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22 Aug 07 Contribution to NZ super fund not deductible - Cameron Brae

The Full Federal Court (Stone and Allsop JJ, Jessup J dissenting) has substantially dismissed the taxpayer's appeal from the decision of Ryan J who had held that the taxpayer was not entitled to a deduction for a contribution made to a non-complying superannuation fund established in New Zealand. Benefits payable from the fund were at the trustee's discretion. Thus, although Stone and Allsop JJ held that the fund was a superannuation fund for the purposes of  s 82AAE of ITAA 1936, they also held that the contribution was not made for the purpose "of making provision for superannuation benefits for an eligible employee" as required by s 82AAE. Their Honours said, at para 4:

"We see that phrase as requiring the payment to make provision for, in the sense of provide, individual personal benefits, for an existing employee or employees. Where the decision to provide such benefits is at the discretion of the trustee, both in relation to making a payment and in deciding who is to be the beneficiary of such payment, merely augmenting the funds under the control of the trustee is not sufficient to provide individual personal benefits for an existing employee or employees."

Their Honours continued, at para 5:

"Given that our view is that there is no deduction available under s 82AAE, it is necessary to deal with s 8–1 of the 1997 Act. (There was no debate about the availability of s 8–1 as a basis for deductibility in these circumstances.) In our view, there is also no deduction available under s 8–1. Although we are prepared to accept that the payment was an outgoing satisfying s 8–1(1), we consider that the payment was an outgoing of capital for the purposes of s 8–1(2)."

However, the Full Court upheld the taxpayer's appeal on the question of penalty, holding that "the question of construction and interpretation of s 82AAE was reasonably open and arguable": Cameron Brae Pty Limited v FCT [2007] FCAFC 135 ( Full Federal Court; Stone, Allsop and Jessup JJ; 21 August 2007).

For a copy of the decision, go here

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