ISSUE 1
79 Issue 1 relates to the Tribunal's finding that reg 995-1.01(2) of the ITAR 1997 did not contain the specification referred to in s 307-70(1) of the ITAA 1997. The Tribunal provided three reasons for this conclusion:
(a) the definition of superannuation income stream benefit in reg 995-1.01(2) of the ITAR 1997 did not "even purport to be a specification at all" (DJ at [54], BJ at [30]-[31] and WJ at [27]);
(b) the definition in reg 995-1.01(2) of the ITAR 1997 did not fit the numerical pattern of other "specifications" provided in the ITAR 1997 (DJ at [54], BJ at [30]-[31] and WJ at [27]); and
(c) the definition in reg 995-1.01 of the ITAR 1997 was limited for use within the ITAR 1997 themselves as reflected in the introductory phrase "In these Regulations" (DJ at [54], BJ at [30]-[31] and WJ at [27]) (emphasis added).
80 The terms of ss 307-65 and 307-70 of the ITAA 1997 are set out at [4] above.
81 It is desirable to trace the relevant history of amendments to the ITAR 1997. On 1 July 2007, definitions of both "superannuation income stream" and "superannuation income stream benefit" were inserted in reg 995-1.01 of the ITAR 1997 by the Income Tax Assessment Amendment Regulations 2007 (No. 2) (Cth) (ITAR Amendments (No. 2)). Prior to commencement, the definition of "superannuation income stream benefit" was subject to an amendment by way of the Income Tax Assessment Amendment Regulations 2007 (No. 3) (Cth). The two definitions in reg 995-1.01 (which is in Div 995 and is headed "Definitions") were as follows:
995-1.01 Definitions
In these Regulations, unless the contrary intention appears:
…
superannuation income stream means:
(a) an income stream that is taken to be:
(i) an annuity for the purposes of the SIS Act in accordance with subregulation 1.05 (1) of the SIS Regulations; or
(ii) a pension for the purposes of the SIS Act in accordance with subregulation 1.06 (1) of the SIS Regulations; or
(iii) a pension for the purposes of the RSA Act in accordance with regulation 1.07 of the RSA Regulations; or
(b) an income stream that:
(i) is an annuity or pension within the meaning of the SIS Act; and
(ii) commenced before 20 September 2007.
superannuation income stream benefit means a payment from an interest that supports a superannuation income stream, other than a payment to which regulation 995-1.03 applies.
Regulation 995-1.03 described payments that are not superannuation income stream payments.
82 The Explanatory Statement to the ITAR Amendments (No. 2) stated that their purpose was to "insert supporting regulations into the Income Tax Assessments Regulations 1997… as a consequence of the Simplified Superannuation reforms, under which superannuation taxation law was rewritten into the ITAA 1997". The Explanatory Statement further explained that the amendments also inserted into the ITAR 1997 "definitions required to support the ITAA 1997…". These statements in the Explanatory Statement confirm what is clear on the face of the amendments - that their purpose was to give effect to aspects of the 2007 amendments to the ITAA 1997 relating to superannuation reforms.
83 From 4 June 2013, following commencement of the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013 (Cth), the definition of "superannuation income stream benefit" in reg 995-1.01 in Div 995 was amended as follows:
(1) In these Regulations, unless the contrary intention appears:
...
superannuation income stream benefit: see subregulations (2) to (5).
…
(2) In these Regulations:
superannuation income stream benefit:
(a) means a payment from an interest that supports a superannuation income stream, other than a payment to which regulation 995‑1.03 applies; and
(b) for the purposes of sections 295‑385, 295‑390, 295‑395, 320‑246 and 320‑247 of the Act - includes an amount taken to be the amount of a superannuation income stream benefit under subregulation (3) or (4).
(3) For the purposes of sections 295‑385, 295‑390, 295‑395, 320‑246 and 320‑247 of the Act, if:
(a) a superannuation death benefit that is a superannuation lump sum is paid after the death of a person (the deceased) using only an amount from a superannuation interest; and
(b) immediately before the deceased's death, the superannuation interest was supporting a superannuation income stream payable to the deceased; and
(c) the superannuation income stream did not automatically revert to another person on the death of the deceased;
the amount paid as the superannuation lump sum, to the extent it is not attributable to any amount (other than investment earnings) added to the superannuation interest on or after the deceased's death, is taken to be the amount of a payment from a superannuation income stream of a superannuation income stream benefit that was payable from the day of the deceased's death until as soon as it was practicable to pay the superannuation lump sum.
(4) For the purposes of sections 295‑385, 295‑390, 295‑395, 320‑246 and 320‑247 of the Act, if:
(a) immediately before the death of a person (the deceased), a superannuation interest was supporting a superannuation income stream payable to the deceased; and
(b) a new superannuation income stream is commenced using an amount applied from the superannuation interest after the death of the deceased;
the amount so applied, to the extent it is not attributable to any amount (other than investments earnings) added to the superannuation interest on or after the deceased's death, is taken to be the amount of a payment from a superannuation income stream of a superannuation income stream benefit that was payable from the day of the deceased's death until as soon as it was practicable to commence the new superannuation income stream.
(5) In this regulation:
investment earnings does not include:
(a) an amount paid under a policy of insurance on the life of the deceased; or
(b) an amount arising from self‑insurance.
84 Regulation 995-1.03 was repealed on 28 March 2017 by the Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017 (Cth) and the words ", other than a payment to which regulation 995-1.03 applies" were omitted from the definition of "superannuation income stream benefit" in reg 995-1.01(2)(a).
85 It is also desirable to mention the amendments made to the ITAR 1997 by the 2018 Amendment Regulations, which inserted a new Subdiv 307-B into the ITAR 1997 as follows (these amendments were made during the course of the three proceedings in the Tribunal which are now the subject of these appeals):
Subdivision 307-B-Superannuation lump sums and superannuation income stream benefits
307-70.01 Superannuation income stream benefits
(1) For the purposes of subsection 307-70(1) of the Act (definition of superannuation income stream benefit), all superannuation benefits are specified, apart from a superannuation benefit covered by subregulation (2).
(2) A superannuation benefit is covered by this subregulation if:
(a) the superannuation benefit was paid:
(i) on or after 1 July 2007; and
(ii) before 1 July 2017; and
(b) the superannuation benefit was paid from a superannuation interest that supported a superannuation income stream; and
(c) the superannuation income stream met the requirement in paragraph 995-1.03(a) (as in force before the commencement of Schedule 6 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017) when the superannuation benefit was paid; and
(d) the person to whom the superannuation benefit was paid made an election in relation to that payment under paragraph 995-1.03(b) (as in force before the commencement of that Schedule).
86 The Explanatory Statement to the 2018 Amendment Regulations relevantly said (emphasis added):
Superannuation income stream benefits
Items 5 to 8 of Schedule 1 to the Regulations amend the ITAR 1997 to confirm the meaning of superannuation income stream benefit for the purpose of section 307-70 of the ITA Act.
Item 5 amends the ITAR 1997 so that all superannuation benefits are specified for the purposes of the ITA Act. Certain superannuation benefits paid in the period 1 July 2007 to 30 June 2017 are also specified for the purposes of the ITA Act.
Items 7 and 8 amend the definition of superannuation income stream in subregulation 995-1.01 to clarify the meaning of this term for the purposes of subregulation 307-70(2) of the ITAR 1997 which provides that the meaning of the term superannuation income stream can be specified in the regulations. These amendments apply in relation to the 2012-13 income year and later income years.
The amendments commence the day after the instrument is registered. However, item 6 provide that item 5 applies from 1 July 2007 and items 7 and 8 apply in relation to the 2012-13 income year and later income years.
The retrospective nature of the application ensures that the meaning of superannuation income stream benefits operates as intended from 2007, when significant reforms to simplify the superannuation system commenced. The intention of the existing provisions is clear and taxpayers have been applying the provisions as intended.
87 There are two limbs to the meaning of "superannuation income stream benefit" in s 307-70(1) of the ITAA 1997 (see [4] above). The first requires that the benefit be a "superannuation benefit specified in the regulations". The second requires that the benefit be paid from a "superannuation income stream". For the following reasons, we respectfully disagree with the Tribunal's conclusion that reg 995-1.01 failed to provide the requisite specification for the purposes of s 307-70(1) of the ITAA 1997.
88 First, the modern approach to legislative interpretation has been the subject of several High Court decisions. It is unnecessary to identify them individually. It is sufficient to set out Allsop CJ's summary in Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner (The Bay Street Appeal) [2020] FCAFC 192 at [4] (case references omitted):
… The principle is clear: Meaning is to be ascribed to the text of the statute, read in its context. The context, general purpose and policy of the provision and its consistency and fairness are surer guides to meaning than the logic of the construction of the provision. The purpose and policy of the provision are to be deduced and understood from the text and structure of the Act and legitimate and relevant considerations of context, including secondary material…
89 There can be no doubting the purpose of reg 995-1.01 of the ITAR 1997. As is evident from both the terms of the provision and the relevant Explanatory Statement (see [82] above), the purpose was to provide regulations to support the superannuation reforms enacted in 2007 by amendments to the ITAA 1997.
90 It is well to bear in mind what Gageler and Keane JJ said in Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9; 253 CLR 531 at [60] (with reference to what was said in Newcastle City Council v GIO General Ltd [1997] HCA 53; 191 CLR 85 at 113, with emphasis added and footnotes omitted):
That structure makes clear that the targets of the rule set out in s 12(2) are awards of damages within each of the three categories of personal injury damages identified in s 12(1). The express statutory identification of those targets leaves no room for the invocation of any presumption against statutory interference with the common law or statutory rights which would be vindicated by such awards of damages even assuming that such a presumption might otherwise have scope for operation. "If the target of a legislative provision is clear, the court's duty is to ensure that it is hit rather than to record that it has been missed".
91 That principle is also reflected in the following passage from McHugh JA's judgment in Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 at 421 (emphasis added):
Once the object or purpose of the legislation is delineated, the duty of the Court is to give effect to it in so far as, by addition or omission or clarification, the relevant provision is capable of achieving that purpose or object. Where the court can see the purpose of a provision from an examination of its terms, little difficulty should be met in giving effect to that purpose. The days are gone when judges, having identified the purpose of a particular statutory provision, can legitimately say, as Lord Macmillan said in Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance Association Ltd [1946] 1 All ER 637 at 641, of the means used to achieve the purpose: "The legislature has plainly missed fire". Lord Diplock, in an extra judicial comment on that decision has said, that "if… the Courts can identify the target of Parliamentary legislation their proper function is to see that it is hit: not merely to record that it has been missed": "The Courts as Legislators", The Lawyer and Justice (Sweet & Maxwell) (1978) at 274.
92 Secondly, as the Commissioner frankly acknowledged, reg 995-1.01 is not well drafted. Some of the difficulty in determining whether or not it provides the requisite specification lies in the fact that it is, in its own terms, a definition provision. Generally, definition provisions are given a relatively narrow effect and are not normally viewed as having a substantive effect. Thus in Gibb v Federal Commissioner of Taxation [1966] HCA 74; 118 CLR 628, Barwick CJ, McTiernan and Taylor JJ effectively said that generally a definition is an aid to the construction of the substantive provisions of legislation and, if drafted properly, is not a provision which itself has substantive effect. Their Honours said at [10]:
… The function of a definition clause in the statute is merely to indicate that when particular words or expressions the subject of definition, are found in the substantive part of the statutory under consideration, they are to be understood in the defined sense - or are to be taken to include certain things which, but for the definition, they would not include. Such clauses are, therefore, no more than an aid to the construction of the statute and do not operate in any other way. …
93 In Moreton Bay Regional Council v Mekpine Pty Ltd [2016] HCA 7; 256 CLR 437 at [61], the plurality (French CJ, Kiefel, Bell and Nettle JJ) adopted and applied the majority approach in Gibb. The plurality noted at [62] that the general principle may be modified by a clear contrary legislative intent but they found that there was no such intent there.
94 The relevant principles are discussed in Herzfeld and Prince, Interpretation, Second Edition, Thomson Reuters, 2020 at [3.10]. Reference is made there to Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; 262 FCR 243 at [113]-[114] as an exceptional case in which a definition was construed as having a substantive effect. In Yazaki, the Court considered the phrase "exclusionary provision" in s 45 of the Competition and Consumer Act 2012 (Cth) (CC Act) and its interaction with s 4D of the CC Act, which was titled "Exclusionary provisions". After noting what McHugh J said in Kelly v The Queen [2004] HCA 12; 218 CLR 216 at [103], namely that the function of a definition is not to enact substantive law but is to provide aid in construing a statute, the Court in Yazaki said at [113] that Kelly involved a "simple definition" (being the meaning of the phrase "in the course of official questioning" within the definitions of "confession or admission" and "official questioning" in s 8(1) of the Criminal Law (Detention and Interrogation) Act 1995 (Tas)). In contrast, the Court in Yazaki described s 4D of the CC Act as stating substantive law. At [114] the Court said that it was doubtful whether s 4D is a definition at all given that its main purpose was to enact substantive law. In terms of the relationship between ss 4D and 45, the Court said at [122] that the correct approach was to read s 4D, according to its terms and its legal context. Moreover, at [124] the Court said that s 4D is the more specific provision which was not displaced by the more general terms of s 45, particularly because s 45(3) did not purport to define the term "exclusionary provisions". This view was supported by extrinsic material and other Full Court authorities.
95 Another example of a definition being construed as having a substantive effect is San v Rumble (No 2) [2007] NSWCA 259, which focused on the proper construction of s 51 of the Motor Accidents Compensation Act 1999 (NSW) and its interrelationship with provisions concerning costs under the Civil Procedure Rules 2005 (NSW). Campbell JA (with whom Beazley P and Ipp JA agreed) said at [55]:
The construction of section 151 that I prefer involves conferring a substantive effect on the definition, because it has the effect of altering the rights or obligations of people. It does so by providing that the only costs that can be recovered under section 151(2) are party and party costs, and (implicit in that) that costs on an indemnity basis are not recoverable under section 151(2). If the definition had not been in the legislation, it would have been open to a court to apply the rules and principles that are usually applied in litigation to make an award of indemnity costs in an appropriate case where litigation was brought concerning a claim that has been the subject of a CARS assessment. Thus, the effect of the definition is to take away what would otherwise have been a right of a litigant to seek an order for indemnity costs in such a case. I recognise that conferring a substantive effect on the definition is something that is usually not appropriate to the function of a statutory definition: Gibb v The Commissioner of Taxation of The Commonwealth of Australia (1966) 118 CLR 628 at 635. However, as Pearce and Geddes, Statutory Interpretation in Australia, 6th edition, para [6.63] point out,
Drafters do occasionally include substantive material in a definition. This is poor drafting and can lead to error in the interpretation of the legislation because of the approach set out in Gibb's case.
Particularly when the definition in question is one that applies in one section of the legislation only, and the construction I prefer gives better effect to the policy of the Act, I am not troubled by this departure from the usual way in which statutory definitions are construed.
96 The construction of reg 995-1.01 cannot be divorced from relevant provisions of the parent act. Both the terms of the 2007 amendments to the ITAA 1997 and the accompanying extrinsic materials make clear that a primary purpose was to create a dichotomy between lump sum and income stream benefits in the superannuation context, the precise content of which was left to be supplied by the regulations. The respondents did not deny the Parliament's intention to create this dichotomy, but they contended that a lacuna was created by the Executive's failure to fulfil the task of specification contemplated by the primary legislation, at least until the 2018 Amendment Regulations were made which contained an explicit specification.
97 In brief, they submitted that there was no specification as contemplated by s 307-70 of the ITAA 1997 during the period from mid-2007 until the coming into force of the 2018 Amendment Regulations. Acceptance of that submission flies in the face of the observations of Gageler and Keane JJ in Taylor which are set out at [90] above. Contrary to the respondents' submission, construing reg 995-1.01 as in force during the period from mid-2007 to 7 December 2018 (when the 2018 Amendment Regulations commenced) does not involve the Court engaging in an impermissible task of repair. Rather, it involves giving effect to the clear purpose underlying reg 995-1.01, which was to provide the specification envisaged by s 307-70 of the ITAA 1997. This construction of the provision is consistent not only with its text, but also with the broader context in which the definition provision was inserted, which includes the purpose and context of s reg 995-1.01 itself.
98 The text of reg 995-1.01 does not preclude the Court from giving effect to the purpose of the 2007 amendments to both the ITAA 1997 and the ITAR 1997. It was common ground that the word "specified" in s 307-70 should be given its ordinary meaning. According to the Macquarie Dictionary, Fifth Edition, "specified" means:
1. to mention or name specifically or definitely; stating detail.
2. to give a specific character to.
3. to name or state as a condition.
4. to make a specific mention or statement.
Regulation 995-1.01 states in detail or gives specific character to a particular type of superannuation benefit, namely the "superannuation income stream benefit" as referred to in Subdiv 307-B of the ITAA 1997. Notwithstanding the poor drafting practice of using a definition to achieve a substantive effect, that is what has occurred here. The absence of explicit language of specification is not determinative.
99 Thirdly, we respectfully disagree with the Tribunal's second and third reasons for concluding that reg 995-1.01 did not achieve the purpose of specification (see [79] above). As to the matching "numerical pattern" of other specifications provided in the ITAR 1997, there is no statutory requirement for such patterning. Once again, good drafting practice might encourage the use of such a numerical pattern for the sake of consistency and ease of comprehension, but the failure to do that here does not stand in the way of construing the relevant regulation as achieving the requisite specification when consideration is given to the relevant principles of construction, particularly the need to give effect to the plain purpose of the provision.
100 As to the Tribunal's view that the definition in reg 995-1.01 was confined to use within the ITAR 1997 only, that fails to take into account the following two matters.
(a) The ITAR 1997 should not be read in isolation from relevant provisions of the ITAA 1997 to which they relate and which clearly envisage that there would be specification.
(b) The position was made even more clear after the definition of "superannuation income stream benefit" in reg 995-1.01 was amended in mid-2013 by the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013 (Cth) (see [83] above). At that time "superannuation income stream benefit" was defined in subregulations (2) to (5) of reg 995-1.01. The phrase "In these Regulations" appeared not only at the beginning of subregulation 995-1.01(1), but was repeated at the beginning of subregulation 995-1.01(2) (see at [83] above). It is notable that subregulation (2) had two paragraphs. Reading the terms of the subregulation as a whole, and with particular reference to paragraph (b) thereof, it is clear that the definition of "superannuation income stream benefit" was not confined to an internal use within the ITAR 1997 themselves, but went beyond that by identifying particular sections of the ITAA 1997.
101 Finally, the Tribunal's view that reg 995-1.01 should be construed as not accomplishing the intended specification is inconsistent with the Parliament's clear intention as manifested in transitional statutory provisions that, despite the 2007 amendments to the ITAA 1997, there would be continuation of superannuation income stream benefits.
102 This point was raised by Thawley J in the course of the oral hearing. The parties took advantage of the opportunity to provide brief supplementary submissions on the issue after judgment was reserved. The point relates to the meaning and effect of s 307-125 in Div 307 of Pt 3-30 of the Income Tax (Transitional Provisions) Act 1997 (Cth) (Transitional Provisions Act), which make clear that the Parliament intended that benefits paid from a superannuation income stream prior to mid-2007 would continue despite the 2007 superannuation reform amendments to the ITAA 1997.
103 The Government's 2007 superannuation reforms were introduced by the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth) (Superannuation Amendment Act). The main transitional amendments to the Transitional Provisions Act were supplied by Pt 3 of Sch 1 of the Superannuation Amendment Act. The transitional provisions addressed the treatment of a "superannuation income stream" from which at least one benefit had been paid before 1 July 2007. This suggests that the Parliament envisaged that a "superannuation income stream" in existence before 1 July 2007 could continue after that date. As the respondents acknowledged in their supplementary submissions, the effect of s 307-125 of the Transitional Provisions Act was, with some exceptions, to preserve the calculation of the deductible amount for pensions which commenced to be paid before 1 July 2007.
104 These transitional provisions provide relevant context for s 307-70 of the ITAA 1997 (as well as for the proper construction of reg 995-1.01 of the ITAR 1997). They make clear that the Parliament intended that there would be a continuation of superannuation income stream benefits (see in particular s 307-125(1) of the Transitional Provisions Act) which refers explicitly to a "superannuation income stream from which at least one superannuation income stream benefit has been paid before 1 July 2007". As the Commissioner pointed out in his supplementary submissions, the "relevant dichotomy established by ss 307-65 and 307-70 of the ITAA 1997 was expected to be utilised immediately, rather than merely having been in Parliament's contemplation but left unutilised or incomplete". Of themselves, the transitional provisions do not demonstrate that the Parliament's purpose or intention was carried into effect by the Executive in drafting the envisaged regulations. But they do serve to highlight the clarity of the Parliament's purpose, which (together with other relevant indicia of purpose) is a contextual element in assessing whether or not the purpose was achieved by the terms of reg 995-1.01, the object of which was targeted or directed at implementing that purpose (see [89] above).
105 These matters of context provided by the Transitional Provisions Act are inconsistent with the Tribunal's view that there was no specification prior to the 2018 Amendment Regulations and with the respondents' support for that view.
106 For these reasons, Issue 1 should be answered "yes".