Edited version of administratively binding advice

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Advice

Subject: Administratively binding advice - excess contribution tax

Question 1

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 or reallocate an amount of your concessional contributions for the 2011-12 financial year?

Advice

Based on the facts provided special circumstances do exist and it would be consistent with Division 292 of the ITAA 1997 to disregard an amount of your concessional contributions for the 2011-12 financial year.

This advice applies for the following period:

Year ended 30 June 2012

The arrangement commences on:

1 July 2011

Relevant facts and circumstances

Your concessional contributions cap for the 2011-12 financial year is $50,000.00

On 1 August 20XX you wrote to the Australian Taxation Office (ATO) requesting that the Commissioner make a determination under subsection 292-465(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

On 30 August 20XX the ATO contacted your tax agent informing them that as the transaction has not yet occurred and you were unable apply for a determination. However we stated you could apply for administratively binding advice.

On 31 August 20XX the ATO received your request to provide administratively binding advice on whether special circumstances exist.

You have been employed by your employer since 1982 as a teacher.

You have entered into a Deed of Release with your employer's controlling entity

During the tenure of your employment you were eligible to join one of two superannuation schemes open to employees of your employer.

That you did not join either of those funds as a result of the actions or omissions of your employer or their agents.

On xx xxx 20XX you and your employers controlling entity entered into mediation on the basis the defendant was your ultimate employer at all material times and the mediation would provide full and final settlement towards your claims.

As a result of the mediation and without admission of liability the controlling entity agreed to make payment in respect of your claims to the amount of $xx,xxx plus costs without admitting any wrongdoing.

That the payment of the $xx,xxx be deemed as an 'employer contribution' and paid to your nominated superannuation fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 292-20.

Income Tax Assessment Act 1997 section 292-25.

Income Tax Assessment Act 1997 section 292-465.

Other references

Practice Statement law Administration (PS LA) 2008/1

Reasons for decision

Summary

Based on the facts provided, special circumstances do exist in this case and it would be consistent with the object of Division 292 of the ITAA 1997 to disregard an amount of $xx,xxx of your concessional contributions contributed in the 2011-12 financial year.

Detailed reasoning

The law allows a person to apply to the Commissioner to make a written determination that all or part of an individual's concessional or non-concessional contributions for a financial year are to be disregarded or allocated to another financial year, in making an assessment of the excess contributions tax.

However, this application can only be made after the relevant contributions cap has been exceeded in a given financial year. The application is required to be made within 60 days of receiving the excess contributions tax assessment, or such longer period as the Commissioner allows.

Although the Commissioner is unable to consider making the determination prior to an assessment issuing, we are providing administratively binding advice in response to your request. You may wish to request the Commissioner to consider making a determination after you have received an excess contributions tax assessment.

The Commissioner may make 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 made gradually over a person's lifetime.

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

· an amount of your concessional contribution made in the 2011-12 financial year would be more appropriately allocated to a different financial year; and

· it was reasonably foreseeable when the contributions were made that there would be an excess concessional contribution amount for the financial year.

Law Administration Practice Statement PS LA 2008/1 provides guidance to staff on how to exercise the Commissioner's discretion to reallocate or disregard concessional or non-concessional contributions for a financial year.

Paragraphs 23 to 26 of PS LA 2008/1 explain the meaning of special circumstances and specify that special circumstances are unusual circumstances or circumstances which are out of the ordinary. Whether circumstances are special varies from case to case but for the purposes of the excess contributions tax they must make it unjust, unreasonable or inappropriate for a liability for excess contributions tax to be imposed.

In your letter dated xx xxx 20XX you state that you commenced employment with you employer in 1982 and that prior to the introduction of the superannuation guarantee charge in 1992 your employer prohibited you from contributing to superannuation. This you state was despite your employer allowing male employees to contribute.

You have provided a copy of the Deed of Release (the deed) between you and your employer's controlling entity. The deed states that as a condition of your negotiated settlement the amount of $xx,xxx would be paid to your nominated superannuation fund as an employer contribution.

Your employer's reported policy of not allowing women to contribute to superannuation from the commencement of your appointment in 1982 until the introduction of SGC was beyond your control.

While there was no legislative compulsion on employer prior to 1992 to provide superannuation coverage to their employees, it was this refusal to give you permission that led to your compensation claim and the subsequent settlement.

Although the Commissioner considers it reasonably foreseeable to you that executing the deed of settlement will result in you exceeding the current concessional contributions cap of $50,000.00, it is clear on the facts given that the amount is more appropriately allocated to years prior to the introduction of the ECT provisions on 10 May 2006.

Based on the facts of your case it is considered that special circumstances exist and it would be consistent with the object of Division 292 of the ITAA 1997 to disregard an amount of $xx,xxx in concessional contributions for the 2011-12 year as they are attributable to years prior to the introduction of excess contributions tax.

Generally the Commissioner would reallocate amounts relevant to the financial years in these circumstances. However, your settlement amount has not been determined on a yearly basis.

Should you receive an excess contribution tax assessment you may apply to the Commissioner to issue a determination to reallocate the contributions at that time. Please include a copy of this letter with your application.

When the time comes to consider your application, that law as it then exists must be applied to the facts as established at that time.