EDMONDS-WILSON v FC of TMembers:
DJ Trowse M
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)
DJ Trowse (Member)
The question raised in this application is whether the taxpayer is an ``eligible person'' as defined in sub-s. 82AAS(2) of the Income Tax Assessment Act 1936 (the Act) and thus entitled to claim in terms of s. 82AAT of the Act a deduction for personal superannuation contributions made during the year ended 30 June 1997. Relevant
ATC 2277to this question is the system of calculation specified in sub-s. 82AAS(3) which purports to offer relief to substantially self-employed persons who receive some superannuation support from their employment. Also in issue is the interpretation to be placed on various pronouncements made by the Commissioner in Taxation Ruling 96/25. In the event of a finding that the Ruling is favourable to the taxpayer, the Commissioner acknowledged that he would be bound to assess in accordance with the Ruling.
2. The taxpayer was represented by her accountant, Mr W.E. Hobbs, and the Commissioner by one of his officers. The hearing proceeded on the basis of the information contained in the documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975, together with six exhibits tendered by the Commissioner.
3. During the 1997 financial year, the taxpayer derived assessable income of $32,741 from the following sources:
+------------------------------+ | Salary | $5,144 | |------------------------------| | Partnership Income | 17,837 | |------------------------------| | Capital Gain | 5,855 | |------------------------------| | Dividends | 3,905 | |------------------------------| | Total | $32,741 | +------------------------------+
The salary income was derived from a single employer who engaged the taxpayer on a casual basis throughout the whole of the year. There is no doubt that this relationship came within the provisions of s. 12 of the Superannuation Guarantee (Administration) Act 1992 and that, therefore, the employer was required to make superannuation contributions on the taxpayer's behalf. However, sub-s. 27(2) of that same Act states that no contribution is necessary in respect of those months of the year where the amounts of salary are less than $450. Such a situation prevails in this reference and, as will be seen, is at the heart of the dispute.
4. The Tribunal is assisted further by an acceptance that employer superannuation support was provided for only four months of the year, that the salary paid and subjected to the support for those months totalled $2,570 and that the support amounted to a mere $154.19. Additionally, the Commissioner accepted that the taxpayer made a personal contribution of $6,628 to a complying superannuation fund during the year in question and that if a deduction is permitted under s. 82AAT it will be an amount of $5,721 i.e. $3,000 + 75 per cent of the amount of contribution exceeding $3,000 (see sub-s. 82AAT(2)).
5. The criteria to be applied in determining whether a taxpayer is an eligible person, and thus be positioned to claim a deduction for personal contributions made to a complying fund, is to be found in sub-s. 82AAS(2) which is expressed in the following terms:
``A person (in this subsection referred to as the `relevant person' ) is an eligible person in relation to a year of income for the purposes of this Subdivision unless:
- (a) during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person in the event of the retirement of the relevant person or for dependants of the relevant person in the event of the death of the relevant person (whether or not any condition other than the retirement or death of the relevant person would be required to be satisfied in order that those benefits be provided); and
- (b) to the extent to which those benefits would be attributable to the year of income:
- (i) the benefits would be wholly or partly attributable to contributions made to a superannuation fund in relation to the relevant person by a person other than the relevant person; or
- (ii) the benefits would, in whole or in part, be paid out of moneys that would not represent:
- (A) contributions made by the relevant person to a super- annuation fund; or
- (B) contributions made by the relevant person under a scheme for the payment of benefits upon retirement or death, being a scheme constituted by or under a law of the Commonwealth or of a State or Territory; or
- (C) income or accretions arising from contributions referred to in sub-subparagraph (A) or (B); or
- (D) income or accretions arising from contributions made to a superannuation fund in relation to the relevant person by a person other than the relevant person during an earlier year of income, where there is no reasonable likelihood that any such contributions will be made at any time after the beginning of the first-mentioned year of income.''
6. The Tribunal accepts and so finds - that superannuation contributions, consisting of the amounts of $6,628 paid by the taxpayer and $154.19 paid by the employer, were made during the year - that it was reasonable to expect that superannuation benefits would be provided for the taxpayer in the event of her retirement or for her dependants in the event of her death - and that portion of those benefits would be attributable to the amounts advanced by the employer i.e. a person other than the taxpayer. On this basis the taxpayer is caught by the exclusion clause of sub-s. 82AAS(2) and will not come within the definition of an eligible person unless the relieving provisions of sub-s. 82AAS(3) come to her assistance
7. In considering sub-s. 82AAS(3) of the Act and indeed s. 82AAT which provides the deduction for personal superannuation contributions, it is appropriate to reflect upon the intent of the legislation. It is common knowledge that the deduction was made available to encourage people to provide for their own retirement and thus become less reliant on the public purse. The purpose of sub- s. 82AAS(3), as expressed in the explanatory memorandum, was ``to expand the concept of a substantially self-employed person so that people who are substantially self-employed do not lose access to tax deductions for their personal superannuation contributions because they perform small amounts of paid employment through which they receive employer superannuation support''.
8. The effect of sub-s. 82AAS(3) is to eliminate from the reference in sub-s. 82AAS(2) to superannuation benefits provided for a taxpayer in connection with eligible employment if the taxpayer's income from that eligible employment is less than 10 per cent of his or her total assessable income for the year. Such elimination may bring a taxpayer back into the category of being an eligible person and, in that event, he or she is repositioned to take advantage of a deduction under s. 82AAT. It is important to observe that the sub-section refers to a person engaged in particular eligible employment and that the amount to be used in the 10 per cent test is the income being ``one or more amounts that were derived from that particular eligible employment''.
9. The Commissioner's interpretation of the sub-section is demonstrated in the two following examples tendered to the Tribunal:
Kylie, a self employed dress maker, works on a casual basis as a bar maid to supplement her income. She has two `regular' casual employers, A & B i.e. two separate employment relationships. Depending on the number of hours worked, she earns from A between $500-550 per month and from B between $250-300.
As she earns less than $450 per month from B, her employer is not required to provide superannuation support under the Superannuation Guarantee (Administration) Act. For simplicity's sake, we will assume that there is no superannuation industrial award for that industry. However, Employer A will be required to provide superannuation support at the going rate on the basis of the income earned by Kylie.
For the purposes of determining whether Kylie satisfied the 10% rule, the Commissioner takes the view that only the income from Employer A which is subject to superannuation support, will be taken into account. The total income earned from B will not be aggregated with the income earned from A in calculating the relevant percentage.
The situation would be no different if in some months of the year Kylie had earned less than $450 from A. Her total income from A would still be taken into account in determining whether she satisfied the 10% test because she has received some super benefits from A in the other months.
James, a self employed painter, is employed on a casual basis by X Pty Ltd from July 97
ATC 2279to September 97. He is eligible to receive superannuation support for one month during that period i.e. his income in that particular month exceeded $450. At the end of September 97, James leaves the employment of X Pty Ltd to more actively pursue his painting business.
In February 98, James is re-employed by X Pty Ltd. He remains employed on a casual basis for the rest of the financial year. As his monthly income amounts to less than $450 during that employment period, James is not eligible to receive super support from his employer.
For the purposes of determining whether James satisfies the 10% rule, only the income from the first period of employment i.e. July 97 to September 97, which was the subject of super support, will need to be taken into account. The income received during the second period of employment (February 98 to June 98) and which was not subject to super support will not be aggregated with the income James received for the first period of employment for the purposes of subsection 82AAS(3). This is only so because there are two distinct employment relationships, albeit with the same company.
If however, James had not effectively ceased his employment relationship with X Pty Ltd in September 97 but had for instance taken time off without pay to more actively pursue his own business and had then returned to casual work whilst he further established his business, the total amount which he had earned from X Pty Ltd would be taken into account in determining whether he satisfied the 10% rule. That is so because the employment relationship between James and X Pty Ltd would have extended over the entire period of the financial year and not two distinct periods.''
10. The objection lodged on behalf of the taxpayer contends that the sub-section should be construed in a manner whereby only the salary income for which superannuation support had been provided be used in matching the result obtained to the 10 per cent of total assessable figure. As the amount of that income ($2,570) was less than 10 per cent of assessable income ($3,274), it was submitted that the taxpayer was afforded the concession granted by the sub-section.
11. Adopting the interpretation outlined in the above examples, the Commissioner concluded that the totality of the salary received from the one employer must be brought to account in the arithmetic testing. On that basis, the amount derived from that employment viz $5,144 exceeds 10 per cent of the taxpayer's assessable income for the 1997 financial year and for that reason the superannuation benefits provided by the employer are not excluded from the reference in sub-s (2) of s. 82AAS to superannuation benefits.
12. The Tribunal has given considerable thought to the wording of sub-s. 82AAS(3) and takes the view that the conclusions reached by the Commissioner are the only ones available in terms of the legislation. The sub-section refers to particular eligible employment and to one or more amounts of assessable income derived from that eligible employment. Clearly, the legislation requires the gross amount of $5,144 to be used as a measure against the product of 10 per cent of assessable income. In the result, the taxpayer is not an eligible person and thus not entitled in terms of s. 82AAT to claim a deduction for personal superannuation contributions.
13. Some comment on the legislation leading to this decision is appropriate. Here we have a taxpayer aged 51 years being denied a deduction of $5,721 because of employer superannuation support of a sum ($154) which is not likely to provide much financial joy or comfort to her upon retirement. Hardly an outcome that encourages people to provide for their own retirement or one that sufficiently expands the concept of substantially self- employed persons. More concerning is the result obtained in comparing this outcome with that of an assumed taxpayer whose circumstances, with one exception, are identical with those of this taxpayer. The only factual difference is that the other taxpayer was employed by a second employer during those months when earnings were less than $450. Notwithstanding an equality in assessable income and employer superannuation support, it seems that the other taxpayer qualifies as an eligible person whereas this taxpayer does not. Surely this represents an unintended consequence. It appears that the legislation needs to be revisited and that perhaps a system
ATC 2280which allows a deduction based on a differential between the deduction limit permitted under sub-s. 82AAT(2) and the amount of superannuation support provided by an employer would assist in overcoming the kinds of inconsistencies encountered in this reference.
14. The Tribunal now turns to a consideration of the alternative submission that the Commissioner is bound by statements made in Taxation Ruling 96/25 which was released as a public ruling on 13 November 1996 and relates to the deductibility of personal superannuation contributions. It was acknowledged by the Commissioner that the ruling was a public ruling and that, in the event of the Tribunal agreeing with the taxpayer's analysis of part thereof, the ruling would be favourable to the taxpayer. In that circumstance, the Commissioner would be required under s. 170BA of the Act to assess the final tax liability based on the law being applied in the ruled way.
15. Those parts of the Ruling pertaining to this matter are repeated hereunder:
``The `ten percent rule'
16. The reference to superannuation benefits in subsection 82AAS(2) does not include benefits provided for the taxpayer in respect of eligible employment if the taxpayer's income from that eligible employment is less than ten percent of his or her total assessable income for the year (subsection 82AAS(3)).
21. When applying the `ten percent rule', the term `particular eligible employment', as it applies in subsection 82AAS(3), includes multiple periods of employment by virtue of paragraph 23(b) of the Acts Interpretation Act 1901. That paragraph provides that words in the singular number include the plural and vice versa, unless the contrary intention appears. This Office considers that a contrary intention does not appear here.
22. On this basis, under subsection 82AAS(3), income received by the person for the same or a combination of periods of employment from identical or different employers for the year of income is aggregated in the calculation and is not treated separately. This amount is then compared to the person's total assessable income for the year. If the result is less than ten percent of the person's total assessable income, then the person is an eligible person for purposes of subsection 82AAS(2).
23. Also, income from eligible employment, where the employer is not required to provide superannuation support under the SGAA, will not be aggregated with other employment income for subsection 82AAS(3) purposes.
42. Subsection 82AAS(3) provides that, where a taxpayer is engaged in eligible employment, the reference to super- annuation benefits in subsection 82AAS(2) does not include benefits provided for the taxpayer in respect of that eligible employment if the taxpayer's income from that eligible employment is less than ten percent of his or her total assessable income for the year. This is referred to as the `ten percent rule'.''
16. It was maintained on behalf of the taxpayer that the material contained in paragraph 23 provided the authority to apportion wages being received from one employer into two categories, one being that part where the employer is not required to provide superannuation support and the other being that part where he is required to provide such support. If that kind of apportionment is possible, then according to the taxpayer's representative, the first mentioned portion is to be excluded in calculating the taxpayer's income from eligible employment.
17. The Tribunal is of the opinion that, in a situation such as the present, the totality of a ruling must be considered and that to rely upon one paragraph in isolation is to fall into error. This is particularly so when the paragraph in question begins with the word also, which in the Tribunal's view links it to paragraph 22. In that regard it is notable that paragraph 22 contains the only reference in all of the Ruling to there being more than a single employer.
18. The statement contained in paragraph 23 relates to an employer who is not required to provide superannuation support under the Superannuation Guarantee (Administration) Act. The employer of this taxpayer was required to provide and did in fact pay contributions for her benefit and for that reason the content of the paragraph has no application to her circumstances. The design of paragraph 23 is to indicate that the salary derived from an employer who is not required to provide any
ATC 2281superannuation support is not aggregated with other employment income derived from a different employer and which has attracted superannuation support.
19. The opinions expressed in paragraphs 16 and 42, which appear to be a repeat of each other, reveal that the exclusion of super- annuation benefits from sub-s. 82AAS(2) will occur only where a taxpayer's income from the eligible employment is less than the nominated 10 per cent. Not only is it indisputable that the taxpayer's income from the eligible employment was the figure of $5,144, it is also clear that the phrase ``the taxpayer's income from that eligible employment'' rebuts any suggestion of an apportionment along the lines proposed by the applicant.
20. It is the view of the Tribunal that the material contained in Taxation Ruling 96/25 accords with the legislation and on that basis the alternative submission made on behalf of the taxpayer is rejected.
21. It follows from the foregoing reason that the decision under review is affirmed.