The decision in Sinclair v Commissioner of Taxation [2012] AATA 634

This case concerned illegal access to superannuation benefits and the remission of a penalty.


These are the facts as outlined in the Decision Impact Statement by the ATO.

Pursuant to a direction signed by the taxpayer, $40,000 of his superannuation benefits were rolled-out of an APRA regulated superannuation fund in which he was a member (the “APRA Fund”) to another fund (the “Other Fund”), which purported to be a superannuation fund.

Subsequently, the taxpayer received $25,517.53 of the superannuation benefits paid from the APRA Fund to the Other Fund. The remainder ($14,482.47) was retained by the Other Fund and subsequently dissipated.

The APRA Fund was a complying, regulated superannuation fund. The Other Fund was neither a complying nor a regulated superannuation fund. Although it had completed the process for registration as a self-managed superannuation fund, there was no evidence that the Other Fund had subsequently undertaken any regulatory or compliance activities. There was also no evidence that there was a trust deed establishing the Other Fund, nor was there evidence that the Other Fund was established or received monies for superannuation purposes.

The taxpayer gave evidence that, among other things, at the time his superannuation benefits were paid out of the APRA Fund he was in financial distress. Further to this, there was evidence that the taxpayer was an undischarged bankrupt over the period 18 April 2008 to 19 April 2011. However, the evidence available did not establish that the taxpayer met any condition of release provided for under the Superannuation Industry (Supervision) Regulations 1994 (SISR94), most relevantly, the condition of release known as ‘severe financial hardship’. Further, there was no evidence that the taxpayer had made any particular effort to discover what requirements there were to enable him to access his superannuation benefits.

Similarly, there was no evidence of discussions with his tax agent regarding whether or not the amount of superannuation benefits he received should be included in his income tax return for the relevant year. Nor did the taxpayer include the receipt of these benefits in his tax return for the relevant year.

The taxpayer gave evidence that it was his understanding that the remainder of his benefit – $14,482.47 – represented the tax and fees on the amount of benefit he actually received and that this, to his knowledge had been paid to the Commissioner. The taxpayer did not however adduce any documentation that supported this claim.


The following issues were determined by the AAT:

  1. Whether the $40 000 withdrawn from the APRA fund have been included in the applicant’s assessable income for the year ended 30 June 2009.
  2. Whether the Commissioner of Taxation have exercised the discretion available to him under s 304-10(4) of the ITAA 1997 in favour of the applicant.
  3. Whether the applicant be liable for an administrative penalty under s 284-75(1) of Schedule 1 of the TAA 1953 for the year ended 30 June 2009.
  4. Whether the administrative penalty be remitted either in full or in part under s 284-2 to 5 of Schedule 1 of the TAA 1953.


Issue 1: Liability under s 304-10(1)

Note: Relevant legislation – s 304-10(1) and s 304-10(4) of the ITAA 1997.

A superannuation benefit is defined in item 1 in the table in subsection 307-5(1) of the ITAA 1997 as ‘a payment to you from a superannuation fund because you are a fund member’. Moreover, s 307-15(2)(b) states that a superannuation benefit is treated as being received by an individual when that benefit is paid to another person or entity at the individual’s direction or request.

In this case, the payment from the APRA fund to the Other fund constituted a superannuation benefit received from a complying superannuation fund (i.e. the APRA fund) as per s 304-10(1).

As noted in the facts, the applicant argued that the condition of release of the superannuation funds was due to ‘severe financial hardship’ as defined under Regulation 6.01(5) of the SISR. Under this regulation, the applicant could have proven that he was facing severe financial hardship by providing evidence from a relevant Commonwealth department or agency that he was in receipt of Commonwealth income support payment for a continuous period of 26 weeks (r 6.01(5)(a)). However, no such evidence was provided, and an amount appearing as ‘Income from Australian Government allowances and payments’ in his 2009 tax return was insufficient to meet the requirements of this regulation. As the applicant was not of the preservation age, the alternative option of proving severe financial hardship under r 6.01(5)(b) was not available to him.

Regulation 6.01(1) of the SISR defines the terms ‘rolled over’ and ‘transferred’. In order for the payment from the APRA fund to have been rolled over/transferred to the Other fund, the latter would have to be a ‘regulated superannuation fund’ (as defined under s 10(1) of the SISA) at the time of the payment. An audit conducted by the Commissioner of Taxation showed that the Other fund never met this requirement. Moreover, the applicant failed to adduce any evidence to suggest that the Other fund was a superannuation fund or a regulated superannuation fund at any relevant time. Consequently, it was impossible to say that the payment represented an amount that was ‘transferred’ or ‘rolled over’ for the purposes of the SISR.

Accordingly, the $40 000 withdrawn from the fund should have been included in the applicant’s assessable income for the year ended 30 June 2009 pursuant to s 304-10(1) of the ITAA 1997.

Issue 2: Exercise of discretion by the respondent under s 304-10(4)

Section 304-10(4) of the ITAA 1997 gives the Commissioner of Taxation a discretion to reduce the amount of superannuation benefits included in the taxpayer’s assessable income under s 304-10(1) if the Commissioner is satisfied that it would be unreasonable to include the amount having regard to:

  • The nature of the fund; and
  • Any other matters the Commissioner considers relevant

No evidence was put to the AAT by the applicant, which was directly relevant to the exercise of the discretion.

Moreover, the applicant’s financial circumstances were difficult, they were not sufficient to call into play the exercise of the discretion conferred on the Commissioner of Taxation by s 304-10(4).

Issue 3: The Penalty

It was determined that there were a number of deficiencies in the way in which the applicant behaved which reflected that reasonable care had not been taken to ensure that a false and misleading statement was not made to the Commissioner of Taxation.

Accordingly, the base penalty amount of 25 per cent of the shortfall (as per Item 3 in s 284-90(1) of Schedule 1 of the TAA 1953) was applied correctly.

Issue 4: Remission of Penalty

Under s 298-20 of the TAA 1953, the Commissioner of Taxation has a discretion to remit either wholly or in part the administrative penalty which has been imposed on a taxpayer.

While the applicant has acted carelessly, there are a number of factors which are relevant to the remission of his penalty which are in his favour.

  • The applicant has a sound compliance history
  • His personal circumstances indicate that he was an undischarged bankrupt between April 2008 and April 2011 – and consequently clearly in financial distress at the relevant times.
  • Of the $40 000, the taxpayer improperly sought to access, he will be left with no more than approximately $12 000 after the funds taken by rogue elements and the tax payable as a result of the AAT decision are taken into account. This substantial detriment negates the need to impose a further penalty on the applicant.
  • It has never been suggested that the applicant acted recklessly or intentionally to disregard the law.

Accordingly, the penalty should be remitted in full.

Peter Gell

Peter was admitted as a solicitor in 1981 and holds qualifications in law and a Masters degree in taxation conferred by the University of NSW. Peter practises in taxation advisory, estate planning and wills, probate and commercial law.