In a test case funded by the ATO, the Federal Court has set aside an AAT decision after finding that it “fell into error” in the way it applied the Commissioner’s discretion to disregard certain excess non-concessional superannuation contributions. In doing so, the Court provided some detailed guidance on the statutory construction and application of s 292-465 of the ITAA 1997.
- The case involved a husband and wife who had re-organised their superannuation accounts prior to retirement.
- Following advice from Centrelink, the husband withdrew $293,858 from his superannuation account and deposited it into his wife’s account in the 2008-09 year in anticipation of reaching Age Pension age. (‘Transaction 1’)
- Subsequently, the wife triggered an excess non-concessional contributions tax liability when she withdrew and re-contributed $200,000. (‘Transaction 2’)
- Transaction 1 in the 2008-09 year had triggered the 3-year $450,000 bring-forward rule so that Transaction 2 generated $43,858 in excess non-concessional contributions.
At first instance, the AAT was satisfied that “special circumstances” existed in relation to Transaction 1 (but not Transaction 2): AAT Case [2013] AATA 49, Re Dowling and FCT. As such, it reasoned that the notional excess non-concessional contributions in 2008-09 should be disregarded and it followed for the AAT that no excess non-concessional contributions arose in the 2010-11 year.
In allowing the Commissioner’s appeal, the Federal Court set aside the AAT decision after finding that it “fell into error” in the way it constructed and applied s 292-465. According to the Court, the Commissioner’s discretion in s 292-465(1)(b) does not contemplate an application to disregard or reallocate a contribution made in a financial year “other than” the financial year in which excess contributions have “given rise” to an ECT assessment.
The Court also noted that a determination to disregard or reallocate a contribution can only be made under s 292-465(3) where the Commissioner considers that: (a) there are “special circumstances”; and (b) making the determination is consistent with the object of Div 292. However, the Court found that the AAT had “infused” the threshold “object of Div 292” matter with a consideration of the matters in subs 292-465(5) and (6). According to the Court, the subs 292-465(5) and (6) matters go to an entirely separate question of whether the discretion ought to be exercised.
In addition, the Court ruled that none of the matters relied upon by the AAT in relation to the 2008-09 contribution satisfied the description “special circumstances”. Rather, the Court said those matters were all considerations specific to the circumstances of taxpayer and her husband. None of the facts, as found, fell within the description of “special circumstances” as a matter of law, the Court said. Accordingly, the Court set aside the AAT decision and remitted it to the AAT.
(FCT v Dowling [2014] FCA 252, Federal Court, Greenwood J, 19 March 2014.)
[LTN 54, 20/3/14]
Extract from the Income Tax Assessment Act 1997 (ITAA 1977)
292-465 – Commissioner’s discretion to disregard contributions etc. in relation to a financial year
(1) If you make an application in accordance with subsection (2), the Commissioner may make a written determination that, for the purposes of this Division, all or part of your * non-concessional contributions for a * financial year is to be:
(a) disregarded; or
(b) allocated instead for the purposes of another financial year specified in the determination.
(2) You may apply to the Commissioner in the * approved form for a determination under subsection (1). The application can only be made:
(a) after all of the contributions sought to be disregarded or reallocated have been made; and
(b) if you receive an * excess non-concessional contributions tax assessment for the * financial year–before the end of:
(i) the period of 60 days starting on the day you receive the assessment; or
(ii) if the Commissioner allows a longer period–that longer period.
(3) The Commissioner may make the determination only if he or she considers that:
(a) there are special circumstances; and
(b) making the determination is consistent with the object of this Division.
(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
(5) The Commissioner may have regard to whether a contribution made in the relevant * financial year would more appropriately be allocated towards another financial year instead.
(6) The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have * excess concessional contributions or * excess non-concessional contributions for the relevant * financial year, and in particular:
(a) if the relevant contribution is made in respect of you by another person–the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and
(b) the extent to which you had control over the making of the contribution.
(7) The Commissioner must give you a copy of the determination.
(8) A determination under this section may be included in a notice of assessment.
Review of determinations
(9) To avoid doubt:
(a) you may object under section 292- 245 against an * excess non-concessional contributions tax assessment made in relation to you on the ground that you are dissatisfied with a determination that you applied for under this section; and
(b) for the purposes of paragraph (e) of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 , the making of a determination under this section is a decision forming part of the process of making an assessment of tax under this Act.