Decision impact statement

Ward and Commissioner of Taxation


Court Citation(s):
[2015] AATA 138
2015 ATC 10-385

Venue: Administrative Appeals Tribunal
Venue Reference No: 2013/3760
Judge Name: Deputy President S E Frost; Dr James Popple, Senior Member
Judgment date: 11 March 2015
Appeals on foot: No
Decision Outcome: Favourable

Impacted Advice

Relevant Rulings/Determinations:
  • None

Subject References:
TAXATION AND REVENUE
Excess superannuation contributions tax
whether Tribunal has jurisdiction
whether a person can object against assessment on ground that dissatisfied with Commissioner's decision not make a determination they applied for
ordinary meaning of legislation leads to manifestly absurd result
person may so object
Tribunal has jurisdiction
STATUTES
Interpretation
ordinary meaning leads to manifestly absurd result
Tribunal may refer to explanatory memorandum
Tribunal may insert words
construction is reasonably open
clear when read with explanatory memorandum that amendment confers jurisdiction

Exclamation This decision has no impact for ATO precedential documents or Law Administration Practice Statements

Précis

This matter concerns the review rights that exist in relation to an Excess Contributions Tax (ECT) assessment where the Commissioner has decided not to exercise the discretion in subsection 292-465(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard, or allocate to another financial year, all or part of an individual's non-concessional superannuation contributions for a financial year. A preliminary question arose concerning whether the AAT had jurisdiction to review the decision of the Commissioner to disallow Mr Ward's objection against his 2011 ECT assessment on the ground that he was dissatisfied with the Commissioner's decision not to make a determination under subsection 292-465(1) of the ITAA 1997.

Brief summary of facts

1. On 23 November 2012 the Commissioner issued Mr Ward a notice of assessment of excess non-concessional superannuation contributions tax (the ECT assessment) for the financial year ended 30 June 2011.

2. On 4 December 2012 Mr Ward applied to the Commissioner for a determination under subsection 292-465(1) of the ITAA 1997 (a subsection 292-465(1) determination) that a specified amount of his non-concessional superannuation contributions for the 2011 financial year be disregarded.

3. On 14 March 2013 the Commissioner decided not to make such a determination.

4. On 26 April 2013 Mr Ward lodged an objection against the ECT assessment on the ground that he was dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination.

5. On 7 June 2013 the Commissioner disallowed the objection.

6. On 2 August 2013 Mr Ward applied to the AAT for a review of the objection decision.

7. In a directions hearing concerning Mr Ward's matter, the Commissioner informed the AAT that the Tribunal in Hope and Commissioner of Taxation [2014] AATA 877 (Hope) questioned whether the Tribunal has jurisdiction to review the Commissioner's decision not to make a subsection 292-465(1) determination, as part of the Tribunal's review of the Commissioner's decision on an objection against an ECT assessment. (The Tribunal in Hope was able to resolve the matter without formally deciding the question as to jurisdiction.)

8. In raising that jurisdiction issue, the AAT in Hope referred to the decision of the Full Federal Court in Commissioner of Taxation v Administrative Appeals Tribunal and Anor (2011) 191 FCR 400 (McMennemin) which held that an individual could not object under Part IVC of the Taxation Administration Act 1953 (Part IVC) against an ECT assessment on the ground that the individual was dissatisfied with a decision of the Commissioner not to make a determination under subsection 292-465(1) of the ITAA 1997, as section 292-465 of the ITAA 1997 was originally enacted. The AAT also referred to amendments made to that section by the Superannuation Legislation Amendment Act 2010 (the 2010 amendments). Those amendments, in particular by the insertion of paragraph 292-465(9)(a) of the ITAA 1997, dealt with taxpayers' rights of review in relation to applications made on or after 17 November 2010 for a subsection 292-465(1) determination.

9. The Tribunal in this matter agreed to determine this jurisdiction issue as a preliminary question.

10. Test Case funding was provided to Mr Ward for the jurisdiction issue. The Tribunal decided this issue on the papers. An Interlocutory Decision was made on 11 March 2015.

Issues Decided by the AAT

Do the 2010 amendments to section 292-465 of the ITAA 1997 entitle a taxpayer to object under Part IVC against an ECT assessment on the ground that they are dissatisfied with the Commissioner's determination under subsection 292-465(1) of the ITAA 1997 or with the Commissioner's decision not to make such a determination?

The AAT considered (at paragraph [13]) that giving the words of paragraph 292-465(9)(a) their ordinary meaning would mean that 'the only taxpayers entitled to object could not do so, because they would not be dissatisfied with the outcome, and those who were dissatisfied would not have a right to object despite that dissatisfaction. That would mean that the 2010 amendments, although evidently intended to remedy the outcome in McMennemin, had no practical effect.'

That, in turn, would mean that the AAT would not have jurisdiction (as part of its review of the Commissioner's decision on objection against an ECT assessment) to review the Commissioner's decision not to make a subsection 292-465(1) determination or to make such a determination different from what the taxpayer applied for.

The Tribunal concluded (at paragraph [15]) that 'the ordinary meaning conveyed by the text of paragraph 292-465(9)(a) leads to a result that is manifestly absurd' and accordingly determined that it could consider extrinsic material such as the Explanatory Memorandum (EM) to the Bill that became the 2010 amendments to ascertain the meaning of the provision.

Having regard to the clear statements in that EM, the AAT concluded that paragraph 292-465(9)(a) should be interpreted so as to grant a right to object under Part IVC against an ECT assessment on the ground that the person is dissatisfied with the Commissioner's subsection 292-465(1) determination or the Commissioner's decision not to make such a determination.

The Tribunal therefore concluded that where a taxpayer objects under Part IVC against an ECT assessment on such a ground, as part of its review of the Commissioner's decision on objection against that assessment it does have jurisdiction to review the Commissioner's decision not to make a subsection 292-465(1) determination or to make such a determination different from what the taxpayer applied for.

ATO view of decision

The Commissioner has not appealed this decision as it is consistent with his longstanding practice.

This decision has significance for a taxpayer who wishes to object under Part IVC against:

an excess non-concessional contributions tax (ENCCT) assessment for any financial year, or
an excess concessional contributions tax (ECCT) assessment for a financial year up to and including the 2012-13 year (there are no ECCT assessments for the 2013-14 year and later years),

on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010.

Consequently, this decision also has significance for the jurisdiction of the AAT when reviewing an objection decision of the kind and in the circumstances described in the previous paragraph, since the AAT can only review an objection decision in relation to an objection validly made under Part IVC.

Decision should not be misconstrued - can't object directly against section 292-465 decision

To the extent that several paragraphs in the AAT's Reasons for Decision (see paragraphs 6, 11, 19 and 21) could wrongly be construed as suggesting that a taxpayer can object under Part IVC directly against the Commissioner's decision not to make a determination under subsection 292-465(1) or against such a determination the Commissioner did make (rather than against an ECT assessment on the ground of dissatisfaction with such a decision or determination), the Commissioner notes that no such direct objection rights exist in the law (including after the 2015 amendments to the law introduced by Schedule 1 to the Tax and Superannuation Laws Amendment (2014 Measures No.7) Act 2015 (the 2015 amendments) which apply in relation to non-concessional contributions for the 2013-14 and later financial years).

Significance of decision - non-concessional contributions

As mentioned above, this decision has significance for a taxpayer who wishes to object under Part IVC against an ENCCT assessment for any financial year on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010.

However, as explained below, because of the way the law operates as a result of the 2015 amendments mentioned above that changed the ENCCT regime for the 2013-14 and later financial years, in many cases there will be no ENCCT assessment in existence for the 2013-14 or a later financial year that an individual can validly object against on these or any other grounds.

Under the changes introduced by the 2015 amendments the Commissioner makes a written excess non-concessional contributions determination (ENCCD) for an individual whose non-concessional contributions for such a financial year exceed their non-concessional contributions cap for that year. The individual can then choose to have an amount equal to those excess contributions plus 85% of an associated earnings amount released from their superannuation interest(s) in accordance with a release authority issued by the Commissioner. The full amount of the associated earnings for released contributions is included in the individual's assessable income for the income year corresponding to the financial year of the excess contributions. The individual is entitled to a non-refundable tax offset for that year equal to 15% of the associated earnings amount included in their assessable income.

The excess contributions stated in the ENCCD are not 'excess non-concessional contributions', and subject to excess non-concessional contributions tax, to the extent that they are released from the individual's superannuation interest(s) in accordance with the release authority issued by the Commissioner, or where the Commissioner is satisfied that the value of all the individual's remaining superannuation interest(s) is nil.

It follows that an ENCCT assessment only arises for the 2013-14 or a later financial year where excess non-concessional contributions are not released from a superannuation interest in circumstances where the remaining value of all the individual's superannuation interest(s) is not nil. In all other cases, there will be no ENCCT assessment for the 2013-14 or a later financial year against which an individual can object on any grounds (including on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make).

This decision does not have significance for a taxpayer who wishes to object under Part IVC against:

an income tax assessment relating to the inclusion of an amount of 'associated earnings' in their assessable income for the 2013-14 income year or a later income year under section 292-25 of the ITAA 1997, or
an ENCCD under section 97-25 in Schedule 1 to the Taxation Administration Act 1953 (TAA) for the 2013-14 financial year or a later financial year.

Although a taxpayer can object under Part IVC against such an income tax assessment or ENCCD pursuant to s 175A of the Income Tax Assessment Act 1936 (ITAA 1936) and section 97-35 in Schedule 1 to the TAA respectively, no right exists in the law to do so on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make.

Significance of decision - concessional contributions

As mentioned above, this decision also has significance for a taxpayer who wishes to object under Part IVC against an ECCT assessment for a financial year up to and including the 2012-13 financial year on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010.

However, 2013 amendments in Schedule 1 to the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013 changed the excess concessional contributions regime for the 2013-14 and later financial years. Under those changes there are no ECCT assessments for the 2013-14 and later financial years. Instead, the Commissioner makes a written excess concessional contributions determination (ECCD) for an individual whose concessional contributions for such a financial year exceed their concessional contributions cap for that year. The individual can then choose to have an amount equal to 85% of those excess contributions released from their superannuation in accordance with a release authority issued by the Commissioner. The full amount of an individual's excess concessional contributions for such a financial year is included in their assessable income for the income year corresponding to the financial year of the excess contributions. The individual is entitled to a non-refundable tax offset for that year equal to 15% of the excess amount included in their assessable income.

Section 291-465 of the ITAA 1997 was inserted as part of those 2013 amendments. It provides the Commissioner in certain circumstances with a discretion for the 2013-14 and later financial years to disregard concessional contributions or allocate them to another financial year.

This decision does not have significance in relation to the application of section 291-465.

In contrast to the objection rights in relation to the application of the section 292-465 discretion, a taxpayer who is dissatisfied with the Commissioner's decision not to make a determination under subsection 291-465(1) or with such a determination the Commissioner did make, can object under Part IVC directly against that decision or determination: see subsection 291-465(7). Alternatively, a taxpayer can object under Part IVC against:

an income tax assessment relating to the inclusion of excess concessional contributions in their assessable income for the 2013-14 income year or a later income year under section 291-15 of the ITAA 1997, or
an ECCD under section 97-5 in Schedule 1 to the TAA for the 2013-14 financial year or a later financial year,

on the ground they are dissatisfied with the Commissioner's decision not to make a determination under subsection 291-465(1) or with such a determination the Commissioner did make: see subsection 291-465(8).

Administrative Treatment

Implications for impacted ATO precedential documents (Public Rulings and Determinations)

No existing Public Rulings or Determinations are affected by this decision.

Implications for impacted Law Administration Practice Statements

No existing Practice Statements are affected by this decision.

Legislative References:
Acts Interpretation Act 1901
15AB

Income Tax Assessment Act 1936
175A

Income Tax Assessment Act 1997
291-15
291-465
292-25
292-465

Superannuation Legislation Amendment Act 2010
The Act

Tax and Superannuation Laws Amendment (2014 Measures No. 7) Act 2015
The Act

Taxation Administration Act 1953
Part IVC
14ZZ
97-5
97-25
97-35

Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013
The Act

Case References:
CIC Insurance Ltd v Bankstown Football Club Ltd
[1997] HCA 2
(1997) 187 CLR 384

Federal Commissioner of Taxation v Administrative Appeals Tribunal
[2011] FCAFC 37
2011 ATC 20-248
(2011) 191 FCR 400
(2011) 276 ALR 231
(2011) 82 ATR 663

Hope and Commissioner of Taxation
[2014] AATA 877

IW v City of Perth
(1997) 191 CLR 1
(1997) 146 ALR 696
[1997] HCA 30

Jones v Wrotham Park Estates
[1980] AC 74

Kingston v Keprose Pty Ltd
(1987) 11 NSWLR 404

McMennemin and Federal Commissioner of Taxation
(2010) 53 AAR 187
(2010) 79 ATR 898
2010 ATC 10-145
[2010] AATA 573

Newcastle City Council v GIO General Ltd
(1997) 191 CLR 85
(1997) 149 ALR 623
[1997] HCA 53

Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd
[1938] Ch 174