Yrorita and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/1826)
Judgment date: 16 October 2012
Date published: 3 December 2012

Summary of decision:
Outlines the ATO's response to this case which concerned a taxpayer's illegal access to superannuation benefits but where, in the circumstances, the Tribunal ordered that the administrative penalty be remitted in full.

Overview of facts:
Pursuant to a direction signed by the taxpayer, $53,000 of his superannuation benefits were rolled-out of an APRA regulated superannuation fund in which he was a member (the "APRA Fund") and which was a complying, regulated fund, to another entity (the "Other Fund"), which purported to be a superannuation fund but was not, as the Tribunal stated, a 'legitimate superannuation fund' (at [31]). Subsequently, the taxpayer received $38,370 of the superannuation benefits paid from the APRA Fund to the Other Fund. The remainder ($14,630) was retained by the Other Fund and subsequently dissipated. | The taxpayer gave evidence that, among other things, at the time his superannuation benefits were paid out of the APRA Fund he was experiencing financial difficulties. Further to this, there was evidence that the taxpayer had a severely disabled son, and that he moved to the USA to take care of him. However, the evidence available did not establish that the taxpayer met any condition of release provided for under the Superannuation Industry (Supervision) Regulations 1994 (SISR94), most relevantly, the condition of release known as 'compassionate grounds' (because the taxpayer did not make any such application). Further, there was no evidence that the taxpayer had made any particular effort to discover what requirements there were to enable him to access his superannuation benefits. | Similarly, there was no evidence of discussions with his tax agent regarding whether or not the amount of superannuation benefits he received should be included in his income tax return for the relevant year. Nor did the taxpayer include the receipt of these benefits in his tax return for the relevant year. The taxpayer gave evidence that it was his understanding that the remainder of his benefit - $14,630 - represented the tax and fees on the amount of benefit he actually received and that this, to his knowledge, had been paid to the Commissioner. The taxpayer did not, however, adduce any documentation that supported this claim. | Issues decided by the tribunal | The Tribunal found that the payment from the APRA Fund to the Other Fund constituted a withdrawal of funds other than in accordance with the payment standards prescribed for the purposes of subsection 31(1) of the Superannuation Industry (Supervision) Act 1993 (SISA). The funds had not been rolled-over into a legitimate superannuation fund, and the taxpayer had not met any of the conditions required by Division 6.3 of the SISR94 to authorise the cashing of any part of his superannuation benefits. | Accordingly, the $53,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2007 pursuant to subsection 26AFB(2) of the Income Tax Assessment Act 1936 (ITAA36) and subsection 6-10(3) of the Income Tax Assessment Act 1997 . | Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 26AFB(4) of the ITAA36 to exclude some or all of the $53,000 from the taxpayer's assessable income, because, although it appeared that the taxpayer had been advised by persons unnamed regarding the Other Fund, he did not make any appropriate inquiries, for example to the APRA Fund, APRA itself or to his tax agent. | The Tribunal also agreed with the Commissioner's opinion that the taxpayer had attempted to evade paying tax, allowing the Commissioner a longer period to amend the taxpayer's income tax assessment under subsection 170(1) of the ITAA36. | In relation to the application of an administrative penalty, the Tribunal determined that the discretion to impose the penalty was correctly exercised, but that it should be remitted in full. The Tribunal noted the circumstances surrounding the withdrawal of the funds and the fact that had the taxpayer followed the correct procedures he may well have been permitted to withdraw some of the benefit. The Tribunal also noted the taxpayer's present circumstances, being ill health and financial hardship.

Issues decided:
The Tribunal found that the payment from the APRA Fund to the Other Fund constituted a withdrawal of funds other than in accordance with the payment standards prescribed for the purposes of subsection 31(1) of the Superannuation Industry (Supervision) Act 1993 (SISA). The funds had not been rolled-over into a legitimate superannuation fund, and the taxpayer had not met any of the conditions required by Division 6.3 of the SISR94 to authorise the cashing of any part of his superannuation benefits. Accordingly, the $53,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2007 pursuant to subsection 26AFB(2) of the Income Tax Assessment Act 1936 (ITAA36) and subsection 6-10(3) of the Income Tax Assessment Act 1997 . Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 26AFB(4) of the ITAA36 to exclude some or all of the $53,000 from the taxpayer's assessable income, because, although it appeared that the taxpayer had been advised by persons unnamed regarding the Other Fund, he did not make any appropriate inquiries, for example to the APRA Fund, APRA itself or to his tax agent. The Tribunal also agreed with the Commissioner's opinion that the taxpayer had attempted to evade paying tax, allowing the Commissioner a longer period to amend the taxpayer's income tax assessment under subsection 170(1) of the ITAA36. In relation to the application of an administrative penalty, the Tribunal determined that the discretion to impose the penalty was correctly exercised, but that it should be remitted in full. The Tribunal noted the circumstances surrounding the withdrawal of the funds and the fact that had the taxpayer followed the correct procedures he may well have been permitted to withdraw some of the benefit. The Tribunal also noted the taxpayer's present circumstances, being ill health and financial hardship.

ATO view of decision:
The Tribunal's findings on the non-penalty related issues, such as whether the amount withdrawn should have been included as assessable income and whether there was fraud or evasion giving rise to an amendment under subsection 170(1) of the ITAA36, are consistent with the approach taken by the Commissioner. | The Tribunal came to a different conclusion in regard to remission of the penalty, which was open to it on the facts of the case.

Administrative treatment:
Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil

Legislative references: Superannuation Industry (Supervision) Act 1993 Superannuation Industry (Supervision) Regulations 1994 Income Tax Assessment Act 1936 26AFB(2) 26AFB(2) 170(1) Income Tax Assessment Act 1997 6-10(3) Tax Administration Act 1953
Subject references: Superannuation Superannuation fund Superannuation purpose Complying superannuation fund Regulated superannuation fund Superannuation benefit Illegal early access to superannuation benefits Administrative Penalties