The date of the contributions
51 The ITAA 1997 does not define 'contribution' or when a contribution is made. It follows that the meaning of contribution should be construed having regard to the context and underlying purpose of the legislative provisions in which the term appears: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (at 381-382).
52 The Macquarie Dictionary (6th online ed, Macmillan, 2013) defines 'contribution' in this way:
noun 1. the act of contributing.
2. something contributed.
3. an article contributed to a magazine or the like.
4. an impost or levy.
5. Law a payment made in recognition of a shared liability, such as the payment by one insurer to another in the case of double insurance.
53 In the context of superannuation the Macquarie Dictionary (6th online ed, 2013) has these definitions:
employee contribution
noun an after-tax payment made from one's salary into a regulated superannuation fund.
employer contribution
noun a payment into an employee's nominated superannuation fund, made by the employer on behalf of the employee and not assessed as part of the employee's taxable income.
54 To consider the context, it is to be noted that the concessions in relation to superannuation funds are given only to those who comply with the regulatory provisions in the Superannuation Industries (Supervision) Act 1993 (Cth) (SISA). Funds which comply are complying superannuation funds. Such a fund must be a regulated fund under the SISA. It must have a trustee and such funds ordinarily take the form of a trust. As a trustee, the assets and income, profits and gains of the fund are held on trust on behalf of members of the fund. There is a sole purpose test in the SISA requiring fund trustees to maintain the fund solely for the purpose of providing retirement or similar types of benefits to or in respect of fund members.
55 The Commissioner points to the fact that in 1989 when a new section (s 82AAC) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) was substituted for the previous section that allowed a deduction for an amount set apart as a superannuation fund, the Explanatory Memorandum emphasised that amounts set apart but not actually paid to a superannuation fund would be denied deduction. Only amounts paid to a fund as a contribution would subsequently be deductible. This was specifically in relation to 'contributions to superannuation funds for benefit of employees'. This would suggest, the Commissioner argues, that the fact that the funds were simply waiting to be paid is insufficient for them to be treated as constituting a contribution to a superannuation fund.
56 It is argued for the Commissioner, and I accept, that as references to making 'contributions' occur repeatedly throughout Pt 3-30 ITAA 1997, 'contribution' should be given a construction which would promote the purpose or object underlying Pt 3-30. Part 3-30 is a scheme attracting tax consequences to, amongst other things, the making of contributions to superannuation providers, this being, in turn, intended to promote the object of enabling taxpayers to provide for their retirement, in turn, attracting obvious public policy benefits.
57 The date of a contribution determines:
(a) the income year in which a person making the contribution can claim a deduction, if allowable, in respect of the contribution (s 290-60(3) and s 290-150(3) provided that deductions are allowable only in the income year in which the contributions are made.
(b) the income year in which the superannuation provider receiving contribution must, if required, include the contribution as assessable income; and
(c) presently relevant, the financial year in which the contribution is included in a person's concessional or non-concessional contributions for the purpose of ECT.
58 Shortly after the events the subject of this appeal, the Commissioner published Tax Ruling 2010/1 entitled 'Income tax: superannuation contributions' (Tax Ruling). It has been modified four times, most recently in October 2012. The Tax Ruling deals with a number of matters. In relation to 'contribution', the Tax Ruling said (footnotes omitted):
Earlier statutory contexts and case law on former provisions
119. Although the income tax law has, for many years, included specific provisions allowing deductions for superannuation contributions, very few Court and Tribunal decisions have been required to consider the meaning of 'contribution'. To the extent to which they have, some (such as those which concerned whether an amount had been set apart as a superannuation fund) are not, strictly speaking, relevant to the current income tax provisions which are expressed differently. However, those cases do add to the overall context in which the income tax laws should be interpreted.
120. For example, in the Commissioner of Taxation v Roche although Pincus J was required to consider the purpose for which a contribution was made he noted that the relevant payment 'augmented the size of the fund'.
121. In Lend Lease Corporation Ltd v Commissioner of Taxation Hill J made a similar observation in relation to the provision that allowed a deduction for an amount set apart as a fund:
When the section refers to an amount being set apart as a fund, it appears to envisage a case where the act of 'setting apart' either creates an existing fund or supplements an existing fund … [with] the consequence that the amount has become subjected to the trusts of a fund.
122. A similar view was expressed by Doyle CJ in Hills Industries Ltd & Anor v Commissioner of State Taxation & Anor in relation to payroll tax legislation that was also concerned with amounts paid to, or set apart as, a superannuation fund:
But the question remains of whether the act of crediting each account was a payment of money to a superannuation fund or a setting apart of money as a superannuation fund. As I observed earlier, the assets of the Fund held by the trustee were not increased by the crediting of these amounts. It is clear that the Fund referred to in the Rules comprises all of the assets of the Fund. Prima facie, one would expect that a payment of money to the Fund, or a setting apart of money (as an augmentation of) the Fund would increase the Fund, in the sense of resulting in an increase in the assets of the Fund.
…
How a thing of value increases the fund's capital
150. The capital of a superannuation fund may be increased by something of value provided directly or indirectly in a number of ways.
151. A 'contribution' is not limited to a direct payment of cash to the superannuation provider. A superannuation contribution can be made by transferring funds or other assets to the superannuation provider. Subject to the restrictions in the SISA on a superannuation fund acquiring assets from a related party, a transfer of an asset to a superannuation fund may be a contribution in specie.
Transfer of funds
152. A superannuation fund's capital is most commonly increased by transferring funds to the superannuation provider. A transfer of funds, can occur in a number of ways including by cash, electronic transfer of funds, money order, bank cheque, personal cheque or through the use of a promissory note issued by a related party (the maker) at face value to the superannuation provider.
153. The funds can be denominated in Australian currency or a foreign currency.
154. However, if the capital of the fund is to be increased, there must be an actual transfer of funds to the superannuation provider. No payment will be made if the cheque, promissory note or similar negotiable instrument is not honoured.
155. How the transfer occurs is relevant to both whether the fund's capital is increased and when a particular contribution is made. Various cases and texts have noted that cheques and other negotiable instruments are not the same as cash.
156. For example, in Sidney Raper Pty Ltd v. Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227, Moffit P said at 233 a bank cheque or other negotiable instrument although being treated by many as equivalent to, or as good as cash, is still a cheque and not cash. It is effectively converted to cash on presentation to the relevant financial institution if the drawer of the cheque has sufficient funds available in the account with the institution.
157. As noted in 'Mann on the Legal Aspect of Money' in the course of discussing the concept of 'payment':
… the mere acceptance of the cheque or other instrument by the creditor does not of itself constitute 'payment', for it does not have the effect of making funds available to the creditor; such instruments only constitute payment if they are subsequently honoured …
158. In a similar vein, Rich J in Permanent Trustee Co (Executors of Estate of F H Prior, deceased) v. Federal Commissioner of Taxation, in discussing whether income was derived for the purposes of the ITAA 1936, noted that:
[t]o see whether income has been derived one must look to realities. Usually payment of interest by cheque involves a receipt of income, but payment by a valueless cheque does not … You do not transform interest into an accretion of capital by writing out words on a piece of paper. There must be some reality behind them. Some accretion of value to corpus.
159. Further, Chalmers & Guest on Bills of Exchange states that a cheque, being payable on demand, is intended as an instrument which will immediately be paid. This can be contrasted with a bill of exchange, which is said to be a credit instrument which is frequently drawn payable at a future date.
160. An amount set aside but not actually paid is not a contribution. It is well established that the making of a journal entry in the books of an entity does not alone establish a payment. However, an actual payment, albeit to reimburse the superannuation provider for an expense incurred in operating the fund, may constitute a contribution.
161. An entity, often an employer sponsor of a superannuation fund, may agree to reimburse the superannuation provider for certain expenses incurred in operating the fund. For example, the employer may agree to reimburse the trustee for certain insurance premiums or administration costs of the fund. Consequently, the trustee may periodically invoice the employer for an amount of such expenses. This may be a reimbursement of the actual costs incurred and paid in operating the fund or be a payment of an amount based on some other figure such as a percentage of the salaries of every employee. This reimbursement increases the capital of the fund in the same way as any other transfer of funds and for the reasons set out in paragraphs 145 to 147 of this Ruling will be taken to be made for the purpose of benefiting the members of the fund.
…
General rule - a contribution is made when received by the fund
182. A superannuation contribution is made when the capital of the fund is increased. As explained in paragraphs 183 to 210 of this Ruling, the contribution may be made when an amount is received, or ownership of an asset is obtained or the fund otherwise obtains the benefit of an amount.
Contributions of funds
183. A contribution of funds as cash or an electronic funds transfer, is made when the amount is received by the superannuation provider or credited to the relevant account.
184. It has been suggested that a contribution made by electronic funds transfer may occur as soon as the contributor has done everything necessary to effect a payment. The Commissioner does not accept that is sufficient to increase the capital of the fund.
185. Electronic payment systems operate through contractual arrangements between the:
• payer and payer's financial institution;
• payer's financial institution and payee's financial institution; and
• payee's financial institution and payee.
186. When a financial institution agrees to accept a payment instruction it notifies the receiving institution of the details of the payment. In Australia there are several different clearing systems for the transferring of information and netting of amounts to be transferred between institutions. The clearing rules of these systems bind the financial institutions but not the customers. Most small payments between institutions are not processed in real time but are subject to deferred net settlement which occurs overnight. As such, it is not until an amount is credited to a bank account of the superannuation provider that a contribution will be taken to be made.
187. A superannuation provider's account statement would normally provide the best evidence as to when a contribution is received. However, in limited circumstances, other evidence may be used to determine when a contribution is made. For example, a transfer of funds between the linked accounts of a member of a self-managed superannuation fund and the fund held at the same financial institution may result in a contemporaneous debit and credit to the respective accounts with the funds being immediately available for use of the self-managed superannuation fund. When such a transfer occurs on a week-end, it is common for bank statements to show the transaction occurring on the next business day. Evidence, such as a computer print-out recording the receipt of the amount into an account of the superannuation provider, may be used to establish the timing of the contribution.
(emphasis added)
59 In Federal Commissioner of Taxation v Roche (1991) 105 ALR 95 (at 101), referred to in this ruling, Pincus J said:
Although the evidence with respect to the events at the end of the 1982 and beginning of the 1983 year appears to me to be a rather weak foundation for the ultimate conclusion, I have been unable to conclude that it involved any legal error. To revert to the central point relied on by the Commissioner, the finding that the expenditure at the end of the 1982 year was incurred to construct a large tax deduction without any immediate monetary outlay by the partnership is no doubt correct. But the expenditure also augmented the size of the fund. Unless one were to hold that a desire to get a tax deduction or a practice of lending money out of the fund to assist the employer's business must be taken to be inconsistent with the existence of a s 23F(2)(a) fund, no identifiable legal error can be discerned. The most one could say is that the factual result arrived at seems surprising.
(emphasis added)
60 Although the Commissioner relies upon the observation by Pincus J that the sum of money involved augmented the fund, it does not appear to me that this case is of particular assistance to the Commissioner. The decision was really concerned with the question of whether or not a fund could be maintained for a purpose within s 23F of the legislation as it then stood, even if an important reason for its having been established and maintained was the obtaining of tax deductions. Section 23F required that the fund be maintained solely for superannuation. His Honour observed (at 99) that it was not conceivable that Parliament intended the exemption from income tax conferred by s 23F to be available only to taxpayers who have acted as they did without regard to the taxation concessions which are available to those who establish and maintain superannuation funds. It is very difficult to see how this decision illuminates the question of when a contribution is made, whether it be at the time of remitting funds by BPay or the time at which the funds are electronically recorded as having been received.
61 Both within the context of the object and purpose of the statutory provisions in the normal sense of the language, if the issue was the proper meaning of 'contribute', the verb, I think it would be open to argue and probably the preferable construction that one contributes at the point of time when funds are irreversibly dispatched to the correct destination.
62 However, it is 'contribution' repeatedly appearing in the statute. Taken in the statutory context, a contribution does not become a contribution at all until the point of time at which it is actually received. There is no doubt that the fund is meant to be built up for the benefit of members. That is consistent with the concept of superannuation contributions having been made gradually over the course of a person's working life as explained in the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (at [1.9]) (EM).
63 This understanding of 'contribution' tends to support a conclusion that a superannuation contribution will have been made at the time when the capital of the fund is actually increased or augmented. Relevantly to this case, in the case of a contribution of funds by way of an electronic funds transfer, the contribution will be made when the amount is received by the superannuation provider or credited to augment the relevant account. In contrast to this, Mr Liwszyc argues that a contribution made by electronic funds transfer, in this case BPay, occurs as soon as the contributor has done everything necessary to effect a payment.
64 The Commissioner makes the point (repeating the substance of his Tax Ruling) that electronic payment systems operate through contractual arrangements between the payer's financial institution and the payee's financial institution; and the payee's financial institution and the payee. At the time when a financial institution agrees to accept a payment instruction, it notifies the receiving institution of the details of the payment.
65 The evidence adduced (over and above the Tax Ruling) reveals that in Australia, there are several different clearing systems for the transferring of information and the netting of amounts to be transferred between institutions. The clearing rules of these systems bind the financial institutions but not the customers. In this particular case, the relevant bank processing the BPay instruction at issue relies upon contractual cl (5.4) of the BPay Biller Agreement which specifies:
The Participating Biller acknowledges that Payer Directions received by a Payer Institution after its Payment Cut-Off Time will be processed by the Payer Institution and included in a Payment Instruction on the next Banking Business Day.
66 Further, other possibilities of delay are explained in cl 6 of the Biller Agreement.
67 There is no evidence before the Court that all transactions between institutions are processed instantaneously in real time. There would be no reason to expect this necessarily to be so albeit that there may well be instances when transactions are processed on the same day.
68 As Thompson Reuters (2013) Law Relating to Banker and Customer suggests, most small payments between institutions are not processed in real time but are subject to deferred net settlement which occurs overnight (see [4.1860], [4.1980] and [4.2090]). This is what happened in this instance.
69 In my view, the better argument is that the contribution was made on the date the funds were actually received. Once that is understood (and, indeed, as part of the context), nothing in the ITAA 1997 permits a taxpayer or a superannuation provider to deem a contribution to have been made on a date other than the date on which it was in fact made. Stipulating by some covering email or communication that it is intended for some other date, namely, the date on which the BPay entry was made, does not change the reality of the actual date of receipt.