Private ruling: Mistaken payment into a superannuation fund
Date of advice: 14 August 2018
Published: October 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: 1. Are the Mistaken payments made by the Taxpayer into Superannuation Fund A considered superannuation contributions of the taxpayer for the purposes of Division 290 of the Income Tax Assessment Act 1997 (ITAA ?997)? 2. Can the Taxpayer claim a deduction under section 290-60 of the ITAA 1997 for the payments made into Superannuation Fund A? | A1: 1. No. 2. No.

Relevant facts and circumstances: The Taxpayer is an Australian private company The Taxpayer is subsidiary of a global entity and has various offices around the world. The Taxpayer offered an Employee a secondment and relocation offer to an overseas office for a number of years. The Employee was a member of Superannuation Fund A. Prior to the secondment the Taxpayer was making Superannuation Guarantee contributions into Superannuation Fund A. The Employee received professional advice relating to their secondment and superannuation affairs prior to undertaking the secondment. The Employee joined a second superannuation fund (Fund B) before taking up the secondment. The Employee also completed the required documentation and submitted it to the Taxpayer to request that all future superannuation contributions are directed to Fund B. The Taxpayer’s Human Resources and Payroll departments received all of the documentation to support the change from the Superannuation Fund A to Fund B. However, due to a clerical error, the employee’s request was overlooked and caused payroll to continue to pay the contribution into Superannuation Fund A rather than Fund B. Amounts were mistakenly paid to Superannuation Fund A rather than Fund B. by the Taxpayer after the secondment commenced. The Taxpayer’s payroll department became aware of the error and reprocessed the application and the Taxpayer began contributing into Fund B. The Taxpayer requested Superannuation Fund A return the amounts that were paid in error so that they would be directed to the Fund B as originally instructed by the Employee. Superannuation Fund A repaid the Full amount to the Taxpayer. The Taxpayer then directed the amount into the Fund B.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 290 | Income Tax Assessment Act 1997 section 290-60

Reasons for decision: Summary: On the basis of the information provided, the mistaken payments to Superannuation Fund A are not contributions for the purposes of Division 290 of the ITAA 1997. The Taxpayer cannot claim a deduction for these amounts under section 290-60 of the ITAA 1997. | Detailed Reasoning - What is a superannuation contribution?: Division 290 of the ITAA 1997 contains provisions relating to claiming deductions for superannuation contributions. Subsection 290-60(1) of the ITAA 1997 of the ITAA 1997 states: You can deduct a contribution you make to a superannuation fund or an RSA for the purpose of providing superannuation benefits for another person who is your employee when the contribution is made … The term “contribution” is not defined in the Income Tax Assessment Act (ITAA) 1997. However, guidance on the ordinary meaning of the term contribution, in a Superannuation context, can be found in Taxation Ruling 2010/1 (TR 2010/1). Paragraph 4 of TR 2010/1 states: In the superannuation context, a contribution is anything of value that increase the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general TR 2010/1 also provides at paragraphs 6 and 7: Not every increase in the capital of a fund is a superannuation contribution as a person who increases a fund's capital must have the purpose of benefiting one or more particular members of the fund or all of the members in general. A person's purpose is the object which they have in view or in mind. Generally, a person will be said to intend the natural and probable consequences of their acts and likewise their purpose may be inferred from their acts. This is a determination of a person's objective purpose, not their subjective intention. TR 2010/1 also states at paragraphs 125 and 126: In general terms, the Commissioner considers that the matter of whether an amount is a superannuation contribution is determined by having regard to whether a superannuation provider is given something of value and whether what is given is given for a particular purpose. Specifically, the Commissioner considers that a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general. The Taxpayer has stated that due to a clerical error the amounts were mistakenly paid to the Fund A and that the Taxpayer had no intention of benefitting any member of Fund A. Therefore, the amounts paid would not be contributions. Taxpayer contend the law of restitution on the grounds of mistake supports the view the payments should not be considered contributions. As such, the mistaken payments are not considered contribution as Fund A was unjustly enriched and accordingly return the payment to the taxpayer to correct the mistake. | Detailed Reasoning - Application of amount in error: By Mid-2015, an amount was transferred from the Fund A. However, the employer has stated that the amounts were not provided for the purpose of benefitting the member of Fund A. The intention was for the amounts to be transferred within Fund B. An acknowledged error from the payroll department resulted in the amounts being mistakenly transferred to the Fund A. In 2016 the amount was withdrawn and returned from the Fund A. The law surrounding restitution in situations where a portion of the payment has been dealt with is not entirely clear in Australia. However, the recent decision in Citigroup Pty Ltd v. National Australia Bank Ltd [2012] NSWCA 381 (Citigroup v NAB) May be relied upon for guidance in respect of the issue of defences to claims for restitution. Here, the initial plaintiffs were joint account holders with both Citigroup and NAB. Citigroup received signed instructions to transfer US$500,000 to NAB. Several days later, NAB also received signed instructions to transfer the funds to overseas third party accounts. In accordance with those signed instructions, both Citigroup and NAB made the respective transfers. It was shortly after revealed that the signed instructions received by both Citigroup and NAB were in fact fraudulent. The Supreme Court of New South Wales deemed Citigroup as liable to bear the whole loss and determined that NAB had met the change of position defence. In determining its decision, the Court concluded that NAB had acted in good faith and in reliance on the receipt of funds. The Court confirmed the causal connection that NAB’s payment to the overseas account would not have been possible, but for the receipt from Citigroup. The judgement also quoted from the David Securities decision when stating that the change of position defence is relevant to the enrichment of the defendant ‘precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt’. Thus, what becomes clear from Australian case law is that a defence to restitution requires that the recipient has changed its position because of the fact that the payment was made. Applying this causal connection test, the facts in this case may be distinguished from Citigroup v NAB because the payment of the fund expenses would presumably have occurred regardless of the mistaken deposit of the amount as failure to do so would have potentially attracted penalties. In other words, the change of position to the Fund A did not come about in reliance on the mistaken deposit. As such, the withdrawals from the Fund of these monies do not constitute superannuation benefits.