Hayes v Commissioner of Taxation

[10]

On completion of this transaction Richardson (to use his own words) felt that he had "done particularly well" - that he had "achieved an ambition and made a success of things". It cannot be doubted that it was primarily in a spirit of generosity, prompted by these not unnatural reflections, that he decided to make certain voluntary dispositions. He made large monetary gifts to certain public institutions, as to which no question arises. He also, by letter dated 27th June 1950 directed the secretary of the public company to issue 52,000 of the 212,000 shares, to which he was entitled, to the following persons - 4000 to D. C. Richardson, 4000 to G.H. Richardson, 12,000 to Henri Albert Christie, 12,000 to Lewis Hayes, and 20,000 to Christie and Hayes "on behalf of the staff of" the proprietary company. Shares were, I understand, issued in accordance with these directions. The last-mentioned shares were no doubt to be held by Christie and Hayes on trusts to be declared by the donor for members of the staff of the proprietary company. No question arises before me as to these shares. Nor does any question arise as to the shares issued to D. C. Richardson and G. H. Richardson, who are sons of the donor. The commissioner, however, claims that the shares issued to Hayes constitute assessable income in his hands. He makes the same claim with regard to those issued to Christie, but I am at present concerned only with those issued to Hayes. The commissioner's view is based on English cases, which make it clear that a payment of money or a transfer of property, although voluntary and a "gift" in the sense that there was no antecedent obligation to make it, may in certain circumstances be income in the hands of the recipient. Those cases were recently considered by this Court in Squatting Investment Co. Ltd. v. Federal Commissioner of Taxation [1] , and on appeal by the Privy Council Federal Commissioner of Taxation v. Squatting Investment Co. Ltd. [1] . They were also considered to some extent in Federal Commissioner of Taxation v. Dixon [2] .

[15]

The facts which led the majority of the board to the conclusion that what the appellant received was "income" may be stated shortly. I have said that he seems at first to have been employed by Richardson as a supervising accountant and general adviser in the business. For his services in these capacities he was paid a salary. In 1942 he ceased to be a full-time employee of Richardson, and since that year he has been in private practice as a public accountant. When the proprietary company was formed in 1944, he became a director of that company, and also its secretary. For his services in these capacities he was remunerated by the company. In 1947, when he sold his shares to Richardson, he ceased to be a director, but remained secretary of the proprietary company. When the public company was formed in 1950, he became secretary of that company also, and he is in fact still secretary of both companies. For these services he has been remunerated by the companies, and there is no suggestion that his remuneration was at any time inadequate. After the incorporation of the proprietary company he was at no time engaged or employed as Richardson's private accountant, though at times he performed services of a trifling nature, such as the preparation of land tax returns. For these services he does not appear to have received payment. At the same time, it may be truly said that there was a close business relationship between the two men, and he and his wife and Richardson and his wife were on terms of personal friendship. Richardson often discussed business matters with him, and asked and received his advice in an informal way on matters connected with the business of the companies and as to his own private investments and affairs. One gathers that the advice was generally accepted, and the result seldom, if ever, regretted. There can be no doubt, I think, that in 1950, when the public company was formed and Richardson felt that he had "made a success of things", he was disposed to give a real measure of credit for that success to advice and assistance received over the years from his business associate and personal friend.

[25]

While I would not say that the motive of the donor in making the payment or transfer is, in cases of this type, irrevelant, motive as such will seldom, if ever, in my opinion, be a decisive consideration. In many cases, perhaps in most, a mixture of motives will be discernible. On the one hand, personal goodwill may play a dominant part in motivating a voluntary payment, and yet the payment may be so related to an employment or a business that it is income in the hands of the recipient. On the other hand, the element of personal goodwill may be absent - the dominant "motive" may have been of the most purely selfish and "commercial" character - and yet it may be impossible to find any connexion with anything that can make it income. The question in each particular case is as to the character of the receipt in the hands of the recipient: Moorhouse v. Dooland [3] . The test to be applied is an objective, not a subjective, test. This, I think, is the whole point of a passage in the judgment of Kitto J. in the Squatting Investment Case [1] which is quoted both by the majority and by the dissentient member of the board of review. His Honour speaks of "gifts" as being "taxable" if they are "made in relation to some activity or occupation of the donee of an income-producing character." The point is illustrated by reference to expressions used in some of the English cases, and his Honour then contrasts " mere gifts" - "gifts" which are not related in any such activity or occupation and have no significant character except as expressions of a desire to benefit the donee. The objectivity of the test considered appropriate by his Honour has already been made very plain, for, referring to the facts of the particular case, he has said: "in truth and in fact the moneys distributed under the Act to the persons who supplied wool for appraisement cannot be regarded otherwise than as part of the total sum which has taken the place of the wool in the hands of those persons" [1] - in other words, part of the price paid for the wool supplied, and therefore having its true source in a revenue-producing activity carried on by the suppliers.

Hayes v Commissioner of Taxation - [1956] HCA 21 - HCA 1956 case summary — Zoe

At a glance

Court

Decision date

Before

Source

Judgment (31 paragraphs)

Parties