Rinaldo and Commissioner of Taxation [2011] AATA 839 (25 November 2011)

Last Updated: 25 November 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 839

ADMINISTRATIVE APPEALS TRIBUNAL )

) No. 2010/3136

TAXATION APPEALS DIVISION		)
	Re		FRANCESCO RINALDO

Applicant

And

COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Dr G Hughes, Member

Date 25 November 2011

Place Melbourne

Decision The Tribunal affirms the decision under review.

...............[sgd]............................
Member
TAXATION - Excess Contributions Tax – cap exceeded because taxpayer overlooked prior contributions in transitional period – whether allocations can be retrospectively altered – whether taxpayer excused on the basis of tax agent's error

Income Tax Assessment Act 1997 sections 280-5, 280-15, 280-30, 292-80, 292-85, 292-90

Income Tax (Transitional Provisions) Act 1997 section 292-80

Superannuation Industry (Supervision) Act 1993 sections 36A, 113

Superannuation Guarantee (Administration) Act 1992 section 78

David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353

Magna Alloys and Research Pty Ltd v Federal Commissioner of Taxation [1980] FCA 150; (1980) 49 FLR 183

Personalised Transport Services Pty Ltd v AMP Superannuation Ltd [2006] NSWSC 5

Player v Commissioner of Taxation [2011] FCA 869

Raymore Contractors Pty Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1410

REASONS FOR DECISION

Background

1. This is an application to review a decision by the respondent to issue an Excess Contributions Tax (ECT) notice of assessment to the applicant in respect of non-concessional contributions of $150,000 for the financial year 2006-07. The excess contribution was the result of a miscalculation by or on behalf of the applicant as to the amount of prior contributions which he had made in respect of that year.
2. Under transitional arrangements, the period between 10 May 2006 and 30 June 2006 was treated as part of the 2006-07 financial year for the purposes of the non-concessional contributions cap.
3. The applicant and his wife are directors of F&M Rinaldo Pty Ltd, which is trustee of the F&M Rinaldo Superannuation Fund (the Fund).
4. On 19 January 2006 the applicant had signed a deed of sale for his farm and, based on professional advice, decided to make a substantial contribution to the Fund using part of the proceeds.
5. The applicant's tax agent, Antonio Benevento of TTS & Associates Pty Ltd, referred him to a senior financial consultant at Perpetual Trustee Company Limited and the consultant in turn prepared a financial plan dated 24 January 2007. The report recommended that both the applicant Mrs Rinaldo consider making the maximum undeducted contribution of $1,000,000 each.
6. On 29 June 2007 Mr Benevento visited the applicant at his home and suggested he contribute $700,000 into the Fund. At that time, the applicant had still not received the proceeds of the sale of his farm and so he arranged to borrow $700,000. He prepared a handwritten instruction to Westpac Bank to this effect, which he and his wife signed.
7. The applicant told the Tribunal that his intention was to maximise his superannuation contribution fund level in accordance with the professional advice he had received. Perhaps more accurately, the applicant intended to make an investment involving the applicant and his wife to their best joint advantage. The applicant was aware that he had already contributed $300,000 since 1 July 2006 and, he told the Tribunal, his intention was to bring the balance of those contributions up to $1,000,000. In so doing, he overlooked the fact that he had previously made a contribution of $150,000 between 10 May and 30 May 2006, which would have to be taken into account for the 2006-07 financial year.
8. The Fund lodged a Member Contribution Statement (MCS) on 14 April 2008 for the year 2006-07. The documentation was prepared by TTS & Associates. Mr Benevento told the Tribunal that the applicant had signed an authorisation for the lodgement of the documentation although that authorisation could now not be located. The applicant said he could not recall signing anything in or around April 2008. The MCS reported personal contributions of $1,000,000 by the applicant and $410,000 by Mrs Rinaldo. The final such contribution was $700,000 to the applicant's member account on 29 June 2007. In the previous year, the MCS reported personal contributions by the applicant and Mrs Rinaldo of $150,000 each.
9. The 2006-07 year, for the purposes of ECT, included non-concessional contributions made between 10 May 2006 and 30 June 2006. As a result, the total non-concessional contributions by the applicant for the 2006-07 financial year were, on the basis of the statements as originally lodged by the Fund, $1,150,000. This meant that there was an excess non-concessional contribution of $150,000.
10. On 11 August 2009 the respondent advised the applicant of its intention to raise an ECT assessment for the year 2006-07.
11. On 7 September 2009 Mr Benevento lodged an amended MCS with the Commissioner, amending the contributions for the year 2006-07 to $850,000 in the case of the applicant and $560,000 in the case of Mrs Rinaldo.
12. On 12 October 2009 Mr Benevento advised the respondent, in response to a request for further information, that there had been an error in allocating contributions in the 2006-07 year. Specifically, $150,000 of the $700,000 contribution made on 29 June 2007 was incorrectly allocated to the applicant's member account and should instead have been allocated to Mrs Rinaldo’s member account.
13. On 23 November 2009 the Fund lodged an amended MCS for 2006-07, decreasing the applicant's personal contribution by $150,000 from $1,000,000 to $850,000, and increasing the amount attributable to Mrs Rinaldo by $150,000 from $410,000 to $560,000.
14. On 8 December 2009 the respondent requested additional information in order to assist it in making a decision about the applicant's objection to the ECT notice. In response, on 22 December 2009, Mr Benevento provided further particulars in the form of a timeline together with a bundle of documents incorporating relevant memoranda, minutes, statements and accounts. Mr Benevento's covering letter emphasised that a genuine error had occurred as a result of a failure by the applicant and his wife, as directors of the Trustee, to diligently review the allocation of contributions during the 2006-07 financial year. This had resulted in an incorrect allocation of one joint contribution made via jointly-held bank account in circumstances where clearly Mr Rinaldo would have no motivation to exceed his contribution limit when his wife made total contributions during the same period within her limit. The bundle of documents provided by Mr Benevento included minutes/resolutions of the R&M Rinaldo Superannuation Fund, signed by the applicant and Mrs Rinaldo and dated 29 June 2007, stipulating contributions to the Fund of $550,000 and $150,000 respectively.
15. The respondent determined that the evidence supported the view that the contributions as originally reported were correct. That is, the amount of the applicant's non-concessional contributions in 2006-07 was $1,150,000 and therefore the excess non-concessional contributions for that year were $150,000.

Legislation

16. Division 280 of the Income Tax Assessment Act 1997 (the Act) contains a guide to the superannuation provisions. Section 280-5(2), in providing an overview, states:

In the contributions phase, the contributions are made to a superannuation plan in respect of a member of the plan.

17. Section 280-15 of the Act sets out the limitations on superannuation tax concessions:

(1) There is a limit to contributions that can be made in respect of an individual in a year that receive favourable tax treatment. This limit takes the form of a tax on excessive contributions, and neutralises the favourable tax treatment arising from the excessive contributions.

(2) If concessional contributions exceed an indexed cap, the individual concerned is taxed on the excess. This tax liability can be met by releasing money from his or her superannuation interests.

(3) If non-concessional contributions (including any excess for the purposes of the first cap) exceed a second indexed cap, the individual is taxed on the excess. The second cap is equivalent to three times the first cap. The payment of this tax liability must be accompanied by releasing money equivalent to the liability from his or her superannuation interests.

18. The taxation of superannuation benefits varies with the age of the recipient and the type of benefit. Relevant to the present case, sections 280-30(2) and 280-30(3) of the Act provide:

(2) If the member is aged 60 or over, superannuation benefits (both lump sums and income streams) are tax free if the benefits have already been subject to tax in the fund (that is, where the benefits comprise a taxed element). This covers the great majority of superannuation members.

(3) Where a superannuation benefit contains an amount that has not been subject to tax in the fund (an untaxed element), this element is subject to tax for those aged 60 or over, though at concessional rates. This is relevant generally to those people (for example, public servants), who are members of a superannuation fund established by the Australian Government or a state government.

19. Pursuant to section 292-80 of the Act, a taxpayer is liable to pay ECT on excess non-concessional contributions for a financial year:

You are liable to pay excess non-concessional contributions tax imposed by the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 if you have excess non-concessional contributions for a financial year.

20. Non-concessional contributions arise if the amount of non-concessional contributions exceeds the non-concessional contributions cap for that financial year. In this regard, section 292-85(1) of the Act provides:

You have excess non-concessional contributions for a financial year if the amount of your non-concessional contributions for the year exceeds your non-concessional contributions cap for the year. The amount of the excess non-concessional contributions is the amount of the excess.

21. The amount of non-concessional contributions is determined according to section 292-90. Of direct relevance to these proceedings, the section provides:

(1) The amount of your non-concessional contributions for a * financial year is the sum of:

(a) each contribution covered under subsection (2); and

(aa) each amount covered under subsection (4); and

(b) the amount of your excess concessional contributions (if any) for the financial year.

(2) A contribution is covered under this subsection if:

(a) it is made in the * financial year to a * complying superannuation plan in respect of you;

...

22. The Income Tax (Transitional Provisions) Act 1997 contains the transitional arrangements relevant to the 2006-07 financial year. Of direct relevance to the claim before the Tribunal, section 292-80 provides:

(1) The object of this section is to apply (with modifications) provisions relating to excess non-concessional contributions tax in respect of certain contributions made during the period that:

(a) begins on 10 May 2006; and

(b) ends just before 1 July 2007.

...

(3) Those provisions apply in relation to that period, and do so as if:

...

(c) the person's non-concessional contributions cap for that financial year were $1,000,000;

... .

Consideration

23. The issue in dispute is whether the contribution of $700,000 made to the Fund in the transitional financial year by the applicant and his wife, from funds which had been held in a joint account, represented a contribution solely from the applicant so that it counted towards his non-concessional contributions, or whether it was a contribution partly from the applicant and partly from his wife.
24. As contended by the respondent, the answer turns upon the intention of the applicant and his wife in making the contribution at the time the contribution was made. The fact that a payment is subsequently characterised in a different way is not conclusive of its true character, except insofar as it is evidence of the tax payer's intention at the time of payment. In Player v Commissioner of Taxation [2011] FCA 869, Edmonds J in the Federal Court of Australia observed:

How a taxpayer characterises a receipt in the taxpayer's filings with the Commissioner is never conclusive of its true character, albeit evidence of how the taxpayer viewed its character.

25. Taxation Ruling TR 2010/1 contains the Commissioner's views on superannuation contributions. Part A includes a discussion of the Commissioner's purpose test.
26. Paragraph 4 of the Ruling states:

In the superannuation context, a contribution is anything of value that increases the capital of the superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

27. The Ruling makes a distinction between objective purpose and subjective intention. Paragraph 7 states:

A person's purpose is the object which they have in view or in mind. Generally, a person will be said to intend the natural and probable consequences of their acts and likewise their purpose may be inferred from their acts. This is a determination of a person's objective purpose, not their subjective intention.

28. The Ruling is consistent with the observation by Hill J in Raymore Contractors Pty Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1410 who observed (at 1423-1444), albeit in a different context involving the Income Tax Assessment Act 1936:

Generally speaking a person will be said to intend the natural and probably consequences of his acts and likewise his purpose may be inferred from them.

29. The courts have emphasised the distinction between objective purpose and subjective intention. In Magna Alloys and Research Pty Ltd v Federal Commissioner of Taxation [1980] FCA 150; (1980) 49 FLR 183 (at 185), Brennan J observed:

Motive means ... the reason why a taxpayer decides to incur the expenditure. Purpose may be either a subjective purpose – the taxpayer's purpose – where it means the object which the taxpayer intends to achieve by incurring the expenditure; or it may be an objective purpose, meaning the object which the incurring of the expenditure is apt to achieve. Both motive and subjective purpose are states of mind and they are to be distinguished from objective purposes, which is an attribute of a transaction.

30. It follows that the Tribunal must distinguish between the objective purpose of the applicant in allocating $700,000 to his member account on 29 June 2007 on the one hand, and his motive for doing so on the other. While it can be assumed that the applicant's motive was to take maximum advantage of the transitional superannuation legislation, the respondent asserted that his specific intention (as implemented by his tax agent) at the time was to allocate the sum of $700,000 to his member account. This constituted the objective purpose of the transaction.
31. The Tribunal considered whether there is any documentation prepared contemporaneously with the contribution which would assist in determining the applicant's intention. In this instance, however, there was no contemporaneous record of the applicant's purpose in making the payment in question. The Tribunal is not swayed by minutes/resolutions of the R&M Rinaldo Superannuation Fund, signed by the applicant and Mrs Rinaldo and dated 29 June 2007, as these were clearly prepared subsequent to the event.
32. The amount of $700,000 was recorded in the Fund's financial records and financial statements prepared pursuant to the Superannuation Industry (Supervision) Act 1993 and audited in accordance with section 113 of that Act. The respondent also referred to the annual return lodged by the applicant with the Commissioner under section 36A of that Act, and the MCS lodged under both section 78 of the Superannuation Guarantee (Administration) Act 1992 and the provisions of the Superannuation (Governments Co-Contributions for Low Earners) Act 2003.
33. Of particular relevance to this discussion is the effect of section 292-90 of the Act which refers to contributions made in respect of a particular member. The words in respect of in this context logically refer to a contribution in respect of an individual for the purpose of determining the extent of contributions which are entitled to receive concessional tax treatment. As submitted by the respondent, it would be inconsistent with that purpose for a contribution to count towards another person's contributions cap.
34. The evidence supports the inference that the $700,000 payment on 29 June 2007 was intended in respect of the applicant only. In particular, a larger sum could have been attributed to the applicant's wife at the time but it was clearly considered (albeit incorrectly) that capacity existed for $700,000 to be allocated to the applicant in order to bring the total of his contributions for the relevant year to $1,000,000. It was, in all respects, a considered but misconceived allocation on behalf of the applicant. The objective of the allocation, and the motive underlying the pursuit of that objective, did not align.
35. It was only after the applicant received notification from the respondent of the potential ECT liability that amendments were made to the MCS to rectify the error. A subsequent statement that the payment was incorrectly allocated is not reliable evidence of the character of the payment in respect of the applicant at the time the payment was made.
36. The respondent observed that principles relating to restitution in the event of unjust enrichment of the fund on the basis of mistake were not applicable in the current instance. This situation might arise if the payer had mistakenly believed he was under an obligation to make a contribution or mistakenly believed the superannuation fund was a creditor but not in circumstances where the payment was intended to be a contribution but unintentionally exceeded the excess contributions cap. The Tribunal agrees with this observation.
37. This position is consistent with ATO Interpretative Decision ID 2010/104 on the subject Superannuation – excess contributions tax: restitution of a "mistaken" contribution. The Interpretative Decision specifically considered a scenario in which an individual's non-concessional contributions under section 292-90 of the Income Tax Assessment Act 1997 exceeded the cap as a consequence of following incorrect advice from a financial adviser and notwithstanding an offer of restitution in relation to the excess. The Commissioner concluded that the full amount of the personal contribution, including the excess, would be included in the taxpayer's non-concessional contributions. Relying in particular upon the authority of David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 and Personalised Transport Services Pty Ltd v AMP Superannuation Ltd [2006] NSWSC 5, the Commissioner expressed the following view:

It is the Commissioner's view that in this case the individual formed an intention to make a superannuation contribution of a certain amount to the fund and gave effect to that intention by making a contribution of that amount. The fund was the intended recipient of the amount and the individual obtained the expected superannuation benefits. The individual was not mistaken in the sense that he thought he was required to make a contribution. In the circumstances of this case, there was a contribution ... and it would not have been unjust for the trustee of the fund to retain the contribution.

38. In the Tribunal’s opinion there is no basis to sustain the applicant's assertion that he was not responsible for the incorrect allocation because his tax agent had acted incorrectly and/or outside the scope of his authority.
39. Conflicting evidence was presented to the Tribunal on the question of whether, and to what extent, the applicant's tax agent proceeded with the incorrect allocation on instructions from the applicant. The applicant said he could not recall signing any documentation in April 2008, whereas Mr Benevento said the applicant had in fact signed the relevant documentation even though that documentation could now not be located.
40. At the hearing, and in subsequent submissions to the Tribunal, the applicant's representatives insisted that the MCS lodged on 14 April 2008 was not authorised by the applicant, nor was the original Fund income tax and regulatory return for the year 2006-07. The applicant described the situation as a case of unauthorised lodgement upon which the respondent had relied in assessing the Excess Contribution. In a subsequent submission, the applicant's representative drew the Tribunal's attention to the fact that on 28 October 2011 the applicant and Mrs Rinaldo had jointly written to the Australian Taxation Office, requesting cancellation of the relevant tax returns and MCS which had been lodged electronically without their authorisation.
41. The Tribunal does not consider that a great deal turns on this point. It is clear that the relationship between the applicant and TTS at the time was such that Mr Benevento had the confidence of the applicant and the implicit, if not express, authority to act on the applicant's behalf. The Tribunal is not persuaded by the applicant's attempt to retrospectively re-categorise his relationship with his tax agent or the status of documentation lodged on his behalf by the tax agent.

Decision

42. The Tribunal's conclusion is that the applicant, relying upon financial advice, made a conscious decision to authorise a contribution of $700,000 to his member account, effective 29 June 2007.
43. His intention was to round up his contributions for the financial year in question to $1,000,000; thereby taking advantage of the transitional superannuation arrangements in place at that time.
44. The allocation of $700,000 by the applicant was considered and deliberate. It was made in good faith. It was, however, made in the mistaken belief that the contribution would bring the sum of his personal contributions to $1,000,000 for the year 2006-07, clearly overlooking the further contribution of $150,000 which he had made between 10 May 2006 and 30 June 2006.
45. The distinction between objective and motive is a fine, but important, one. The objective was to allocate $700,000 to his member account. What the applicant hoped to achieve – his motive – was to maximise the benefits available to him under the transitional superannuation provisions in force at the time. The fact that he failed to realise this goal was not the result of a clerical error or a misconception as to an existing obligation but rather the result of a misunderstanding as to the ultimate consequences of a conscious act.
46. The applicant's mistake – or the mistake by his advisors if that is where the fault lay – cannot be rectified retrospectively. A taxpayer cannot retrospectively reorganise his affairs simply on the basis that the Commissioner has disallowed his original strategy. The applicant in this instance proceeded with a particular course of action which proved to be inappropriate. It was not a clerical error but, in effect, a strategic one.
47. For the above reasons, The Tribunal affirms the decision under review.

I certify that the forty-seven [47] preceding paragraphs are a true copy of the reasons for the decision herein of:
Dr G Hughes, Member

Signed: .......[sgd]............................

Associate

Date of Hearing 21 October 2011

Date of Decision 25 November 2011

Solicitor for the Applicant Mr H Le, Contact Accountants & Advisors

Solicitor for the Respondent Ms A Smyth, Australian Taxation Office