Yates v Commissioner of Taxation of the Commonwealth of Australia [2000] FCA 719 (31 May 2000)

Last Updated: 1 June 2000

FEDERAL COURT OF AUSTRALIA

Yates v Commissioner of Taxation of the Commonwealth of Australia [2000] FCA 719

TAXATION - superannuation - eligible person - whether a person, whose superannuation benefits during the relevant year of income, includes income or accretions on contributions made by an employer in previous years, is disqualified from being an "eligible person".

Income Tax Assessment Act 1936 (Cth) ss 82AAS(2)(b) and 82AAT

Findlay v Federal Commissioner of Taxation (1998) 39 ATR 266 - considered

YATES v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

V 669 of 1999

JUDGES: HILL, MERKEL AND GOLDBERG JJ

PLACE: MELBOURNE

DATE: 31 MAY 2000

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 669 of 1999

BETWEEN:	JOHN YATES APPELLANT
AND:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT
JUDGE:	HILL, MERKEL AND GOLDBERG JJ
DATE OF ORDER:	31 MAY 2000
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondent's taxed costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 669 of 1999

BETWEEN:	JOHN YATES APPELLANT
AND:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT
JUDGE:	HILL, MERKEL AND GOLDBERG JJ
DATE:	31 MAY 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT:

1 This appeal concerns whether the appellant is an "eligible person" as defined in s 82AAS(2) of the Income Tax Assessment Act 1936 (Cth), in respect of the 1992 year of income. It is common ground that, if the appellant is an "eligible person" as defined, then under s 82AAT he is entitled to an allowable deduction in respect of the contribution made by him to the Prentice Executive Superannuation Fund ("the Fund") during the 1992 year of income ("the 1992 contribution").

2 Section 82AAS(2) provides:

"A person (in this subsection referred to as the `relevant person') is an eligible person in relation to a year of income for the purposes of this Subdivision unless -

(a) during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person upon retirement or for dependants of the relevant person in the event of the death of the relevant person (whether or not any condition other than the retirement or death of the relevant person would be required to be satisfied in order that those benefits be provided); and

(b) to the extent to which those benefits would be attributable to the year of income -

(i) the benefits would be wholly or partly attributable to contributions made to a superannuation fund in relation to the relevant person by a person other than the relevant person; or

(ii) the benefits would, in whole or in part, be paid out of moneys that would not represent -

(A) contributions made by the relevant person to a superannuation fund;

(B) contributions made by the relevant person under a scheme for the payment of benefits upon retirement or death, being a scheme constituted by or under a law of the Commonwealth or of a State or Territory; or

(C) income or accretions arising from contributions referred to in sub-subparagraph (A) or (B)."

3 The Commissioner of Taxation disallowed the appellant's claim for a deduction in respect of the 1992 contribution on the ground that the applicant was not an "eligible person". The Administrative Appeals Tribunal affirmed the decision of the Commissioner, and the learned trial judge, Heerey J, dismissed the appeal against the Tribunal's decision.

4 The relevant facts were not in dispute. They were set out by Heerey J as follows:

"The applicant was born in 1927. For many years he was an employee of Prentice Builders Ltd (the Company). He was also a member of the Prentice Executive Superannuation Fund (the Fund). The Fund was at all material times a "complying superannuation fund" within the meaning of Pt IX of the Act.

On 11 September 1991 the applicant gave the Company three months notice of his intended resignation. On 11 November 1991 he made a contribution of $303,000 to the Fund. That contribution was the only one made by the applicant to the Fund throughout the period of his membership.

On 10 December 1991 the applicant resigned as an employee of the Company. On the same day the Fund paid him a benefit totalling $815,115 calculated as follows:

Balance at 1 July 1991 $511,079

Allocated earnings

1 July - 10 December 1991 35,236

Contribution 303,000

Income tax on contribution

(15% of $228,000) (34,200)

$815,115

Part of the benefit (being all or part of the allocated earnings of $35,236) was income or the aggregate of accretions arising in the 1992 income year from the Company's contributions made in prior years. The Company did not make contributions to the Fund in respect of the applicant after the 1989 year of income.

In his return of income for the 1992 income year the applicant claimed a deduction of $228,000 in relation to his contribution to the Fund calculated pursuant to s 82AAT(2) as follows:

Claim $3,000

75% of the amount over $3,000 225,000

$228,000"

5 It was not in dispute that, for the purposes of s 82AAS(2)(a), it was reasonable to expect that superannuation benefits would be provided to the appellant upon his retirement, or to his dependents in the event of his death. The Commissioner did not seek to argue that par (b)(i) applied, but did contend, as Heerey J found, that par (b)(ii) applied. Heerey J found that part of the benefits that would be provided to the appellant, namely part of the allocated earnings of $35,236, did not fall within sub-pars (A), (B), or (C) of par (b)(ii). Obviously, the earnings of $35,236 were not derived in whole from the $303,000 contributed to the Fund by the employer on 11 November 1991. This sum was only available to generate earnings for 29 days, that is until the appellant's resignation on 1 December 1991. A substantial part of the allocated earnings represented earnings in respect of contributions made by the appellant's employer, Prentice Builders Ltd, to the Fund in prior years. On the plain meaning of s 82AAS(2)(b)(ii), his Honour was correct in finding that such earnings were not contributions of the type specified in sub-pars (A) and (B) of par (b)(ii). Nor were they income or accretions from such contributions, as are specified in sub-par (C).

6 Accordingly, on the basis of the plain meaning of s 82AAS(2)(b)(ii), the appellant is not an "eligible person".

7 Counsel for the appellant submitted that the plain meaning of s 82AAS(2)(b)(ii) should not be applied because the clear legislative intent was to disqualify a taxpayer from being an eligible person only if contributions, or income or accretions were earned on contributions, made by any other person during the relevant, rather than a previous, year of income. Counsel conceded that his proposed construction of s 82AAS(2)(b) required that certain words (which are underlined below) were required to be added to the introductory words to par (b) so it reads as follows:

"(b) to the extent to which those benefits would be attributable to contributions made during the year of income -"

8 Counsel sought to rely upon the Explanatory Memorandum for the Income Tax Assessment Amended Bill (No 4) 1980, which introduced s 82AAS(2). The Explanatory Memorandum (at 29-30) stated:

"Sub-section (2) of the new section 82AAS will deny eligibility for the special deduction to any person who in relation to the year of income is the object of superannuation support from an employer or some other person. This `support' may be given directly by way of specific contributions to a superannuation fund established for the benefit of the person or a class of persons of which he or she is member. It may arise, indirectly, through the employer, or other person, undertaking through a scheme that a retirement benefit will be paid (whether or not a fund has been set aside) on the person's retirement from an office or employment, for example, as is the situation in some public sector schemes. Such `supported' employees are to be excluded from eligibility to obtain the new deduction, which is directed to persons who, in relation to the income year in which they make contributions to a paragraph 23(ja) or section 79 fund, do not have contributions or other superannuation payments made by someone else on their behalf.

Accordingly, sub-section (2) treats a person as an eligible person in relation to a year of income for the purposes of the new deduction unless paragraphs (a) and (b) are satisfied. These paragraphs, in combination, in effect describe who is a `supported' person. Paragraph (a) will be satisfied if there are circumstances existing in part or the whole of a year that make it reasonable to expect that the person will have superannuation benefits provided for him or her or for his or her dependants. Paragraph (b) will be satisfied if, to the extent that those expected benefits, when paid, are attributable back to the year, they would to any extent relate to contributions made to a superannuation fund for the person by another person, or would to any degree come out of moneys other than those representing the person's own contributions to a superannuation fund or public sector superannuation scheme (or earnings from those latter contributions)."

9 The difficulty confronting the appellant is that the Explanatory Memorandum is similarly ambiguous as to whether the denial of eligibility relates to persons who have received either direct superannuation "support" from an employer, or some other person, during the relevant year (ie. by way of contributions), or indirect "support" from the employer or the other person during that year (ie by way of income or accretions on previous years' contributions). Indeed, s 82AAS(2)(ii)(C) would be otiose or redundant if, as the appellant contends, it only applied to earnings on contributions made during the relevant, and not any previous, year of income. In our view the Explanatory Memorandum does not support the appellant's submission.

10 Counsel for the appellant also sought to derive support from the decision of Sundberg J in Findlay v Federal Commissioner of Taxation (1998) 39 ATR 266, in which his Honour said (at 270):

"Further, the introductory words of par (b) - `to the extent to which those benefits would be attributable to the year of income' - seek to identify the extent to which the expected benefits are attributable to the year of income. Benefits will be so attributable only if contributions have been made in that year. The context thus supports the ordinary meaning of `contributions made'." (Emphasis added)

11 His Honour's observations were made in a context quite different to that arising in the present case. Furthermore, even if they be accepted, the observations were made in relation to s 82AAS(2)(b)(i), rather than (ii), with which the present case is concerned. In that context, his Honour's observations in relation to par (b)(i) cannot affect, or apply to, the plain meaning of par (b)(ii). We accept that there may be some tension between the operation of the two sub-paragraphs on the approach taken by his Honour. However, we do not accept that that tension is to be resolved by changing the plain meaning of par (b)(ii) by reading in the words sought to be read into the introductory portion of par (b), as suggested by counsel for the appellant.

12 Finally, counsel for the appellant sought to derive some support from the amendment made in respect of the 1993 year of income, by the addition of a new para (D), which was added to s 82AAS(2)(b)(ii). For the reasons given by Heerey J, we do not regard the amendment as assisting the case sought to be put by the appellant. The words of s 82AAS(2)(b)(ii) are plain and unambiguous. In any event, as Heerey J observed, it cannot be said that the amendment was declaratory of what existed in par (b)(ii) before the amendment. The Explanatory Memorandum and Second Reading Speech do not support that construction.

13 Accordingly, for the above reasons, the appeal is to be dismissed with costs.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill, Merkel and Goldberg.

Associate:

Dated:

Counsel for the Appellant:	Mr N Rosenbaum
Solicitor for the Appellant:	Charlesworth Josem Partners Pty Ltd
Counsel for the Respondent:	Mr GJ Davies QC with Mr PH Solomon
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	23 May 2000
Date of Judgment:	31 May 2000