Jacobs v FC of T

Members:
D K Grigg M

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2019] AATA 1726

Decision date: 9 July 2019

DK Grigg (Member)

1. This matter concerns a superannuation excess transfer balance tax liability.

BACKGROUND

2. On 22 March 2017 Mr Nicholas Jacobs wrote to the Australian Tax Office ("ATO") to advise that:^[1] Exhibit 1, T documents, T3, page 11, letter from Mr Jacobs to the ATO dated 22 March 2017.

(a) he receives a Commonwealth Superannuation Scheme ("CSS") annuity which for the financial year ended 30 June 2017 he estimated would be $29,335;
(b) the annuity is indexed and adjusted every six months following the Consumer Price Index;
(c) he has a current super balance of approximately $1,117,000 and is unable to accurately forecast what that might be on 30 June 2017; and
(d) he did not want to go over the $1,600,000 million transfer balance cap and incur a tax liability.

3. Mr Jacobs requested that the ATO advise how the CSS annuity would be used in the $1.6 million superannuation threshold calculation.

4. On 19 April 2017 the ATO replied to Mr Jacobs query regarding the superannuation changes effective 1 July 2017. The ATO advised that:^[2] Exhibit 1, T documents, T4, page 12, letter from the ATO to Mr Jacobs dated 19 April 2017.

Most defined benefit income stream don't have a readily available account balance therefore special rules have been developed to value them, this is called the 'special value'.

The 'Special value' is based on multiplying the annual amount payable under the defined benefit income stream when it commences being 1 July 2017 by sixteen.

e.g. Monthly pension amount of $7,500 x 12 = annual entitlement of $90,000.

5. On 14 November 2017 the Commonwealth Superannuation Corporation ("CSC"), as administrator of the CSS lodged a Transfer Balance Account Report form for the period commencing 1 July 2017 which

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indicated that Mr Jacobs had a CSS capped defined benefit income valued at $477,958.11.^[3] Exhibit 1, T documents, T6, pages 16 – 18, lodged transfer balance account report form dated 14 November 2017. This amount is what is known as the "special value".^[4] Section 294-135 of the Income Tax Assessment Act 1997 (Cth) sets out how to calculate the special value of a capped defined benefit scheme.

6. On 12 December 2017 Australian Administrative Services, as administrator of AustralianSuper, lodged a Transfer Balance Account Report form for the period commencing 1 July 2017 indicated that Mr Jacobs had an AustralianSuper account-based superannuation income stream valued at $1,152,236.42.^[5] Exhibit 1, T documents, T5, pages 13 – 15, lodged transfer balance account report form dated 12 December 2017.

7. On 23 January 2018 the ATO issued an Excess Transfer Balance determination form for the period commencing 1 July 2017 indicating that Mr Jacobs had:^[6] Exhibit 1, T documents, T7, pages 19 – 21, ETB determination form dated 23 January 2018.

(a) the current excess capital amount of $30,194.53;
(b) a current total transfer balance cap of $1,600,000;
(c) a current transfer balance of $1,631,716.71.

8. On 23 January 2018 the ATO advised Mr Jacobs that:^[7] Exhibit 1, T documents, T8, pages 22 – 24, superannuation excess transfer balance determination dated 23 January. 2018.

(a) as of 1 July 2017, limit was imposed on the total amount a person can transfer into the superannuation income streams which is referred to as the superannuation "transfer balance cap";
(b) it had determined that he had exceeded the cap and was required to commute an amount of $31,716.71 out of his superannuation income streams which is called "your excess transfer balance amount" by 26 March 2018.

9. On 12 February 2018 the CSC lodged a Transfer Balance Account Report form for the period commencing 1 July 2017 which indicated that Mr Jacobs had a CSS capped defined benefit scheme superannuation income stream valued at $477,958.11.^[8] Exhibit 1, T documents, T9, pages 25 – 27, lodged transfer balance account report form dated 12 February 2018.

10. On 28 February 2018 Mr Jacobs wrote to the ATO requesting a review of the ATO's determination and advised that:^[9] Exhibit 1, T documents, T10, page 28, letter from Mr Jacobs to the ATO dated 28 February 2018.

(a) upon receipt of the ATO's determination he had contacted his AustralianSuper fund and his CSS fund for further information and lodged a withdrawal request for the notified amount on the same day;
(b) because he had had to be overseas for a substantial part of May and June 2017 he had to make a calculation as best he could in the time available in order to be under the cap;
(c) "I believe that I made a fair and reasonable effort to comply with the new arrangements in the context of the very little definitive information available at the time from any source";
(d) he understands from CSS pension that the calculation conducted by the ATO was different to his calculation;
(e) he understood that a decision had been made to allow an extension to 31 December 2017 for people to get this issue sorted out and he cannot understand why he was not told about the extension of time to take action;
(f) why was he not advised until February 2018, after the time extension of 31 December 2017 had expired?

11. On 9 March 2018 Australian Administrative Services lodged a Transfer Balance Account Report form for the period commencing 1 July 2017 which indicated that Mr Jacobs had commuted $31,716.71 from his Australian Superannuation scheme as required by the ATO determination.^[10] Exhibit 1, T documents, T11, pages 29 – 31, lodged transfer balance account report form dated 9 March 2018.

12. On 18 April 2018 the ATO determined that Mr Jacobs had a current excess transfer balance earnings amount of $1,735.02, for the period commencing 1 July 2017 and an excess transfer balance tax liability of $260.25.^[11] Exhibit 1, T documents, T12, pages 32 – 33, lodged transfer balance account report form dated 18 April 2018.

13. On 23 April 2018 the ATO issued Mr Jacobs with a superannuation excess transfer balance tax notice of assessment because he had exceeded his transfer balance cap and had an excess transfer balance tax liability of $260.25 which was due for payment by 14 May 2018.^[12] Exhibit 1, T documents, T13, pages 34 – 35, superannuation excess transfer balance tax notice of assessment dated 23 April 2018.

14. Mr Jacobs wrote to the ATO on 30 April 2018 noting that despite receiving the letter of 23 January 2018 indicating that they would be sending a separate excess transfer balance tax notice of assessment detailing the tax amount payable that he had not received any correspondence. Mr Jacobs also reiterated that he had requested a formal review of his situation as he believed he had not been treated fairly.^[13] Exhibit 1, T documents, T14, page 36, letter from Mr Jacobs to the ATO dated 30 April 2018.

15.

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On 10 May 2018 Mr Jacobs lodged a formal objection to his excess balance tax liability assessment and contended that the assessment was wrong because:^[14] Exhibit 1, T documents, T15, page 37, letter from Mr Jacobs to the ATO dated 10 May 2018.

(a) of the general inadequacy of timely, official precise information on the change to super cap which would have better informed him on what he needed to do and by when in order that he would not incur an additional tax liability;
(b) media coverage prior to June 2017 generally implied action needed to be finalised by 30 June 2017 and the letter from the ATO dated 19 April 2017 confirmed the changes were affected 1 July 2017 and did not in any way indicate there could be opportunities to act post 30 June when information became clearer;
(c) on the basis of the information available to him before 30 June he made the best calculations he could and was confident that he would not exceed the cap;
(d) he had not been aware at the time of the extension up to 31 December to take appropriate steps;
(e) he had not been given a fair and equal opportunity to correct his super cap position without incurring tax.

16. On 4 July 2018 the ATO advised Mr Jacobs that it had not allowed his objection to the superannuation excess transfer balance tax notice of assessment dated 23 April 2018.^[15] Exhibit 1, T documents, T2, pages 7 – 10, reasons for decision dated 4 July 2018. In its reasons for decision the ATO stated that:

(a) it had informed Mr Jacobs on 19 April 2017 of how the special value of the defined benefit income stream from calculated and had referred him to the ATO website for further information and to its law companion guide 2016/10 which would have provided him with the necessary information relating to the excess transfer balance cap on the transitional rules applicable to him;
(b) while the transitional rules would have enabled him to remove any excess capital by 31 December 2017 in his case he would have been in excess of his transfer balance cap by $30,194.53 and did not commute that amount before 31 December 2017;
(c) it was Mr Jacobs responsibility to be aware of any tax or superannuation changes and how they specifically applied to him;
(d) the Commissioner has no discretion to alter the commencement date for his assessment from 1 July 2017 and no authority to remit the excess transfer balance tax even in the event that there were mitigating factors;
(e) the ATO did not consider that it had been unfair or unreasonable to make the superannuation excess transfer balance tax assessment as it is an unintended outcome of the superannuation legislation;
(f) he was in excess of his cap by the amount of $31,716.71 which included $1,522.18 excess transfer balance earnings;
(g) on 9 March 2018 he no longer exceeded his cap as he had commuted the amount of $31,716.71 from his AustralianSuper account;
(h) he exceeded his transfer balance cap of $1.6 million by $30,194.53 between 1 July 2017 and 19 February 2018;
(i) a tax rate of 15% had been applied to his excess transfer balance earnings of $1,735.02 and that there was a total tax payable of $260.25.

17. On 18 August 2018 Mr Jacobs applied to this Tribunal for review of the ATO's decision pursuant to section 14ZZ(1)(a)(i) of the Taxation Administration Act 1953 (Cth) ("TAA").^[16] Exhibit 1, T documents, T1, pages 1 – 6, application for review dated 18 August 2018. The Tribunal has jurisdiction to review decisions under Tax Administration Act 1953 (Cth) ("the TAA") pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) ("AAT Act") and Part IVC of the TAA.

18. Since lodging his application for review Mr Jacobs provided written submissions to the Tribunal contending that:^[17] Exhibit 2, Submission of Mr Jacobs dated 27 November 2018; Exhibit 3, Further submission from Mr Jacobs dated 29 January 2019.

(a) not having any provision for the exercise of discretion to resolve cases where people have made relatively minor or genuine errors is grossly unfair and denies the opportunity for common sense and natural justice;
(b) he calculated his cap on the information he had available to him at the time and made a genuine attempt to get it right;

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(c) if he had understood his rights and the provision of the case he would not have incurred the tax liability;
(d) although he now accepts that there was information available, the ATO should accept this was a complex change, particularly for people who have a CSS pension income stream as well as an active super fund;
(e) it wasn't fair and reasonable to be advised by the ATO of such a fairly minor mistake only after the grace period has expired when there was no chance to remedy the situation.

ISSUES FOR THE TRIBUNAL

19. The issues for determination by the Tribunal is whether:

(a) the excess transfer balance tax assessment issued to Mr Jacobs on 23 April 2018 is excessive and/or incorrect; and, if not
(b) the Commissioner has any discretion to waive Mr Jacob's excess transfer balance tax liability of $260.25.

20. The parties agreed to have the matter determined on the papers without the need for a hearing pursuant to section 34J of the AAT Act.

LEGISLATION

21. Pursuant to Division 294 of the Income Tax Assessment Act 1997 (Cth) ("ITAA"):

There is a cap on the total amount you can transfer into the retirement phase of superannuation (where earnings are exempt from taxation).

Credits are added to a transfer balance account when you transfer amounts.

If the balance in your account exceeds the cap, you will be required to remove the excess from the retirement phase, and you will be liable to pay excess transfer balance tax.

22. Section 294-5 of the ITAA explains that the object of Division 294 "is to limit the total amount of an individual's *superannuation income streams that receive an earnings tax exemption".

23. The general transfer balance cap for the 2017-2018 financial year was $1,600,000.^[18] Section 294-35, ITAA.

24. A person's transfer balance cap for the financial year in which you first start to have a transfer balance account is equal to the general transfer balance cap for that financial year.

25. Section 294-15(1) of the ITAA provides for when you have a transfer balance account as follows:

(1) You have a transfer balance account if you are, or have at any time been, the *retirement phase recipient of a *superannuation income stream.
(2) You start to have the *transfer balance account on the later of:
- (a) 1 July 2017; and
- (b) the day you first start to be a *retirement phase recipient of a *superannuation income stream

26. In a situation such as here, where Mr Jacob's was a retirement phase recipient of a superannuation income stream just before 1 July 2017, a transfer balance credit arises. In this case, because Mr Jacob's was not a reversionary beneficiary of either of his superannuation streams, his transfer balance credit equals the value just before 1 July 2017, of the superannuation interest that supports the superannuation income stream.^[19] Section 294-25(1), ITAA. This means that on 1 July 2017 Mr Jacob's transfer balance account was credited with $1,152,236.42.^[20] Exhibit 1, T documents, T5, pages 13 – 15, lodged transfer balance account report form dated 12 December 2017.

27. In relation to Mr Jacob's capped defined benefit scheme, section 294-135 of the ITAA sets out how to calculate the special value of a capped defined benefit scheme. The special value was calculated at $477,958.11.

28. Pursuant to section 294-30(1) of the ITAA, a person will have an excess transfer balance at a particular time if, at that time, the transfer balance in their transfer balance account exceeds their transfer balance cap at that time for a continuous period of one or more days. The amount of the excess transfer balance is the amount of the excess.

29. Relevantly here, the transfer balance is equal to the sum of the transfer balance credits in the account at that time.^[21] Section 294-30(2), ITAA.

30. Pursuant to section 294-230 of the ITAA, when you have an excess transfer balance period for your transfer balance account, an excess transfer balance tax is payable. The amount of the tax is set out in the

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Superannuation (Excess Transfer Balance Tax) Imposition Act 2016 (Cth).

31. Pursuant to section 5 of the Superannuation (Excess Transfer Balance Tax) Imposition Act 2016 (Cth), the amount of the excess transfer balance tax, for someone in Mr Jacob's position, is 15% of the person's notional earnings for the excess transfer balance period.

32. Transitional provisions were put in place by the Income Tax (Transitional Provisions) Act 1997 (Cth) to the effect that a person would not have an excess transfer balance in the transitional period from 1 July 2017 to 31 December 2017 if certain conditions were met. Those conditions are set out in section 294-30 of the Income Tax (Transitional Provisions) Act 1997 (Cth) as follows:

Despite sections 294-30 and 294-140 of the Income Tax Assessment Act 1997 (which are about when you have excess transfer balance), you do not have excess transfer balance in your transfer balance account on any day in the period of 6 months beginning on 1 July 2017 if:

(a) the only transfer balance credits in the account in that period arose under item 1 of the table in subsection 294-25(1) of that Act (which is about superannuation income streams you have just before 1 July 2017); and

(b) the sum of those transfer balance credits exceeds your transfer balance cap, but is less than or equal to $1,700,000; and

(c) at the end of the period, the sum of all the transfer balance debits arising in your transfer balance account equals or exceeds the amount of the excess from paragraph (b).

33. Section 14ZZK(b)(i) of the TAA provides that the applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been.

CONSIDERATION

34. It is not in dispute that Mr Jacob's:

(a) transfer balance account commenced on 1 July 2017 ^[22] Exhibit 1, T documents, T6, pages 16 – 18, lodged transfer balance account report form dated 14 November 2017; Exhibit 1, T documents, T9, pages 25 – 27, lodged transfer balance account report form dated 12 February 2018. and he was in the retirement phase of his superannuation income stream on 30 June 2017;
(b) transfer balance cap was $1,600,000.

35. Mr Jacob's transfer balance on 1 July 2017 was the sum of his two transfer balance credits and totalled $1,630,194.53, which was $30,194.53 in excess of the transfer balance cap.

36. When the ATO determined that Mr Jacob's had an excess transfer balance, they advised Mr Jacobs that he had to commute the amount of $31,716.71. The reason that he had to commute more than the amount in excess was because during the excess transfer balance period, between 1 July 2017 and 22 January 2018 (which is the number of days Mr Jacob's transfer balance was in excess before the ATO determination), earnings of $1,522.18 had accrued as a result of the excess balance.

37. As a result of the excess transfer balance between 1 July 2017 and 19 February 2018 (Mr Jacob's commuted the excess amount on 20 February 2018), Mr Jacobs is liable to pay the excess transfer balance tax calculated in accordance with the Superannuation (Excess Transfer Balance Tax) Imposition Act (Cth).

38. The amount of the tax assessment is $260.25 calculated in accordance with section 5 of the Superannuation (Excess Transfer Balance Tax) Imposition Act (Cth) as follows:

15% x $1,735.02 (Calculated for Mr Jacob's excess transfer balance period of 1 July 2017 to 19 February 2018)

39. The transitional provisions do not assist Mr Jacob's because his excess transfer balance did not reduce to nil until after 31 December 2017.

40. Mr Jacobs has not established that the tax assessment was excessive or incorrect.

41. The High Court explained in
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 that:^[23] Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 , at 624.

… the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment…

unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail.

42. As the Commissioner noted, the fact that Mr Jacobs calculated the value of the special

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benefit incorrectly or applied an incorrect formula, does not satisfy the burden of proving that the assessment was incorrect. Mr Jacobs now acknowledges that he made an error and that information was available to him. The ATO also referred him to the relevant information well before the end of the transitional period in April 2017.

43. Mr Jacob's suggests that there should be discretion to waive the tax liability where he made a minor error and was not aware of the transitional provisions. However, no such discretion exists in the legislation.

44. The Tribunal finds that, based on the available evidence, Mr Jacob's has failed to discharge his onus to establish that the assessment of his excess transfer balance tax liability is excessive.

DECISION

45. The decision under review is affirmed.

Footnotes

^[1] Exhibit 1, T documents, T3, page 11, letter from Mr Jacobs to the ATO dated 22 March 2017.
^[2] Exhibit 1, T documents, T4, page 12, letter from the ATO to Mr Jacobs dated 19 April 2017.
^[3] Exhibit 1, T documents, T6, pages 16 – 18, lodged transfer balance account report form dated 14 November 2017.
^[4] Section 294-135 of the Income Tax Assessment Act 1997 (Cth) sets out how to calculate the special value of a capped defined benefit scheme.
^[5] Exhibit 1, T documents, T5, pages 13 – 15, lodged transfer balance account report form dated 12 December 2017.
^[6] Exhibit 1, T documents, T7, pages 19 – 21, ETB determination form dated 23 January 2018.
^[7] Exhibit 1, T documents, T8, pages 22 – 24, superannuation excess transfer balance determination dated 23 January. 2018.
^[8] Exhibit 1, T documents, T9, pages 25 – 27, lodged transfer balance account report form dated 12 February 2018.
^[9] Exhibit 1, T documents, T10, page 28, letter from Mr Jacobs to the ATO dated 28 February 2018.
^[10] Exhibit 1, T documents, T11, pages 29 – 31, lodged transfer balance account report form dated 9 March 2018.
^[11] Exhibit 1, T documents, T12, pages 32 – 33, lodged transfer balance account report form dated 18 April 2018.
^[12] Exhibit 1, T documents, T13, pages 34 – 35, superannuation excess transfer balance tax notice of assessment dated 23 April 2018.
^[13] Exhibit 1, T documents, T14, page 36, letter from Mr Jacobs to the ATO dated 30 April 2018.
^[14] Exhibit 1, T documents, T15, page 37, letter from Mr Jacobs to the ATO dated 10 May 2018.
^[15] Exhibit 1, T documents, T2, pages 7 – 10, reasons for decision dated 4 July 2018.
^[16] Exhibit 1, T documents, T1, pages 1 – 6, application for review dated 18 August 2018.
^[17] Exhibit 2, Submission of Mr Jacobs dated 27 November 2018; Exhibit 3, Further submission from Mr Jacobs dated 29 January 2019.
^[18] Section 294-35, ITAA.
^[19] Section 294-25(1), ITAA.
^[20] Exhibit 1, T documents, T5, pages 13 – 15, lodged transfer balance account report form dated 12 December 2017.
^[21] Section 294-30(2), ITAA.
^[22] Exhibit 1, T documents, T6, pages 16 – 18, lodged transfer balance account report form dated 14 November 2017; Exhibit 1, T documents, T9, pages 25 – 27, lodged transfer balance account report form dated 12 February 2018.
^[23] Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 , at 624.

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