No special circumstances to justify disregarding super contribution - Dowling
20 Mar 2014
The Federal Court (Greenwood J) has upheld the Commissioner's appeal from the decision of the AAT in Dowling and FCT  AATA 49.
The AAT exercised the discretion conferred on the Commissioner by s 292-465 of ITAA 1997 to make a written determination that, because of special circumstances, a non-concessional contribution made by the taxpayer in the income year ended 30 June 2009 be disregarded in determining whether she had made excess non-concessional contributions in the income year ended 30 June 2011.
Prior to 2008, the taxpayer and her husband had separate superannuation accounts; the taxpayer had an account with Unisuper, and her husband had an account with Sunsuper. In 2008-09, in anticipation of her husband reaching the eligibility for the age pension, he transferred his superannuation into a new account that was in the taxpayer’s name with Sunsuper ("Transaction 1"). This occurred following advice sought from both a Centrelink Finance Officer and a representative of Sunsuper.
In 2010-11, the taxpayer then made another transaction with her Unisuper superannuation account, this time withdrawing $240,000 and re-contributing $200,000 of it to the same account, on the understanding that this would be beneficial to her children after she died ("Transaction 2").
The Commissioner assessed the taxpayer as having made an excess non-concessional contribution in 2010-11 of $43,858 for that year. This was the excess of the "bring forward" cap of $450,000 triggered in the 2009 income year.
The AAT held that special circumstances existed in relation to Transaction 1 which justified the exercise of the discretion to disregard the non-concessional contribution, and that this was consistent with the object of the legislation. In contrast, the AAT found no special circumstances in relation to Transaction 2. However, the finding in relation to Transaction 1 was sufficient to have the Commissioner's objection decision in relation to the excess contributions assessment set aside. In addition, the Commissioner's penalty assessment was set aside.
On appeal, Greenwood J noted that it was a precondition of the ability of the Commissioner to make the written determination that there were special circumstances and that the making of the determination was consistent with the object of the legislation - see s 292-465(3). Only if these two preconditions were satisfied was the Commissioner entitled to have regard to the matters referred to in ss 292-465(5) and (6) in deciding whether or not to exercise the discretion. However, in considering whether the making of the determination was consistent with the object of the legislation, Greenwood J held that the AAT had "infused" the threshold question with a consideration of the matters in ss 292-465(5) and (6).
Greenwood J also noted that there were in fact no excess concessional contributions in the 2009-09 year when Transaction 1 was made. However, Greenwood J was prepared to assume that the discretionary power under s 292-465(1)(b) extends to disregarding some or all of the 2008-09 financial year contribution. The question that would then arise is whether there were “special circumstances” in relation to that contribution. The question of whether there were special circumstances in relation to that contribution would also be at least a relevant consideration to take into account in examining whether there were, in context, special circumstances in which Transaction 2 was made.
After examining the reasons given by the AAT for holding that there were "special circumstances", Greenwood J held that none of the matters satisfied, as a matter of law, the description "special circumstances". Rather they were all considerations specific to the circumstances of the taxpayer and her husband.
His Honour said, at para 103:
"There is nothing which 'distinguishes' or 'differentiates' Mrs Dowling’s case from other individual cases to take it out of 'the usual or ordinary case'.
Similarly, Greenwood J held that making a determination was not consistent with the object of the legislation.
It followed that the discretion under s 292-465 was not enlivened and the AAT fell into error in deciding otherwise. The matter was remitted to the AAT to be heard and determined according to law.
FCT v Dowling  FCA 252 (19 March 2014).