Edited version of administratively binding advice

Authorisation Number: 1012562986629

Advice

Subject: Excess Contributions Tax - Non-concessional and Concessional contributions

Question

Do special circumstances exist and if the returned contributions were re-contributed in a later financial year, would it be consistent with the object of Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) to reallocate those amounts of non-concessional and concessional contributions to the intended financial year, for the purposes of excess contributions tax?

Advice

Yes, please see Reasons for decision below.

Relevant facts and circumstances

· The member deposited non-concessional and concessional contributions into the SMSF account at the bank for a year. The bank took the deposit and gave the member a receipt.

· The banks' superannuation department held funds for processing.

· The member's account had been closed and a new account opened by the bank.

· The member signed a rollover form which was a transfer from one fund to another; however the member was under the impression that the first fund would be left open as an everyday transaction account and the new account would be an investment one.

· The member was notified of the closure of the account and the existence of the return of the deposited funds approximately 3 months after making the contribution.

· The member has supplied a letter from the bank and this letter did not supply the date of the account closure to the member.

· The bank did not also supply any statements to the member regarding the closure of the account.

· The member kept the funds after they were returned to the member.

· The bank has admitted liability however will not discuss anything until the administratively binding advice is completed.

· The member requests that the Commissioner make a written determination allowing the non- concessional and concessional contributions to be made in a later financial year but be reallocated to the intended financial year for excess contributions tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 292-25

Income Tax Assessment Act 1997 292-85

Income Tax Assessment Act 1997 292-465

Reasons for decision

Summary

Special circumstances do exist and if the returned contributions were re-contributed in a later financial year, it would be consistent with the object of Division 292 of the ITAA 1997 to reallocate those amounts of non-concessional and concessional contributions to the intended financial year, for the purposes of excess contributions tax?

Concessional contributions cap

For the purposes of ECT, concessional contributions are defined in section 292-25 of the ITAA 1997. Generally, the concessional contributions of an individual are those contributions that are:

i. paid to a superannuation fund for the benefit of that individual; and

ii. included in the fund's assessable income - subsection 292-25(2) of the ITAA 1997.

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.

Concessional contributions include but are not limited to contributions your employer makes for you, including contributions made under a salary sacrifice arrangement.

Non-concessional contributions cap

Non-concessional contributions include:

· personal contributions for which an income tax deduction is not claimed;

· contributions a person's spouse makes to their superannuation fund account; and

· transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

Some contributions are specifically excluded from being non-concessional contributions. These include:

· a Government co-contribution;

· a contribution arising from a structured settlement or an order for personal injury;

· a contribution relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made; and

· a roll-over superannuation benefit.

Non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the Income Tax Assessment Act 1997 (ITAA 1997)).

Section 292-465 of the ITAA 1997 gives the Commissioner the discretion to disregard or reallocate all or part of your concessional or non-concessional contributions for the purposes of 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 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 gradually made over a person's lifetime.

The legislative intent of excess contributions tax is to tax contributions, made on your behalf, which exceed the relevant contributions cap in a financial year. The Commissioner can only exercise the discretion to reallocate the excess amount of concessional or non-concessional contributions where it is considered that there are 'special circumstances'.

The courts have considered what 'special circumstances' means in many different contexts. It is clear from case law that special circumstances are circumstances which are unusual or out of the ordinary. By definition, most circumstances are not 'special circumstances'. Australia's courts have made it clear that 'special circumstances' are limited to circumstances that make a case different from the ordinary or usual case. Circumstances are only special if the ordinary application of the law would provide a result that is manifestly unjust, unfair or otherwise inappropriate. We must apply the same approach as adopted by the courts when we make our decisions.

Practice Statement Law Administration PS LA 2008/1 The Commissioner's discretion to disregard or reallocate concessional and non-concessional contributions for a financial year (PS LA 2008/1) provides guidance on what the Commissioner may or may not consider special circumstances and highlights that:

· it is not possible to lay down precise rules for what constitutes special circumstances

· the core idea of special circumstances is that there is something unusual to take the case outside the ordinary course, and

· in determining whether there are special circumstances in the context of the exercise of a discretion, a decision maker must bear in mind the purpose for which the discretion is given.

In reviewing the case we have looked at PSLA 2008/1 in particular the following paragraphs:

22. There are two preconditions to a determination exercising the discretion under section 292-465:

· the presence of 'special circumstances', and

· the determination achieving an outcome which is consistent with the object of Division 292.

Special circumstances

23. The meaning of the expression 'special circumstances' has been considered in case law in a variety of legislative contexts. The principles that emerge from the cases are that:

· it is not possible to lay down precise rules for what constitutes special circumstances

· the core idea of special circumstances is that there is something unusual to take the case outside the ordinary course, and

· in determining whether there are special circumstances in the context of the exercise of a discretion a decision maker must bear in mind the purpose for which the discretion is given.³⁰

24. The approach to special circumstances in the context of section 292-465 is confirmed by the EM to the Bill which introduced the amendments. At paragraph 1.117 it says:

It is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case to case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

25. In determining whether there are special circumstances in a given case, a decision maker should consider whether there are circumstances which are outside the ordinary course. In deciding whether the circumstances are outside the ordinary course, it is highly relevant whether the imposition of the excess contributions tax would be unjust, unreasonable or otherwise inappropriate.

26. Because a determination for the purposes of excess contributions tax may relate not only to completely relieving or excusing liability for excess contributions tax for a period, but also to allocating contributions to another year, the effect of allocating contributions to another year or, of not doing so, must also be considered in judging whether an imposition of liability in the circumstances of a particular case is appropriate or whether it is at odds with the object or purpose of the law.

The decision in McMennemin & Anor v FC of T [2010] AATA 573 outlines previous authorities on the meaning of 'special circumstances' and goes on to state that the tribunal's decision is consistent with the Commissioner's explanation of special circumstances in PS LA 2008/1.

Therefore, 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:

· it was reasonably foreseeable when a relevant contribution was made, that you would have excess contributions for the relevant year

· the extent to which you had control over the making of the contribution

· there are any other relevant matters

Application to your circumstances

When the member made the contribution into the bank account the deposit was taken and the member was not informed that the account was closed. It was not foreseeable that the contribution intended for that financial year would not be allocated to that year.

The member had limited control over making the contribution, as after the initial contribution was made the member was not informed by the bank about the closed account, until it was too late to corrective action.

The member did not receive any statements of accounts (SOA) and the bank did not supply any when requested to do so.

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