Dowling and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2012/2727 & 2012/2728)
Judgment date: 14 July 2014
Date published: 11 December 2014

Summary of decision:
Outlines the ATO's response which concerns if it was appropriate to disregard or allocate to another financial year all or part of the non-concessional contributions of the Applicant for a particular financial year, to relieve the Applicant from excess non concessional contributions tax for that year.

Overview of facts:
The taxpayer maintained a UniSuper account and her husband maintained a Sunsuper account. | During the 2008-2009 financial year, the taxpayer and her husband met with a Centrelink officer to discuss the husband's assets and income in relation to his entitlement to Centrelink benefits. They subsequently had a meeting with a financial planner to consider a strategy that would entitle the husband to receive an age pension when he turned 65. | That strategy was implemented. The husband was paid all his superannuation ($293,895.75) by Sunsuper on 6 February 2009. He contributed $293,858 to a new Sunsuper account for the taxpayer on 10 February 2009 (The first Tribunal described this as 'Transaction 1'). This amount was included in the taxpayer's non-concessional contributions for the 2008-2009 financial year. | It activated the 'three year bring forward rule' in subsections 292-85(3) & (4) of the Income Tax Assessment Act 1997 (ITAA 1997) such that the taxpayer's non-concessional contributions cap for the year was $450,000, not $150,000, so she did not have excess non-concessional contributions for the 2008-2009 financial year. It also meant that her non-concessional contributions cap for the next financial year was $156,142. The taxpayer had no non-concessional contributions for the 2009-2010 financial year, so her non-concessional contributions cap for the 2010-2011 financial year was also $156,142. | In the 2010-2011 financial year, the taxpayer read in the media that superannuation benefits would be minimally taxed when paid as a death benefit to estate beneficiaries if withdrawn and re-contributed as non-concessional contributions. | On 30 August 2010, the taxpayer implemented this strategy without obtaining any professional advice. Unisuper paid her $240,933.39. The taxpayer then made a $200,000.00 contribution to Unisuper, retaining the balance (The first Tribunal described this as 'Transaction 2'). This amount was included in the taxpayer's non-concessional contributions for the 2010-2011 financial year. | As a result, the taxpayer exceeded her non-concessional contributions cap for the 2010-2011 financial year by $43,858.00 and was accordingly assessed to excess non-concessional contributions tax of $20,393.95 in respect of that year. | The taxpayer applied to the Commissioner to have the $43,858.00 excess contribution disregarded or allocated to another year pursuant to subsection 292-465(1) of the ITAA 1997. | The taxpayer was ignorant of the superannuation laws and the non-concessional contributions cap. | The Commissioner did not exercise the discretion to disregard or allocate the excess contribution to another financial year and this decision was confirmed on the taxpayer's objection. | Issues Decided by the Tribunal | At first instance, [2013] AATA 49, the Tribunal found that the two preconditions of subsection 292-465(3) of the ITAA 1997 were satisfied and decided to disregard the contribution made as Transaction 1. | The Tribunal concluded that special circumstances existed in relation to Transaction 1 because of an 'amalgam' of factors and that making a determination to disregard that contribution was consistent with the object of Division 292 of the ITAA 1997 'as the funds concerned in Transaction 1 are all those of [the taxpayer's] husband, and are those which [the taxpayer's husband] made gradually over the course of his life'. However, the Tribunal concluded there were no special circumstances in relation to Transaction 2 and so did not consider disregarding that contribution or allocating it to another year. | The Commissioner appealed the AAT's decision to the Federal Court. | The Federal Court, [2014] FCA 252, decided that: • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. | • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. | The Federal Court allowed the Commissioner's appeal, set aside the Tribunal's decision and remitted the matter to the AAT to be heard and determined according to law. | At the remittal hearing, [2014] AATA 474, the Tribunal affirmed the Commissioner's objection decision. The Tribunal decided that having regard to all of the circumstances: • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997. | • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997.

Issues decided:
At first instance, [2013] AATA 49, the Tribunal found that the two preconditions of subsection 292-465(3) of the ITAA 1997 were satisfied and decided to disregard the contribution made as Transaction 1. The Tribunal concluded that special circumstances existed in relation to Transaction 1 because of an 'amalgam' of factors and that making a determination to disregard that contribution was consistent with the object of Division 292 of the ITAA 1997 'as the funds concerned in Transaction 1 are all those of [the taxpayer's] husband, and are those which [the taxpayer's husband] made gradually over the course of his life'. However, the Tribunal concluded there were no special circumstances in relation to Transaction 2 and so did not consider disregarding that contribution or allocating it to another year. The Commissioner appealed the AAT's decision to the Federal Court. The Federal Court, [2014] FCA 252, decided that: • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. The Federal Court allowed the Commissioner's appeal, set aside the Tribunal's decision and remitted the matter to the AAT to be heard and determined according to law. At the remittal hearing, [2014] AATA 474, the Tribunal affirmed the Commissioner's objection decision. The Tribunal decided that having regard to all of the circumstances: • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997. • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997.

ATO view of decision:
The approach taken by the AAT on remittal of the matter is consistent with the principles stated by the Federal Court, both in this case and in Liwszyc v Commissioner of Taxation [2014] FCA 112, as to the correct approach to applying the discretion to disregard or allocate contributions to another financial year in accordance with section 292-465 of the ITAA 1997.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | The principles stated by the Federal Court and the AAT's application of them on remittal of the matter do not change the ATO's approach to excess contributions cases. The ATO will continue to approach excess contributions cases by weighing all the relevant facts and circumstances to determine whether the two mandatory pre-conditions to the exercise of the discretion are satisfied and, if so, whether the discretion should be exercised. The Commissioner will apply the relevant tax law and authorities to those facts. | Implications for impacted Law Administration Practice Statements | The ATO has reviewed PS LA 2008/1 and no further amendments were necessary. This decision has no impact for other ATO precedential documents or Law Administration Practice Statements. | Date of amendment Part Comment 11 December 2014 Administrative treatment Updated to advise no amendments required to PS LA 2008/1.

Legislative references: Income Tax Assessment Act 1997 292-5 292-465
Case references: Beadle v Director-General of Social Security (1985) 60 ALR 225 (1985) 7 ALD 670 Chantrell and Commissioner of Taxation [2012] AATA 179 2012 ATC 10-242 (2012) 87 ATR 957 Commissioner of Taxation v Dowling [2014] FCA 252 2014 ATC 20-447 Groth v Secretary, Department of Social Security [1995] FCA 1708 (1995) 40 ALD 541 Kerr and Commissioner of Taxation [2007] AATA 1732 2007 ATC 2488 (2007) 67 ATR 710 Liwszyc v Commissioner of Taxation [2014] FCA 112 2014 ATC 20-441 Lynton and Commissioner of Taxation [2012] AATA 667 Rawson and Commissioner of Taxation [2012] AATA 322 2012 ATC 10-250 (2012) 88 ATR 612 Riddell v Secretary, Department of Social Security (1993) 42 FCR 443 Schuurmans-Stekhoven and Federal Commissioner of Taxation [2012] AATA 62 (2012) 82 ATR 731 Tran and Commissioner of Taxation [2012] AATA 123 2012 ATC 10-236
Subject references: Superannuation excess contributions tax Non-concessional contributions cap Commissioner's determination - disregard or allocate to another year superannuation contributions Excess non-concessional contributions