Dowling’s Case [2013] AATA 49 Not a perfect storm but a sufficiently acceptable amalgam for the discretion to be exercised - but what is an amalgam? In any event a win for the taxpayer!

This case involved a re-contribution strategy.  The husband of the taxpayer withdrew his super (which he was entitled to do) and paid his super to the taxpayer.  As the husband had attained age 60, the withdrawn super was not taxed.  The taxpayer then contributed his amount to her super fund as her contribution.  This was undertaken to reduce the husband’s counted assets for Centrelink purposes.

Subsequently, the taxpayer decided to undertake a re-contribution strategy to improve the tax free component of her super benefits.  The taxpayer withdrew an amount from her super and then re-contributed most of the withdrawal.

The taxpayer was advised on the first transfer (ie transfer from husband to her) but did not seek advice in relation to the second transaction (the re-contribution strategy).  For the re-contribution strategy, the wife relied on media reports.

The taxpayer had triggered the application of the “bring forward” rule by reason of the first contribution and exceeded the bring forward cap by reason of the second contribution.

The taxpayer was duly issued with an excess contributions tax assessment and, after her request for the ATO to exercise the discretion to re-allocate the contribution was declined, appealed to the AAT.

The AAT held that special circumstances did exist in respect of the transfer contribution but did not find that there were special circumstance in relation to the re-contribution strategy.

The AAT held that there was an “amalgam” circumstances which together constituted special circumstances in relation to the “transfer contribution”.  Those circumstances included the following:

• neither the taxpayer nor her husband were employed at time of contributions so neither had experience of contributions and contribution caps;
• the taxpayer sought advice from advisers and Centrelink – this goes to their bona fides;
• the contribution was not new money coming into the Super System but existing money within the Super System;
• the purpose of the transfer strategy was to maximise the Centrelink position of the husband; and
• neither the taxpayer nor her husband had any knowledge of the contribution caps and excess contributions tax so they did not seek advice on these matters and advisers did not provide general advice on contribution caps but only advice which related to the contribution transfer strategy.

Having special circumstances exist in relation to the transfer contribution (and the contribution disregarded) the second contribution arising from the re-contribution strategy was not excessive.

While a beneficial result for the taxpayer it is difficult to identify a legal reason for the finding of special circumstances.  Possibly the strongest reason for holding that special circumstances existed is that the transfer contribution was not new money going into the Super System but a reordering of existing contributions.  If so, this argument should have applied to the contribution arising from the re-contribution strategy. 

To justify special circumstances on the basis of either the taxpayer’s lack of knowledge of the superannuation contribution system or of the contribution caps and the fact that while the taxpayer sought advice the advice provided failed to cover the consequences of the transfer contribution for subsequent contributions is rather weak. 

When the reasoning of the Tribunal invokes expressions as such as an “amalgam” of reasons for finding special circumstances surely the reasoning is weak.

The better argument for special circumstance is that the transfer contribution was not new money going into the Super System and therefore should be disregarded.