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Authorisation Number: 1011929584391

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Advice

Subject: 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 contributions for the financial year ending 30 June 2012, 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:

Financial year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

This advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on Tax Office advice.

o You were a member of a defined benefit superannuation fund.

o On a specific date in 2004 you signed a Target Benefit Deed to transfer your membership to an accumulation fund.

o Material extracts of the Deed was provided

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

o On a specific date in 2011 your authorised representative applied for administrative binding advice on your behalf.

o On a specific date in 2011 your authorised representative advised that:

o You are not leaving the employment.

o You wish to crystallize your entitlement under the Deed and ensure that you are paid your entitlement calculated according to the formula contained within the Deed.

o You wish to leave the Target Benefit Fund due to your concerns over the on-going viability of the employer and transfer your entitlements to another fund.

o You wish to ensure that you will receive your entitlement under the Deed.

o The payments are not being initiated by your employer.

o You are not a director of your employer.

o Your concessional contributions cap for the financial year ending 30 June 2012 is $50,000.00.

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

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

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

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

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

Therefore, whether circumstances are special will vary from case to case, however in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

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

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

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

· there are any other relevant matters

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 following information:

· you were a member of a defined benefit superannuation fund.

· on a specific date in 2004 you signed a Target Benefit Deed to transfer your membership to an accumulation fund.

In particular, the Deed specifically stated that its purpose was to ensure that the Employer's intention was that "upon leaving Service by reason other than death or Total and Permanent Disablement, the Member will receive either by payment from the Receiving Fund and/or payment directly from the Employer in the form of an ETP, an amount at least equal to his/her Target Benefit plus any additional accounts held for the Member such as an additional voluntary contribution account".

Your authorised representative advised in a telephone conversation dated a specific date in 2011 that you are not leaving the employment of your employer but rather you merely wish to crystallize your entitlement under the Deed and ensure that you receive your full entitlement payable under the Deed.

Therefore, as the Deed specifically states that the payment was to apply to the Member "upon leaving Service", it is considered that the Deed does not apply to this arrangement.

Moreover, the evidence indicates that you are exercising direct and personal control over the contribution your authorised representative stated in a telephone conversation on a specific date in 2011 that:

· you wish to leave the Target Benefit Fund due to your concerns over the on-going viability of the employer

· you wish to ensure that you are paid your entitlement calculated according to the formula contained within the Deed in the event that your employer becomes insolvent.

· The payments are not being initiated your employer.

Additionally there is no information to show that the gap between the Target Benefit and the amount/s which would otherwise be payable to you has arisen due to circumstances that are unusual or out of the ordinary. It is the intent of the excess contributions tax framework that earnings are not included in the determination of a taxpayer's concessional or non-concessional contributions for a financial year. To the extent any top-up contribution compensates the employee for lower than anticipated earnings this therefore does not support a finding that there were special circumstances.

A variety of measures have always been used to support the appropriate targeting of the taxation concessions afforded to superannuation. Until 30 June 2007, there were a range of measures ensuring the taxation of superannuation benefits (the reasonable benefit limit and the inclusion of benefits in assessable income). From 1 July 2007 these measures were repealed and excess concessional contributions tax was introduced.

Therefore, while there was no likelihood that excess contributions tax would be payable by the employee on the top-up contribution when the employee and employer entered into the arrangement, it was likely that there would be other taxation consequences to the employee arising from any such payment under the taxation law existing at the time of the agreement.

The removal of the taxation point on benefits is a relevant factor to consider in determining whether it is unjust, unfair or unreasonable for excess contributions tax to apply to all or part of the individual's concessional and non-concessional contributions.

Therefore, the Commissioner considers that your case does not demonstrate 'special circumstances' as they are not sufficiently unusual or out of the ordinary such that the imposition of any tax arising from such a contribution would be unjust, unfair or unreasonable.