Edited version of administratively binding advice

Authorisation Number: 1011468589609

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Advice

Subject: Excess contributions tax

Question 1

Based on the facts provided, do special circumstances exist and would it be consistent with the object of Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) to reallocate an amount of your concessional contributions for the 2009-10 financial year to the 2008-09 financial year for the purposes of excess contributions tax?

Advice

No; based on the facts provided, special circumstances do not exist and it would not be consistent with the object of Division 292 of the ITAA 1997 to reallocate an amount of your concessional contributions contributed in the 2009-10 financial year to the 2008-09 financial year for the purposes of excess contributions tax.

This advice applies for the following period/s:

Year ending 30 June 2009

Year ending 30 June 2010

The arrangement commences on:

1 July 2008

Relevant facts and circumstances

Your advice is based on the following facts.

You are an employee and one of three directors of a Company.

We received your request for administratively binding advice together with the following enclosures:

- extract of the company report showing officers and shareholders of the company

- extract of superannuation cash transactions statement paid to your superannuation provider.

- payslip issued for the relevant period

A copy of a declaration and statements made by the company's payroll officer in support of your request.

The Australian Taxation Office (ATO) requested further information.

You responded to this request.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 292-5,

Income Tax Assessment Act 1997 section 292-15,

Income Tax Assessment Act 1997 section 292-465 and

Income Tax (Transitional Provisions) Act 1997 section 292-20.

Reasons for decision

Summary

Based on the facts provided, special circumstances do not exist in this case and it would not be consistent with the object of Division 292 of the ITAA 1997 to reallocate an amount of your concessional contributions contributed in the 2009-10 financial year to the 2008-09 financial year for the purposes of excess contributions tax.

Detailed reasoning

The law allows a person to apply to the Commissioner to make a written determination that all or part of an individual's concessional or non-concessional contributions for a financial year are to be disregarded or allocated to another financial year, in making an assessment of the excess contributions tax.

However, this application can only be made after the person has received an excess contributions tax assessment for the financial year. The application is required to be made within 60 days of receiving the excess contributions tax assessment, or such longer period as the Commissioner allows.

Although the Commissioner is unable to consider making the determination prior to an assessment issuing, we are providing administratively binding advice in response to your request. You may request the Commissioner to consider making a determination after you have received an excess contributions tax assessment.

The Commissioner may make a determination if he considers that there are special circumstances, and that making the determination is consistent with the object of Division 292 of the ITAA 1997. The object of Division 292 of the ITAA 1997 is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from contributions that have been made gradually over a person's lifetime.

Superannuation contributions made for or by an individual are subject to annual contributions caps. The cap amount depends on whether the contributions are concessional or non-concessional contributions.

Concessional contributions include, but are not limited to, employer contributions including compulsory super guarantee contributions, additional voluntary contributions your employer may make and salary sacrifice amounts.

The concessional contributions cap for the 2008-09 financial year is $100,000 for individuals aged 50 or over.

Section 292-465 of the ITAA 1997 gives the Commissioner the discretion to disregard or allocate to another financial year all or part of a contribution for the purposes of the excess contributions tax.

The Commissioner may make such a determination if he considers that there are special circumstances and that making the determination is consistent with the object of Division 292 of the ITAA 1997. The object of the division is to ensure that the amount of concessionally taxed superannuation benefits that a person receives, results from contributions that have been gradually made over a persons lifetime.

The courts have considered what 'special circumstances' means in many different contexts. As confirmed by the Explanatory Memorandum (EM) to the Bill which introduced the amendments, it is clear from case law that special circumstances are circumstances which are unusual or out of the ordinary. Whether circumstances are special will vary from case to case. However, in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

When making a decision to issue a determination, the Commissioner may have regard to whether:

- The contribution you made in the 2007-08 financial year would be more appropriately allocated to another year; and

- It was reasonably foreseeable when a contribution was made that you would have an excess contribution for the relevant year, and the extent of your control over the making of the contribution.

Practice Statement Law Administration PS LA 2008/1 provides guidance on what the Commissioner may or may not consider special circumstances.

Paragraph 33 of PS LA 2008/1 states:

… Where the contribution is made for the person by someone else, the terms of any agreement or arrangement covering the amount and timing of the contribution will be relevant in forming this opinion. The EM notes at paragraph 1.119 that the terms of any agreement or arrangement will include an effect salary sacrifice arrangement, workplace agreement or union award. Another factor which may be relevant is the extent to which the person had control over the making of the contribution.

In your application, you advised that you had an effective salary sacrifice agreement with your employer that instruct your employer to sacrifice any bonus you become entitled into your superannuation account, within the same financial year the bonus would have been paid.

We reviewed the superannuation cash transactions statement, you provided, that shows the transaction history of your superannuation account. According to this statement your employer makes monthly contributions and these contributions are generally received by your superannuation fund in the second week following the end of month.

Based on this transaction history your employer would have to make a separate contribution that is outside the employer's regular pattern for the bonus payment to be received by your superannuation provider within the same month the bonus would have been paid to you.

Given that employers have until 28 days after the end of a quarter to pay their superannuation contributions, it is not uncommon for employer contributions related to the June quarter of a financial year (or for the month of June), including salary sacrifice amounts, to be paid in July of the next financial year. A short delay in timing between the employer actually making the payment and the amount being received by the fund is to be expected. This is also the case where a third party, such as a clearing house is involved.

A late payment of this nature is not of itself considered a 'special circumstance' unless there are other extenuating factors involved.

To support your request you provided number of contentions.

In addition, you also provided us with a letter from the Company's payroll officer that advises staff shortages, annual leave and end of year processes caused your bonus payment to not be paid to your superannuation fund on time.

Based on the facts of this case we believe that you had control over the timing of these contributions as it would be within a director's duties to ensure staff shortages, annual leave and end of year processes do not delay processing requirements of the Company. Additionally, you were at all times able to confirm with your employer's payroll officer whether the payment was sacrificed in accordance with your SSA, that is, the remittance of the sacrificed payment was within your control and furthermore, had you done so, you would have been in a position to adjust your salary sacrifice contributions for the following year.

Consequently, the facts of this case are not sufficiently 'unusual or out of the ordinary' to constitute special circumstances as it is the Commissioner's view that as the director of the Company, you have the control over the timing and the amount of employer's contributions you make on your behalf.

For the above reasons it is considered that special circumstances do not exist and it would not be consistent with the object of Division 292 of the ITAA 1997 to disregard or allocate to another financial year, concessional contributions for the 2009-10.

However, should you be issued with an excess contributions tax assessment, if you still believe that your situation does warrant the Commissioner issuing a determination to disregard or reallocate contributions you may apply for the Commissioner to issue a discretion at that time.

Conclusion

Based on the facts of your case it is considered that special circumstances do not exist and it would be inconsistent with the object of Division 292 of the ITAA 1997 to reallocate the relevant contributions to the 2008-09 financial year.

Should you receive an excess contributions tax assessment for the 2009-10 financial year you may apply to the Commissioner to issue a determination to reallocate the contribution at that time. Please include a copy of this letter with your application.

When the time comes to consider your application that law, as it then exist, will be applied to the facts as established at that time.

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