Decision impact statement

Sargeant and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: WS2005/18
Judge Name: A Sweidan, Senior Member
Judgment date: 3 August 2006
Appeals on foot:
No

Impacted Advice

Relevant Rulings/Determinations:

• IT 2157
• TD 2006/72

Subject References:
Deductible amounts in section 27H of the Income Tax Assessment Act 1936
Calculation of 'relevant number' in deductible amount formula
Use of a figure other than the life expectation factors that result from applying the Australian Life Tables in determining the 'relevant number'
Pension rebate in section 159SM of the Income Tax Assessment Act 1936

Précis

Outlines the Tax Office's response to this case, which concerned a challenge to the use of the Australian Life Tables in determining life expectancies when calculating the deductible amount under subsection 27H(2) of the Income Tax Assessment Act 1936.

Brief summary of facts

The Applicant became a resident of Australia on 9 September 2002. Prior to this date, the Applicant had resided in South Africa for 39 years and, before then, the United Kingdom for his first 28 years. In the year ended 30 June 2003, the Applicant was in receipt of 4 pensions and annuities from overseas providers: a Mine Pension (in respect of his former employment in South Africa), a British National Insurance Scheme pension, and 2 annuities purchased from South African financial institutions.

In applying the deductible amount formula (subsection 27H(2)) in relation to the Applicant's pensions and annuities, the Applicant disagreed with the use of the Australian Life Tables (ALT) to determine his and his wife's life expectation factors. The Applicant argued that as they had only recently arrived in Australia, the ALT did not apply to them and that South African life expectancies should be used instead. The Applicant provided a letter from one of the South African pension providers which advised the annuity factor used by that pension provider in calculating the amount of the Applicant's pension.

The Applicant also contended that he was entitled to the pension rebate (section 159SM) in relation to his Mine Pension.

Issues decided by the court or tribunal

The Tribunal found that for the Applicant's pensions, both non-reversionary and reversionary, the ALT are most appropriate for use in determining life expectancies for the purposes of working out the relevant number in the deductible amount formula in subsection 27H(2), as the ALT are prepared on the basis of actual mortality rates across the Australian resident population, regardless of the origin and upbringing of individuals within this population or where or how such individuals have lived during their lives.

The Tribunal found that the Applicant had not satisfied his onus of proving that the ALT figures were inappropriate or otherwise resulted in an oppressive, onerous or extraordinary result. There was no evidence that the life expectancy figure that the Applicant sought to rely on was materially more appropriate than that derived from the ALT.

The Tribunal found that the Applicant was not entitled to a pension rebate in respect of the Mine Pension as it did not meet statutory criteria in section 159SM.

Tax Office view of Decision

The Tax Office considers that the correct decision was made by the Small Taxation Claims Tribunal. The Tax Office considers that the Australian Life Tables will, other than in very exceptional circumstances, be the most appropriate way to determine life expectancies for Australian residents in receipt of lifetime pensions and annuities, regardless of whether the pension is non-reversionary (paragraph (b) of the definition of 'relevant number' in subsection 27H(4)) or reversionary (paragraph (c) of the definition of 'relevant number' in subsection 27H(4)).

Administrative Treatment

Implications on Law Administration Practice Statements

None

Court citation:
[2006] AATA 677

Legislative References:
Income Tax Assessment Act 1936
27H
159SM
159SJ

Income Tax Regulations 1936
r 9

Case References:
Stueckelberger v Commisioner of Taxation
[2004] AATA 64

Case Z19 / AAT Case 7904
92 ATC 204
23 ATR 1143