The impact of this case on ATO policy is discussed in Decision Impact Statement: Bornstein and Commissioner of Taxation (2011/5143 ).
BORNSTEIN v FC of TMembers:
BJ McCabe SM
Administrative Appeals Tribunal of Australia, Brisbane
MEDIA NEUTRAL CITATION:
 AATA 424
Bernard J McCabe (Senior Member)
1. The taxation law limits the amount of concessional contributions (ie, contributions which attract a lower rate of tax) that may be made into a superannuation fund in a financial year. If the concessional contribution limits are exceeded in a particular financial year, the taxpayer is required to pay a higher rate of tax on the amount of the excess. The taxpayer in this case has asked the Tribunal to reconsider an objection decision which says he is liable to pay excess contributions tax in the 2007-2008 financial year.
2. This case raises the question of when a contribution is made for the purposes of the legislation. The question is important in cases like the present where the taxpayer made the contribution around the end of the 2006-2007 financial year: was the contribution actually made in the 2007-2008 financial year, as the Commissioner contends, or should it be treated as having been made in the previous financial year? To answer the question, I must consider the circumstances in which the Commissioner may exercise the discretion in s 292-465 of the Income Tax Assessment Act 1997 to treat a contribution that is made in one year as if it were made in a different year.
3. The taxpayer was employed by a company of which he was the sole director and shareholder. At the end of each financial year, his employer - which, as a practical matter, meant the taxpayer who managed the affairs of the company - would make a contribution into the taxpayer's superannuation fund. That pattern of payments towards the end of each financial year was clear from the evidence given by the taxpayer and from a statement given by his accountant, Mr Alford.
4. The taxpayer was traveling overseas between 21 June and 8 July 2007. He contacted Mr Alford by email (exhibit 6) to check whether he needed to make a super payment before the end of the financial year. There is no record of the response from Mr Alford but I understand the taxpayer was given the impression he had a period of grace in which to make the payments, which would then be backdated to the 2006-2007 financial year. The taxpayer says he looked at the ATO website and visited the page dealing with the deadlines for making superannuation contributions. A copy of the page was tendered in evidence: exhibit 5. The page in question is titled "Superannuation guarantee - a guide for employers" with the sub-title "When to pay contributions". It addresses an employer's obligations under the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the SGA Act") to make compulsory superannuation contributions for each employee in accordance with the law. The webpage pointed out an employer could make super contributions in respect of an employee up until 28 July and still have those amounts credited to the quarter ending the previous June.
5. The webpage does not refer to the consequences for an employee when contributions are made after the end of the financial year under the excess contributions regime in the Income Tax Assessment Act. The page only refers to what an employer had to do to satisfy the employer's obligations under the SGA Act. The taxpayer explained in his evidence that he assumed he was able to make the super contributions up until 28 July without any adverse consequences to anyone. He was not aware there was, in effect, a parallel regime in the Income Tax Assessment Act setting an absolute deadline for concessional contributions by 30 June so that he might become liable to an excess contributions tax even though his employer had made contributions within the time allowed to the employer.
6. Therein lies the problem: the taxpayer paid an amount into his superannuation fund on 10 July 2007, thinking it could be backdated to the previous financial year. He did not realise there was a problem with making the payment on 10 July 2007 and duly made a further contribution on 26 June 2008, just before the end of the 2007-2008 financial year. If those two contributions are treated as being paid within the same financial year, the taxpayer will have exceeded the limit on concessional contributions and be liable to pay excess contributions tax.
7. The taxpayer made both contributions within the same financial year. This is not one of those cases where a payment was initiated but not completed before the end of the preceding year, which might give rise to an argument that the contribution was made in the earlier period: cf
Chantrell and Commissioner of Taxation  AATA 179. The taxpayer's only hope is to persuade the Commissioner (or the Tribunal on review) that the discretion in s 292-465 of the Income Tax Assessment Act be exercised so that the contribution on 10 July is disregarded and treated as if it were made in the previous financial year.
8. The discretion in s 292-465 may only be exercised where:
- (a) there are special circumstances; and
- (b) making the determination is consistent with the object of this Division.
9. That requirement is set out in s 292-465(3). Both limbs of the sub-section must be satisfied before the discretion is enlivened. If the discretion is enlivened in a particular case, sub-section (4) goes on to say the Commissioner may have regard to the matters referred to in sub-sections (5) and (6) and any other relevant matters when considering when exercising the discretion. Sub-sections (5) and (6) say:
- (5) The Commissioner may have regard to whether a contribution made in the relevant financial year would more appropriately be allocated towards another financial year instead.
- (6) The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have excess concessional contributions or excess non-concessional contributions for the relevant financial year, and in particular:
- (a) if the relevant contribution is made in respect of you by another person--the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and
- (b) the extent to which you had control over the making of the contribution.
10. It follows I must first be satisfied there are special circumstances in this case. The meaning of that expression is tolerably clear. Circumstances are not special if they are common-place or usual. There must be something about the circumstances in this case that mark it out as being different or rare or unusual or otherwise distinguishable from the ordinary run of cases. There must be a reason for treating it differently or making an exception to the general rule.
11. The taxpayer has identified a number of matters he suggests are capable of amounting to special circumstances that would enliven the discretion.
- • He points out he took advice from his accountant who was not aware of the trap into which he has fallen. I do not have a copy of the advice but I do have a record of the taxpayer's attempts to secure advice from the accountant. At a minimum, that evidence demonstrates the taxpayer was conscious he had obligations and that he was being diligent in attempting to comply with them.
- • He refers to the ambiguity apparent on the face of the ATO website which says employers have until sometime in July to make contributions which can then be backdated to the previous quarter for the purpose of the SGA Act. That advice is not actually misleading: it is a correct statement of the employer's position under the SGA Act. In a perfect world, the ATO website would have pointed out a person concerned with an employee's obligations with respect to concessional contributions needed to consult a different part of the website. While I do not think it is fair to criticise the ATO for that omission, it is easy enough to see how the confusion might have arisen.
- • He argued strenuously at the hearing that he was effectively denied the opportunity to fix the error (or, more accurately, he was denied the opportunity to avoid compounding the earlier error) because the Commissioner did not alert him to the true position before the further payment was made in June 2008. The taxpayer noted his superannuation fund wrote to him on 10 February 2010 (exhibit 7) and to his employer on 24 April 2012 (exhibit 8) confirming the funds received on 10 July were allocated to the previous financial year. Those letters are of limited assistance in and of themselves as they were written some time after the end of the financial year in question where the mistakes were made. But they are consistent with the taxpayer's account that the behaviour of his superannuation fund did not give him any reason to question the correctness of what had been done.
12. I am satisfied that, taken together, these matters are enough to constitute special circumstances. While I would not ordinarily accept a mere misunderstanding of one's obligations is enough to constitute special circumstances, there was what might be described as a "perfect storm" of events, miscommunications and misunderstandings that combined to leave the taxpayer in an unusual and unfortunate position. In all the circumstances, I accept it would be appropriate to treat his case differently even though the fault, if any, attaches to the taxpayer or his agent. The first limb of the test in s 292-465(3) is made out.
13. It then becomes necessary to consider whether the exercise of the discretion would be consistent with the objectives of Division 292: s 292-465(3)(b). Those objectives are explained in s 292-5, which says:
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.
14. The taxpayer in this case has made regular contributions to his superannuation over a period of years. It was apparent he intended to make a contribution in the ordinary way towards his superannuation at the end of the 2006-2007 year, and that he made a further contribution at the end of the 2007-2008 year. His behaviour confirms he was building up his superannuation by making gradual contributions over the course of his life, as the Division intends. The second limb of the test in s 292-465(3) is made out.
15. I am satisfied the discretion is enlivened. I turn then to the question (posed by sub-section (5)) as to whether it was more appropriate to attribute the contributions to the earlier period. Clearly, it is: the taxpayer intended to make a contribution in the earlier period, and only just missed the deadline for doing so as a result of a misunderstanding. While he might have failed to comply with the letter of the rules, he has clearly complied with their spirit, and it would be perverse to penalise him in all the circumstances.
16. Sub-section (6) requires that I consider whether the excess contribution was reasonably foreseeable. I concede that, at one level, the excess was indeed foreseeable: if the taxpayer had properly understood his obligations, he would have anticipated the problem. The taxpayer was not a relatively powerless employee reliant on the efficiency of a distant payroll office. He had the power to control the process in his capacity as the manager of his employer.
17. While the matters referred to in sub-section (6) count against the taxpayer, I am nonetheless satisfied the discretion should be exercised in his favour. This is a case where it was clearly intended the taxpayer would make a gradual contribution towards his superannuation, as the legislative scheme intends. While he made mistakes in the way in which he sought to comply with the rules, the legislative purpose would be frustrated if the taxpayer were penalised.
18. The objection decision is set aside. The Tribunal decides in substitution that, pursuant to s 292-465 of the Income Tax Assessment Act 1997, the contributions made by the taxpayer into his superannuation fund on 10 July 2007 should be attributed to the financial year ended 30 June 2007.