It should be noted that this case refers extensively to s 26AFB of the ITAA 1936, which was repealed in 2007.
These are the facts as stated in the Decision Impact Statement by the ATO.
Pursuant to a direction signed by the taxpayer, $53,000 of his superannuation benefits were rolled-out of an APRA regulated superannuation fund in which he was a member (the “APRA Fund”) and which was a complying, regulated fund, to another entity (the “Other Fund”), which purported to be a superannuation fund but was not, as the Tribunal stated, a ‘legitimate superannuation fund’. Subsequently, the taxpayer received $38,370 of the superannuation benefits paid from the APRA Fund to the Other Fund. The remainder ($14,630) was retained by the Other Fund and subsequently dissipated.
The taxpayer gave evidence that, among other things, at the time his superannuation benefits were paid out of the APRA Fund he was experiencing financial difficulties. Further to this, there was evidence that the taxpayer had a severely disabled son, and that he moved to the USA to take care of him. 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 ‘compassionate grounds’ (because the taxpayer did not make any such application).
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 – $14,630 – 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 decided by the AAT:
- Whether there was evasion to the extent that the Respondent may issue an amended assessment for the income year ended 30 June 2007 under s 170 of the Income Tax Assessment Act 1936 (ITAA 1936);
- Whether the amount of $53,000 withdrawn from the APRA fund should have been included in the Applicant’s assessable income for the year ended 30 June 2007 in accordance with subsection 26AFB(2) of the ITAA 1936;
- Whether the discretion in subsection 26AFB(4) of the ITAA 1936 should be exercised in the Applicant’s favour;
- If the Applicant is liable for an administrative penalty, whether there are any grounds for any part of the penalty to be remitted pursuant to subsection 298-20(1) of Schedule 1 of the TAA.
- Whether the Applicant is liable for an administrative penalty pursuant to Division 284 of Schedule 1 of the Taxation Administration Act 1953 (TAA) for the 2007 year;
Issue 1: Whether there was evasion to the extent that the Respondent may issue an amended assessment for the income year ended 30 June 2007 under section 170 of the Income Tax Assessment Act 1936 (ITAA 1936)
In the case of Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296, Dixon J (at ) described ‘evasion’ as follows:
“It means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.”
The AAT concluded that there was evasion in terms of the legislation and consequently the Commissioner could issue an amended assessment for the income year ended 30 June 2007 under s 170(1) of the ITAA 1936.
In reaching this conclusion the Tribunal took into account the fact that the applicant did not apply directly to AustralianSuper to withdraw funds, but was persuaded there was a different path he could take to obtain them. He did not make inquiries of any authority or AustralianSuper about the legalities of withdrawing the funds, and he opened a separate bank account, for (geographical) convenience, he said. More importantly the applicant did not consult with his tax agent, or include the funds withdrawn from the superannuation fund in his tax return.
Issue 2: Whether the amount withdrawn from the APRA Fund should have been included in the Applicant’s assessable income for the year ended 30 June 2007 in accordance with s 26AFB(2) of the ITAA 1936.
Note: s 26AFB(2) is as follows:-
- (a) in a year of income and on or after the proclaimed superannuation standards day, a taxpayer receives or obtains a benefit of any kind out of, or attributable to assets of, an exempt fund;
- (b) at the time when the benefit was provided, there were in force regulations for the purposes of subsection 31(1) of the Superannuation Industry (Supervision) Act 1993 prescribing standards applicable to the fund; and
- (c) the provision of the benefit resulted in a failure of the fund to comply with such of those standards as are prescribed for the purposes of this section by regulations made under this Act;
the assessable income of the taxpayer of the year of income shall include the amount or value of that benefit.
Under Division 6.3 of the SISR, a person must satisfy certain conditions of release in order withdraw their preserved benefits and restricted non-preserved benefits from a superannuation fund. These conditions are specified in Schedule 1 of the SISR, but of these, only three were applicable in the applicant’s case.
Firstly, r 6.19A(1) is concerned with compassionate grounds, which contemplate a person may apply to APRA in writing to have his or her preserved benefits released to pay for medical treatment, palliative care, funeral and allied expenses or in cases of foreclosure of a mortgage. However, the applicant failed to make an application on this ground to the AAT.
Secondly, r 6.01(5) outlines the conditions for release of superannuation benefits on the grounds of severe financial hardship. It requires a person having been on income support continuously for 26 weeks, and being unable to meet reasonable and immediate family living expenses. As the applicant was earning income of $72,000 in 2007, he was clearly not eligible for the application of this regulation.
Finally, the applicant was not of 65 years of age as per one of the conditions of release under Schedule 1 to the SISR.
While the applicant only received $38,700 from the Other fund, he had directed the APRA fund to transfer the entire $53,000 to the Other fund. Accordingly, the Tribunal was of the view that he had received the benefit of the $53,000 despite not receiving the entire amount from the Other fund. Consequently, the payment of the amount of $53,000 from the APRA fund was made in breach of Regulation 6.18(1) of the SISR, and must therefore be assessable pursuant to section 26AFB(2) of the ITAA 1936.
Issue 3: Whether the discretion in subsection 26AFB(4) of the ITAA 1936 should be exercised in the Applicant’s favour.
From the evidence provided by the applicant, the AAT was unable to satisfactorily conclude that he had used the superannuation funds to pay for his son’s surgery. Rather the money was used to pay off debts, purchase a car, for the payment of a storage shed for his parents and the purchase of a computer. Furthermore, it was unclear whether the applicant was required to pay his relatives back for the money they contributed towards his son’s surgery.
In addition, the applicant failed to make any appropriate inquiries either to AustralianSuper (i.e. the APRA fund for our purposes), any authority such as APRA, or his tax agent in regards to the Other fund.
Accordingly, the Tribunal was unable to find the application of s 26AFB(2) to be unreasonable such that it would enliven the operation of the discretion under s 26AFB(4).
Issue 4: Whether the Applicant is liable for an administrative penalty pursuant to Division 284 of Schedule 1 of the Taxation Administration Act 1953 (TAA) for 2007; and if so, whether there are any grounds for any part of the penalty to be remitted pursuant to subsection 298-20(1) of Schedule 1 of the TAA?
Taking into account all the evidence, the circumstances surrounding the withdrawal of the funds and the applicant’s present circumstances, the Tribunal concluded that the applicant would have likely been able to withdraw the $53,000 if he had followed the correct procedures. While the discretion to impose a penalty under s 284-75(1) was correctly exercised, given the applicant’s circumstances, the penalty should be remitted pursuant to s 298-20(1).