The AAT has upheld the Commissioner’s decision to include a superannuation benefit in a taxpayer’s assessable income under s 304-10 of the ITAA 1997 on the grounds that it was withdrawn in breach of the SIS Act.
In 2008, the taxpayer (age 40) signed a form requesting his retail superannuation fund to rollover $40,000 of his benefit to a self-managed superannuation fund (SMSF), which turned out to be controlled by a “fraudulent rogue element”. Following an audit of the SMSF, the Tax Office amended the taxpayer’s income tax return to include the $40,000 as assessable income under s 304-10.
The AAT held that the early release of the superannuation benefit was properly included in the taxpayer’s assessable income under s 304-10 as it was received in breach of the payment standards in the SIS Regulations. The AAT also upheld the Commissioner’s decision not to exercise his discretion under s 304-10(4) to exclude the amount from the taxpayer’s assessable income to the extent that it would be “unreasonable”. Mere financial difficulties are not enough to bring the discretion under s 304-10(4) into play, the AAT said. While the AAT agreed that the Commissioner had correctly applied a 25% administrative penalty to the tax shortfall, the AAT held that the penalty should nevertheless be remitted in full under s 298-20 of Sch 1 of the TAA.
(AAT Case [2012] AATA 634, Re Sinclair and FCT, AAT, Ref No: 2011/4763, Deutsch DP, 21 September 2012.)
[LTN 184, 21/9]
Extract from [2012] AAT 634
[The case involved rolling out $40,000 from a retail fund to a purported SMSF, with nearly $15,000 withheld by the promoters of the scheme purportedly for taxes and commission.]
6. The case involves some unusual features. In particular, a fraudulent rogue element appears to have been involved in enticing the Applicant into an arrangement whereby superannuation funds were accessed early. A net amount was paid to the Applicant in circumstances where the Applicant was arguably led to believe that the difference between what he received and the amount paid out would be used to pay some commission, and to pay to the Respondent the amount of tax due on the superannuation monies. It appears however that no such tax was ever paid to the Respondent and the money so withheld has vanished.
7. In addition, according to information provided by the Respondent on the day of the hearing, the Applicant was declared bankrupt on 18 April 2008 and was discharged from bankruptcy on 19 April 2011. There was some belated discussion at the hearing as to the effect of the bankruptcy of the Applicant on these proceedings but no legal opinions had been sought on this matter by either party.
[$25,517.53, was withdrawn on or around 8 January 2009 – that is after the bankruptcy commenced, so the additional tax liability wasn’t released as part of the bankruptcy. Despite the bankruptcy, it was held that paying the full amount of this tax would not cause the Applicant ‘severe financial hardship’ within the meaning of Schedule 1 of the TAA.]