Edited version of administratively binding advice

Authorisation Number: 1012472095031

Advice

Subject: Excess contributions tax

Question

Based on the facts available in Australian Taxation Office (ATO) systems, 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 financial year ended 30 June 2013 for the purposes of excess contributions tax?

Advice

Yes. Refer to 'Why we have made this decision'.

This advice applies for the following period:

Financial year ended 30 June 2013

Relevant facts and circumstances

Your 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 ATO advice.

· Your former employer paid to the ATO an amount in respect of your superannuation guarantee (SG) that you were entitled to for the period July 200X to June 200Y.

· We paid the amount of of superannuation guarantee charge (SGC) to your nominated superannuation fund in the 2013 financial year.

· The amount of SGC will be recorded by your fund as a contribution received during the financial year ended 30 June 2013 when reporting their member contributions to the ATO.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 292

Income Tax Assessment Act 1997 Section 292-25

Income Tax Assessment Act 1997 Section 292-465.

Reasons for decision

Summary

Based on the facts available in Australian Taxation Office (ATO) systems, special circumstances exist in your case and would it be consistent with the object of Division 292 of the ITAA 1997 to disregard an amount of your concessional contributions for the financial year ended 30 June 2013 for the purposes of excess contributions tax.

Detailed reasoning

For the purposes of excess contributions tax, concessional contributions are defined in section 292-25 of the ITAA 1997. Generally, the concessional contributions of an individual are those contributions that are:

(i) paid to a superannuation fund for the benefit of that individual; and

(ii) included in the fund's assessable income - subsection 292-25(2) of the ITAA 1997.

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 and amounts of SGC received from the ATO.

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 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.

In reviewing your case we have looked at PSLA 2008/1 in particular the following paragraphs:

22. There are two preconditions to a determination exercising the discretion under section 292-465:

· the presence of 'special circumstances', and

· the determination achieving an outcome which is consistent with the object of Division 292.

Special circumstances

23. The meaning of the expression 'special circumstances' has been considered in case law in a variety of legislative contexts. The principles that emerge from the cases are 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.

24. The approach to special circumstances in the context of section 292-465 is confirmed by the EM to the Bill which introduced the amendments. At paragraph 1.117 it says:

It is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case to case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

25. In determining whether there are special circumstances in a given case, a decision maker should consider whether there are circumstances which are outside the ordinary course. In deciding whether the circumstances are outside the ordinary course, it is highly relevant whether the imposition of the excess contributions tax would be unjust, unreasonable or otherwise inappropriate.

26. Because a determination for the purposes of excess contributions tax may relate not only to completely relieving or excusing liability for excess contributions tax for a period, but also to allocating contributions to another year, the effect of allocating contributions to another year or, of not doing so, must also be considered in judging whether an imposition of liability in the circumstances of a particular case is appropriate or whether it is at odds with the object or purpose of the law.

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 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

PS LA 2008/1 provides examples illustrating how the discretion may be exercised. Example 1 at paragraphs 42 to 45 of PS LA 2008/1 outline the situation whereby an individual receives an ECT assessment due to the receipt by their fund of superannuation guarantee charge payments from the ATO which related to an earlier financial year.

Example 1 provides that where the ATO collects superannuation guarantee charge (SGC) from a former employer in respect of a previous financial year, and when paid to the member's superannuation fund the SGC results in an excess contributions tax liability; the excess contributions tax liability could be regarded as unjust, unreasonable or inappropriate because it has arisen as a direct consequence of the former employer's failure to make compulsory superannuation contributions in a timely way.

Application to your circumstances

The ATO received a payment of an amount from your former employer in respect of their superannuation guarantee obligations to you for the period July 200X to June 200Y.

The amount has been remitted by the Commissioner to your nominated superannuation fund in the 2012-13 financial year as a payment of SGC to your account.

Payment of SGC is a concessional contribution and is therefore included in the assessable income of your fund in the financial year in which they receive the payment.

For the financial year ended 30 June 2013, your concessional contributions cap is $25,000.00. The payment of the amount of SGC to your superannuation fund will result in excess concessional contributions for the financial year ended 30 June 2013.

You had no control over the making of the contribution by your former employer to the Commissioner, nor by the Commissioner to your superannuation fund.

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.

As the contribution relates to the period July 200X to June 200Y, it is considered that the object of Division 292 of the ITAA is not met, in that the contributions have not been made gradually over the relevant period.

Therefore, it is considered that special circumstances exist in your case. As the period that the contributions relate to is prior to the introduction of excess contributions tax, it is appropriate to disregard the contribution of SGC made to your superannuation fund.