AAT rejects taxpayer’s claim despite ATO’s wording flaw

The Administrative Appeals Tribunal explained that it has no legal framework or standard to determine whether the use of language on the ATO website was misleading, but it admitted that taxpayer Raymond Lacey did make a mistake.

"If the current iteration was in use in December 2017 it is unlikely that Mr Lacey would have made the mistake he complains about," the AAT said. 

In 2017, Mr Lacey, who had $1,663,607.73 in his transfer balance account, moved to transfer $30,000 to his accumulation account, believing that together with his pension drawdowns totalling $41,589.96, it would bring his transfer balance account within the transfer cap of $1.6 million by the end of 31 December 2017.

However, the pension drawdowns did not debit the transfer balance account, leaving Mr Lacey in excess of the transfer balance cap.

Mr Lacey argued that he made a mistake on the basis of the ATO’s website, which used the word “remove” instead of the word “commute” from around 30 August 2017 to 27 January 2018.

At the time, the website read: “If you are already prior to July receiving an income stream from your super, action. If on 1 July 2017 you are over your $1.6m cap by 100,000 or less and you remove this excess by 31 December, then you will not have to pay excess transfer balance tax or account for notional earnings on the excess.”

“If they had said, 'If you're over and you commute', I would've commuted,” Mr Lacey argued. 

None of Mr Lacey’s evidence was challenged in the cross-examination. On the contrary, AAT senior member Paul Ehrlich QC said that the only rational explanation for Mr Lacey’s failure to commute the full amount was a genuine belief on his part that the pension payments would, in combination with the 14 December transfer, operate to bring his transfer balance below the transfer balance cap.

The wording on the ATO website currently reads: “If you exceed your transfer balance cap, you have to rectify the excess by making a lump sum commutation from one or more retirement phase income streams. You can usually transfer the lump sum into an accumulation account; otherwise, it can be withdrawn from the super system. You may have to pay tax on the notional earnings related to that excess.”

Despite admitting that the current iteration is objectively a much more instructive document than its predecessor, Mr Ehrlich said that the AAT did not have the jurisdiction to determine whether the ATO document was or was not objectively misleading, therefore leading it to reject Mr Lacey’s application to review the decision.

“This is not only because it is irrelevant to the limited review function under section 14ZZK of the TAA 1953. It is also because, lacking such jurisdiction, the tribunal has no legal framework or standard upon which to address or consider the issue,” he said.

Mr Ehrlich added that “in this circumstance, it is to be regretted that significant Commonwealth resources have been expended in seeking to defend the content of a document (the ATO document) where the tribunal lacked relevant jurisdiction to determine whether it was, or was not, misleading and where the document has, in any event, been replaced by a much more informative iteration”.