels like a penalty, and the tax legislation ought to be interpreted in favour of the subject in those circumstances. He said he should only pay tax on net contributions that exceed the cap. Mr Brennan, for the Commissioner, said the legislation did not provide for that outcome. He explained there was good reason for that: a system in which a taxpayer was allowed to calculate a balance after putting money in and taking it out would result in the superannuation fund being treated like a bank.

12. The best guide to the intention of the parliament when it enacted a statute is the language of the statute itself. The words of the statute - especially s 292-90, which contemplates each contribution being taken into

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account - do not permit me to focus on net contributions. I must look at the amounts the taxpayer actually deposited into his super account over the relevant period. In this case, after depositing $ 100,000 in September 2009, he exceeded the non-concessional contributions cap by $ 80,000. He must be assessed on that basis unless the discretion in s 292-465 is exercised in his favour.

SHOULD THE DISCRETION IN S 292-465 BE EXERCISED IN THE TAXPAYER ' S FAVOUR?

13. The Commissioner has the discretion under s 292-465 to effectively ignore excess contributions in limited circumstances. Section 292-465(3) says the discretion is available where the Commissioner considers:

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

14. I note s 292-465(4) directs the Commissioner to consider a number of matters when deciding whether to make the determination. Some of those matters are referred to in sub-sections (5) and (6). Sub-section (5) requires that the decision-maker be satisfied it would be more appropriate to allocate the excess contributions to other income periods. Sub-section (6) directs the Commissioner to ask whether the taxpayer should have anticipated there would be excess contributions.

15. Mr Brennan referred me to a number of the cases where the expression special circumstances has been analysed and paraphrased. Those authorities all point to the same conclusion: there must be something about the case that is different or unusual which justifies the case being treated differently. Keifel J noted in
Groth v Secretary, Department of Social Security (1995) 40 ALD 541 (at 545) that an unfair, unintended or unjust result might be the sort of feature that would qualify as different or unusual.

16. The taxpayer referred to a number of matters he said amounted to special circumstances . He pointed out the GFC itself was an unusual event, albeit that it affected many, many people. He also pointed to the fact he was ignorant of the detailed requirements of a complex law, and suggested a lay-person ' s understanding of the policy behind the legislation made it reasonable to expect there would be no adverse taxation consequences when he was putting money into superannuation - something he thought the government was encouraging. He also said he was surprised his superannuation fund did not warn him of the danger he was exceeding the cap.

17. There is an interesting debate over whether an unusual event (like a natural disaster, or a financial crisis) affecting large numbers of people can amount to special circumstances . The taxpayer was certainly not alone in experiencing losses during the course of the GFC: it is possible most contributors to superannuation funds suffered some sort of loss, and some of those individuals suffered very extensive losses. The judgment of Callinan J in
Baker v The Queen (2004) 223 CLR 513 (at [ 173 ] - [ 174 ] ) suggests a circumstance might be special if it is unusual, apparently regardless of how many people are affected by the circumstance when it does occur. This focus on the unusualness of the circumstances rather than the impact on individuals was evident in the decision of Katzmann J in
Fischer v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [ 2010 ] FCA 441 . In that case, Her Honour explained (at [ 80 ] ):

… it is the circumstances that must be special, not the individual ' s experience of them. Circumstances might be special thought they apply to more than one person or to a class of persons, provided they are not of universal application. The section does not require the circumstances to be unique to the individual.

18. Her Honour went on to cite the example of someone who was affected by bushfires. Thousands of people might have been affected by the same disaster, so the experience of one of them is not unique or even rare - but the event itself may be special precisely because it is unusual, although not by any means unprecedented: at [ 80 ] .

19. While Mr Brennan properly referred me to the decisions in Baker and Fischer , he argued the impact of the GFC without more should not be regarded as special circumstances .

20.

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If I accept the Commissioner ' s argument on this point, it would still be necessary for me to consider whether there was anything else about the case that interacted with the GFC to produce special circumstances. As I explained in Bornstein and Commissioner of Taxation
[ 2012 ] AATA 424 I must consider whether there was a " perfect storm " of events or factors that might amount to special circumstances , even if each event or factor might not be special if considered in isolation: at [ 12 ] .

21. I have already noted the taxpayer was critical of complex laws that were, in his view, counter-intuitive: he could not understand why the government would penalise individuals making contributions to their superannuation, especially when a portion of those contributions was essentially comprised of recycled funds. But ignorance of the law is rarely likely to be a matter that gives rise to special circumstances . Where a person is ignorant of the law and he or she is led into error, the situation might be different. The taxpayer said he expected his superannuation fund would have said something when he was putting the money back into his account in 2009. Might he have been led into error by the fund ' s silence?

22. I have already noted I was provided with copies of the correspondence from AGEST in relation to the 2008 withdrawal and the 2009 deposit. While some of the material attached to the correspondence refers to taxation matters, it does not address the question of excess contributions. There is no suggestion on the face of the material that AGEST was taking any responsibility for advising generally in relation to tax or specifically in relation to excess contributions. The taxpayer simply made an unwarranted assumption. It is difficult to see how that amounts to special circumstances .

23. As it happens, I do not need to reach a concluded view on the question of whether the GFC (either on its own, or in conjunction with any other event or circumstance) amounts to special circumstances . Equally, I do not need to reach a concluded view on the question of whether making the determination (to ignore or reallocate the contributions) was consistent with the object of Division 292. If pressed to decide, I would have concluded the determination was consistent with the object of the division, which is explained in s 292-5. The taxpayer has been making gradual contributions into the fund in accordance with the law. In the circumstances, he was not advantaging himself or undermining the efficacy of the system when he put money back into his fund.

24. I do not need to reach a concluded view on these questions because I am still required to have regard to the matters referred to in s 292-465(5) and (6) even if I were satisfied the discretion to make a determination was enlivened. I think the taxpayer has particular difficulty in relation to the matters referred to in s 292-465(6): namely, whether it was reasonably foreseeable that a contribution would exceed the cap. I have already found the taxpayer ' s expectation that his superannuation fund would point out any risks was unwarranted in the circumstances. I do not expect him to necessarily understand the law himself - I accept it is complex - but I would have thought the taxpayer might have asked for some advice. That advice was readily available. I accept the taxpayer did not foresee the problem, but he should have done so.

25. The taxpayer is not assisted by reference to the consideration in s 292-465(5), either. There is no particular reason (other than the fact it gets the taxpayer out of trouble) why it was more appropriate to allocate the payment to another year of income.

26. In all the circumstances, I am not satisfied it would be appropriate to make the determination sought by the taxpayer even if I were satisfied as to the matters referred to in s 292-465(3).

CONCLUSION

27. The objection decision under review is affirmed.