Edited version of administratively binding advice

Authorisation Number: 1011862993378

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Advice

Subject: Request for and excess contributions tax determination

Question

Based on the facts provided, do special circumstances exist and would it be consistent with the object of Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard part of your concessional for the 2011-2012 financial year, for the purposes of excess contributions tax?

Advice

Based on the facts provided the Commissioner is not satisfied that special circumstances exist.

This ruling applies for the following period<s>:

Financial year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You were a member of a defined benefit superannuation fund.

In the financial year ending 30 June 2004 your membership was transferred to an accumulation superannuation fund.

You entered into a Target Benefit Deed with your employer.

You submitted the Deed, and we have highlighted the relevant parts.

We received a letter which asked that the Commissioner to exercise his discretion to disregard or allocate to another year all or part of a person's contributions for the purpose of excess contributions tax (ECT) before an assessment is issued

We advised that:

· the Commissioner can only consider exercising the discretion where the applicant is the taxpayer affected by the transaction or is that person's authorised agent and that the affected employees or their agent must apply for the discretion, the employer or the employer's agent cannot make that application on their behalf

· in certain circumstances the affected taxpayer may apply for Administratively Binding Advice (ABA) as to whether the Commissioner may exercise the discretion in relation to the proposed contribution.

Your authorised representative applied for an ABA on your behalf.

Your concessional contributions cap for the 2010-11 financial year is $25,000.00.

Relevant legislative provisions

Income Tax Assessment Act 1997 292-465.

Reasons for decision

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.

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 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 Commissioners 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

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 non-concessional contribution for the relevant year; and

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

· Any other relevant matters

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.

Whilst we recognise you do not intend to exceed the contributions cap, such intent alone does not establish 'special circumstances'. ECT is simply a consequence of a financial transaction.

Application to your circumstances

When considering your Application - excess contributions tax determination we considered the deed you entered into with your employer, and we have highlighted to you the relevant parts.

These excerpts from the deed highlight that you will be able to exercise personal and direct control over the making of the contribution. That is, you can choose that the relevant amount is not contributed to your superannuation.

Consequently, the Commissioner considers that your case, based on the facts as they are currently known, do not demonstrate 'special circumstances' as they are not sufficiently unusual or out of the ordinary. Therefore the Commissioner cannot exercise the discretion under section 292-465 of the ITAA 1997.

Other Relevant Information

From 1 July 2007, payments made in consequence of the termination of a taxpayer's employment are known as employment termination payments. Where an employment termination payment is made during the life of a taxpayer it will be known as a life benefit termination payment (LBTP).

Employment termination payments cannot be paid into or rolled-over into a complying superannuation fund.

However, if the payment qualifies as a transitional termination payment under section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA) the taxpayer may direct the payment to be paid into their superannuation fund.

If you direct the payment to be made into a complying superannuation fund the payment is not assessable income and is not exempt income.

Transitional termination payment

A payment is a transitional termination payment if it is a LBTP received between 1 July 2007 and 30 June 2012 under a written contract, an Australian or foreign law or an instrument under such a law or a workplace agreement under the Workplace Relations Act 1996.

Further the contract, law or instrument under which the entitlement was provided must have been in force before 10 May 2006. It must also specify the amount of payment or a way to work out the amount of the payment.

Subsection 82-10F(1) of the ITTPA states:

A transitional termination payment (or part of such a payment) is a directed termination payment if:

(a) the individual chooses, in accordance with this section, to direct the payment (or part of the payment) to be made; and

(b) the payment (or part of the payment) is made on the individuals behalf as directed.

Further if the payment is a transitional termination payment subsection 82-10F(2) of the ITTPA provides that you are able to make a choice to direct the payment be paid into your superannuation fund, or used to purchase a superannuation annuity before the payment is made.

Under subsection 82-10F(3) of the ITTPA the individual has to make the choice in the approved form and give it to the payer. The payer must under subsection 82-10F(4) of the ITTPA must give to the entity to which the payment is directed a written notice of the amount that is to be paid and of the tax free component of the amount and comply with the directions in the form.

Tax treatment of an employment termination payment:

An employment termination payment made after 1 July 2007 will be comprised of the following components:

· Tax fee component this includes the post-June 1994 invalidity or pre-July 83 component (if any); and

· Taxable component the amount remaining after deducting the tax free component from the total payment.

The taxable component is subject to tax, depending on the person's age, as follows:

* Preservation age is the age at which retirees can access their superannuation benefits. This will be 55 for persons born before 1 July 1960 and between 55 and 60 for persons born after 30 June 1960.

The $140,000 cap on concessionally taxed employment termination payments is indexed annually to average weekly ordinary time earnings.

The taxable components of all life benefit employment termination payments received in an income year are counted towards this cap. Any tax-free amounts are not counted towards the cap.

Tax treatment of Transitional Termination Payments not rolled over:

The taxable component of any transitional employment termination payment not rolled over is subject to tax, depending on the person's age, as follows:

Tax treatment of Directed Termination Payments:

The taxable component, of a DTP in excess of your $1 million TTP cap, counts towards your concessional contributions cap.