ATO, Pensions, Regulation, Superannuation

Commissioner TBC ruling not unconstitutional

Transfer balance cap

The Administrative Appeals Tribunal has upheld a decision by the tax commissioner that commuting an excess over the transfer balance cap was unconstitutional and carried out on unjust terms.

The Administrative Appeals Tribunal (AAT) has ruled the tax commissioner had not gone beyond his powers in issuing a determination on a taxpayer’s total superannuation balance exceeding the transfer balance cap (TBC), stating the determination was not unconstitutional and did not unjustly deprive the taxpayer of his property.

The AAT made the ruling in the case of Stern and Commissioner of Taxation (2023) on 4 July, affirming a TBC determination made by the ATO commissioner in January 2018, which held that Steven Stern’s total superannuation balance of over $3.4 million, spread across two super schemes, had exceeded the TBC of $1.6 million.

Stern subsequently disputed the commissioner’s power to issue a commutation notice contained within the determination that required the taxpayer to pay out the excess as a lump sum, as the pensions he received were capped defined benefit income streams (CDBIS).

He argued the acquisition of his property, a pension in this case, was on “unjust terms”, violating section 51 of the Constitution and that CDBISs are subject to commutation restrictions and cannot result in excess transfer balances as defined in Division 294 of the Income Tax Assessment Act 1997.

However, AAT deputy president Bernard McCabe concluded the ATO determination did not amount to an acquisition of property under the constitution.

“There does not seem to be any doubt that the trustee may consider adverse taxation consequences when deciding whether to commute the pension. If the trustee does elect to commute, the taxpayer receives a payout equal to the value of his interest in the fund,” McCabe said.

“That might lead to disadvantageous taxation consequences (or the loss of taxation or other advantages) for him, but I accept that is not the same thing as an ‘acquisition of property’ in the sense contemplated in the Constitution.

“The effect of the commutation might cut off the taxpayer from taxation concessions that would otherwise be available to him, but he is not deprived of his property nor does the commonwealth ‘acquire’ anything from him.”

In the second instance, he ruled in favour of the ATO’s decision, stating CDBISs are still subject to a formula for calculating excess transfer balances as defined in the original determination.

“I am not satisfied the plain text of section 294-140 admits of any ambiguity and there is no reason to doubt the literal meaning of the words lends itself to the interpretation proposed by the taxpayer,” he said.

“While section 294-120 offers guidance to the object, the plain meaning of section 294-140(3) is not ambiguous and does not lead to a result that is absurd or anomalous, particularly when understood in the larger context of the legislative scheme.

“The interpretation proposed by the taxpayer is impossible to square with the plain text of the provision.”

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