Sinclair and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/4763)
Judgment date: 21 September 2012
Date published: 23 November 2012

Summary of decision:
Outlines the ATO response to this case in which the taxpayer was found to have illegally accessed 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, $40,000 of his superannuation benefits were rolled-out of an APRA regulated superannuation fund in which he was a member (the "APRA Fund") to another fund (the "Other Fund"), which purported to be a superannuation fund. Subsequently, the taxpayer received $25,517.53 of the superannuation benefits paid from the APRA Fund to the Other Fund. The remainder ($14,482.47) was retained by the Other Fund and subsequently dissipated. | The APRA Fund was a complying, regulated superannuation fund. The Other Fund was neither a complying nor a regulated superannuation fund. Although it had completed the process for registration as a self-managed superannuation fund, there was no evidence that the Other Fund had subsequently undertaken any regulatory or compliance activities. There was also no evidence that there was a trust deed establishing the Other Fund, nor was there evidence that the Other Fund was established or received monies for superannuation purposes. | The taxpayer gave evidence that, among other things, at the time his superannuation benefits were paid out of the APRA Fund he was in financial distress. Further to this, there was evidence that the taxpayer was an undischarged bankrupt over the period 18 April 2008 to 19 April 2011. 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 'severe financial hardship'. 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 - $14,482.47 - 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 determined that the Other Fund was not a superannuation fund as defined in section 10 of the Superannuation Industry ( Supervision ) Act 1993 (SISA). Further, it was not a regulated superannuation fund as defined in section 19 of the same Act. | The payment out of the APRA Fund was not a payment within the superannuation system by way of a roll-over or a transfer (defined in subregulation 5.01(1) of the SISR94) 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. | The effect of the payment from the APRA Fund to the Other Fund, being made at the direction of the taxpayer, was the payment of a superannuation benefit from a complying superannuation fund and received by the taxpayer (pursuant to section 307-15 of the Income Tax Assessment Act 1997 (ITAA97)) other than in accordance with the payment standards prescribed in subsection 31(1) of the SISA. | Accordingly, the $40,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2009 pursuant to subsection 304-10(1) of the ITAA97. | Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 304-10(4) of the ITAA97 to exclude some or all of the $40,000 from the taxpayer's assessable income. | On the application of penalty, the Tribunal determined that there was no doubt the taxpayer had acted carelessly. It was also noted that the taxpayer did not take reasonable care in completing his income tax return for the 2008/09 income year. In the circumstances, the Tribunal considered that the Commissioner had correctly applied a 25% administrative penalty. | However, the Tribunal considered that when taking into account that the taxpayer had a sound history of compliance; that his particular personal circumstances (including that from 18 April 2008 to 19 April 2011 he was an undischarged bankrupt) suggested he was under financial distress; the amount of superannuation benefit the taxpayer was actually left with; that his conduct was careless rather than reckless or with intentional disregard to the law; and that the taxpayer had suffered adequate financial consequences at the hands of the promoters, it was, on balance, appropriate to remit the penalty in full.

Issues decided:
The Tribunal determined that the Other Fund was not a superannuation fund as defined in section 10 of the Superannuation Industry ( Supervision ) Act 1993 (SISA). Further, it was not a regulated superannuation fund as defined in section 19 of the same Act. The payment out of the APRA Fund was not a payment within the superannuation system by way of a roll-over or a transfer (defined in subregulation 5.01(1) of the SISR94) 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. The effect of the payment from the APRA Fund to the Other Fund, being made at the direction of the taxpayer, was the payment of a superannuation benefit from a complying superannuation fund and received by the taxpayer (pursuant to section 307-15 of the Income Tax Assessment Act 1997 (ITAA97)) other than in accordance with the payment standards prescribed in subsection 31(1) of the SISA. Accordingly, the $40,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2009 pursuant to subsection 304-10(1) of the ITAA97. Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 304-10(4) of the ITAA97 to exclude some or all of the $40,000 from the taxpayer's assessable income. On the application of penalty, the Tribunal determined that there was no doubt the taxpayer had acted carelessly. It was also noted that the taxpayer did not take reasonable care in completing his income tax return for the 2008/09 income year. In the circumstances, the Tribunal considered that the Commissioner had correctly applied a 25% administrative penalty. However, the Tribunal considered that when taking into account that the taxpayer had a sound history of compliance; that his particular personal circumstances (including that from 18 April 2008 to 19 April 2011 he was an undischarged bankrupt) suggested he was under financial distress; the amount of superannuation benefit the taxpayer was actually left with; that his conduct was careless rather than reckless or with intentional disregard to the law; and that the taxpayer had suffered adequate financial consequences at the hands of the promoters, it was, on balance, appropriate to remit the penalty in full.

ATO view of decision:
The Tribunal's findings on the non-penalty related issues, such as whether the Other Fund was a "superannuation fund" for section 10 SISA purposes and how benefits accessed in breach of legislative requirements are subsequently taxed, 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 1997 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