ATO Interpretative Decision

ATO ID 2002/88 (Withdrawn)

Superannuation

• This ATO ID is withdrawn from the database because it contains a view in respect of Division 14 of Part III of the Income Tax Assessment Act 1936 and Part 5A of the Income Tax Regulations 1936 (the RBL provisions). The RBL provisions do not apply for the 2007-08 income year and later income years. This ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-07 income years.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether 'special circumstances' exist for the application of the Commissioner's discretion under regulation 51 of the Income Tax Regulations 1936 (ITR 1936)?

Decision

No, 'special circumstances' do not exist for the application of the Commissioner's discretion under regulation 51 of the ITR 1936.

Facts

The taxpayer applied for the determination of an arm's length salary.

Included in the application was a remuneration report which claimed that the taxpayer's arm's length salaries should be valued at a rate higher than previously allowed.

The taxpayer's remuneration package consisted of actual salaries and employer superannuation contributions for the requested three consecutive years. No fringe benefits were received by the taxpayer, in the requested three consecutive years. The taxpayer sacrificed significant amounts of salary for superannuation. The taxpayer also incurred partnership losses.

The taxpayer is an associated employee and director/shareholder of the company, and was responsible for the company's overall financial performance. The taxpayer worked an average of over 50 hours per week. The taxpayer was born before 1 July 1944.

The company had a low gross income.

The Commissioner consulted the remuneration survey published a widely recognised remuneration consultant. The Commissioner considered that the nature of the taxpayer's employment was comparable to that of a Chief Executive Officer ("CEO") under the remuneration tables of the survey.

The upper quartile salary for CEOs who over 50 hours per week is established under the tables. This amount represents the total salary package paid to employees performing comparable duties.

There were a high level of risks and responsibilities associated with the position.

The taxpayer claimed amongst other things that the Commissioner should have exercised the discretion provided for under regulation 51 of the ITR 1936, to allow him a higher TRBL than one calculated under the general TRBL provisions, because he believes that "special circumstances" exist in his situation.

Reasons for Decision

Regulation 51 of the ITR provides the Commissioner with the discretion to allow a taxpayer a higher Transitional RBL than one calculated under the general Transitional RBL provisions where 'special circumstances' exist.

The taxpayer believes that 'special circumstances' exist in this case, because the taxpayer believes that the facts of his situation as outlined above with particular reference to the nature of the work performed by the taxpayer, the hours worked, the salary that would be payable to a person who is not an associate of the taxpayer's employer for performing work for similar hours and other relevant matters, constitute 'special circumstances' in this instance.

'Special circumstances' are those that are unusual, uncommon, exceptional and abnormal. In addition, the taxpayer needs to establish that it would be reasonable to depart from the strict application of the legislation in these particular circumstances, where the strict application of the legislation would give rise to an unreasonable, unjust or unintended result.

The nature of the work performed by the taxpayer, the hours he worked, and the other circumstances of his situation as the Director and Manager of the company who was responsible for the company's overall financial performance, are circumstances that are quite common for company directors such as the taxpayer.

Therefore the facts of the taxpayer's situation as outlined above, do not constitute 'special circumstances' in this instance. This conclusion was arrived at after giving full consideration to all the relevant facts relating to the taxpayer's circumstances.

In forming the opinion that the facts of the taxpayer's situation do not constitute 'special circumstances', the Commissioner paid due regard to the nature of the work performed by the taxpayer, the hours he worked, the salary that would be payable to a person who is not an associate of the taxpayer's employer for performing work for similar hours and other relevant matters that were brought to his attention.

The Commissioner referred to the remuneration survey published a widely recognised remuneration consultant. It was open to the Commissioner:

(a)

to consult the remuneration survey in determining an appropriate arm's length salary for the taxpayer, and thus

(b)

to make the determination in respect of the taxpayer's arm's length salary with reference to independent market salary surveys.

As a result, the arm's length salaries determined as outlined above did not constitute an unreasonable, unjust or unintended result in this instance.

Accordingly regulation 51 of the ITR 1936 does not apply to these circumstances. The Commissioner has fully understood all the relevant facts and law, and has paid due regard to the taxpayer's particular facts and circumstances, in forming this opinion.

Legislative References:
Income Tax Regulations 1936
   Subregulation 47(1).
   Subparagraph 47(3)(c)(ii).
   Subregulation 47(3).
   Subregulation 47(4).
   Regulation 53A.
   Subregulation 53FA(1).
   Subregulation 53FA(2).

Keywords
Salary sacrifice
Reasonable benefit limits
Transitional RBLs
Highest average salary
Special transitional RBLs

Business Line:  Superannuation

Date of publication:  30 January 2002

ISSN: 1445-2782