The impact of this case on ATO policy is discussed in Decision Impact Statement: Longcake and Commissioner of Taxation (2012/0354 ).
LONGCAKE v FC of TMembers:
R J Groom DP
Administrative Appeals Tribunal
MEDIA NEUTRAL CITATION:
 AATA 576
The Hon R J Groom AO (Deputy President)
REASONS FOR DECISION
1. The subject of this application is excess superannuation contributions tax.
2. During the 2009/10 financial year ("the relevant year") payments totalling $71,551.44 were made by Mr Longcake's employer SED Shellfish Equipment Pty Ltd to two superannuation funds. Those funds were a fund operated by AMP ("AMP") and Tasplan Superannuation Fund ("Tasplan").
3. That total of $71,551.44 included "salary sacrifice" payments of $24,768.18 to AMP and $38,964.00 to Tasplan as well as "superannuation guarantee" payments of $599.04 to AMP and $7,220.22 to Tasplan. All of these payments are "concessional contributions". (See section 292-25(2) of the Income Tax Assessment Act 1997 ("the Act").
4. There is a "concessional contributions cap" on the amount of concessional contributions that can be made into a person's superannuation fund or funds in a financial year. (See section 292-20 of the Act). In the relevant year the cap for Mr Longcake, who was then over 50 years of age, was $50,000.00. A tax payer is required to pay a higher rate of tax on any concessional contributions which exceed the cap. (See section 292-15 of the Act).
5. Mr Longcake was assessed as having made excess concessional contributions of $21,551.44 in the relevant financial year. The excess contributions tax he was liable to pay was assessed at $6,788.70.
6. Mr Longcake lodged an application for an excess contributions tax determination asking the Commission to disregard all or part of the excess concessional contributions or to allocate all or part to another financial year.
7. The Commissioner issued a notice of decision on 30 August 2011 refusing to disregard or reallocate any of Mr Longcake's concessional contributions made in the relevant year.
8. On 15 September 2011 Mr Longcake objected to the Commissioner's decision contending that "special circumstances" existed and that any decision to disregard or reallocate the concessional contributions would be consistent with the object of the relevant Division of the Act.
9. The Commissioner, on 17 January 2012, disallowed in full Mr Longcake's objection. This Tribunal is now asked to review that objection decision.
10. At the heart of Mr Longcake's concern is that contributions totalling $25,367.22 recorded as having been made to AMP in July 2009 were intended to be made in June 2009 and therefore in the 2008/9 financial year. The payments to AMP were of $14,768.18 as salary sacrifice and $599.04 for "superannuation guarantee". They were recorded as having been received by AMP on 7 July 2009. Also a further salary sacrifice payment of $10,000.00 was recorded as received by AMP on 8 July 2009. Mr Longcake's concessional contributions cap for 2008/2009 was $100,000.00. If the $25,367.22 was determined to have been contributed in the 2008/9 financial year he would not have exceeded the cap and so there would be no excess superannuation contributions tax payable.
11. The issue in these proceedings is of quite narrow ambit. It is whether proper grounds exist for the Tribunal to exercise the discretion provided in section 292-465 of the Act and allocate all or part of the concessional contributions of $25,367.22 received by AMP on 7 and 8 July 2009 to the 2008/9 financial year.
12. Section 292-465 of the Act relevantly provides:
- "(3) The Commissioner may make the determination only if he or she considers that:
- (a) there are special circumstances; and
- (b) 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 subsections (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:
- (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".
13. It is not in dispute in these proceedings that Mr Longcake has satisfied the requirements of subsection (2) of section 292-465 of the Act.
ARE SPECIAL CIRCUMSTANCES PRESENT HERE?
14. The meaning of the term "special circumstances" has frequently been considered by the Courts and Tribunals in a variety of contexts.
15. French J, as he then was, when discussing the meaning of special circumstances in section 1237AAD of the Social Security Act 1991, said in
Secretary, Department of Social Security and Hales (1998) 82 FCR 154 as follows:
"The evident purpose of s 1237AAD is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of debt. It is inappropriate to constrain that flexibility by imposing a narrow or artificial construction upon the words. It may be that there will be few cases in which the Secretary will be satisfied that there are special circumstances in the absence of financial hardship. It may be that there are few cases in which having found special circumstances to exist, the Secretary would exercise the discretion to waive in the absence of financial hardship. But to anticipate the limits of the categories of possible cases by imposing on the language of the section a fetter upon its application which is not mandated by its words, is to erode its useful purpose".
Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 Kiefel J said that special circumstances:
".... would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case...It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary".
Riddell v Department of Social Security (1993) 42 FCR 443 at 450 the Full Court of the Federal Court said;
"Each particular case must be considered on its merits. It is the essential nature of the provision to create a broad discretion to meet the great variety of circumstances which must occur, raising considerations of individual hardship, need, fairness, reasonableness, and whatever else may move an administrator, keeping in mind the scope and purposes of the Act, to make a decision one way or the other".
18. The Tribunal agrees with the following opinion expressed by Tribunal Member Dr Hughes in
Tran and Commissioner of Taxation  AATA 123 (28 February 2012) (at para 15):
"The prime determinant is not the extent of the taxpayer's misfortune but rather the uniqueness of 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".
19. It therefore follows that the decision maker, initially the Commissioner but now this Tribunal, is given a very broad discretion to consider all of the circumstances of the case and then to decide whether special elements are present which stand the case apart from the usual or ordinary.
20. It should be mentioned that in several recent cases Members of this Tribunal have been required to consider the meaning of "special circumstances" as the term appears in section 292-465(3) of the Act. In each of those cases the Tribunal has accepted a similar meaning to that adopted in the abovementioned authorities. (See for example
McMennemin and Commissioner of Taxation  AATA 573 (3 April 2010),
Chantrell and Commissioner of Taxation  AATA 179 (23 March 2012) and more recently
Bornstein and Commissioner of Taxation  AATA 424 (6 July 2012)).
21. The respondent's arguments as to why a determination should not be made are set out in paragraphs 71 to 82 of the respondent's "Outline of Submissions" dated 9 July 2012. (R2) It is not intended that these arguments be repeated in full in these reasons. Put briefly the respondent substantially contends that:
- • It is unremarkable that contributions for the June Quarter 2009 were not made until July 2009. That circumstance, it is argued, is "commonplace".
- • The salary sacrifice agreement did not provide that contributions were to be made in the same month they were received.
- • The contributions followed an irregular pattern and the late payments were simply part of that pattern.
- • It was reasonably foreseeable, at the time contributions were made, that the applicant would have excess contributions.
- • The excess contributions arose from the applicant's ignorance and his own inadvertence.
- • A determination in the particular circumstances would not be consistent with the object in section 292-5 of the Act.
22. In this case it was readily acknowledged by Mr Longcake that he was fully aware that the concessional contributions cap applying to him of $100,000.00 for 2008/9 had been reduced to $50,000.00 for the 2009/10 financial year.
23. Subsection (6)(a) provides that the Tribunal may have regard to the terms of any agreement or arrangement entered into with the person who made the concessional contributions on the taxpayers behalf. In this case that person was, of course, Mr Longcake's employer, SED Shellfish Equipment Pty Ltd.
24. Documents received in evidence before the Tribunal reveal the details of arrangements entered into between Mr Longcake and his employer for salary sacrifice and contributions to his superannuation funds.
25. In a document dated 30 June 2008 and titled "Superannuation Salary Sacrifice Arrangements Request" (T10 page 86) Mr Longcake requested "up to 55% of my gross remuneration" and "100% of any bonus entitlements" ... "accrued in respect of the future period commencing 1/7/2008" ... "and if applicable ending 30/6/2009" be paid to AMP. Mr Longcake signed that request.
26. By letter dated 1 July 2008 (T10 page 87) the employer confirmed the arrangements and stated (in part) as follows:
- "2) We are pleased to be able to offer you the facility to agree to receive up to 55% of your gross remuneration as an employer contribution to your nominated superannuation fund, AMP Flexible Lifetime Superannuation, PO Box 300 Parramatta NSW 2124. Member No 9345866475.
- 3) These contributions, called salary sacrifice contributions, will be paid to your superannuation fund on a monthly basis.
- 4) Although your salary sacrifice contributions will be employer contributions, they will immediately vest in you (ie, they immediately form part of your superannuation entitlements). This means all of your member account that is attributable to these contributions will be inclue3d in any benefit to which you become entitled (including your withdrawal benefit)".
27. Mr Longcake explained in his oral evidence to the Tribunal that he eventually became dissatisfied with AMP as they were charging "a 4½ percent commission on my contributions". (Transcript page 12). He decided to "... change to the Tasplan, which is a far better plan and to cease with AMP". (Transcript page 13).
28. The terms of the agreement between Mr Longcake and his employer for paying salary sacrifice contributions to his new superannuation fund Tasplan are set out at T10 page 88. That agreement states that the date of commencement of this new arrangement is "1 July 2009". The fund to which the contributions are then to be made is specified as "Tasplan". The deductions from Mr Longcake's salary are stated to be $811.75 "weekly". There is a handwritten note on the document confirming that this figure amounts to "$42,211 pa".
29. Mr Longcake explained in evidence that he relied entirely on the agreements reached with his employer for payments to be made to his superannuation fund. He said that he expected his employer to comply with the terms as had been agreed. Mr Longcake indicated that he was regularly paid the remaining portion of his salary after salary sacrifice and other deductions had been made. Those payments were made to him on a monthly basis. He explained that SED Shellfish Equipment Pty Ltd was a small business which suffered cash flow problems. He said there were "peaks and troughs" when the business received payment for the oyster graders it had produced. Mr Longcake said he had no specific knowledge of when payments were actually made to his superannuation funds. He didn't discuss the timing of payment of contributions with the pay mistress at the time Ms Leonie Holland. No prior discussions took place with Ms Holland about the two payments which she made and which were received by AMP on 7 and 8 July 2009.
30. The question arises as to when the two critical contributions totalling $25,367.22 were actually paid to AMP.
31. Before considering that question it is noted that the amount of $25,367.22 included a superannuation guarantee contribution made by the employer. The Tribunal understands that the employer had until 28 July to pay that element of the total payment made. (See section 23(6) of the Superannuation Guarantee (Administration) Act 1992). The employer plainly intended that superannuation guarantee contribution of $599.04 to be for the 2008/9 financial year. The amount in contention is therefore likely to be the balance of $24,768.18 and not $25,367.22. That particular issue was not addressed by the parties at the hearing and is not an essential element in deciding this case. The Tribunal does not finally determine it.
32. A document titled "Contributions Advice Report" (B1 attached to Exhibit A1) clearly indicates by handwritten notation that the contributions were paid by electronic fund transfer on 30 June 2009. Mr Longcake said those notations were made by Ms Holland.
33. If the two payments of $16,245.68 (which included $877.86 for two other employees) and $10,000.00 were indeed paid on 30 June 2009 by way of electronic fund transfer it is surprising that they were not received by AMP until 7 and 8 July 2009.,
34. The AMP statement (T8 page 68) clearly stated that $599.04 and $14,768.18 were received on 7 July 2009 and $10,000.00 on 8 July 2009. In a letter from AMP dated 31 May 2011 it is explained that "... contributions are applied to the plan on the date that the payment is received by AMP". (T8 page 57).
35. The Tribunal considers that the most persuasive evidence before it indicating the date of payment is the AMP statement. It finds that the payments were received by AMP on 7 and 8 July. It is not able to make a positive finding that the contributions were actually paid by electronic fund transfer on 30 June 2009 despite the handwritten notation to that effect on the "Contributions Advice Report". As the contributions were received by AMP on 7 and 8 July it finds that it is more likely that they were paid very early in July and obviously before they were received by AMP.
36. The Tribunal found Mr Longcake to be an honest, frank and reliable witness. It is satisfied that he intended that any amounts paid to AMP were to be paid in the 2008/9 financial year. He had made a written request to his employer that his salary sacrifice payments and other superannuation contributions to AMP were "if applicable" to cease by 30 June 2009. The later agreement with his employer states that on and from 1 July 2009 the superannuation contributions were to be paid to an entirely different superannuation fund, namely Tasplan. The Tribunal is satisfied that Mr Longcake intended that in the 2009/10 financial year his concessional contributions would not exceed the $50,000.00 cap and in that financial year all his contributions were to be paid to Tasplan.
37. Mr Longcake's decision to change from AMP to Tasplan is a significant factor in this case. It coincides with the end of the 2008/9 financial year. The agreement states that as from 1 July 2009 his superannuation contributions were to be paid to Tasplan. If the payments were made to AMP in the 2009/10 financial year, as appears likely, then that would be in contravention of the terms of the agreement entered into.
38. The letter from Mr Longcake's employer dated 1 July 2008 contains express provisions about the timing of payments. They were to be paid "on a monthly basis". (See paragraph 2 of the letter). The contributions were not paid on a regular monthly basis as agreed. The Tribunal accepts Mr Longcake's evidence that the contributions made in July 2009 were the salary sacrifice deductions not only for June but also for deductions made in earlier months of the financial year.
39. Mr Longcake said he believed the reason for the delay in paying the salary sacrifice contributions may well have been a cash flow problem experienced by his employer. He considers this to be the most likely explanation. "... that to me would ring true to a cash flow problem". (Transcript page 26). Another possibility mentioned was that the employer may have used any available funds to purchase "... new vehicles before the end of June to get tax concessions". (Transcript page 25). Other possible causes mentioned by Mr Longcake including power outage, computer malfunction or medical problems experienced by the pay mistress. They were no more than speculation on his part. Whatever the reason the employer did not pay the salary sacrifice contributions "... on a monthly basis" as it had agreed in writing. The Tribunal accepts as truthful Mr Longcake's evidence that he did not know that the contributions were not being paid in a timely manner.
40. In the "PAYG Payment Summary" for the year ended 30 June 2009 (T10 page 90) an amount of $81,447.00 is included for salary sacrifice. That amount is considerably higher than the $63,825.65 being the total contributions AMP says it received in 2008/9. That figure includes superannuation guarantee payments. The figure for salary sacrifice in the payment summary strongly suggests that the July 2009 payments were included in that figure.
41. Taking into account all of the relevant circumstances the Tribunal is satisfied that when the contributions were made it was not reasonably foreseeable that Mr Longcake would exceed the cap in the relevant financial year. (See section 292-465(6). It had been agreed with his employer that the salary sacrifice contributions to Tasplan would be $42,211.00 which is well within the $50,000.00. He also understood the 2008/9 contributions to AMP were within the applicable $100,000.00 cap. Mr Longcake had no knowledge that, contrary to the agreement, payments were made to AMP in the 2009/10 financial year and as a result he had exceeded the $50,000.00 cap. He was not aware of the excess contributions until a letter from the Australian Taxation Office dated 14 April 2011 was received by him. (T8 page 73). The relevant financial year had concluded on 30 June 2010 some 10 months earlier. On the material before it the Tribunal concludes that Mr Longcake acted in good faith believing the concessional superannuation contributions paid on his behalf were within the limits that had been set. It is, of course, recognised that the test here is an objective one. The particular knowledge and state of mind of Mr Longcake do not themselves determine the matter. But considered objectively, on the particular facts as found, the Tribunal concludes that it was not reasonably foreseeable that the cap would be exceeded in the relevant year.
42. The Tribunal also finds that, in practical terms, Mr Longcake did not control the timing of the contributions to his superannuation funds (section 292-465(6)(b)). He relied upon the salary sacrifice agreement entered into with his employer. Under the agreement payments were to be made on a regular "monthly" basis. He was busily engaged in the "general engineering" section of the business. The Tribunal accepts as truthful and accurate Mr Longcake's statement that the business had difficulties with cash flow. That may have been a cause of the delay in making the contributions. If so, that factor was plainly beyond Mr Longcake's control.
43. There is another factor arising in this case as it did in Bornstein. That is the confusion over the 28 day leeway which employers are allowed under section 23(6) of the Superannuation Guarantee (Administration) Act 1992 and the stricter time limit which applies when other concessional contributions are to be made on behalf of employees. This confusion is evident in the email of 3 May 2011 from Alison Whelan (T8 page 70). (Ms Whelan became the pay mistress of the business after Leonie Holland). Ms Whelan said in the email:
"The cut off date for payment of super for the 1 April to 30 June quarter is 28 July. So why won't the ATO and AMP take this as being part of the 2008/09 tax year?????? Unless it is in v small print that it is different for salary sacrifice ... doesn't make sense. So this info doesn't help your argument. But it was submitted to AMP as a payment for JUNE 2009 ".
This suggests that there may well be genuine confusion in the minds of employers, in particular those operating a small business, about exactly when concessional contributions arising from salary sacrifice are to be made to the employee's superannuation funds. There is however no evidence before the Tribunal establishing that the pay mistress at the relevant time, Ms Holland, was confused about the different time limits. This is therefore not a special circumstance in this case.
44. In order for the Tribunal to find that special circumstances are present in this case it is not sufficient simply that contributions for June were not made until early July. That circumstance is common and so would not itself distinguish this case from others.
45. There are however a number of additional factors present in this case which do set it apart from others. These factors, considered together, are special circumstances for the purposes of section 292-465(3) of the Act. The Tribunal will now explain the particular circumstances which set this case apart from the usual or ordinary:
- (a) After hearing Mr Longcake's evidence and observing him giving that evidence the Tribunal is left in no doubt that he sought to arrange his affairs so that the concessional contribution cap was not exceeded. He genuinely believed his contributions were within the cap set for 2008/9 and 2009/10. The first he knew that excess contributions had been made was when he received the letter from the Australian Tax Office on 14 April 2011 which was some 10 months after the relevant financial year had concluded.
- (b) Mr Longcake had made a deliberate decision to switch his contributions in 2009/10 to Tasplan because of the 4 ½ per cent commission he said that AMP had been deducting from the earlier contributions.
- (c) The agreement between Mr Longcake and his employer required the employer to cease making contributions to AMP in the relevant financial year. The fact that the July 2009 payments were made to AMP indicates that they were intended for the 2008/9 financial year because payments on and from 1 July 2009 were to be paid to Tasplan and not to AMP.
- (d) It was not reasonably foreseeable that the concessional contributions cap would be exceeded because the contributions to AMP were, in accordance with the agreement, to be confined to the previous financial year. The agreed amount of salary sacrifice for 2009/10 was well within the $50,000.00 concessional contributions cap. The PAYG Payment Summary for 2008/9 appeared to include all of the contributions to AMP including the payments made in July.
- (e) The significance of the terms of any agreement or arrangement with, in this case, the employer is expressly recognised in subsection 6(a) of section 292-465. The evidence establishes to the Tribunal's satisfaction that Mr Longcake relied entirely on the terms of his agreement and expected the contributions to be made in a timely manner. He had no prior knowledge of the two payments in July 2009 and did not discuss them with the pay mistress. The only control he exercised was through entering into the agreements with his employer. This case can be distinguished from, for example,
Kuyper and Commissioner of Taxation  AATA 282. The applicant in that case "... was particularly conscientious in monitoring employer contributions ... on many occasions he liaised with the employer's pay mistress to vary the payments on projected salary levels in order to stay within permissible limits". (Paragraph 19).
- (f) The respondent contends that the employer contributions to AMP and Tasplan followed an irregular pattern and that the July 2009 contributions were consistent with that irregular pattern. The contributions were certainly most irregular. The pattern is evident when one examines the details of the AMP contributions in the 2008/9 financial year. (T8 page 67). There was substantial payments on some dates and on occasions no contributions for particular months. For example there were no contributions in November or December 2008 nor in February and March 2009. There were three relatively large salary sacrifice payments in April 2009. Mr Longcake was not aware of this irregularity in payments. The pattern tends to support Mr Longcake's belief that the employers cash flow problems influenced when contributions were to be made. As has been mentioned the agreement was that salary sacrifice contributions were to be paid on a monthly basis. The failure of the employer to make any payments in some months was clearly in breach of the agreement with Mr Longcake.
46. Mr Longcake had no knowledge that there was an overrun into 2009/10 of payments to AMP. He believed his salary sacrifice agreement for 2009/10 under which a total of $42,211.00 was to be deducted, would keep him within the $50,000.00 cap. Mr Longcake continued to allow salary sacrifice deductions and contributions to the Tasplan fund in accordance with the agreement completely unaware that he would be exceeding the cap. Because he had no knowledge of the emerging problem he had no opportunity to correct the error.
47. There are present in every case different circumstances. This case however is more than merely different. The above elements set it apart from the usual or ordinary cases. If the objection decision stands the Tribunal considers that a degree of injustice and unfairness would be caused to Mr Longcake. It concludes that in light of the special circumstances of the case it would be appropriate to allocate part of the concessional contributions made in the relevant year to the 2008/9 year provided such a decision is consistent with the relevant object of the legislation.
48. The Tribunal considers that a determination made pursuant to section 292-465 would be consistent with the object of the Division of the Act. That object is stated in section 292-5. It is to ensure that the benefits a person receives from concessional contributions result from contributions made gradually over the course of a person's life. Mr Longcake wished to make contributions to his superannuation and to provide for his retirement in accordance with the law. The legislature provided a cap on the contributions which Mr Longcake sought to adhere to. Additional contributions were made to AMP in July 2009 of which he was then unaware. Any reallocation of contributions into the previous financial year is in the Tribunal's view entirely consistent with the essential object of the relevant Division of the Act.
49. The objection decision is set aside. The Tribunal decides in substitution that, pursuant to section 292-465 of the Income Tax Assessment Act 1997, the contributions made on behalf of Mr Longcake and received by his superannuation fund on 7 and 8 July 2009 are to be reallocated to the financial year ending 30 June 2009.