Bray v Commissioner of Taxation

[1978] HCA 18

High Court of Australia|1978-05-19|Before: Aickin JJ

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Source facts

Court

High Court of Australia

Decision date

1978-05-19

Before

Aickin JJ

Source

Original judgment source is linked above.

Judgment (39 paragraphs)

[1]

For the reasons recorded in Recital E to this Deed the founder would have liked the fund to be known as " The G. W. and D. E. Bray Foundation " but in conducting the fund as a public fund (and in particular in soliciting donations thereto and making donations therefrom) the founder expresses the firm preference that this name be not used during his own lifetime lest it be confused with his own name. It is accordingly agreed that for the purposes of soliciting and making donations the fund will be called " The Sportsmens and Businessmens Benevolent Foundation " because of the common interest of the trustees and of the founder's parents in sporting and business affairs and in benevolence generally, and that name is hereby adopted as between the trustees and the Commissioner of Taxation for administrative convenience. During the lifetime of the founder the fund may be described as " The G. W. and D. E. Bray Foundation " for any purpose other than soliciting or making donations or dealing with the Commissioner of Taxation if the founder approves. The founder hereby expresses the hope that after his death the title referring to his parents will be employed. Regardless of which name is adopted, both refer to the one and same fund being that constituted by this Deed and defined in clause 1 hereof.

[2]

In the event of the winding-up of the trust for any reason whatsoever then the fund remaining after meeting all obligations of the trust will be transferred to any organisation institution or authority meeting the requirements of Section 78 (1) (a) of the Income Tax Assessment Act of the Commonwealth of Australia.

[16]

It is first to be noted that it is not sufficient that the fund is one contributions to which are held in trust for funds, authorities or institutions or for purposes which wholly fall within s. 78 (1) (a). Such a fund may be established and maintained by a single contribution or a number of contributions from a private person. That is not a public fund. The reason why the fund must be a public fund emerges from a consideration of s. 78 (1) (a) as a whole. A gift to an authority or institution effectively disposes of the subject matter of the gift to that authority or institution so that it may immediately be enjoyed by it either for its general purposes or for a purpose described in s. 78 (1) (a). That is to be sufficient. However, it is in the nature of a fund that the objects thereof will not, or at least will not necessarily, benefit immediately from the gift of the subject matter to the fund. It was not the legislative intention that a private person could establish a fund by making gifts of money or property to trustees for the prescribed purposes and thereby claim a deduction under s. 78 (1) (a). Such a private person could if he wished make deductible gifts directly to any of the prescribed authorities or institutions. However, in certain cases a provision for deducting gifts made to established authorities or institutions would be inadequate to cover the field sought to be covered by the legislation. There might be need to raise a fund to which contributions could be made for the establishment of a hospital or a university or a war memorial or a school building. Further there need to be funds collected for the welfare of members of the Services or the provision of marriage guidance. And there was recognized to be a need for funds to be collected for the provision of benefits generally to objects falling within s. 78 (1) (a). The need for such funds, contributions to which would not necessarily be immediately available to any of the named authorities or institutions, could be reconciled with the general intention disclosed in s. 78 (1) (a) that no mere setting aside or appropriation of money or property would be sufficient to qualify for a deduction by providing that only a gift made to a public fund should be deductible. The implicit distinction is between a public fund and a private fund. A private fund as much as a public fund may as a result of the trusts created be irrevocably devoted to the required purposes; but that was not to be sufficient.

[25]

Although my conclusion that the fund was not at the relevant time a public fund is sufficient to dispose of the appeal, I also am of opinion that the value of the shares was not deductible because at the relevant time the fund was not established and maintained exclusively for the purpose of providing money, property or other benefits to or for the prescribed funds, authorities or institutions or for the prescribed purposes or for the establishment of such funds, authorities or institutions. The purpose here referred to must, I think, be one which appears from the terms of the instrument of trust as they operate or take effect in the circumstances of the case. An extrinsic purpose of the founder or of a donor, which may be described as a motive for the foundation or gift, is not material. Nevertheless the distinction is not simply between motive on the one hand and beneficial objects of the trust on the other hand. Although the trust can be described as a "purpose" trust it does not follow that the purpose referred to in s. 78 (1) (a) can be exhaustively found in the declared beneficial objects. It is necessary also to take into account the powers conferred or duties imposed upon the trustees in order to see whether in the circumstances of the case the instrument in its form and its manner of operation as a result of decisions by the trustees discloses that what might ordinarily be an administrative power operates in fact as a purpose of the maintenance of the fund in the manner in which it is in fact maintained. What is apparently and ordinarily a power may be seen to operate as a purpose if it has an operation other than ancillary to the conferring of benefits upon the objects of the trust. One example will suffice. Assume an instrument of trust which gives power to employ a manager irrespective of the size of the fund to be managed. If the affairs of the trust are so conducted by the trustees under the instrument of trust that the income of the fund is absorbed by the salary of the manager the conclusion would be open that the fund maintained under the instrument of trust was not being maintained exclusively for the purpose of providing benefits to the objects. That conclusion would the more easily be drawn if the exercise of the power by the trustees was not wholly motivated by a wish to promote the best interests of the beneficial objects of the trust.

[33]

The two critical questions are whether this was a "public fund" and whether it was "established and maintained under a will or instrument of trust exclusively for the purpose of providing money etc." for the specified purposes. As to the first of those questions, I am of opinion that the word "public" in the phrase "public fund" is used in the sense of being open to the public to make contributions to it. It is by way of contrast with "private funds" which are open only to subscriptions by specified groups and not by the public generally. An appeal to the congregation of a particular church for subscriptions to a trust fund for the repair of the church, or a pension for a minister of that church, though charitable in the technical sense, would not be an appeal to the public or for a public fund. Similarly an appeal to former pupils of a particular school or to graduates of a particular university for subscriptions to a fund to be used for the benefit of the school or university would not be a public appeal, nor the fund resulting therefrom a "public fund". This adjectival use of the word "public" is analogous to its use in such expressions as "public libraries", "public transport", "public art gallery" or "public park". A "public appeal" or a "public fund" is one which is addressed to or open to members of the public generally to respond or subscribe. Upon such view it is not material whether the public or members of the public do in fact subscribe. It also follows that public involvement in the formation, establishment or launching of the fund is not a requirement. Indeed, such a requirement is necessarily excluded by the provision of the section which shows that "public funds" may be established and maintained under a will or an instrument of trust. A fund established under a will is necessarily one established by the action of an individual person acting wholly on his own. It is important also to notice that the expression "established and maintained" applies equally to funds under a will as to those established by an "instrument of trust", an expression which must mean a deed poll or an instument inter vivos. There is no basis for construing the expression "established under an instrument of trust" in a manner which excludes such establishment by a single individual as donor or both donor and trustee. The word "maintained" in this context must mean maintained in accordance with the terms of the will or the instrument of trust as the case may be.

[34]

The second question is: what is the significance in the present case of the requirement that the fund be maintained exclusively for the purpose of providing money etc. for the specified purposes, i.e. the funds, authorities and institutions listed in sub-pars. (i) to (xliv)? It appears to me to be clear that for the fund to be "established" for those purposes the trusts of the relevant instrument must provide only for the provision of money, property or benefits to or for such specified funds, authorities or institutions, and for no other purpose or institution. For such a public fund to be "maintained" under a will or instrument of trust it must, in my opinion, continue to be subject to the trust for those purposes. If "maintained" means "in fact administered", there is a practical problem in this section because it is obvious that, in the case of a fund which is open to subscriptions from the public generally, members of the public will have neither actual knowledge nor any means of obtaining knowledge that such a fund is in fact being so administered or that there have been no breaches of trust by the trustees either in the past or current at the time of the donation. Nor would there be any means of ascertaining whether such breaches are deliberate or accidental, in the sense that part of the fund or its income may have been used to provide money for that which was believed by the trustees to be a fund, authority or institution specified in the sub-section, but which, in fact and in law, was not such a fund or institution. It does not seem a likely intention to attribute to the legislature that, in its evident policy of encouraging donations to the institutions and for the purposes specified, those taxpayers who are so encouraged or induced should gain or lose the tax benefit held out to them by reference to facts not ascertainable by them. The requirement of the legislature is that the fund should be of that character and to have that character at the time of the donation. It is at least clear that subsequent breaches of trust by application of the funds in an unauthorized manner, or failure properly to keep the investments under review, could not affect the deductibility of the donation. However it is not in the present case necessary to decide what would be the effect of breaches of trust prior to or current at the date of the gift, for there were none at the relevant time.

[37]

In the present case we are concerned only with the donation of property in the year of income ended 30th June 1974. I am satisfied that, at the time of the handing over of the instrument of transfer of these shares and, presumably the necessary share certificate, there was an established fund which was of the necessary character. At that time, and indeed for the balance of that financial year, there was no suggestion of any breach of trust by the trustees, either active or passive. I say "passive" because there could be a breach of trust if the trustees did not review from time to time the manner in which the trust funds were invested, so as to ensure that the fund is so far as possible preserved from loss through failure of companies in which the trustees hold shares, whether by unwise investment by the directors of such companies, or otherwise. However nothing occurred in the relevant financial year which would have called for action and there was no reason for the trustees as such to fear that any unusual risks attached to the nature of the property which had been the subject of the donation. It is true it was a proprietary company which had liquid funds and no other assets and of which one of the number was in effect the controlling director. It would have been clear to them that M.B.J. Constructions Pty. Ltd. would have to put the funds to use by an investment of some kind in order to earn income. At that moment there was no reason why they should question the taxpayer's undertaking that he would do his best to see that there was a proper return in the form of dividends and that of course would depend upon the success or wisdom of the investment or use to which the M.B.J. Constructions put the funds at its disposal. They were not a party to the taxpayer's plan that the funds should be used in other companies controlled by him, rather than used in some business conducted by M.B.J. Constructions itself. The findings make it clear that they were unaware of those plans of the taxpayer and also make it clear that at the time of the donation the taxpayer had no plan or intention to divert the funds for his personal benefit.