WARD v FC of T

Tribunal:
Administrative Appeals Tribunal, Canberra

MEDIA NEUTRAL CITATION: [2018] AATA 1519

Decision date: 7 June 2018

Gary Humphries (Deputy President)

Introduction

1. This is a decision on remitter from the Federal Court of Australia. It concerns the imposition by the Commissioner of Taxation (the Commissioner ) in November 2012 of superannuation excess contributions tax on Mr Colin Ward of $209,250. Mr Ward lodged an application the following month asking the Commissioner to disregard or allocate to another year all or part of his non-concessional contributions to which the tax related. Mr Ward then objected, unsuccessfully, to the Commissioner's refusal to do so. The objection was disallowed on 7 June 2013. In August 2013 he sought merits review by the Tribunal of that disallowance decision. On 30 November 2015, following a hearing, I affirmed the Commissioner's decision.

2. Mr Ward then filed a notice of appeal in the Federal Court, and the Commissioner filed a notice of contention. On 5 October 2016 the Full Bench of the court, per Robertson, Davies and Wigney JJ, upheld some of the grounds of Mr Ward's appeal, as well as the Commissioner's notice of contention. The grounds which were upheld in each case are discussed below. Following remittal of the matter to me, I conducted a hearing on 31 August 2017. For the reasons set out below, I now affirm the Commissioner's decision of 7 June 2013.

Background

3. In Ward v Commissioner of Taxation [2015] AATA 919 I made certain findings of fact. To the extent that those findings do not appear to be controversial, I set them out here.

4. Mr Colin Ward and his wife, Joan, have been married for over 40 years. They both worked in low paid jobs throughout their lives prior to retiring at about the same time, each for health reasons (Mrs Ward in September 2007, Mr Ward in February 2008). At the end of his working life Mr Ward was a truck driver for Australia Post, and Mrs Ward worked in a factory.

5. At retirement, Mr Ward had superannuation assets of some $198,223.73 in two superannuation schemes, APSS and CSS. Mrs Ward had some $202,234.84 in the APSS scheme. Together with termination payments, holiday and long service leave payments, savings and proceeds from the sale of a former home in Perth, the Wards had a nest egg of about $470,000. However, their retirement coincided with the onset of the Global Financial Crisis (the GFC ).

6. As the GFC unfolded, there is evidence that Mr and Mrs Ward became fearful that their superannuation funds - largely based on shares - would diminish in value and would not provide the retirement income they needed. Accordingly, in early 2008, they withdrew the combined amounts standing in the superannuation schemes and put them into bank term deposits.

7. In June 2008, they sought advice from the Westpac branch at Dickson, ACT, where they were persuaded to put the proceeds of the superannuation funds into a BT cash only^[1] In this decision, italicised text is generally used to indicate direct quotations. pension fund with a tax-free interest rate of 7.25 percent. They knew that the Federal government had guaranteed deposits held by certain deposit-taking institutions, and felt that

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the investment would be more secure in this form. The fund was called BT Super for Life. The sum of the amounts they transferred into this fund was exactly $450,000; clearly they were acting on advice to take advantage of the bring forward rule in s 292-85 of the Income Tax Assessment Act 1997 (the ITAA ). The sums were transferred into their BT Super for Life account on 7-8 July 2008. As Mr Ward was under the age of 65, and the amounts so deposited were non-concessional contributions, the bring forward rule was triggered for the 2008/2009 financial year.

8. A taxpayer was then generally limited to making non-concessional contributions to his or her superannuation to a maximum of $150,000 in any financial year. Under the bring forward rule, payments may be made above this cap, up to $450,000, but the effect of such a payment is that no non-concessional contributions can be made in the subsequent 2 financial years.

9. Soon after opening the BT Super for Life account, a change appears to have occurred in the nature of the account. In early documentation it is referred to by the bank as the BT Super for Life Savings Account, but later it is referred to as the BT Super for Life Retirement Account. The reason for this change in treatment is not clear, but may relate to the account paying Mr Ward a superannuation income stream. The Commissioner referred to this change as a product switch and a rollover (but also as a neutral event as far as Mr Ward's liability for excess contributions tax was concerned).

10. Mr Ward's evidence was that he and his wife had believed that this BT account enjoyed a fixed interest rate, when in fact it did not. As the GFC continued, interest rates fell, as in turn did the income from the BT account. Alarmed, they withdrew the money from the BT account progressively from October 2008 to April 2009, and returned it to term deposit accounts.

11. In 2010 the Wards decided to seek professional financial help from Ms Catherine Smith, the principal of Wholistic Financial Solutions ( Wholistic ). She advised them to establish a self-managed superannuation fund. They took that advice and in June 2010 the Parr Post Superannuation Fund was established, with Mr and Mrs Ward as trustees and members.

12. In about August 2010, the Wards sold their home in Watson, ACT for $460,000. In September 2010, Mr Ward made a personal contribution (non-concessional) of $450,000 to the Parr Post Fund. At about the same time, Mrs Ward made a similar non-concessional contribution of $450,000 to the Parr Post Fund. Mr Ward's contribution was sourced from the monies held in bank term deposits, which had been established when the BT Super for Life account was closed. Mrs Ward's contribution was sourced from the sale proceeds of the Watson property.

13. On 23 November 2012, an excess contributions tax Notice of Assessment was issued to Mr Ward for the 2010/2011 financial year, stating a liability for excess contributions tax of $209,250.

14. The Commissioner contends that Mrs Ward's non-concessional contribution to the Parr Post Fund was within her non-concessional contributions cap for the 2010/2011 financial year, but that Mr Ward's non-concessional contribution caused him to exceed his contributions cap, which was set at nil for that financial year by virtue of the contributions made to the BT Super for Life account in July 2008.

Further evidence taken at the remitter hearing

15. Following the remitter a hearing was conducted on 31 August 2017. This hearing proceeded on the basis that the Tribunal is entitled to determine afresh the factual basis on which Mr Ward's application should be considered. In that vein, much of the evidence taken at this hearing related to Mr Ward's dealings with Ms Smith of Wholistic. The Commissioner contended that some importance should be attached to the question of whether certain written material supplied by BT Super for Life to Mr Ward was passed on to Wholistic. It was put to the Tribunal that this material either properly disclosed the nature of BT Super for Life's treatment of the $450,000 Mr Ward had deposited, or at least would, if properly considered, have alerted Wholistic to the true nature of that treatment.

16. The Commissioner referred in particular to two pieces of correspondence from BT Super for Life which he alleged were pertinent. On

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about 27 June 2008 Mr Ward received an introductory letter from BT Super for Life identifying his account as a Savings account and providing an account number (the BT savings account letter ). On 30 April 2009, following Mr Ward's withdrawal of his investment in BT Super for Life, a four-page final statement (the BT final statement ) was issued and sent to him by BT Super for Life, in which a Rollover of $450,000 was referred to.

17. Both Mr Ward and Ms Smith returned to the witness box at the remitter hearing to give evidence about their dealings with these documents. Mr Ward was adamant under sustained questioning that all the correspondence received by him from BT Super for Life-including the BT savings account letter-was provided not only to Wholistic but also to his solicitor:

All the documents that I received were put in the folder and given to Ms Smith and I received all the documents, and all the documents that I received, I gave to Terry, or Mr Dwyer, and…

18. At the original hearing, Ms Smith gave evidence that Mr Ward had not provided her with a copy of the BT savings account letter, but at the remitter hearing retracted this evidence, saying that she must have been confused by the question. Now she maintained she could not recall whether Mr Ward had provided a copy of the letter, though she conceded that it was possible he had done so.

19. With respect to the BT final statement, Mr Ward gave evidence to the remitter hearing that that he had placed all four pages of the statement in a folder and given that to Wholistic. He contradicted a submission made by his counsel during the Federal Court appeal hearing that he had not provided the full 4-page statement to Ms Smith. Again, at the remitter hearing Ms Smith retracted the evidence she had given at the previous hearing - that Mr Ward had given her only the first page of the final statement - and said she did not recall whether he had provided her with all four pages of the BT final statement, though she suggested that he probably did.

The relevant legislation

20. Section 292-465 of the ITAA confers on the Commissioner a discretion allowing him to disregard, or allocate to another financial year, all or part of the person's non-concessional contributions for a financial year. The conditions governing this discretion, relevantly to the present matter, were set out at that time in the following terms:

292-465 Commissioner's discretion to disregard contributions etc. in relation to a financial year

(1) If you make an application in accordance with subsection (2), the Commissioner may make a written determination that, for the purposes of this Division:

(a) all or part of your *concessional contributions for *financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination; and

(b) all or part of your *non-concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination.

(2) You may apply to the Commissioner in the *approved form for a determination under subsection (1). The application can only be made:

(a) after all of the contributions sought to be disregarded or reallocated have been made; and

(b) if you receive an *excess contributions tax assessment for the *financial year - before the end of:

(i) the period of 60 days starting on the day you receive the assessment; or

(ii) if the Commissioner allows a longer period - that longer period.

(3) The Commissioner may make a determination only if he or she considers that:

(a) there are special circumstances; and

(b) making the determination is consistent with the object of this Division.

(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.

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(5) The Commissioner may have regard to whether a contribution made in the relevant *financial year would more appropriately be allocated towards another financial year instead.

(6) The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have *excess concessional contributions or *excess non-concessional contributions for the relevant *financial year, and in particular:

(a) if the relevant contribution is made in respect of you by another person - the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and

(b) the extent to which you had control over the making of the contribution.

21. The object of this division in subsection (3) is set out in s 292-5. This section was amended in 2013, but at the time relevant to these proceedings it read:

Object of this Division

The object of this Division is to ensure that the amount of concessionally taxed *superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person's life.

Issues

22. There was no dispute between the parties that the Commissioner had correctly calculated the excess contributions tax under subdivision 292-B of the ITAA of the relevant year. What was in dispute, and what now falls to the Tribunal to determine on remitter, is whether the Commissioner's decision not to make a determination under s 292-465 of the ITAA, disregarding or allocating to another financial year all or part of Mr Ward's non-concessional contributions for the 2010/2011 year, should have been made differently. This in turn requires consideration of two issues: whether there were special circumstances in this case pursuant to s 292-465 (3)(a), and whether such a determination is consistent with the object of this Division, in that it would ensure that the amount of concessionally-taxed superannuation benefits Mr Ward would receive under such a determination results from superannuation contributions that have been made gradually over the course of [his] life.

SPECIAL CIRCUMSTANCES - s 292-465 (3)(a) OF THE ITAA

23. Mr Ward asserts that the circumstances under which he contributed the $450,000 which triggered the imposition of excess contributions tax were special circumstances pursuant to s 292-465 (3)(a). The Tribunal in its original decision summarised the basis for this claim as follows:

(a) Mr Ward was obliged, for health reasons, to retire at the time of the GFC;
(b) the GFC was an exceptional circumstance in Australian economic history;
(c) through miscommunication, Mr Ward made an inappropriate investment decision by depositing the proceeds of his superannuation accounts with BT Super for Life;
(d) BT Super for Life misled him and his financial adviser as to the true nature of his investment in it;
(e) the ignorance that this induced led him to invest in his SMSF in breach of the bring forward rule;
(f) this accidental breach of the bring forward rule occurred despite Mr Ward being an extremely cautious and conservative investor;
(g) the invoking of the bring forward rule for this investment was an accident of timing;
(h) the Commissioner's imposition of excess contributions tax amounts to a penalty on Mr Ward which is oppressive and unprecedented.

24. In reaching these findings, the Tribunal referred to the final statement from BT Super for Life to Mr Ward and concluded that apparently only the first page of a four page document was supplied to Mr Ward's advisor, Ms Smith, by Mr Ward. I came to the view that Mr Ward did not make a conscious and informed decision to breach the bring forward rule. Even if he had some basic understanding of the bring forward rule, which might have suggested that he could not put more money

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into his superannuation account at that time, that understanding was readily displaced by the firm and authoritative advice proffered by Wholistic. Neither Ms Smith of Wholistic nor Mr Ward acted with the intention of avoiding the cap on superannuation contributions or of obtaining some tax advantage for Mr and Mrs Ward. I further found that the incorrect advice given by Ms Smith to Mr Ward was induced by the misleading notice provided by BT Super for Life. I noted that the excess contributions tax levied, $209,250, wiped out the entirety of his superannuation savings at retirement, and that the strict application of the law to his situation produced an outcome which was harsh and unfair. I described the effect of the amount of the excess contributions tax on Mr Ward was oppressive or as having catastrophic consequences.

25. I cited Lynton and Commissioner of Taxation [2012] AATA 667 for the proposition that special circumstances could not be made out unless the circumstances were inconsistent with the natural and foreseeable sequence of events. I considered that the imposition of excess contributions tax on Mr Ward was the natural and foreseeable consequence of the decisions he and his advisers made, albeit in ignorance. I indicated that the character of a taxpayer's intention with respect to tax implications does not appear to be an element in the imposition of excess contributions tax under the legislation.

26. Reference was then made to what Kiefel J (as her Honour then was) had said in Groth v Secretary, Department of Social Security <[1995] FCA 1708 at 545:

The phrase "special circumstances", it has been said, although imprecise is sufficiently understood not to require judicial gloss: Beadle's case (229), and for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case. That was, I consider, the only enquiry to be undertaken in this case. It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.

I concluded that the harshness of the impact of the tax upon Mr Ward was an outcome that was reasonably foreseeable and therefore the legislative provisions imposing the tax operated as they were intended to. The fact that Mr Ward had not proceeded deliberately and consciously to build up his superannuation in defiance of the cap did not transform the tax into something unintended.

27. On appeal, the Full Federal Court considered that the Tribunal was in error in proceeding on the basis that because the imposition of the tax was the natural and foreseeable consequence of the decisions of Mr Ward and his advisers, it was necessarily outside the scope of special circumstances. The words of Kiefel J in Groth were, it considered, misapplied when interpreted as meaning that there could not be special circumstances unless something unintended had occurred, that is, on the Tribunal's approach, something other than the natural and foreseeable consequence of the decisions Mr Ward and his advisers made.

28. The Court then made the following observations at [41]-[43]:

41. In our opinion, it was open to the Tribunal to find that there were "special circumstances" if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.

42. Contrary to the applicant's submissions, it is not to the point, or within the Commissioner's notice of contention, that the Tribunal's finding that the notice provided by BT Super for Life was misleading may have been contestable. We also note that at the forefront of the submissions in reply on behalf of Mr Ward was an attempt, later abandoned, to contend that BT Super for Life "had misled Mr Ward and his advisor, Ms Smith, by providing one page of a four page account statement for the super retirement

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account, thereby denying them any useful information about the true statutory character of the $450,000 before it was contributed to a new fund." (Emphasis in original.) The Tribunal did not proceed on this basis, as is made clear at [43] of its reasons. It also appears that the applicant's case was not put before the Tribunal on this basis.

43. In our opinion, the Tribunal erred in law by taking too narrow a view of what may constitute "special circumstances" within the meaning of the statute. This may have been caused by unnecessarily considering factors in isolation before focusing on the entirety of the circumstances said by the applicant to be special. It was certainly caused, in our opinion, by looking at expressions in other decisions and taking those expressions out of their factual and legal context.

29. On this basis, the Court upheld Mr Ward's appeal on the Tribunal's interpretation of special circumstances.

The parties' submissions on remitter

Mr Ward

30. Mr Ward contended that the Tribunal should find special circumstances exist here in what he described as the unique and unusual variables found in this case. Those circumstances were essentially the ones set out in [23] above.

31. Several propositions of law were postulated as supporting this conclusion. A special circumstance, it was said, references some events, factors or situation which is unusual or out of the ordinary course, and which distinguishes the case from the usual run of cases. On one hand, to be a special a circumstance cannot be one that is regularly, or routinely, or normally, or universally encountered. On the other hand, it does not need to be one which is unique, or unprecedented, or exceptional, or very rare in its occurrence. That which makes circumstances special in a particular case might flow from their weight as well as their quality, that is, a circumstance may be special by reason of degree as well as of kind. Further:

A constellation of ordinary factors which, although individually of no particular significance, can, when taken together, amount to special circumstances. Thus, it is not necessary that any particular circumstance be regarded as special where several factors, in combination, could constitute special circumstances…

32. Citing Groth, it was contended that an unfair, unintended, harsh, or unjust result might be the sort of feature that would qualify as different or unusual (per Kiefel J at 545).

33. It was submitted that each of these tests were met in the case of Mr Ward.

The Commissioner

34. The Commissioner observed that special circumstances is a notion which is found in many legislative contexts. As French J (as he then was) said in Boscolo v Secretary, Department of Social Security [1999] FCA 106 at [18] it is in essence instrumental, a direction to the decision-maker the discretion it constrains is not lightly to be enlivened. The core of the idea of special circumstances is that there be something unusual or different to take the matter out of the ordinary course: per Burchett J in Minister for Community Services and Health v Thoo, 78 ALR 307 at 324. The Commissioner referred also to the passage from Kiefel J's decision in Groth quoted above.

35. The decision of the Tribunal in Tran and FCT [2012] AATA 123 was cited as authority for the proposition that the prime determinate here is not the extent of the taxpayer's misfortune:

…whilst each case must turn on its own merits, circumstances will not be special unless they are out of the ordinary. The prime determinant is not the extent of the taxpayer's misfortune but rather the uniqueness of the events which has given rise to that misfortune. (at [15])

36. While there must be something unusual or uncommon for circumstances to be special, some care must be taken not to overstate the test. As Besanko J said in Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25 at [33]:

It was not the intention of Parliament to confine the exercise of the discretion to an exceptional case. There is less risk of overstatement if the words "unusual" or "uncommon" are emphasised. Those words indicate, correctly in my view, the fact that

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there must be something that distinguishes the case from the ordinary or usual case.

37. The Commissioner contended that the factors postulated by Mr Ward, taken individually or together, did not reach the test of special circumstances. He maintained that the circumstances here have no relevant relationship with the contributions made by Mr Ward giving rise to the excess contributions tax assessment.

38. The Commissioner contended, for example, that the role of the GFC in the events surrounding Mr Ward's contributions did not render it a special circumstance. He quoted Katzmann J in Fischer v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2010) 185 FCR 52 at [80]-[81] as determining that the answer very much depends upon the facts of each case:

Although all shareholders suffered in the global financial crisis, some suffered more than others. Not all who suffered were pensioners and fewer still were in receipt of a disability support pension. If, as a result of the collapse of global markets, a pensioner's shares were so reduced in value that once the margin loan was brought into account they were worthless to her, surely that circumstance could be considered "special" within the meaning of the section. Whether the applicant falls into this category or her circumstances are special for another reason pertaining to the impact of the global financial crisis is another question. But it is a question the Senior Member never asked herself. By excluding from consideration anyone who suffered in the global financial crisis, the Senior Member fell into error.

The result of this error is that the AAT failed to properly consider whether the erosion of the value of the applicant's shares brought about by the stock market crash amounted to special circumstances under the section. (original emphasis)

39. The Commissioner proposed that the Tribunal ask itself what was unusual or special about Mr Ward's circumstances as they pertained to the GFC? The answer to that question, he suggested, is nothing.

40. With respect to the BT savings account letter and the BT final statement, the Commissioner submitted that Wholistic was not misled by BT Super for Life at all; it was misled because it was either not provided with copies of all the BT Super for Life documents and failed to make its own inquiries, or neglected itself to consider all of the documents. He asserted that the evidence suggested that Mr Ward had failed to provide Wholistic with the relevant documents, but that even if he had Wholistic had failed to properly consider all of the documents provided.

41. The Commissioner submitted:

The Consequences Arising

Mr Ward's single responsibility as a client of [Wholistic] was to provide the information necessary for it to give fully informed advice. That did not require Mr Ward to know whether there were one or two BT Super for Life accounts, or even understand the information contained in the BT Savings Account letter or the BT Final Statement: only hand over those four additional pieces of paper.

The failure to provide the BT Savings Account letter and the last three pages of the BT Final Statement, albeit not deliberate, was nonetheless acute given Mr Ward appreciated that in giving advice [Wholistic] was relying on the documents he had provided…

In Ward, the Full Court said that:

[I]t was open to the Tribunal to find that there were "special circumstances" if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.

As much may and, of course, must be accepted. But this is a remitter and when the evidence is considered afresh the only available conclusion is that not all the circumstances identified in that passage exist.

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Of course, Mr Ward did not intentionally withhold documents or deliberately seek to mislead [Wholistic] and his honesty is not doubted. But there was simply nothing incorrect or misleading about the BT Final Statement or indeed any document provided by BT Super for Life to Mr Ward. There had in fact been a rollover of the superannuation benefits in Mr Ward's BT Savings Account into his BT Retirement Account. In order to fully appreciate that and give informed advice, [Wholistic] had to have all the documents; not just some of them. [Wholistic] also should have made its own enquiries.

A similar conclusion follows if Mr Ward did in fact provide the BT Final Statement and the last three pages of the BT Final Statement: in order to give informed advice, Ms Smith had to actually read and consider the documents; not presume their contents.

Of course, no one suggests Mr Ward acted deliberately or in deliberate defiance of any superannuation law. It's difficult to image why anyone would. But that does not make the converse true. There was no "accidental" breach; it is attributable to failings on the part of Mr Ward and/or Ms Smith.

It follows that the provisions do not operate on Mr Ward in an 'unfair or unjust way'. There is nothing special about the erroneous advice [Wholistic] provided Mr Ward and the Misled by BT Super for Life Contention must fail.

Consideration

42. The Tribunal first makes some findings of fact with respect to the evidence.

43. First, the Tribunal considers that the contents of the BT savings account letter and the four pages of the BT final statement, had they been fully considered, would have alerted Ms Smith to the fact that Mr Ward had already triggered the bring forward rule with his investment in BT Super for Life in July 2008.

44. The Commissioner asserted that an onus rests on Mr Ward to make good, on the balance of probabilities, that he provided Wholistic with a copy of the BT savings account letter. He submitted that, following Emmett J in Warner v Hung (No 2) [2011] FCA 1123 at [48], the Tribunal must feel an actual persuasion of the occurrence or existence of that fact before it can be found. In this case, it was contended that the available evidence fell well short of proving that Mr Ward did so. The Commissioner cited authority for the proposition that, as a witness interested in the outcome of the proceedings, Mr Ward's own evidence must be approached critically and tested most closely, and received with the greatest caution.

45. The Tribunal should not, it was contended, accept Mr Ward's evidence about the BT savings account letter unless closely corroborated by other evidence. However, the evidence given by Ms Smith at the remitter hearing, contradicting as it did her earlier evidence, must be regarded as suspect and unreliable, and therefore cannot be regarded as corroborative of Mr Ward's account, the Tribunal was told. A similar argument was mounted with respect to the BT final statement. The Commissioner also placed weight on the fact that the BT savings account letter was not produced by Mr Ward's solicitors following the institution of the proceedings, suggesting that it was not produced because it was not provided by Mr Ward to his solicitors.

46. The Tribunal is troubled by the inconsistencies between Mr Ward's evidence that he provided all the relevant documents to his advisors and some indications to the contrary, in particular Ms Smith's evidence in the original hearing and submissions made or prepared on behalf of Mr Ward by his legal advisors. Mr Ward himself confessed to being confused by the proceedings. On balance, however, the Tribunal finds as fact that Mr Ward did provide all the documentation relating to his BT Super for Life accounts to his advisors. His evidence to that effect has been emphatic and apparently sincere at both hearings, and accords with the nature of the circumstances in which he found himself at that time. His counsel submitted:

The further evidence elicited from Mr Ward on 31 August 2017 demonstrates (as was evident at the first hearing), that Mr Ward was seeking advice which he could rely on and that there was no conceivable reason for him to have withheld from Ms Smith any document which he received from BT. He was poorly educated, he did not understand

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the significance of the documents, but he was also extremely cautious and paranoid investor, so he prudently sought professional advice. In doings so, he had every motive to provide everything he had to his advisor (to ensure she gave him accurate and correct advice - he was, after all, paying thousands of dollars for professional advice) and he had no motive or incentive for not providing everything he had to his advisor. Mr Ward has always held clear and firmly to the proposition that he gave Ms Smith everything he had from BT or anyone else for that matter. He has been remarkably consistent on this issue. Even in his first statutory declaration, Mr Ward said he gave Ms Smith everything - this before the first 2014 hearing and well before this ever became a live issue. Indeed, this only became an issue after Ms Smith said she did not recall all the pages, leading us to the erroneous and premature assumption (never put to Mr Ward either in the witness box or elsewhere) that he did not give her the documents.

47. This characterisation of Mr Ward's state of mind is to be accepted.

48. However, even if Mr Ward did omit to supply the relevant documents to Ms Smith (surely through inadvertence alone), the Tribunal is not persuaded that this materially alters the factual scenario on which it must assess the applicability of the description special circumstances. It appears as if the Commissioner has treated this paragraph from the decision of the Federal Court in Ward as the benchmark Mr Ward must meet if he is to establish special circumstances:

In our opinion, it was open to the Tribunal to find that there were "special circumstances" if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.

The Commissioner appears to assume Mr Ward needs to establish both that the BT documentation was misleading and that Ms Smith's advice was based on a misunderstanding to which he, Mr Ward, had not contributed by virtue of his carelessness in passing on key documents to her.

49. I do not understand that to be the position being postulated by their Honours. Their Honours were not prescribing the precise and exclusive circumstances in which Mr Ward's history would trigger the condition in s 292-465 (3)(a). Rather, they were offering an example of a factual scenario which, if found, could justify the Tribunal determining that the provision was operative.

50. The effect of the Commissioner's submissions is that the provision in s 292-465 (3)(a) may operate if Mr Ward had been misled by BT Super for Life, but does not operate if he had been misled by Ms Smith. The basis for such distinction is difficult to understand. In either scenario, Mr Ward, a man with little capacity for an independent comprehension of the taxation legislation, relied to his detriment on the advice or representations of others. As such, it seems to the Tribunal that one ingredient of special circumstances - an innocent or inadvertent breach of the rules - is made out.

51. Another ingredient, for present purposes, is the consequences of the incorrect advice he received. The Federal Court referred to this as consequences disproportionate to the intended operation of the statute. It is this element, above any other, which gives Mr Ward's situation the flavour of something unusual or different so as to take the matter out of the ordinary course: Thoo.

52. As the Tribunal noted in its original decision in these proceedings, there has been extensive judicial and Tribunal commentary on the meaning of the phrase special circumstances and words of like import, both in the context of s 292-465(3)(a) and in other contexts. In Baker v The Queen (2004) 223 CLR 513 at 573, Callinan J said:

Speaking of the expression "exceptional circumstances" in s 2 of the Crime (Sentences) Act 1997 (UK) required for a decision not to impose a sentence of life

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imprisonment, Lord Bingham of Cornhill CJ said in R v Kelly (Edward) (249):

"We must construe 'exceptional' as an ordinary, familiar English adjective, and not as a term of art. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual, or special, or uncommon. To be exceptional a circumstance need not be unique, or unprecedented, or very rare; but it cannot be one that is regularly, or routinely, or normally encountered."

"Special reasons" in my opinion share those characteristics.

In the same case Gleeson CJ offered this observation (at 523):

That which makes reasons or circumstances special in the particular case might flow from their weight as well as their quality, and from a combination of factors.

53. The High Court has indicated that, individually, circumstances might not be regarded as special, but in combination with other circumstances can reach that threshold: United Mexican States v Cabal (2001) 209 CLR 165 at 186. In Griffiths v The Queen (1989) 167 CLR 372, Brennan and Dawson JJ considered a legislative provision which entitled either a parole board or a court to specify a shorter non-parole period than that required under another section only if it determined that the circumstances justified that course. They said (at 379):

Although no one of these factors was exceptional, in combination they may reasonably be regarded as amounting to exceptional circumstances.

54. Whether circumstances are special is a matter of looking at the relevant circumstances in their entirety: Dowling and Commissioner of Taxation [2014] AATA 474 at [26]. In Bentivoglio and Commissioner of Taxation [2014] AATA 620, Senior Member Frost considered a lace bug infestation on an olive producer's property could constitute a special circumstance because, although it might be experienced by other participants - even by many other participants - in the olive industry, his organic certification restricted the way he could respond to the problem (at [82]). He commented further (at [78]):

A fire that sweeps through an entire region, damaging several adjacent properties, is an occurrence that is unusual, uncommon or out of the ordinary for each of the affected properties, even though it is experienced more or less equally on all of them. Drought can still be a special circumstance even though it occurs reasonably commonly in Australia, and then often for extended periods. It is no less "special" for spanning multiple income years or for impacting multiple entities in a similar way…

55. The authorities make it abundantly clear that poor judgement or ignorance of the law on a taxpayer's part, or poor professional advice received by that taxpayer, do not in themselves constitute special circumstances. McKerracher J in Liwszyc v Commissioner of Taxation (2014) 218 FCR 334 summarised this position as follows (at 355):

An innocent mistake or ignorance of the law does not in itself constitute a "special circumstance" nor do simple errors, albeit innocent errors or other mistakes which are made in good faith. Equally, the fact that an error was made by another person does not in itself constitute "special circumstances".

56. The Australian Taxation Office's Practice Statement Law Administration PS LA 2008/1 is not binding on the Tribunal, but does contain what appears to be a reasonable summary of the common law with respect to the discretion in s 292-465. At paragraph [36] it says:

The following factors in isolation would not generally amount to the existence of special circumstances that make the imposition of the tax unjust, unreasonable or inappropriate:

· Financial hardship - it is common or usual, rather than 'special' for some degree of financial hardship to occur as a result of excess contributions tax being assessed. The imposition of the tax and corresponding liability to pay the amount assessed is an intended consequence of the law designed to discourage excess contributions. The financial hardship may be ameliorated if a person uses the release authority given by

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the Commissioner to release the amount of the excess contributions tax from the fund to pay the liability. A claim of financial hardship should generally be considered in light of the PS LA 2011/17 Debt Relief.

· Ignorance of the law - a claim that a person was ignorant of the law would not, generally speaking, be regarded as 'special circumstances' unless other factors exist which would make the ignorance or misconception reasonable or understandable in the circumstances, such as where incorrect advice was provided to the person by the ATO.

· Incorrect professional advice - as with ignorance of the law, this would not generally amount to special circumstances, unless there were other special factors leading to the mistake. For example, if the incorrect professional advice was based on a widely understood view of the law that was ultimately found by a court to be incorrect, the incorrect advice may constitute special circumstances. However, the mere fact that a particular mistake is of a type that is 'not uncommon' or results from an incorrect interpretation of a provision which some may find hard to apply, would not generally make the circumstances sufficiently special to warrant exercise of the Commissioner's discretion…

57. The authorities cited lend weight to the view that special circumstances may be made out where a taxpayer relies on incorrect advice and the consequences of that incorrect advice are exceptional or extraordinary in their impact on the taxpayer. That this is so in the circumstances of this case is difficult to refute. The excess contributions tax on Mr Ward is $209,250. With its imposition the entirety of Mr Ward's superannuation savings over a lifetime of work were obliterated. This is not mere financial hardship - this is a penalty of extraordinary harshness. That observation is not detracted from merely because the size of the tax imposed on Mr Ward was the product of the formula set out in the ITAA. Counsel for Mr Ward submitted that a penalty of this severity was unprecedented, a proposition that was not contradicted by the Commissioner.

58. The proposition that harsh and unconscionable consequences may have flowed from the application of the excess contributions tax scheme as it then stood was acknowledged in the report of the Inspector-General of Taxation in his Review into the Australian Taxation Office's Compliance Approach to Individual Taxpayers - Superannuation Excess Contributions Tax dated March 2014. The review contains this observation:

The IGT has also observed that the ECT regime imposes a significant information monitoring burden on taxpayers and does not sufficiently accommodate particular instances of inadvertent breaches of the caps. Such breaches may be due to genuine mistake, not being able discharge the information monitoring burden despite reasonable efforts or otherwise as a result of third party or adviser error. The scope of the present Commissioner's discretion to disregard or reallocate excess contributions appears very narrow and does not provide relief in these situations. As a result, the IGT has also recommended that the Government consider whether the law accommodates taxpayers appropriately in these circumstances. (http://igt.gov.au/publications/reports-of-reviews/superannuation-excess-contributions-tax/executive-summary/)

59. One outcome of the Inspector-General's review was the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014. The explanatory memorandum to that bill included the following comment:

The existing treatment of excess non-concessional contributions may be regarded as punitive as the tax is applied to the excess contribution rather than the tax benefit received on the excess contribution, and the tax is applied at the top marginal tax rate, regardless of the individual's marginal tax rate. The same treatment applies to both intentional and inadvertent breaches of the cap. This treatment can also be seen as double-taxation, because the contributions have generally been made out of the after-tax income of the contributor. (para 1.12 at https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5389)

60.

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Taking the circumstances of Mr Ward and applying them to the decided cases on the scope of special circumstances and similar provisions, the Tribunal finds that those circumstances meet the test imposed by s 292-465 (3)(a).

OBJECT OF DIVISION 292 - S 292-465(3)(b) OF THE ITAA

61. The second precondition for the making of a determination under s 292-465, disregarding or allocating to another financial year all or part of Mr Ward's non-concessional contributions for the 2010/2011 year, is that such a determination is consistent with the object of this Division, in that it would ensure that the amount of concessionally-taxed superannuation benefits Mr Ward would receive under such a determination results from superannuation contributions that have been made gradually over the course of [his] life.

62. In its original decision, the Tribunal rejected the Commissioner's argument that the contribution of $450,000 made by Mr Ward to the Parr Post Fund in September 2010 did not represent superannuation contributions made by him over the course of his working life. It found that this investment was essentially the proceeds of Mr and Mrs Ward's superannuation accounts, plus the proceeds of the sale of a former home in Perth. This corpus of funds passed through several superannuation and term deposit accounts before being deposited in the self-managed superannuation fund. They were, clearly, the Tribunal said, the same funds Mr Ward had withdrawn in early 2008. The fact that Mr Ward deposited and withdrew his superannuation assets several times, in desperate attempts to maintain their value, did not detract from the reality that these were the same assets, more or less, from start to finish.

63. On appeal, the Full Federal Court appeared to accept the Commissioner's submission that there was no basis upon which it could have been concluded by the Tribunal that the personal (non-concessional) contributions made by Mr Ward to the Parr Post Fund represented superannuation contributions made gradually over the course of Mr Ward's life. The Commissioner submitted that those contributions were sourced not only from his own cashed in benefits in APSS and CSS but also those of his wife, together with some savings. That left Mrs Ward free to make a $450,000 non-concessional contribution using the sale proceeds from the Watson property. The Commissioner submitted that the difficulty with the reasoning of the Tribunal was that it determined the statutory question by pooling Mr and Mrs Ward's superannuation benefits together and treating them as one and the same. The Commissioner, relying on the Federal Court decision in Commissioner of Taxation v Dowling [2014] FCA 252, submitted that the object of Division 292 was not served for two reasons. First, the majority of the funds used by Mr Ward to make non-concessional contributions of $450,000 to the Parr Post Fund were originally derived from benefits that Mrs Ward had cashed in with APSS, and from savings. Secondly, the Commissioner submitted, it could not be said that a lump-sum personal (non-concessional) contribution of the kind made by Mr Ward represented contributions made over the course of his lifetime.

64. The Full Federal Court considered that the reasoning of the Tribunal showed that the Tribunal must have misunderstood the legal question at issue as, at the least, the Tribunal found that the $450,000 included the proceeds of the sale of a former home in Perth. Rather than determining, however, that the contribution could not have met the test in s 292-465 (3)(b), it remitted the question to the Tribunal on the basis that questions of fact and degree are involved and it could not be said that there is only one possible answer.

The parties' submissions on remitter

Mr Ward

65. Mr Ward submitted that contributions made to the Parr Post Fund were consistent with the object of the Division, representing superannuation contributions made gradually over the course of his life.

66. A sizeable proportion of the funds contributed were sourced from his CSS and APSS superannuation accounts. These were contributions derived from building up funds over a period of years. He rejected the Commissioner's claim that a lump-sum contribution is not consistent with the object of the Division, describing this as:

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…a very dangerous assertion and plainly contradicted by the Division in s 292-105 which allows lump sum contributions over $1 million in s 292-105 for CGT small business cap amounts. Why would it be consistent to treat Mr Ward more harshly if he also made a lump-sum contribution?

67. The contribution, it was said, can be substantially traced back to 35 years' worth of life savings in low-paid employment:

Indeed, the Respondent, according to its own flow of funds (tracing) diagram, shows that these funds were the same super assets, more or less, from start to finish. (Emphasis in submission)

68. He contended that the pooling of superannuation assets among loving couples is perfectly consistent with the object of the Division, provided they both result from savings made gradually over the course of a lifetime. Contributions may be made in respect of an individual for the benefit of that individual and/or his or her spouse and dependants by that individual and/or by his or her spouse or by his or her employer. In fact, contributions are described as made not necessarily by an individual but in respect of an individual. He added:

To read the object of the Division as requiring the contributions to come only from that person is nonsense when read against the whole body of superannuation legislation.

69. It was also contended that the contribution of funds by Mrs Ward to Mr Ward's superannuation account was both a de jure and a de facto rollover, which cannot be considered an excess contribution. He contended that this view is consistent with s 306-10, which defines a roll-over superannuation benefit.

70. Finally, it was contended for Mr Ward that had the contribution to BT Super for Life in July 2008 been made just a few days earlier, the bring forward rule would not have been triggered.

Yet somehow making the same transaction only a few days later suddenly transforms his actions into something grotesque and unforgivable. Clearly, such an interpretation of the objects of the division is as arbitrary as it [is] capricious.

The Commissioner

71. In essence, the Commissioner made two submissions with respect to whether Mr Ward's contributions were consistent with the object of the Division.

72. First, the lump sum non-concessional contributions of $450,000 made by Mr Ward to the Parr Post Fund simply did not represent contributions made gradually over the course of Mr Ward's lifetime because each time Mr Ward withdrew his benefits they received the concessional treatment the super scheme was designed to provide. Any contributions subsequently made are new contributions. This view was supported in Thompson and Commissioner of Taxation [2014] AATA 339 where Deputy President Deutsch observed at [57]-[58]:

The object of div 292 is not served because it cannot be said that a lump sum contribution, such as that made by the Applicant in the year ended 30 June 2010, represents contributions made gradually over the course of the Applicant's life. … As outlined above, the Applicant has already received the superannuation benefits intended when she cashed in $200,589.49. Any exercise of the discretion under s 292-465(l)(b) now would not be consistent with div 292 at all-the effect of it would be to confer a benefit on the Applicant not intended by div 292 at all.

73. Secondly, Mr Ward's circumstances were not such that he was simply trying to return to the superannuation system the $198,223.73 in benefits he cashed in with APSS and CSS. The $450,000 in non-concessional contributions made to the Parr Post Fund were sourced not only from his own cashed in benefits but also those of his wife, together with the proceeds of sale of the Perth property and some savings. That then left Mrs Ward free to make a $450,000 non-concessional contribution using the sale proceeds from the Watson property. The object of Division 292 is not served, the Commissioner contended, because the majority of the funds Mr Ward used to make a non-concessional contribution to the Parr Post Fund simply cannot be said to

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represent contributions made gradually over the course of Mr Ward's life.

Consideration

74. It was not disputed before the Tribunal that only a minority of the funds contributed by Mr Ward to the Parr Post Fund in 2010-2011 were derived from the benefits cashed in from the CSS and APSS schemes he had belonged to. Mr Ward himself estimated that 44% of the contribution was represented by the CSS and APSS benefits.

75. The question the Tribunal must therefore address is whether the superannuation benefits Mr Ward would receive from a s 292-465 determination results from superannuation contributions that have been made gradually over the course of [his] life.

76. The meaning of these words was considered by the Federal Court in Commissioner of Taxation v Dowling [2014] FCA 252. The taxpayer there, Mrs Dowling, received a lump sum contribution to her superannuation savings from her husband on 10 February 2009. The Tribunal held that this contribution was consistent with the objective of Division 292. That decision was set aside by Greenwood J, who held at [114]-[117]:

114. The question then is whether a lump sum contribution by Mr Dowling on 10 February 2009, with the concurrence of Mrs Dowling, as part of an arrangement as found, is consistent with ensuring that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person's life (s 292-5).

115. Mrs Dowling received a single lump sum contribution to her superannuation of $293,858.00 on 10 February 2009 made by her husband, with her concurrence, so that Mr Dowling might deal with his "practical problem" of preserving an entitlement to an age pension at 65. It might be that (although there was no evidence of the matter before the Tribunal) the withdrawal by Mr Dowling of the amount in his superannuation Sunsuper account in early February 2009 represented an amount of concessionally taxed superannuation benefits in his hands resulting from contributions made by him gradually over the course of his own lifetime. The Tribunal seems to have simply assumed this to be so. Whilst Mr Dowling was entitled to make a contribution of his superannuation amount to his wife's new superannuation account with Sunsuper, the object of the Division was not served because it cannot be said that the lump sum contribution represents contributions made gradually over the course of Mrs Dowling's lifetime. The 2009 contribution, in truth, is a lump sum transfer of an amount standing to the credit of Mr Dowling in his Sunsuper superannuation account, and is nothing more than an element in an arrangement to preserve Mr Dowling's entitlement to an age pension in the immediately foreseeable future as he turned 65.

116. Moreover, there is no evidence to support the finding that Mrs Dowling received no monetary benefit from Mr Dowling's contribution. Mrs Dowling received an increment by way of contribution of $293,858.00.

117. The Tribunal fell into error by reaching a state of satisfaction that making a determination under s 292465(1)(b) is consistent with the object of Div 292.

77. The submissions put to the Tribunal by Mr Ward on the remitter were similar to those he put at the original hearing. The Tribunal accepted those submissions, and held that the various transactions Mr Ward engaged in between 2008 and 2010 dealt with, in essence, the same corpus of funds represented by the cashing out of his superannuation entitlements. The Tribunal accepted Mr Ward's argument that the architecture of the ITAA condoned the sharing of superannuation benefits between husband and wife, and so the mixing of Mrs Ward's superannuation benefits with his benefits preserved the 2010 contributions' status as a contribution made gradually over the course of Mr Ward's life.

78. However, it is now plain to the Tribunal following the appeal that this interpretation of s 292465(1)(b) is not consistent with the decision of the Federal Court in Dowling. That decision makes it clear that a qualifying contribution must not merely include the proceeds of

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superannuation savings made over a lifetime, it must in fact be the proceeds of such savings. A contribution made up of funds representing a taxpayer's superannuation savings as well as other funds, no matter how close in nature or from what familial source, cannot meet the test in the subsection.

79. The subsection specifies that the quantum of the benefits that a person receives results from contributions made over the course of a lifetime. Results from here means derives from or is the product of. In Mr Ward's case, the benefits he received were, for the most part, the product of sums derived otherwise than from his own superannuation savings.

80. In Dowling, the contribution in question consisted entirely of superannuation savings (it was presumed) accumulated by someone other than Mrs Dowling, namely by her husband. Here, a sizeable proportion of the contribution is attributable to Mr Ward's superannuation savings. However, it does not appear that an exercise in apportionment addresses the test in the subsection. Either the contribution represents the proceeds of a lifetime of superannuation savings or it doesn't. This was made clear by the Federal Court in Ward when it observed that the Tribunal must have misunderstood the test in s 292465(1)(b) when it found that Mr Ward's contribution was consistent with the object of the Division despite finding that this contribution included the proceeds of the sale of the former home in Perth (see [47]). I accept that the de minimis rule might operate to disregard a small contribution from funds other than his own superannuation savings, but here the majority of the contribution falls outside this description.

81. Understandably, counsel for Mr Ward sought to distinguish Dowling from the circumstances of this case. He submitted that Mr and Mrs Ward's superannuation contributions were mutually supportive, so that one spouse would contribute to the superannuation savings of the other. Mrs Dowling, by contrast does not appear to have ever contributed to the superannuation savings of her husband. The intentions of the Wards and the Dowlings were said to be radically different.

82. There does not appear to be, with respect, any sense in which those asserted features of Dowling were pertinent to the Federal Court's decision in that case. Nor does the court appear to have regarded the contribution by Mr Dowling as either a de facto or de jure rollover into Mrs Dowling's superannuation pursuant to s 306-10, though the argument does not appear to have been put to the court. It was also argued on behalf of Mr Ward that, if 44% of the 2010 contribution was represented by Mr Ward's superannuation savings, the Tribunal should determine that that part of the contribution should be disregarded or allocated to another financial year, pursuant to s 292-465(1). However, the Federal Court decision does not admit of such a construction. It is clear that the discretion in s 292-465(1) to disregard or reallocate parts of contributions is not enlivened unless, inter alia, the whole of the contribution meets the object of the Division. That is plainly not the case here.

83. The Tribunal is, of course, bound by decisions of the Federal Court, and this decision appears authoritatively to settle the question of whether a contribution not consisting exclusively of superannuation savings accumulated over a taxpayer's lifetime can trigger the provisions in s 292465(1)(b). As such, the Tribunal must find that the discretion is not enlivened.

Conclusion

84. With considerable regret, the Tribunal affirms the Commissioner's decision of 7 June 2013 to disallow Mr Ward's objection against his excess contributions tax assessment for the 2010/2011 financial year. However, it takes this opportunity to restate the additional comment made in its original decision:

The strict application of the law to Mr Ward's situation produces an outcome which is harsh and unfair. Setting out only to protect his and his wife's superannuation nest egg after a lifetime in low paid employment, and acting in good faith with professional advice, Mr Ward has unwittingly forfeited to the Tax Office the entire proceeds of his superannuation savings. Had the original investment in BT Super for Life been made just days earlier than it was, no excess contributions tax would have been payable. As it transpired, he has suffered a penalty of

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19,527 percent of any "tax advantage" (his advisers' calculation), an outcome which cannot be regarded as conscionable.

85. Nothing has changed since that statement was made in November 2015 to lessen its force. Indeed, the changes enacted by the Federal Parliament in the area of excess contributions tax following the review of the Inspector-General of Taxation referred to above underscore it.

86. I urge the Commissioner to reconsider the fairness of enforcing this penalty on Mr Ward. If he will not, I reiterate my commendation to the Minister for Finance to consider an act of grace payment.

Footnotes

^[1] In this decision, italicised text is generally used to indicate direct quotations.

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