FINDLAY v FC of TJudges:
Federal Court of Australia
The applicant owned all but one of the issued shares in Echuca Insured Housing Loans Pty Ltd (``the company''). Between 27 February 1969 and 26 October 1993 he was a director of the company. On 18 January 1994 Leon Alfred Lumsden was appointed administrator of the company. On 26 April Mr Lumsden was appointed administrator under a deed of company arrangement. For the year ended 30 June 1994 the applicant's income included $26,000 as an employee of the company. In his taxation return for that year he claimed a deduction of $47,500 in respect of a $60,000 contribution he had made to a non-employer sponsored superannuation fund. The deduction was disallowed in the assessment which issued on 1 March 1995 ``in view of superannuation support provided by your employer''. On 28 June the applicant objected against the assessment. In February 1996 the Commissioner requested the administrator to lodge a superannuation guarantee statement pursuant to s 33 of the Superannuation Guarantee (Administration) Act 1992 (``the Administration Act''). On or about 7 February the administrator lodged a statement disclosing a superannuation guarantee shortfall, and pursuant to s 46(b) of the Administration Act paid the Commissioner $1,726.22 on account of the shortfall, interest and an administration component. On 13 February the applicant's objection was disallowed. On 1 March 1996 the Commissioner gave the applicant a document headed ``Voucher for Superannuation Guarantee Credit''. The document informed the applicant that he was entitled to a superannuation credit of $981.93 under the Superannuation Guarantee legislation, that the credit had arisen because the company had paid the superannuation guarantee charge to the Commissioner instead of making sufficient contributions to a superannuation fund on the applicant's behalf, that the voucher was not a cheque and could only be paid into a superannuation fund account, that he should contact a fund to confirm that it would accept the voucher, and that on receiving confirmation he should send the voucher to the fund.
The applicant's entitlement to the deduction he claimed is governed by Subdiv AB of Div 3 of the Income Tax Assessment Act 1936 - ``Contributions to superannuation funds by eligible persons''. The Subdivision consists of ss 82AAS and 82AAT. Under s 82AAT(1) a person who has made a contribution to a superannuation fund during a year of income is entitled to a deduction if certain conditions are satisfied, one of which is that the person is an ``eligible person'' in relation to the year of income. Section 82AAS(2) provides in part as follows:
``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...; 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;
The expression ``superannuation benefits'' is defined in s 6(1) as ``individual personal benefits, pensions or retiring allowances''. In the form it took in the relevant year s 82AAS(4) was as follows:
``For the purposes of subsection (2), if:
- (a) a payment of superannuation guarantee charge is made for a financial year; and
- (b) there is a shortfall component of the payment in relation to a particular employee; and
- (c) that component is paid to a fund in accordance with section 65 of the Superannuation Guarantee (Adminis- tration) Act 1992;
- (d) that component is taken to have been so paid to the fund before the end of that financial year; and
- (e) the benefit attributable to the component is taken to have been attributable to a contribution made to the fund in relation to the employee by the employer of the employee; and
- (f) the circumstances which led to the making of that contribution are taken to have existed during that financial year.''
The Superannuation Guarantee legislation
Section 5 of the Superannuation Guarantee Charge Act 1992 (``the Charge Act'') imposes a charge on any superannuation guarantee shortfall of an employer in a year. The charge is the amount of the shortfall: s 6. Under s 16 of the Administration Act the charge is payable by the employer. Pursuant to ss 17, 18 and 19 the shortfall is calculated by reference to salary or wages paid to an employer's employees in any year. In relation to the year ending 30 June 1994 an employer could reduce the amount of the charge by making superannuation contributions to a complying superannuation fund by 28 July in the following financial year: ss 22 and 23. If a shortfall remains after 14 August in the year following the year in which the salary or wages were paid, the employer is required to lodge a superannuation guarantee statement (s 33), and the charge becomes payable pursuant to s 46. The charge is a debt due to the Commonwealth payable to the Commissioner: s 50. Part 8, which consists of ss 63 to 71, deals with the way in which the Commissioner is to deal with the ``shortfall component of a payment of superannuation guarantee charge in relation to a particular employee''. Section 64 defines ``shortfall component'' as the amount of the payment less an administrative component and any penalty charge. In the form it took in 1994 s 65 required the Commissioner to deal with the shortfall component in one of the following ways:
- ``(a) pay the amount of the component, for the benefit of the employee, to a complying superannuation fund... nominated in accordance with the regulations by the employee; or
- (b) in accordance with the regulations, make arrangements to enable the amount of the component to be paid to such a fund for the benefit of the employee.''
Regulation 10(1) of the Superannuation Guarantee (Administration) Regulations requires the Commissioner to give notice to an employee of the amount of any shortfall component. After receiving notice the employee may request the trustee of a complying superannuation fund nominated in the request to collect the amount from the Commissioner: sub-reg (3). Subject to sub-reg (9), the trustee must lodge the request with the Commissioner within fourteen days of receipt. If the request is not lodged with the Commissioner within ten years of notice being given to the employee under sub-reg (1), the entitlement of the employee in respect of the benefit of the shortfall component lapses: sub-reg (9).
The Tribunal set out par (a) of s 82AAS(2) and considered whether on the material before the Tribunal it was reasonable to expect that superannuation benefits would be provided for the applicant. It said that the question was to be decided by application of an objective test, and continued [Case 24/97,
97 ATC 284 at 288]:
``... There is no doubt that the applicant bears the onus of proof in this application... The Tribunal adopts and applies the decision of
FC of T v Arklay 89 ATC 4563. In the
ATC 4627opinion of the Tribunal, the decision of the Full Court of the Federal Court requires that any assessment of whether it was reasonable to expect that an employer funded contribution should be made upon a consideration of all of the relevant facts of a case. The Tribunal also accepts that both the existence of a potential superannuation benefit and the expressed relevant intentions of the taxpayer will normally be the most important matters to be considered. It was not suggested in Arklay's case, however, that any expressions of the intention of a taxpayer should be taken at face value. Indeed the Court emphasised that the test was ultimately an objective one, however one draws upon the expressed intentions of the taxpayer.''
The Tribunal then examined the evidence. The applicant had deposed that the administrator had told him that no employer funded superannuation contributions would be made by the company. The administrator denied having said this. The Tribunal accepted the administrator's account. The Tribunal then referred to other material which, it said, supported its conclusion that during the whole or a part of the relevant year circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the applicant in the events the subject of par (a) of s 82AAS(2). Accordingly the applicant was not an eligible person, and the decision under review was affirmed. The Tribunal did not refer to par (b) of s 82AAS(2).
Construction of s 82AAS(2)
The effect of s 82AAS(2) is that a person who has made a contribution to an eligible superannuation fund is an eligible person unless both the conditions in pars (a) and (b) are met. In general terms the effect of these conditions is that an eligible person is one for whom no provision for superannuation benefits on retirement or death is funded by an employer or any person other than the taxpayer. Condition (a) is met where during the whole or part of the year of income it was reasonable to expect that superannuation benefits would be provided in the event of the taxpayer's retirement or death. On a number of occasions the Tribunal asked itself whether it was reasonable to expect that superannuation contributions would be provided. But the question posed by par (a) is whether it was reasonable to expect that superannuation benefits would be provided in the event of the taxpayer's retirement or death. The relevant expectation is an expectation as to what will happen in the future. The test is an objective one, though any relevant matters concerning the taxpayer personally, including any relevant subjective intention he may have, must be taken into account:
FC of T v Arklay 89 ATC 4563 at 4567. The words ``reasonable to expect'' are not ambiguous, and it is undesirable to paraphrase them or to use other words such as ``probability'' or ``balance of probabilities'':
FC of T v McCabe 90 ATC 4968 at 4972.
So far as relevant to the present case, condition (b) is met where to the extent to which the benefits referred to in par (a) would be attributable to the year of income, they would, wholly or partly, be attributable to contributions made to a superannuation fund by someone other than the taxpayer (par (b)(i)), or be paid out of moneys that would not represent contributions by the taxpayer to a fund (par (b)(ii)(A)).
The relationship between pars (a) and (b) is important. Paragraph (a) is concerned with whether it was reasonable to expect that superannuation benefits would be provided for the relevant person. It is not concerned with the identity of the person who made the contributions to which benefits are attributable. That is the function of par (b). Thus in the present case one would have thought that the condition in par (a) was met simply because of the $60,000 contribution the applicant himself made. For this reason the applicant's submissions in this Court were directed to par (b).
The applicant submitted, correctly in my view, that par (b)(i) is not satisfied because no one other than the applicant had contributed to a superannuation fund in relation to him. The administrator did not make a ``contribution'' to a ``superannuation fund''. He paid the Commissioner the charge imposed by the Charge Act. The charge is a debt due to the Commonwealth and payable to the Commissioner: s 50.
The Commissioner submitted that the ``benefits'' referred to in par (b)(i) are benefits which it was reasonable to expect would be provided. That may be accepted. It was then said that these benefits would be provided
ATC 4628either by way of employer contributions to a fund or by the employer paying the superannuation guarantee charge. According to the Commissioner, the words ``contributions made'' do not refer to contributions in fact made, but to contributions which it was reasonable to expect would be made. It was submitted that the word ``made'' cannot mean ``paid'', for if it did there would be no point in postulating the question in the future tense in par (a).
While the ``benefits'' in par (b) are the future benefits contemplated by par (a), the ``contributions'' to which par (b)(i) refers are in my view contributions that have in fact been made. The expression ``contributions made to a superannuation fund'' cannot be treated as if it read ``contributions which it was reasonable to expect would be made''. Expectation is the language of par (a), and it has not been repeated in relation to contributions in par (b)(i). Further, the introductory words of par (b) - ``to the extent to which those benefits would be attributable to the year of income'' - seek to identify the extent to which the expected benefits are attributable to the year of income. Benefits will be so attributable only if contributions have been made in that year. The context thus supports the ordinary meaning of ``contributions made''. The reason assigned by the Commissioner for not giving ``made'' its ordinary meaning, namely that there would be no point in postulating the question in the future tense in par (b) if ``made'' means ``paid'', is in my view unsound. When par (a) looks to the future it is doing so in relation to the superannuation benefits that might be provided on a taxpayer's retirement or death. Paragraph (b) assumes that these benefits are likely to be provided, and is concerned with attributing benefits to contributions made in the year of income and identifying the contributor. Thus I do not accept the argument proffered for not reading ``made'' as meaning ``paid''.
Support for the view I favour is provided by sub-s (4), which provides that where the conditions in pars (a), (b) and (c) are satisfied, the shortfall component of a payment of superannuation guarantee charge is taken to have been paid to a fund before the end of the financial year for which the charge is paid, and the benefit attributable to that component is taken to have been attributable to a contribution made to the fund by the taxpayer's employer: pars (d) and (e). The Explanatory Memorandum to the Bill which became the Taxation Laws Amendment (Superannuation) Act 1992 (which inserted sub-s (4)) explains the reason for the deeming in pars (d) and (e). It states:
``To ensure that the SGC superannuation support will be treated in the same way as direct superannuation support, the SGC is deemed to be paid during the year for which it is payable under section 46 of the SGC Act (ie the year during which the employer's superannuation support was less than the minimum required). Therefore... the employee is not an eligible person during that year, even though the employer does not pay the SGC until the subsequent year.''
Direct superannuation support is that provided by an employer by way of contributions made to a superannuation fund during the year of income. In order to assimilate ``SGC superannuation support'' with direct support, par (d) treats the former as having been paid during the year even though it was not so paid, and par (e) treats the benefit attributable to the ``SGC superannuation support'' as attributable to direct support by the employer. Section 82AAS(4) thus confirms that the contributions referred to in sub-s (2)(b)(i) are contributions that have in fact been made.
Once the expected benefits which are attributable to the year of income have been identified, par (b)(ii)(A) asks whether they would, in whole or in part, be paid out of moneys provided by someone other than the applicant. In my view they would not. Although the charge paid by the administrator would represent money provided by another person, no superannuation benefits would be paid out of that money. Benefits could flow from it only if the Commissioner had paid the shortfall component to a complying superannuation fund nominated by the applicant, or had made arrangements to enable the component to be paid to such a fund. The applicant did not nominate a fund, and accordingly the Commissioner could not make either the payment or the arrangements. Cf s 65 of the Administration Act and reg 10(3), (8) and (9) of the Regulations. Having made the contribution he did, it would be fiscal suicide for the applicant to nominate a fund. He would not do so.
The deeming provision
The Commissioner's primary case rested on s 82AAS(2)(b)(i) and (ii)(A), and it was said that he did not need to rely on sub-s (4), which was a deeming provision to be called in aid only if necessary. As a fall-back position, however, reliance was placed on the sub-section.
Section 82AAS(4) deals with the case where the shortfall component is paid to a fund in accordance with s 65 of the Administration Act. When that and other conditions are satisfied, the benefit attributable to the component is taken to have been attributable to a contribution made to the fund by the employer. However the benefit is deemed to have been so attributable only if the component ``is paid to a fund in accordance with section 65''. The Commissioner accepted that it had not been so paid, but submitted that s 82AAS(4)(c) should be construed as if it merely required compliance with s 65. It was submitted that the issue of the voucher constituted the making of arrangements to enable the amount of the component to be paid to a fund, and that s 65(1)(b) was thus satisfied. There is in my view no warrant for so construing s 82AAS(4)(c). It is not ambiguous. It asks, in clear language, whether the component has been paid to a fund in accordance with s 65. But even on the Commissioner's construction, the issue of the voucher cannot satisfy s 65(1)(b). Paragraphs (a) and (b) are both dependent on the nomination of a fund, and no such nomination was ever made.
The 1995 amendments
The Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995 (``the 1995 Act''), which came into effect on 1 July 1995, amended s 65 of the Administration Act in two respects. The first was to add to sub- s (1) a further alternative as follows:
``(c) if the employee has not made a nomination under paragraph (a) - credit the amount of the component to an account kept under the Small Superannuation Accounts Act 1995 in the name of the employee.''
The second was to add sub-s (5), which provides that if an amount is to be credited under sub-s (1)(c), an amount equal to the credited amount is to be transferred from the Consolidated Revenue Fund to the Superannuation Holding Accounts Reserve. The 1995 Act also amended s 82AAS by adding sub-ss (8) to (12). Sub-section (10) is as follows:
``For the purposes of sub-section (2), if:
- (a) during an individual's year of income, an amount was credited to the individual's account under paragraph 65(1)(c) of the Superannuation Guarantee (Administration) Act 1992; and
- (b) the credit was attributable to a particular period of employment of the individual;
- (c) the credit is taken to be a contribution made to a superannuation fund in relation to the individual by the other person; and
- (d) throughout the period when the balance of the individual's account is attributable, in whole or in part, to the credit, circumstances are taken to have existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the individual in the event of the retirement of the individual; and
- (e) those benefits are taken to have been attributable to each year of income in which any part of the period of employment occurred; and
- (f) those benefits are taken to have been attributable to those contributions.''
In the Explanatory Memorandum to the Bill which became the 1995 Act, the insertion of sub-s (10) was said to be to ``ensure that amounts credited under the Small Superannuation Accounts Bill 1995 will constitute employer superannuation support and will preclude the employee from obtaining a deduction for personal superannuation payments''. As to the addition of alternative (c) to s 65(1) of the Administration Act, the Memorandum noted that the Commissioner could pay the shortfall component to an account in the name of the employee under the Small Superannuation Accounts Bill ``where the employee has not elected to have the amount paid to a complying superannuation fund''.
These amendments confirm my view that in the form it took in 1994 s 82AAS enabled an employee in the position of the applicant to obtain a deduction for personal superannuation
ATC 4630benefits where no fund had been nominated under s 65(1).
A person is ineligible only if conditions (a) and (b) in s 82AAS are both satisfied. The Tribunal proceeded on the basis that it was sufficient that condition (a) was satisfied. It made an error of law in failing to consider condition (b). Both parties urged me, in the event that I discerned this error, not to remit the matter to the Tribunal but to decide it myself and allow the deduction. That is what I propose to do.
THE COURT ORDERS THAT:
1. The decision of the Administrative Appeals Tribunal be set aside.
2. The applicant's claim for a deduction of $45,750 in his taxation return for the year ended 30 June 1994 be allowed.
3. The respondent issue an amended assessment accordingly.