The Full Federal Court has, on Wed 5.10.2016, allowed a taxpayer’s appeal after ruling that the AAT erred by taking too narrow a view of what may constitute “special circumstances” under s292-465 of the ITAA 1997.
- The taxpayer and his wife had panicked during the GFC and withdrawn their superannuation nest egg to the safety of term deposits.
- The taxpayer later received further financial advice and made a $450,000 non-concessional contribution to a SMSF.
- However, he overlooked the fact that he had previously activated the bring forward rule within 3 years.
- This resulted in an excess non-concessional contributions tax assessment of $209,250.
At first instance, in Re Ward and FCT [2015] AATA 919, the AAT held that the taxpayer’s situation did not amount to “special circumstances” for the purposes of the Commissioner’s discretion under s 292-465 of the ITAA 1997. Despite the harshness of the tax liability, the AAT concluded that the legislative provisions had operated as they were intended to and were not something “unintended”.
In allowing the taxpayer’s appeal, the Full Federal Court ruled that the AAT erred in law by taking too narrow a view of what may constitute “special circumstances”.
- The Full Court said this narrow approach was caused by looking at expressions in other decisions and taking those expressions out of their factual and legal context.
- The Court also considered that the AAT erred by proceeding on the basis that the imposition of the tax was the natural and foreseeable consequence of the decisions of the taxpayer (and his advisers) so that it was outside the scope of “special circumstances”. Accordingly, the Court set aside the decision and remitted it to the AAT.
(Ward v FCT [2016] FCAFC 132, Full Federal Court, Robertson, Davies and Wigney JJ, 5 October 2016.)
[LTN 192, 5/10/16]
Extract from Full Federal Court decision
The facts found by the Tribunal
In relation to the appeal
- The Tribunal found the following facts. At [43], the Tribunal referred to the final statement from BT Super for Life to Mr Ward and said that apparently only the first page of a four page document was supplied to Mr Ward’s advisor, Ms Smith, by Mr Ward. At [44], the Tribunal found that Mr Ward did not make a conscious and informed decision to breach the bring forward rule. Even if he had some basic understanding of the bring forward rule, which might have suggested that he could not put more money into his superannuation account at that time, that understanding was readily displaced by the firm and authoritative advice proffered by Wholistic Financial Solutions (Wholistic). Neither Ms Smith of Wholistic nor Mr Ward acted with the intention of avoiding the cap on superannuation contributions or of obtaining some tax advantage for Mr and Mrs Ward. At [46], the Tribunal held that the incorrect advice given by Ms Smith to Mr Ward was induced by the misleading notice provided by BT Super for Life. At [49], the Tribunal said the imposition of excess contributions tax on Mr Ward was the natural and foreseeable consequence of the decisions he and his advisers made, albeit in ignorance. At [50], the Tribunal found that the excess contributions tax levied here, $209,250, wiped out the entirety of Mr Ward’s superannuation savings at retirement. At [54], the Tribunal said that the strict application of the law to Mr Ward’s situation produced an outcome which was harsh and unfair. At [46] and [47], the Tribunal said the effect of the amount of the excess contributions tax on Mr Ward was oppressive or had catastrophic consequences.
The Appeal
- Plainly s 292-465 confers a discretion on the Commissioner. The Commissioner may make a written determination that all or part of the person’s non-concessional contributions for a financial year is to be disregarded or allocated instead for the purposes of another financial year specified in the determination. That discretion may only be exercised if the Commissioner or, on review, the Tribunal considers that there are special circumstances and making the determination is consistent with the object of Div 292.
- As to “special circumstances” the question is what, if anything, takes this case out of the usual or ordinary case. As Kiefel J said in Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541 at 545, if a tribunal were to conclude that something unfair, unintended or unjust had occurred there must be some feature out of the ordinary.
- In our opinion, the Tribunal erred at [49] and following in proceeding on the basis that because the imposition of the tax was the natural and foreseeable consequence of the decisions of Mr Ward and his advisers, it was necessarily outside the scope of “special circumstances”. This misconception also pervades the following paragraph, [50], leading the Tribunal to interpret what Kiefel J had said in Groth as meaning that there could not be “special circumstances” unless something unintended had occurred, that is, on the Tribunal’s approach, something other than the natural and foreseeable consequence of the decisions Mr Ward and his advisers made. Then, at [52], the notion of “unintended” is given a further application by the Tribunal in its statement that the legislative provisions operated as they were intended to. On those bases, the Tribunal found it could not exercise the discretion because special circumstances were absent.
- In our opinion, it was open to the Tribunal to find that there were “special circumstances” if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.
- In our opinion, the Tribunal erred in law by taking too narrow a view of what may constitute “special circumstances” within the meaning of the statute. This may have been caused by unnecessarily considering factors in isolation before focusing on the entirety of the circumstances said by the applicant to be special. It was certainly caused, in our opinion, by looking at expressions in other decisions and taking those expressions out of their factual and legal context.