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GDGR and Commissioner of Taxation (Taxation) [2020] AATA 766 (30 March
2020)
Division:
TAXATION & COMMERCIAL DIVISION
File Number(s):
2017/2105–2108
2017/4218–4223
Re:
GDGR
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal:
The Honourable Justice J A Logan RFD, Deputy President
Date:
30 March 2020
Place:
Brisbane
1.
The respondent’s objection decisions of 1 September 2016 and 15 March 2017 be
set aside.
2.
In lieu thereof, the applicant’s objections be al owed on the basis that each of the
payments of invalidity pension under the
Military Superannuation and Benefits Act
1991 (Cth) (
MSB Act), received by him in the 2010 to 2015 (inclusive) income
years was a “superannuation benefit”, a “superannuation lump sum” and a
“disability superannuation benefit” and was required to be treated in accordance
with s 307-145 of the
Income Tax Assessment Act 1997 (Cth) (
ITAA97).
3.
The matter be remitted to the respondent for implementation of the Tribunal’s
decision, once it becomes final, in accordance with s 14ZZL of the
Taxation
Administration Act 1953 (Cth).
© Commonwealth of Australia 2018
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........................................................................
The Honourable Justice J A Logan RFD, Deputy President
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CATCHWORDS
TAXATION – INCOME TAX – where applicant was medical y discharged from the Army –
where applicant was classified under the Military Superannuation and Benefits Act 1991
(Cth) (MSB Act) as having a Class A invalidity – whether the invalidity pension payments
under the MSB Act for the income years ended 30 June 2010, 2011, 2012, 2013, 2014
and 2015 (relevant income years) should be treated in the manner prescribed in s 307-
145(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA97) – whether the applicant
made any election under reg 995-1.03 of the Income Tax Assessment Regulations 1997
(Cth) in respect of any of the applicant’s invalidity pension payments in any of the relevant
income years – whether the applicant’s invalidity pension was paid in respect of an
interest that is a defined benefit under s 291-175 of the ITAA97 – where the Treasury
Laws Amendment (Miscel aneous Amendments) Regulations 2018 (Cth) (amending
regulations) were made during the course of the review proceedings – where at the times
of assessment and when the applicant exercised statutory rights of objection against the
assessments, at the time when the objection decisions were made, at the time when the
right of review was exercised in respect of those objection decisions there was no
specification in the Income Tax Assessment Regulations 1997 (Cth) of any
“superannuation benefit” for the purposes of s 307-70(1) of the ITAA97
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
s 35
Defence Force Retirement and Death Benefits Act 1973 (Cth)
Family Law Act 1975 (Cth)
Income Tax Assessment Act 1997 (Cth)
ss 82-130, 280-1, 280-40, 291-175, 307-5, 307-
10, 307-65, 307-70, 307-145
Military Superannuation and Benefits Act 1991 (Cth)
Retirement Savings Accounts Act 1997 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth) s 10
Taxation Administration Act 1953 (Cth) ss 14ZZE, 14ZZK, 14ZZL
Income Tax Assessment Regulations 1997 (Cth) regs 995-1.01, 995-1.03
Treasury Laws Amendment (Miscel aneous Amendments) Regulations 2018 (Cth)
CASES
Burns v Commissioner of Taxation [2020] AATA 671
Campbel v Superannuation Complaints Tribunal (2016) 155 ALD 66
Douglas v Commissioner of Taxation [2020] AATA 494
Nette v Howarth (1935) 53 CLR 55
Re Hammerton and Comcare (1995) 21 AAR 204
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Scarf v Jardine (1882) 7 App.Cas. 345
Tubemakers of Australia Limited v Federal Commissioner of Taxation (1993) 25 ATR 183
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REASONS FOR DECISION
The Honourable Justice J A Logan RFD, Deputy President
30 March 2020
Introduction
1.
The applicant is an ex-serviceman. He is also the recipient of an invalidity pension and
other invalidity benefits under the
Military Superannuation and Benefits Act 1991 (Cth)
(
MSB Act). He is at odds with the Commissioner
of Taxation (
Commissioner) in relation
to how the
Income Tax Assessment Act 1997 (Cth) (
ITAA97) applies to his invalidity
benefits in the 2010 to 2015 income years (
the relevant income years).
2.
In accordance with the right conferred on him by s 14ZZE of the
Taxation Administration
Act 1953 (Cth) (
TAA), the applicant requested that the hearing of his applications for the
review of objection decisions of the Commissioner with which he is dissatisfied be
conducted in private. So as not to subvert Parliament’s purpose in conferring that right, a
pseudonym has been given to the applicant in the title of the proceeding. Like reasons
dictated the giving of a direction under s 35 of the
Administrative Appeals Tribunal Act
1975 (Cth) in the course of the hearing restricting access to documents on the Tribunal’s
file.
3.
The present is one of a number of test cases that concern the interplay between
legislative schemes made from time to time by Parliament for invalidity, retirement and
death benefits for certain members and former members of the Australian Defence Force
(
ADF) and income tax law. I have already heard and determined two such cases,
Douglas
v Commissioner of Taxation [2020] AATA 494 (
Douglas) and
Burns v Commissioner of
Taxation [2020] AATA 671 (
Burns).
4.
Douglas concerned an earlier legislative scheme, that for which the
Defence Force
Retirement and Death Benefits Act 1973 (Cth) provides. Like the present case,
Burns concerned the scheme for which the MSB Act provides. While I adhere to the views that I
expressed in
Douglas and in
Burns, the issues of law and the background facts in the
present case are not identical to either of those earlier cases, although there are some
issues that overlap with
Burns in particular.
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Issues
5.
The overarching issue in the present review proceeding is whether the applicant has
proved the assessments in question to be excessive: s 14ZZK(b)(i), TAA. Subject to that,
and having regard to the grounds of objection which came to be pressed, the fol owing
issues arise for determination:
(a)
Is each payment of the invalidity pension under the MSB Act, received by the
applicant in the relevant income years, a payment from a superannuation fund
because the applicant is a fund member such that it is a “superannuation benefit”
pursuant to s 307-5(1) of the ITAA97?
(b)
Is the applicant’s invalidity pension a “superannuation income stream” such that
each payment of that pension in the relevant income years is a “superannuation
income stream benefit” pursuant to s 307-70 of the ITAA97 (and, if not, is each a
“superannuation lump sum” pursuant to s 307-65 of the ITAA97)?
(c)
Has the applicant made any election under reg 995-1.03 of the
Income Tax
Assessment Regulations 1997 (Cth) (
ITAR) in respect of any of the applicant’s
invalidity pension payments in any of the relevant income years?
(d)
Is the applicant’s invalidity pension paid in respect of an interest that is a defined
benefit interest under s 291-175 of the ITAA97?
(e)
What is the effect, if any, on the present proceeding of the
Treasury Laws
Amendment (Miscel aneous Amendments) Regulations 2018 (Cth) (
the 2018
Amendment Regulations)?
6.
The applicant original y also raised an issue as to whether his invalidity pension payments
were employment termination payments under s 82-130 of the ITAA97. Ultimately, he did
not press that issue.
Assessments, Objections, Objection Decisions and Review Applications
7.
Summarised in the table below are the assessments and related objections relevant to
this proceeding.
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Income Year Assessment
Amended
Objection
Amended
Objection
Ended
Assessment
Assessment
30.06.2010
30.01.2012
24.12.2015
11.11.2015
-
-
(Cancel ed)
30.06.2011
30.01.2012
-
11.11.2015
-
-
30.06.2012
10.03.2015
19.11.2015
17.06.2016
12.09.2016
25.01.2017
30.06.2013
10.03.2015
19.11.2015
17.06.2016
12.09.2016
25.01.2017
30.06.2014
10.03.2015
19.11.2015
17.06.2016
12.09.2016
25.01.2017
30.06.2015
09.10.2015
-
17.06.2016
12.09.2016
25.01.2017
8.
There are two objection decisions that are subject to review by the Tribunal in this
proceeding. Tribunal application numbers 2017/2105-2108 relate to the Commissioner’s
objection decision of 15 March 2017. That objection decision related to assessments and
amended assessments for the 2012 to 2015 income years. Tribunal application numbers
2017/4218-4223 relate to the Commissioner’s objection decision of 1 September 2016.
That relates to the assessments for the 2010 and 2011 income years.
Background Facts
9.
The background facts are not controversial. Based on the material before the Tribunal, I
make the fol owing findings of fact.
10.
The applicant was born in 1967.
11.
The arm of the ADF in which the applicant performed his military service was the
Australian Army. Initial y, the applicant was member of the Army Reserve, in which he
enlisted in 1993. The applicant’s period of service in the Army Reserve is not presently
relevant, because it did not entail his becoming a member of the scheme for which the
MSB Act provides.
12.
On 7 November 1995, the applicant either enlisted in, or was transferred to (it is
unnecessary to identify which) the Regular Army. He was al otted (or remained al otted)
to the Royal Australian Infantry Corps from then until December 2002. Notably, his period
of infantry service included duty as a Rifleman with the 4th Battalion, the Royal Australian
Regiment.
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13.
The applicant was transferred from the Royal Australian Infantry Corps to the Australian
Intel igence Corps (
AIC) in January 2003. He remained a member of the AIC for the
balance of his military service. While al otted to the AIC, he served as an intel igence
analyst with the 1st Intel igence Battalion and the 7th Signal Regiment.
14.
During the course of his service in the Regular Army, the applicant was deployed to East
Timor in 1999, 2001, 2004 and 2007. Some of that overseas-deployed service included
his participation in combat operations.
15.
The applicant sustained a variety of physical injuries in the course of his military service.
He also suffers from post-traumatic stress disorder as a result of his service. He was
discharged from the Army on medical grounds on 12 November 2009. He then held the
rank of Corporal.
16.
The applicant’s service with the Regular Army meant that he became a member of the
MSB Act scheme. As a sequel to his discharge from the Army, the applicant was
classified by determination as having a Class A invalidity for the purposes of the MSB Act
scheme. That classification took effect on the day fol owing his discharge from the Army.
The applicant remained so classified for the whole of the relevant income years.
17.
With effect on and from his Class A invalidity classification the applicant received, as part
of the invalidity benefits to which he thereby became entitled, payments of an invalidity
pension under the MSB Act. He continued to receive payments of that invalidity pension
throughout the relevant income years.
18.
On or about 27 January 2016, the applicant applied to the Commonwealth
Superannuation Corporation (
CSC) for an early release of his preserved benefits under
the MSB Act scheme. By then, the CSC had assumed responsibility for the administration
of that scheme. On or about 10 February 2016, received confirmation from the CSC that
his application for early release of these preserved benefits had been granted.
Relevant legislation and subordinate legislation
19.
Part 3-30 of the ITAA97, one of the Parts within Chapter 3 of that Act setting out
“specialist liability” rules, makes extensive provision in relation to the taxation treatment of
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superannuation. At a general level of abstraction, it may be said, as does s 280-1(2) within
that Part, that the purpose of the tax concessions in the Part is “to encourage Australians
to save in order to make provision for their retirement, recognising that superannuation
investments, and the income from them, are quarantined for retirement”. Another
observation that may be made is that this concessional tax treatment is, in general,
dependent upon compliance by providers of superannuation with the prudential and
operating standards found in and under the
Superannuation Industry (Supervision) Act
1993 (Cth) (
SIS Act) and the
Retirement Savings Accounts Act 1997 (Cth): s 280-40(1),
ITAA97.
20.
However, beyond this general level of abstraction, and certainly in the circumstances of
the present case, the idiom, “the devil is in the detail” is undoubtedly applicable.
21.
Found within Part 3-30 are Divisions 301 to 307. Divisions 301 to 306 make particular
provision in relation to the income tax treatment of particular payments of superannuation
benefits. Division 307 supplies the definitions for these Divisions.
22.
Within Division 307, and as in
Douglas and
Burns, the relevant definitions for present
purposes are the definitions of “superannuation lump sum” and “superannuation income
stream benefit”, flowing from s 307-65 and, in turn and controversial y, s 307-70. The
importance of these definitions is that, at the heart of the controversy is a question as to
whether the applicant’s invalidity pension payments ought to have been assessed in the
relevant income years on the footing that s 307-145 of the ITAA97 was applicable to them.
The Commissioner assessed the applicant in respect of those income years on the footing
that this section was not applicable to those payments.
23.
Section 307-145 of the ITAA97 provides:
307-145 Modification for disability benefits
(1)
Work out the tax free component of the *superannuation benefit under
subsection (2) if the benefit is a *superannuation lump sum and a *disability
superannuation benefit.
Note:
This section does not apply to an unclaimed money payment.
(2)
The tax free component is the sum of:
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(a) the *tax free component of the benefit worked out apart from this
section; and
(b) the amount worked out under subsection (3).
However, the tax free component cannot exceed the amount of the benefit.
(3)
Work out the amount by applying the fol owing formula:
Amount of Benefit x Days to retirement
Service days + Days to retirement
where:
days to retirement is the number of days from the day on which the person
stopped being capable of being *gainful y employed to his or her *last retirement
day.
service days is the number of days in the *service period for the lump sum.
(4) The balance of the *superannuation benefit is the taxable component of the
benefit.
24.
The drafting practice employed in the ITAA97 is that a term preceded by an asterisk (*) is
a defined term. Of the three defined terms within s 307-145(1), it is common ground that
the invalidity pension payments are a “superannuation benefit” and a “disability
superannuation benefit” but not that they are each a “superannuation lump sum”; hence
the importance of s 307-65 and s 307-70.
25.
As I observed in
Douglas and adopted in
Burns, the effect of s 307-65 is to create a
dichotomy. Any payment that is not a “superannuation income stream benefit”, as defined,
is a “superannuation lump sum”. Sections 307-65 and 307-70 respectively provide:
307-65 Meaning of superannuation lump sum
A superannuation lump sum is a *superannuation benefit that is not a
*superannuation income stream benefit (see section 307-70).
307-70
Meaning of superannuation income stream and superannuation
income stream benefit
(1) A superannuation income stream benefit is a *superannuation benefit
specified in the regulations that is paid from a *superannuation income stream.
(2) A superannuation income stream has the meaning given by the regulations.
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Note:
for the purposes of the transfer balance cap, the meaning of
superannuation income stream is affected by subsection 294-50(2).
26.
I set out pertinent provisions in the MSB Act scheme in
Burns.
A “superannuation lump sum”?
27.
For the reasons that I gave in
Burns, each of the invalidity pension payments made to the
applicant in the relevant income years under the MSB Act scheme was a “superannuation
lump sum”. That is because none were, by definition, a “superannuation income stream
benefit”.
28.
These reasons apart, because the applicant pressed an alternative submission that the
invalidity pension payments were not even a “pension” for the purposes of the definition of
“pension” in s 10 of the SIS Act. In deference to that submission, some elaboration of the
reasons that I gave in these two earlier cases is necessary.
29.
For a payment to be a “superannuation income stream benefit”, it must not only be
specified in “the regulations” but also be paid from a “superannuation income stream”.
That is defined, by s 307-70(2), by reference to the meaning given in “the regulations” to
“superannuation income stream”. The regulations concerned are the ITAR.
30.
During the relevant income years, and material y in relation to the “pension” submission,
reg 995-1.01(b) of the ITAR defined “superannuation income stream” to be an income
stream that:
(i)
is an annuity or pension within the meaning of the SIS Act; and
(ii)
commenced before 20 September 2007.
31.
On any view of the meaning of “pension”, the applicant’s invalidity pension payments did
not commence before 20 September 2007. They commenced upon the making of the
Class A invalidity classification determination with effect on and from the day fol owing his
discharge from the Australian Army. In itself, that renders the alternative offered by reg
995-1.01(b) of the ITAR inapplicable. However, the meaning of “pension” was ful y argued
in submissions and should therefore be addressed.
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32.
The meaning of “pension” in the SIS Act is supplied by s 10, which provides:
pension, except in the expression old-age pension, includes a benefit provided by
a fund, if the benefit is taken, under the regulations, to be a pension for the purposes
of this Act.
33.
The applicant’s submissions proceeded from a construction of the definition in s 10 of the
SIS Act that afforded the conditional clause that refers to the regulations under that Act an
overarching, qualifying role. Like the Commissioner in his submissions, I do not accept
that the clause has this role. The definition of “pension” is inclusive. Apart from the
meaning of “pension” as a matter of ordinary English, it includes what is taken to be a
pension by the regulations. The conditional clause governs only the inclusive part of the
definition.
34.
In any event, the applicant submitted that the fol owing features of the Rules (
MSB Rules)
scheduled to the MSB Deed (itself a schedule to the MSB Act) that detail eligibility for
benefits and how the scheme is to be administered meant that, though described as an
“invalidity pension”, the payments were not a “pension” within the ordinary meaning of that
word:
(a) in the circumstances of this case, the invalidity payments are made on a periodic
basis but can be varied by reason of classification changes;
(b) the CSC has power to require persons to be medical y examined pursuant to r 25.
Rule 27 deals with invalidity benefits for a person classified as Class A. His or her
member benefit is payable to him or her as a lump sum and the employer benefit is
converted into a pension payable to him or her;
(c)
the person who is entitled to be paid a member benefit under r 27(1) may elect
instead that the member benefit be a preserved benefit in which case it is not
payable in a lump sum and is preserved under the MSB Rules;
(d) Rule 29 deals with the effect of change of invalidity classification on pension and
preserved benefits. Where a person who is classified as Class A or B is reclassified
as Class C, the pension payable under r 27 or r 28 is cancel ed, and there is
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applicable to him or her a preserved benefit of the amount of his or her employer
benefit;
(e) if that person is subsequently reclassified as Class A or Class B the preserved
benefit referred to in r 29(1) ceases to be applicable to him or her and a pension is
payable to him or her in accordance with r 27 or r 28, as the case may be, from the
date specified under r 23 by CSC, or the Committee, as the case may be, as the
date from which the reclassification has effect.
35.
Al of these features of the MSB Rules may be accepted. However, as I pointed out in
Douglas by reference to the Royal Warrant under the terms of which the Royal Hospital
Chelsea in London was established in 1681 for those members of the English army
“broken by age or war”, there is a long established usage of the word “pension” in the
English language to describe periodic payments to disabled ex-servicemen. The
recipients of these payments, those who lived in the community away from the Royal
Hospital Chelsea, were once known as “Out Pensioners”.
36.
In turn, this longstanding, military invalidity, periodic payment usage of the word reflects a
wider understanding of the ordinary meaning of the word, “pension”.
37.
In
Nette v Howarth (1935) 53 CLR 55, the High Court had occasion to consider whether a
lump sum received after bankruptcy by a retired State public servant equal to the
contributions paid by him during service as required by State superannuation legislation
fel within the class of property which had vested in his trustee in bankruptcy. Under the
then bankruptcy legislation, and apart from income, one item that did not vest in a trustee
in bankruptcy was a “pension”. Each of the judges constituting the Ful Court of the High
Court considered that the lump sum payment fel outside the exception and, hence,
passed to the trustee in bankruptcy. Of them, Dixon J, at 65, offered the most detailed
analysis of the meaning of the word, “pension”:
“Pension” refers predominantly to payments which fol ow service. The time has
passed when the idiomatic use of the word extended to non-recurring payments. But
it may perhaps include in this section a succession of payments which are not the
consequence of past service or the like.
38.
A feature of this understanding of the meaning of the word, “pension” is recurrence of
payments fol owing service. This is consistent with the later understanding of the meaning
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of the word evident in the judgment of Hil J in
Tubemakers of Australia Limited v Federal
Commissioner of Taxation (1993) 25 ATR 183 (
Tubemakers). By reference to
contemporary dictionary definitions, Hil J, at 189, stated:
There remains then the question whether the payments in either or both periods
constituted a "pension" to the ex-employees.
The Macquarie Dictionary defines "pension" relevantly as:
1.
a fixed periodical payment made in consideration of past services, injury or
loss sustained, merit, poverty etc. 2. an al owance or annuity.
The word has as its origin the Latin pensio meaning "payment".
The Oxford English Dictionary, 2nd ed, vol XI contains the fol owing definition
relevant to the present context:
4.
An annuity or other periodical payment made by a person or body of persons,
now esp. by a government, a company, or an employer of labour, in
consideration of past services or of the relinquishment of rights, claims, or
emoluments.
What these dictionary definitions show is that it is a necessary characteristic of a
pension that it be periodical. A series of annual payments, that is to say, payments
which happen to be made annual y but where each payment is determined upon at
or about the time it is made, may have an income character but not be periodical.
39.
Periodicity of payment, but not in the nature of lump sum instalments, was also a feature
of the word, “pension” which commended itself to Forgie DP in
Re Hammerton and
Comcare (1995) 21 AAR 204, at 218.
40.
True it is that the applicant’s invalidity pension might have ceased at any stage during the
relevant income years because of a review by the CSC (or a Committee), leading to a
change in his classification. If the applicant had been reclassified under the MSB Rules as
having a Class B invalidity classification, his existing invalidity pension payments would
have ceased and a different type of invalidity pension would have been paid to him. If he
had been reclassified as having a Class C invalidity classification, his existing invalidity
pension payments would have ceased and no alternative invalidity pension would have
been payable to him under the MSB Act scheme. Even so, unless and until he was
reclassified, one of the Class A invalidity benefits to which he was entitled was the
periodic payment to him of an invalidity pension. As used in the MSB Rules, the
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description of that periodic payment as a “pension” is not idiosyncratic. To the contrary,
having regard to the authorities discussed and to the dictionary meanings consulted by
Hil J in
Tubemakers, that description accords with the meaning of the word as a matter of
ordinary English.
41.
However, for reasons already given, the applicant does not need his submission that the
payments were not a “pension” to be accepted in order to establish that they were a
“superannuation lump sum”.
Has the applicant made any election under reg 995-1.03 of the ITAR?
42.
During the relevant income years, reg 995-1.03 of the ITAR provided:
A payment from an interest that supports a superannuation income stream is not a
superannuation income stream benefit if:
(a) the conditions to which the superannuation income stream is subject al ow for
the variation of the amount of the payments of benefit in a year circumstances
other than:
(i)
the indexation of the benefit under the rules of the product; or
(ii)
the application of the family law splitting provisions; or
(ii ) the commutation of the benefit (including commutation to pay a
surcharge liability); or
(iv) the payment of an assessment of excess contributions tax; and
(b) the person to whom the payment is made elects, before a particular payment
is made, that that payment is not to be treated as a superannuation income
stream benefit.
43.
It is explicit in reg 995-1.03(b) of the ITAR that an election must be made
before a
particular payment is made. The event that the applicant final y submitted constituted an
election for the purposes of this regulation was a communication in October 20161. That
was after he had received each of the payments of invalidity pension in the relevant
1
He had earlier submitted that certain medical reports could constitute an election but that could not
possibly be so.
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income years. For this reason alone, it could not be an “election” for the purposes of reg
995-1.03.
44.
The communication to which the applicant pointed was one made to the CSC, not to the
Commissioner. It is not stated in reg 995-1.03 of the ITAR to whom, if anyone, the election
must be communicated. Communication of a choice between alternatives with the person
affected has been regarded as an element of an effective election in other contexts:
Scarf
v. Jardine (1882) 7 App.Cas. 345 at 360-1 and
Sargent v ASL Developments Ltd (1974)
131 CLR 634 at 655 - 656, per Mason J; see however Stephen J at 646 - 647. The
Commissioner, not the CSC, administers the ITAA97 and the ITAR and has the task of
assessing, including whether in so doing to treat a payment as a “superannuation income
stream benefit”. That inclines me to the view that an election ought to be communicated to
the Commissioner. However, I accept that there is an alternative construction which
proceeds from reg 995-1.03(a) of the ITAR. That provision directs attention to the
“conditions to which the superannuation income stream is subject”. These are first and
foremost the concern of the CSC in its administration. On that basis, the necessary
communication of the election would be to the CSC. To whom, if anyone, an election
needed to be communicated was not canvassed in submissions. In these circumstances
and because the only communication said to constitute an election was made after the
relevant income years, it is unnecessary to reach any concluded view on the subject.
45.
For the reason given, I reject the applicant’s submission that he made an election under
reg 995-1.03 of the ITAR.
Is the applicant’s invalidity pension paid in respect of an interest that is a defined benefit
interest under s 291-175 of the ITAA97?
46.
Section 291-175 of the ITAA97 provides:
291-175 Defined benefit interest
(1) An individual's * superannuation interest is a defined benefit interest to the
extent that it defines the individual's entitlement to * superannuation benefits
payable from the interest by reference to one or more of the fol owing matters:
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(a) the individual's salary, or al owance in the nature of salary, at a particular
date or averaged over a period;
(b) another individual's salary, or al owance in the nature of salary, at a
particular date or averaged over a period;
(c) a specified amount;
(d) specified conversion factors.
(2) However, an individual's * superannuation interest is not a defined benefit
interest if it defines that entitlement solely by reference to one or more of the
fol owing:
(a) * disability superannuation benefits;
(b) * superannuation death benefits;
(c) payments of amounts mentioned paragraph 307-10(a)
47.
There is, with respect, an academic quality to the answering of the question as to whether
the applicant’s invalidity pension was paid in respect of an interest that is a defined benefit
interest under this section. That is because, as the Commissioner correctly submitted, an
affirmative answer to it cannot, for the reasons that fol ow, affect whether or not the
applicant’s invalidity pension payments were required to be treated for assessment
purposes in accordance with s 307-145 of the ITAA97.
48.
The application of each of sub-divisions 301-B, 301-C, 307-C, 307-D and 307-E of the
ITAA97 is not dependent upon, and does not even refer to, s 291-175. The provisions in
these subdivisions each set out both the elements and components of any
“superannuation benefit”
and how it is to be taxed. These provisions do not apply
differently depending upon whether a “superannuation benefit”
is paid from an interest that
is a defined benefit interest. Thus, the applicant’s contention that the assessments were
excessive, because they did not treat his invalidity payments in accordance with s 307-
145 of the ITAA97 cannot be advanced, even if I were to accept his submission that his
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invalidity pension was not paid in respect of an interest that is a defined benefit interest
under s 291-175 of the ITAA97.
49.
With this caveat, and thus some diffidence, I proceed to answer the question posed. The
applicant submitted that the invalidity benefit, which includes the invalidity pension, under
the MSB Act scheme is not a “defined benefit” because a “disability superannuation
benefit” is, by s 291-175(2), expressly excluded from that definition. He sought to gain
support for this proposition from the judgment that I delivered in
Campbel v
Superannuation Complaints Tribunal (2016) 155 ALD 66 (
Campbell).
50.
Campbel did require delving into the MSB Act scheme but against the different
background of its interface with provisions in the
Family Law Act 1975 (Cth) in relation to
the provision of information to a superannuation fund member for the purposes of that Act.
Like the present,
Campbel offers an example of the Byzantine intricacies that, in the
governance of our society, we have foisted upon superannuation fund members (including
those whose membership is derived from membership of the ADF) and administrators.
However, the legislative and subordinate legislative provisions considered in that case
differ in detail from s 291-175 of the ITAA97 such that it is of no present assistance.
51.
It was common ground that the applicant’s invalidity pension was a “disability
superannuation benefit”. However, as the Commissioner correctly highlighted in his
submissions, the applicant’s interest as a member of the MSB Act scheme is not defined
“solely” by reference to that. The applicant’s submissions do not take into account the
presence of the qualification “solely” in the chapeau to s 291-175(2) of the ITAA97.
52.
On analysis, the applicant’s interest as a member of the MSB Act scheme always
extended beyond one or more of the benefits described in s 291-175(2) of the ITAA97.
The range of benefits for which the MSB Rules provide include not just the invalidity
benefits detailed in Division 2 of Part 3 of those rules but also what are termed “member
benefits” in Division 1 of Part 3. The latter comprise various benefits payable on retirement
from the ADF for reasons other than incapacity.
53.
Yet further, in relation to the s 307-10(a) criterion specified in s 291-175(2) of the ITAA97,
that provision refers to “an amount payable to a person under an income stream because
of the person’s temporary inability to engage in *gainful employment”. The “incapacity in
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relation to civil employment” to which the incapacity determination for which Rule 22 of the
MSB Rules is directed is not a “temporary inability”. Thus, s 291-175(2) could never be
engaged by this criterion.
54.
For these reasons, the exception for which s 291-175(2) of the ITAA97 provides is not
applicable. Instead, as the Commissioner correctly submitted, the member’s employer
benefit is “worked out under the MSB Rules by a formula that references their final
average salary and various other factors such as their years of service”. Further, “in the
event the benefit paid from the scheme is a pension, the annual pension amount is
further worked out by the application of specified conversion factors”. It necessarily
fol ows that the applicant’s interest as a member of the MSB Act scheme was a defined
benefit interest in terms of s 291-175(1) of the ITAA97.
55.
It is now necessary to examine whether the 2018 Amendment Regulations affect the
conclusions reached thus far.
What is the effect, if any, of the 2018 Amendment Regulations?
56.
The short answer to the question posed in the title to this section of the reasons is,
“None”, for the reasons given in
Douglas and in
Burns. In particular, the applicant, like Mr
Douglas and Mr Burns, became indebted to the Commonwealth because of the making
and issuing of income tax assessments. Each of the resultant liabilities accrued prior to
the making of the 2018 Amendment Regulations. Yet further, the applicant, like his fel ow
ex-servicemen, had invoked accrued rights of objection and review before then. Sitting in
place of the Commissioner, the Tribunal is obliged to consider afresh, by reference to the
law as it stood when the impugned, accrued liabilities were created by assessment,
whether the objections to the assessments should be al owed because the assessments
concerned were excessive.
Disposal
57.
It fol ows that the Commissioner’s objection decisions must be set aside.
58.
In lieu of those objection decisions, the applicant’s objections must be al owed on the
basis that each of the payments of invalidity pension under the MSB Act received by the
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applicant in the relevant income years was a “superannuation benefit”, a “superannuation
lump sum” and a “disability superannuation benefit” and was required to be treated in
accordance with s 307-145 of the ITAA97.
59.
The matter should be remitted to the Commissioner for implementation of the Tribunal’s
decision, once it becomes final, in accordance with s 14ZZL of the TAA.
60.
As with
Douglas and
Burns, it would do less than justice not to acknowledge the
considerable assistance provided by counsel, both for the applicant and for the
Commissioner, by submissions, oral and in writing, in relation to the issues in this review
as they have “evolved”.
I certify that the preceding 60 (sixty)
paragraphs are a true copy of the
reasons for the decision herein of
The Honourable Justice J A Logan
RFD, Deputy President
........................................................................
Associate
Dated: 30 March 2020
Dates of hearing:
29 May 2018
28 June 2018
14 December 2018
Date submissions received by
1 February 2019
the Respondent:
Date submissions received by the
15 March 2019
Applicant:
Date final submissions received
5 April 2019
by the Respondent:
Date final submissions received
12 April 2019
by the Applicant:
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Counsel for the Applicant:
Mr P Bickford with Mr AJ Anderson
Solicitors for the Applicant:
Irish Bentley Lawyers
Counsel for the Respondent:
Mr P Looney QC with Ms A Wheatley
Solicitors for the Respondent:
Australian Government Solicitor
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