Although the Commissioner is more often than not successful when challenged in the AAT on the question of whether special circumstances exist in relation to an Excess Contributions Tax assessment, an emerging line in the decisions go against the Commissioner and suggest that 'special circumstances' can be established by showing that injustice or unfairness will arise without the need to find that the circumstances are out of the ordinary.
In a previous post I mentioned the matter of Bornstein. Since that case, 2 further AAT decisions have favoured the taxpayer. In Longcake v Commissioner of Taxation the Tribunal found that special circumstances existed where an employer failed to follow a salary sacrifice agreement, and instead made contributions in a subsequent financial year, which gave rise to excess contributions in that year.
In Hamad v Commissioner of Taxation special circumstances were found to exist where an employer did not remit salary sacrifice contributions until after the end of the relevant quarter to which they related, despite the employer showing the reduced salary in payment advices during the quarter. The finding of special circumstances arose notwithstanding that there was no formal agreement between the taxpayer and the employer.
More importantly in that case, Senior Member Allen was critical of earlier Tribunal decisions saying that "the members comprising the Tribunal seem to have adopted an unduly narrow interpretation of what may constitute special circumstances. In particular, the suggestion in Tran and Commissioner of Taxation [2012] AATA 123 that circumstances will not be special unless they are out of the ordinary is, in my respectful opinion, misconceived." He went on to quote extensively from his earlier decision in Jones and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 77 which examined the line of decisions in this area. The quote concludes: "It is but another way of putting the proposition that injustice or unfairness by the strict application of the Act cannot of itself amount to a special circumstance ... That is a proposition which, as I have noted, has been rejected by a number of decision of the courts..."
This decision indicates that where a taxpayer can demonstrate that injustice and unfairness would otherwise result from the strict application of the provisions, it will be open to the Commissioner to find that special circumstances exist, and to allocate contributions to another financial year or to disregard them in order to address the injustice or unfairness.
These cases also show an increasing emphasis on the need to have regard to the object of Division 292 - to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person's life.
