The history and context of s 82AAE
8 The resolution of both issues (a) and (b) is assisted by an understanding of the background and context of s 82AAE. In Harris v Commissioner of Taxation (2002) 125 FCR at [24] - [67], the Full Court, in dealing with a different issue of construction, discussed the statutory context and legislative history of ss 82AAE and 82AAA of the Tax Act. The same issue and the same history were discussed in Prebble 131 FCR at [30]-[53]. The issue in Harris and Prebble was whether the same person could be both the contributing taxpayer (seeking the tax deduction) and also the eligible employee. The Full Court in Harris answered that question in the negative, finding that there was required to be a relationship between two parties (the employer or a party in its stead) and the employee. The Full Court in Prebble applied Harris (Hill and Hely JJ on the basis that Harris was not clearly wrong and Spender J on the basis that it was correct). Special leave in Prebble was refused on the basis that there was insufficient prospects of success in demonstrating error in Harris or in how Prebble treated Harris.
9 The parties, in particular the respondent, provided a comprehensive body of earlier statutory provisions and secondary materials. We have had careful regard to that material and, in particular, the Income Tax Assessment Act 1915 (Cth), (the "1915 Act"), ss 11 and 18; the Income Tax Assessment Act 1922 (Cth) the "1922 Act", ss 14 and 23(1)(j); the Income Tax Assessment Act 1936 (Cth) (to which we will refer as the "1936 Act" when referring to the Act passed in that year), ss 23(j), 66 and 78(1)(b); the Income Tax Assessment Act 1941 (Cth) (the "1941 Act"), ss 12 and 13 which amended ss 66 and 78(1) of the Tax Act; the Income Tax Assessment Act 1944 (Cth) (the "1944 Act"), s 7 which inserted a new s 66 into the Tax Act; the Income Tax and Social Services Contribution Assessment Act (No 3) 1952 (Cth) (the "1952 Act"), s 11 which amended s 66 and inserted s 23(ja) of the Tax Act; the Income Tax and Social Services Contribution Assessment Act 1961 (Cth) (the "1961 Act") , s 11 which inserted the first definition of "superannuation fund" into the Commonwealth tax legislation by inserting s 121B into the Tax Act; the Report of the Commonwealth Committee on Taxation (the "Ligertwood Committee"), in particular chapter 22 concerning superannuation funds; the Income Tax and Social Services Contribution Assessment Act (No 3) 1964 (Cth) (the "1964 Act"), s 6 which inserted which inserted s 23F and amended s 23 of the Act and s 18 which inserted Subdivision AA containing ss 82AAA to 82AAR, replacing ss 66 and 79 of the Tax Act, and thereby giving statutory form to many of the recommendations of the Ligertwood Committee; the Income Tax Assessment Act 1965 (Cth) (the "1965 Act"), which introduced into s 6(1) of the Tax Act a definition of the phrase "superannuation benefits"; the Taxation Laws Amendment Act (No 4) 1987 (Cth) (the "1987 Act"), which repealed s 23F, introduced s 23FC and introduced an inclusive definition of "superannuation fund" into s 6(1) of the Tax Act; the Taxation Laws Amendment Act (No 2) 1989 (Cth) (the "1989 Act"), which introduced Part IX into the Tax Act, entitled "Taxation of Superannuation Business and Related Business", and Schedule 1 which, amongst other things, amended s 82AAA, repealed ss 82AAB to 82AAP and replaced them with a new s 82AAC; the Occupational Superannuation (Reasonable Benefit Limits) Amendment Act 1990 (Cth) (the "1990 Act"); the Taxation Laws Amendment Act (No 2) 1992 (Cth) (the "First 1992 Act"); the Taxation Laws Amendment (Superannuation) Act 1992 (Cth) (the "Second 1992 Act"); and the Taxation Laws Amendment Act (No 4) 1994 (the "1994 Act"), which amended s 82AAC and introduced s 82AAE.
10 A minute, provision by provision, analysis of that history would be unhelpful and opaque in an attempt to explain our reasons. Thus, we propose to extract what we see as the general propositions relevant to understanding and interpreting s 82AAE as it appeared in the Tax Act in the year of income.
11 First, the provisions covering deductions were concerned with the existing employees of an employer. This was so even if the payment was for the benefit of the general body of employees: see especially the 1944 Act and s 66 discussed in Harris 125 FCR at [23]-[27]. The identified individual person who is an employee can also be seen in the 1990 Act, the First 1992 Act and the Second 1992 Act. The definitions of "eligible employee" and "employee" in s 82AAA also make that clear:
"eligible employee", in relation to a taxpayer means -
(a) in the case of a taxpayer whether a company or a person other than a company -
(i) an employee of the taxpayer;
(ii) an employee of a company in which the taxpayer has a controlling interest; or
(iii) an employee of a company in which the taxpayer is the beneficial owner of shares but in which the taxpayer does not have a controlling interest (not being an employee who is associated with the taxpayer or who, or a relative of whom, has set apart or paid, or entered into a contract, agreement or arrangement under which he is, or will or may be, required to set apart or pay, amounts as or to a fund for the purpose of providing superannuation benefits for, or for a relative of, the taxpayer); and
(b) in the case of a taxpayer being a company -
(i) an employee of a person that has a controlling interest in the taxpayer; or
(ii) an employee of a company in which a controlling interest is held by a person who also has a controlling interest in the taxpayer;
"employee" means a person who is employed by a taxpayer and -
(a) is engaged in producing assessable income of the taxpayer; or
(b) is a resident of Australia and is engaged in the business of the taxpayer.
12 Secondly, the contributions that were deductible provided for "individual personal benefits, pensions or retiring allowances" to such employees. This notion of individual personal benefits to existing people reinforces the notion of present and real benefits, as opposed to possible or expected benefits.
13 Thirdly, the contributions that were deductible provided such individual personal benefits to such existing employees. Various phrases were used: "to provide" (see the 1915 Act, s 18(j); the 1922 Act, s 23(1)(j); the 1936 Act and the Tax Act, ss 66 and 78(1)(b)); "the provision of" (see the 1941 Act, as it amended the Tax Act, ss 66 and 78(1); and the 1944 Act, in particular the form of s 66(2) of the Tax Act introduced thereby); and "make provision for" (see the 1952 Act and the form of s 66(1) introduced thereby; the 1964 Act and the form of ss 82AAC, 82AAD, 82AAE, 82AAM introduced thereby; the 1989 Act and s 82AAC introduced thereby; and the 1994 Act and s 82AAE introduced thereby). All the relevant deduction provisions can be seen as involving an element of purpose. In the earlier provisions, the purposes can be seen as immanent within the infinitive "to provide". For example, "sums set aside or paid by an employer of labour as or to a fund to provide individual personal benefits etc": the 1915 Act, s 18 (j); "So much of any sum set apart or paid by the taxpayer … as or to a fund to provide individual personal benefits etc": the 1936 Act, s 66. In 1964, the phrase "for the purpose of making provision for superannuation benefits" was introduced: the 1964 Act, ss 82 AAC, 82AAD, 82AAE and 82AAM. This constant element of purpose was accompanied by the element that the payment, or setting aside, of sums would itself create the right to receive the superannuation benefits, which, of course, were defined as "individual personal benefits, pensions or retiring allowances". It is in the nature of superannuation that the physical receipt of funds by the employee would be in the future. Thus, the word "benefits" incorporates or involves the notion of the right to the benefit which will mature in due course. However, implicit in all the provisions is that the payment or setting aside that was deductible provided, that is "furnished or supplied" (see The Macquarie Dictionary Revised Ed 1985 p 1367) rights to receive the superannuation benefits, which benefits were always described or defined as "individual personal benefits, pensions or retiring allowances". Although the phrase "make provision for" might be seen as having a somewhat wider meaning of "making arrangements for supplying" (see also The Macquarie Dictionary Revised Ed 1985 p1367) we would not read the phrase so widely here. As we read the provisions to which we have referred, the references "provide" or "provision" in all the relevant provisions carried with them the notion of supplying or furnishing the right to superannuation benefits by the payment.
14 Fourthly, these propositions, especially the second and third, can be seen to be confirmed and underpinned by the express requirement, until the 1989 Act removed it, that the rights to receive the benefits be "fully secured": see the 1915 Act, s 18(j); the 1922 Act, s 23(1)(j); the 1936 Act and the Tax Act, ss 66 and 78(1); the 1964 Act, s 82AAC. In relation to the notion of "fully secured" being referable to the right to receive the benefits, see Federal Commissioner of Taxation v The Northern Timber and Hardware Company Proprietary Limited (1960) 103 CLR at 657.
15 The notion of provision of benefit to existing employees was recognised in the judgments in the Full Court in Raymor Contractors Pty Limited v Federal Commissioner of Taxation (1991) 21 ATR 1410, a case dealing with years of income from 1974 to 1977. Davies J (with whom Wilcox J agreed) said, at 1412 and 1413:
In s 82AAC(1), the word "purpose" required that the sum set apart or paid in the year of income effected a contribution towards superannuation benefits for or for a dependant of an eligible employee. The term did not look primarily to the subjective factors actuating the setting aside or payment of the sum claimed. Thus, in the ordinary case, it was sufficient to found a deduction that a superannuation fund had been established solely for the provision of superannuation benefits for employees and their dependants, that the fund had been maintained for that purpose, that a sum appropriate, having regard to the provisions of s 82AAE and 82AAM, had been set aside or paid into the fund for the fund's purposes and that the rights of the employees and dependants to receive benefits from the fund were fully secured. If such were the case, it was not pertinent that the sum was set apart and paid into the fund not out of beneficence but out of a duty imposed by law or by an industrial award and not of consequence that the employer had taken into account in establishing and maintaining the fund that incidental benefits such as taxation benefits or the borrowing of sums from the fund at a low rate of interest could be obtained.
[emphasis added]
…
Subdiv AA of Div 3 was very much concerned with the relationship between the sum set apart or paid and an individual employee or employees. Section 82AAC(1) uses the expressions "an eligible employee' and "the employee". Section 82AAE specifies the amounts allowable in respect of the amount set aside or paid "for the purpose of making provision for superannuation benefits for, or for dependants of, any one employee". These provisions, which reflect the concept in s 66 of the former, namely "individual personal benefits", are concerned to ensure that moneys are set aside or paid for the purpose of providing benefits for individual employees who have rights in the fund and that those rights are fully secured. It is not necessary that an employer should turn his attention to the particular circumstances of each employee when making a contribution for it is sufficient that the contribution is made for the purpose of benefiting all or identifiable members of the fund. If no allocation has been made, the Commissioner may determine a sum deemed to be "the part of the amount set apart or paid in respect of a particular employee" It is not, however, sufficient that the employer has in mind that the moneys in the superannuation fund will ultimately go to the benefit, not of the general members of the fund, but of a remaining employee or employees such as a managing director/principal shareholder. Funds which are managed for such an ultimate end are not funds maintained for the benefit of the employees in respect of whom the contributions have, in the formal sense, been set apart or paid into the fund.
[emphasis added]
16 Hill J in the same case, agreeing in the result, said the following at 1425:
Second, to the extent that Spender J may be thought to have suggested that a payment by way of contribution to a superannuation fund was not deductible unless in the year of income that payment was allocated by the contributor amongst the relevant employees, so wide a proposition could not be accepted. Many fund deeds require the employer contributor to pay an amount, actuarially calculated to be sufficient to fund the totality of benefits payable by the fund. In such case no particular amount may be paid in respect of a particular employee although it would be possible on an actuarial basis to calculate how much of the total payment was referable to a particular employee.
There is no reason why the words "an eligible employee' in s 82AAC might not be read in the plural as well as in the singular. So read, it would be sufficient if a taxpayer, for the purpose of making provision for superannuation benefits for eligible employees, paid an amount in the year of income. If the amount were undifferentiated, in that sense, as the Act stood in 1977, s 82AAM would operate to enable the Commissioner to determine the allocation. The terms of that section reinforce the view that s 82AAC is capable of operation when an amount is paid without allocation to a fund in which benefits are to be provided for more than one employee. Section 82AAM provides as follows:
"Where a taxpayer sets apart or pays an amount as or to a fund for the purpose of making provision for superannuation benefits for, or for dependants of, more than one employee but does not specify the part of the amount set apart or paid in respect of a particular employee, that part shall, for the purposes of this Subdivision, be deemed to be such amount as the Commissioner determines."
17 The fact that, as Hill J discussed, s 82AAM at the relevant time provided for the Commissioner to determine an allocation for the purposes of the section by deeming an amount to have been set apart or paid in respect of a particular employee does not undermine the need for the payment to create present and real, as opposed to possible or expected benefits. Rather, this fact and the fact that an amount might be paid to a fund but not allocated at the time of payment or the time of the consideration of deductibility reinforce this need. As Hill J said in the first of the paragraphs quoted above, the addition of funds to a pool to fund the defined benefits of the employees was deductible. Deductibility was not limited to contributions to funds in which employees had accounts and was not denied to contributions to defined benefits funds. These propositions do not mean however, that a payment to a fund which effects no existing benefit to an employee is deductible. We will return to this issue in dealing with issue 2 below.
18 In addition to appreciating these propositions, it is important to understand the structure of the relevant changes made by, and after, the 1989 Act, including, in particular, the 1994 Act.
19 The 1989 Act introduced Part IX into the Tax Act - "Taxation of Superannuation Business and Related Business". Part IX introduced the distinction between a complying and a non-complying superannuation fund. As was said in Harris 125 FCR at [58]:
The 1989 Act introduced a new Pt IX, "Taxation of Superannuation Business and Related Business". Within Pt IX, s 267 introduced a distinction between a "complying superannuation fund" (being a fund the subject of a notice under either ss 12 or 13 of the Occupational Superannuation Standards Act 1987 (Cth)) and a "non-complying superannuation fund" (being a fund that was a superannuation fund, but not a complying superannuation fund). Complying superannuation funds were taxed at a concessional 15 per cent rate (and had various other tax advantages). A non-complying fund was taxed at the top marginal rate of tax. Contributions to superannuation funds were liable to tax in the hands of the fund trustee. Pursuant to s 274(1)(a)(i), taxable contributions to an "eligible entity" (which included both a complying and non-complying superannuation fund (s 267(1)) included "an amount in respect of which a deduction is allowable ... under section 82AAC to the person making the payment" and, pursuant to s 274(1)(a)(ii), "a contribution made by a person (in this section called the `contributor') to obtain superannuation benefits for the contributor or, in the event of the death of the contributor, for dependants of the contributor". Section 274(2) made particular provision for contributions to which s 274(1)(a)(ii) applied. (There were further amendments to s 274 in 1989, by virtue of which s 274(1)(a)(ii) became s 274(1)(b): see Taxation Laws Amendment (Superannuation) Act 1989 (Cth), s 48. An effect of this change was that only amounts paid to a complying superannuation fund to obtain superannuation benefits for the contributor or his or her dependants were taxable contributions. Section 274(1)(b) subsequently became s 274(1)(b)(i): see s 3 of the Superannuation Guarantee (Consequential Amendments) Act 1992 (Cth) and the Schedule to that Act. Like s 274(1)(b), that section was limited in its application to complying superannuation funds.) As the Commissioner observed, broadly speaking, the effect of the 1989 amendments was to render all superannuation funds liable to income tax in the hands of their trustees. The liability extended to all contributions that were deductible to the contributor under ss 82AAC and 82AAT.
(Section 82AAT was in Subdivision AB of Division 3 of Part III dealing with contribution to superannuation funds by (non-employer) eligible persons for himself or herself (and his or her dependants.)
20 The 1989 Act, which for the first time provided for the taxation of superannuation funds, removed the deductibility for merely setting apart of funds by the taxpayer. For deductibility, the payment was required to be made to a superannuation fund. As part of these changes, the requirement for the benefits to be fully secured was removed. This requirement can be seen as unnecessary if contributions were required to be made to a superannuation fund of the kind defined in s 6(1) of the Tax Act after the amendments in the 1987 Act and in the 1990 Act. The Explanatory Memorandum stated that the denial of deductibility for superannuation contributions merely set aside, but not paid to a superannuation fund was tied to removing limits on the deductibility of contributions and assessing super funds on contributions. It stated that "only amounts paid into funds, and thus subject to contributions tax, will be deductible". The 1989 Act also removed the limits on deductibility of superannuation contribution made by the employers on behalf of employees.
21 The 1990 Act introduced reasonable benefit limits and s 82AAC was amended by adding subsections (2) and (3) which limited any deduction under subsection (1) to two funds in respect of one employee. This was raised to three funds in 1992 by the First 1992 Act if one of the funds was a government fund established before 1 July 1990. Later in 1992, s 82AAC was amended by Second 1992 Act to introduce age-based limits on deductions for contributions to superannuation funds, rather than restriction on the number of funds. Sections 82AAC (2) and (2A) were omitted and replaced by s 82AAC(2) to 82AAC(2H). The continued focus upon the relationship of the contribution to existing employees (and implicitly the furnishing or supplying of relevant benefits to them by the relevant payment) can be seen in the terms of s 82AAC(2) when read with s 82AAC(1). Section 82AAC(2) was in the following terms after the Second 1992 Act:
Subject to subsection (2D) (which deals with elective deduction limits), the total of the deductions allowable under subsection (1) for contributions made by a taxpayer, or by a taxpayer and one or more associates of the taxpayer, in a year of income in respect of a particular employee must not exceed the employee's deduction limit for the year of income (worked out under subsection (2A)).
22 The 1994 Act provided for deductions to complying superannuation funds (by replacing "eligible" with "complying" in s 82AAC(1)(b)). Section 82AAE was inserted in the terms set out above, being its form in the relevant years of income here.
23 The 1994 Act not only introduced s 82AAE, but it also made amendments to the definition of fringe benefit in the Fringe Benefits Tax Assessment Act 1986 (Cth) (the "FBT Act"), s 136(1)(j). Before these amendments by the 1994 Act, fringe benefits did not include any benefit under paragraphs (f) to (p) of the definition of "fringe benefit" in the FBT Act, s 136(1). Paragraph (j) of s 136(1) was in the following terms:
"a benefit constituted by -
(i) the making of a payment of money to; or
(ii) the setting apart of money as,
a superannuation fund;"
The phrase "superannuation fund" was defined in s 136(1) as:
"(a) an eligible superannuation fund within the meaning of Part IX of the [Tax Act], or
(b) a scheme for the payment of benefits upon retirement or death, being a scheme constituted by or under a law of the Commonwealth or of a State or Territory."
24 The 1994 Act replaced this form of paragraph (j) with the following:
"(j) a benefit constituted by:
(i) the making of a payment of money to a superannuation fund (as defined by subsection 6(1) of the Income Tax Assessment Act 1936) that the person making the payment had reasonable grounds for believing was a complying superannuation fund (as defined by subsection 267(1) of the Income Tax Assessment Act 1936); or
(ii) the making of a payment of money to a non-resident superannuation fund (within the meaning of section 6E of the Income Tax Assessment Act 1936) in respect of a person who is an exempt visitor to Australia for the purposes of section 517 of that Act in relation to the year of income in which the payment is made;"
25 It is important to understand the intended symmetrical operation of the FBT Act and "fringe benefit", on the one hand, with s 82AAE of the Tax Act, on the other. This symmetry was a consequence of changes made to both the Tax Act and the FBT Act by the 1994 Act. These changes introduced ss 82AAD and 82AAE into the Tax Act and amended the definition of "fringe benefit" in s 136(1)(j) of the FBT Act. This symmetry was explained in [7.99]-[7.101] of the Explanatory Memorandum to the Taxation Laws Amendment Bill (No 4) 1994, as follows:
What changes will be made to employer contributions?
7.99 Employers will continue to be entitled to deductions for superannuation contributions only under Subdivision AA of Division 3 of Part III of the ITAA [item 40]. However, the deduction limits in section 82AAC will be restricted to contributions paid to a complying superannuation fund [item 38] or to a non-complying superannuation fund provided that the taxpayer making the contribution had reasonable grounds for believing that the fund was a complying fund [item 39 - new subsection 82AAD].
7.100 Any contributions paid by an employer to a non-resident superannuation fund in relation to an eligible employee who is an exempt visitor for the purposes of section 517 of the ITAA will not be allowable as a deduction [item 39 - new subsection 82AAE]. Such contributions will not be fringe benefits and therefore will not be subject to tax under the FBTAA [item 2 - new subparagraph (j)(ii) of the definition of fringe benefit in subsection 136(1) of the FBTAA].
7.101 Any other contributions paid by an employer for eligible employees to a non-complying superannuation fund will be deductible. The amount of the deduction will not be limited to the amounts specified in section 82AAC [item 39 - new subsection 82AAE]. However, these contributions will be fringe benefits and subject to tax under the FBTAA [item 2].
[emphasis in original]
26 The intended symmetry was that if a deduction was available, fringe benefits tax was payable; if a deduction was not available, fringe benefits tax was not payable. No such express link about the operation of each Act was stated. But the intended symmetrical operation can, however, be seen as part of the context in which s 82AAE is construed and interpreted (cf Prebble 131 FCR at 143 [54]).
27 The background leading up to the changes made in the 1994 Act, and these changes themselves, in particular the relationship between the intended operation of s 82AAE and the FBT Act reveal (as Davies J said in Raymor Contractors 21 ATR at 1412 and 1413 in relation to the then s 82AAC) that for the payment to be deductible there was a requirement of a relationship between an employer and existing (and identifiable) employee and the purpose of the provision of funds was to be the effecting of the rights to the relevant kind of benefits to such employee or employees. These matters go to informing the content of the relevant purpose of the payment (or setting aside in earlier provisions) which has always been present, whether by express use of the word "purpose" or by the immanent content of the infinitive "to provide".