Case L45

Judges:
HP Stevens Ch
CF Fairleigh QC
JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 27 July 1979.

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H.P. Stevens (Chairman): There are two questions at issue in these references which concern the creation of a superannuation fund and contributions thereto on account of his wife by a medical practitioner for the years ended 30 June 1972, 1973 and 1974. The first question is whether, in respect of the 1972 year, a contribution was actually made in that year. The second and principal question is whether, assuming contributions were made in each year, the Commissioner's view that the application of sec. 82AAD and 82AAC to the facts of this case supports the allowance of deductions in respect of such contributions to the extent only of amounts equivalent to 10% of the wife's salary each year, is correct.

2. My colleagues have each independently reached identical conclusions, viz., that there was a contribution made in the 1972 year and that 25% should be substituted for the Commissioner's 10%. I do not disagree with these conclusions and, as their reasons (which I have now had the opportunity to read) set out more than adequately the bases thereof, I propose to restrict myself to a comment on only one particular aspect of the case.

3. The particular aspect I have in mind arises out of the fact that, in all three years, there were unexplained credits to the taxpayer's bank account on the same day as the cheques for the contributions to the superannuation fund were debited to this account whilst ``investments'' were made by the superannuation fund immediately upon receipt of the contributions by it and debited to its bank account on the same day as the taxpayer's cheques for his contributions were debited to his account. The available evidence indicates the above as follows:

                                     1972           1973          1974

Taxpayer's contribution             $3,200         $3,200        $3,200

Taxpayer's cheque to fund           $3,200         $3,432.50     $3,696

Date taxpayer's cheque             28.6.72        23.6.73       27.6.74

Date debited his account            3.7.72        27.6.73        1.7.74

Deposit his account on debit date   $2,900         $3,400        $4,100

Debit to S/F account on debit date  $3,000         $3,400        $3,600

Date of trustees' decision to

invest amounts debited             29.6.72        20.6.73       28.6.74

 Investments as per fund's Balance Sheet as at each 30 June

                                     1972           1973           1974

      Family Company           $3,000 @ 7 3/4% $6,400 @ 7 3/4% $6,400 @ 2%

      Taxpayer's Discretionary

      Trust No. 2                      -               -       $3,600 @ 2%

      Bank                            200           149.90         182.65

                                   ------        ---------     ----------

                                   $3,200        $6,549.90     $10,182.65

                                   ------        ---------     ----------
          

4. The manner in which the Family Company and the Discretionary Trust have utilized the amounts shown above is not known but the unexplained deposits, the fact that the cheques drawn by the taxpayer on 23 June 1973 and 27 June 1974 include an amount in respect of the interest on the amounts invested by the fund with the Family Company and the fact that the above $6,400 was repaid by the taxpayer may not be without significance. A full examination might (and might not) show that there has been nothing more than a circular movement of amounts with the result that there may

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ATC 278

have been no real payment by the taxpayer (or only one) so that the provision of superannuation benefits is more illusory than real.

5. This is always a possibility where actual funds are not placed each year with independent trustees who invest those amounts (and returns thereon) with arm's length parties. However, no action was taken on behalf of the Commissioner to explore this possibility during proceedings and, since the evidence available is not inconsistent with the contentions put forward on behalf of the taxpayer, the possibility is irrelevant for the purposes of a decision in the present references. I mention it, however, for whatever guidance it may give for the future - not only in respect of the present fund but for all other like funds.

6. Finally, it should be pointed out that the taxpayer's case was argued on the basis of making adequate provision for his wife's retirement at age 60 in 1980 and it goes without saying that my agreement to the amounts set out in the following paragraph is on that basis.

7. In view of the conclusions set out in para. 2 above I would uphold the taxpayer's objections to the assessments concerned and would further amend the amended assessments for the years ended 30 June 1972, 1973 and 1974 to increase the deductions allowed for contributions to the superannuation fund to $811, $854 and $969 respectively.