Leary, B.A. v. Commission of Taxation for the Commonwealth of Australia [1980] FCA 134

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent ORDER JUDGES MAKING ORDER: Bowen C.J., Brennan and Deane JJ. DATE OF ORDER: -2 October 1980. WHERE MADE: Sydney

2. The Appellant pay to the Respondent his costs of the

ON APPEAL from the Supreme Court of Western Australia

THE COMMISSTONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent Coram: Bowen C.J., Brennan and Deane JJ. of OCcrTeseER jog0,. REASONS FOR JUDGMENT BOWEN C.J.: On 30 June 1977 Brian Arthur Leary paid $10,000

to the Order of St.John. It 1s common ground that the Order of St.John was a "public benevolent institution" within the

meaning of sub-para.78(1)(a)(11) of the Income Tax Assessment

Act 1936. The question before us is whether the payment by Mr. Leary was a "gift" within the meaning of that provision. This must depend upon the words used in sub-para.78(1)(a)(11),

"78(1) The following shall ... be allowable deductions:

(a) Gifts (not being testamentary gifts) of the value of Two dollars and upwards of money or of property other than money which was purchased by the taxpayer within twelve months immediately preceding the making of the gift, made by the

following funds, authorities or institutions in Australia:

In law there are various technical rules relating to gifts of particular kinds of real and personal property but this provision 1s not concerned with such niceties. The word "gift" 1s not defined in the Act. The context and the obvious intention of the section suggests that it is used in its ordinary non-technical sense.

In view of the facts relating to the payment of $10,000 in this case, to which I shall come later, it 1s convenient to consider first a number of questions relating to when a payment may properly be described as a gift.

The first question 1s whether such a payment to qualify as

a gift must be voluntary. In Federal Commissioner of Taxation

v. McPhail (1968) 117 C.L.R. 111, Owen J. (at p.116} said:

"But it is, I think, clear that to constitute a 'gift', it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no

advantage of a material character was received by the transferor by way of return."

-~3- In this statement his Honour was mentioning what was

appropriate to the facts before him. He was not putting

forward a test to be used as a substitute for the words of the section. It seems that a payment may be regarded as voluntary though made under a sense of moral obligation, but will not generally be regarded as voluntary if made under an obligation imposed by law, whether under contract or otherwise. Where the payment is made in pursuance of a contract but 1s not gratuitous, the person making the payment may fail to obtain the deduction under para.78(1)(a) in any event. However, it 1s possible there may be circumstances where the taxpayer would not lose the deduction simply because he had contracted to make the payment. Thus, where A and B agreed to make gifts to C, an institution within sub-para.78(1)(a)(11), or A agreed with B to match any gift made by him to C, there would seem to be no reason why either A or B should be deprived of his deduction. It seems i1t will depend upon the circumstances whether the fact that a payment 1s made in accordance with the provisions of a contract will render that payment incapable of being described as voluntary and incapable of entitling the payer to a deduction.

Counsel for the Commissioner of Taxation placed some

rel1ance upon Cyprus Mines Corporation v. Federal Commissioner

of Taxation (1978) 36 F.L.R. 295 as also did the trial Judge in the proceedings now before us. JIn that case, Smith J. of the Supreme Court of Western Australia held the taxpayer was

not entitled to a deduction under para.78(1)(a), one of the

grounds being that the payment was not voluntary because it was made in accordance with the terms of an agreement between the taxpayer and the State of Western Australia. The Cyprus

Mines Corporation Case 18 the subject of an appeal to this

Court which has not yet come on for hearing. I express no view as to its correctness.

The next question is whether such a payment to qualify as a gift must be made without material advantage being received in return. Owen J., 1n McPhail's Case, supra, observed that

Lord Radcliffe in Rennell v. Inland Revenue Commissioners

[1964] A.C. 173 at p.193 described a gift as "a present made without return of any kind" was perhaps too wide for the purposes of para.78(1)(a) an its reference to a return of any kind. Owen J. considered that only a return by way of material advantage would be relevant in the case of para.78(1)(a). A man may, by his gifts, gain fame or formal honours without losing his tax deductions. A different question not expressly covered by Owen J. is whether a deduction 3s allowable notwithstanding that the person making the payment receives a material advantage provided that material advantage does not proceed from the payee.

In McPhail's Case the taxpayer, upon making a gift to the trustees of the Camberwell Grammar School] Building Fund, received a material advantage not from the trustees but from the School itself in the form of reduced school fees for his child. Perhaps because the School was the beneficiary of the

trust deed under which the Fund was administered, 1t might be

-5- said that the School was the recipient of the gift as well as the giver of the advantage. Counsel for Mr. Leary argued strongly that notwithstanding a material advantage was received by the taxpayer, this would not deprive him of the deduction under para.78(1)(a) unless the advantage emanated from the payee. On this aspect of the

case we were referred to the Cyrpus Mines Corporation Case,

supra, and to Collector of Imposts (Vic) v. Peers (1921) 29

c.L.R. 115. In the last-mentioned case the question was whether a transfer of land under seal made by a husband to his wife after marriage in pursuance of an agreement entered on the treaty for the marriage was a "deed of gift" within clause (1x) of the Third Schedule to the Stamps Act 1915 (Vic). Knox

"The word '''gift' has two distinct meanings in English law: it 1s used by conveyancers to describe certain assurances of real property, but it usually means a transference of the beneficial interest in property by one person to another without any consideration from that other."

"In Macrow v. Collector of Imposts [1921] V.I..R. 23 Mann J. suggested that an instrument disposing of property to volunteers might properly be described as a deed of gift although the person parting with the property had ain fact received consideration from someone else for so doing, and we agree with him."

It was held that the deed was a deed of gift liable to

stamp duty under clause (1x) and that it was not within the

-6- exception in favour of instruments executed before marriage. In Peers' Case the particular point concerning the source of any return to the donor does not appear to have been a basis for the decision. Their Honours were directing their minds to a case concerning a deed of gift, 1.e. an instrument, and seeking to relate that instrument to a somewhat artificial statutory definition. They were speaking of consideration in a legal technical sense. Peers' Case was cited with approval in Collector of

imposts (Vic) v. Cuming Campbell Investments Pty. Limited

(1940) 63 C.L.R. 619. There, the High Court had to consider a somewhat similar clause in the Third Schedule to the Stamps Act 1928 (Vic) but their Honours did not really address their minds to the question which 1s under consideration in the present case.

In my opinion, neither Peers' Case nor the Cuming Campbell

Investments Case govern the decision to be made in the present case. Under para.78(1)(a) it appears to me that the receipt of some return by the payer may prevent the payment from being regarded as a gift within the meaning of that paragraph. It will depend upon the circumstances.

Another question which arises iS whether the payment must be by way of benefaction. It seems that a transfer of property, to qualify as a gift under para.78(1)(a) need not be made out of motives of benevolence (Peers' Case, supra, at

p.121; cf. Cuming Campbell Investments Case, supra, at

p.644), but the essential idea of a gift 1s the transfer of

property by way of benefaction (Cuming Campbell Investments

In para.78(1)(a) the notion of benefaction appears to be an essential idea, particularly having regard to the nature of the funds, authorities and institutions listed in the forty- five sub-paragraphs. The purpose of para.78(1)(a) seems clear enough. It 1s to offer an allowable deduction for income tax purposes i1n order to encourage benefactions to the bodies specified, which clearly are considered to be bodies which it 1s in the public interest to assist.

It therefore seems relevant in applying para.78(1)(a) to consider whether benefaction 1s intended towards and conferred upon the prescribed body when considering whether there has been a "gift" within the meaning of the provision. Intention may generally be gathered best from objective circumstances. However, evidence on the matter from the taxpayer is admissible and may be cogent. In determining whether a benefaction is conferred upon the prescribed body, it may be relevant to look at the matter both from the point of view of the donor and the donee. "The donor may have erected a

structure which 1s such that he can take back a benefit of the

gift as in Bray v. Federal Commissioner of Taxation (1978) 52

A.L.J.R. 482 where the taxpayer transferred shares in a private company but maintained control of the private company so that he could and afterwards did extract the value from the shares for his own benefit. Or the donee may to the knowledge

of the taxpayer have so arranged its affazrs that 1t can never

• 8B + beneficially retain the gift he makes which will simply pass through its hands. I am not suggesting that a donor making a gift to a body prescribed under para.78(1)(a) will ordinarily be concerned at all] with the affairs of that body so long as it as prescribed. What I am suggesting is that if the taxpayer 1s aware or suspects that his gift will not benefit the prescribed body the element of benefaction essential to

the notion of "gift" in para.78(1)(a) may be missing.

I turn now to the facts of this case. In the documents reference 1s made variously to the Order of St.John in

Australia, St.John Holdings (Incorporated) and the St.John

Council for Victoria. No relevant distinction was drawn between these bodies in the case. I refer generally in the course of these reasons simply to the Order of St.John. On 19

June 1977 a meeting of the Order of St.John took place at which, according to the Notes of Meeting, the following

"DISCUSSION: Tax Deductible Gifts Income Tax Assessment Act Section 78(1)(a) (11)

It was proposed that Metropolitan Taxation Service would procure donations to be allowable for income tax deductions. A fee of 98.8% would be payable to the Metropolitan Taxation Service.

The proposal was backed by legal opinion relative to the gift eligibility for taxation purposes.

Following discussions and referral to and advice from Mr. A.B. Davenport and also Mr. Allan Reech Director St.John Holdings it was agreed:

(a) that St.John Holdings would participate in the scheme proposed.

(b) Donations would be procured for: The Order of St.John in Australia St.John Council for Victoria St.John Holdings.

Commercial Bank of Australia at 260 Swanston Street Melbourne.

(d) Authority will be given to the bank to issue receipts and to pay fees to Metropolitan Taxation Service.

(e) The sum of $50,000.00 will be lodged by Clemens Lucas and Muivany to open the bank account.

(f) A covenant of indemnity will be given to indemnify the Order of St.John, St.John Council for Victoria and St.John Holdings.

(g) All costs of the proposal will be borne by the proposers.

(h) The services of Mr. James Guest Barrister will be retained to act for St.John."

By letter dated 20 June 1977 from Messrs. Clemens Lucas & Mulvany, solicitors for a company called Metropolitan Taxation

Service Pty. Itd. to the Order of St.John it was stated:

Further to our discussions, we confirm that we act for the ahove company which 1s in ccntact with a number of persons interested in making donations to your Order.

The company instructs us to set out the details of the proposal which we have placed before you informally as follows:-

Metropolitan Taxation Service Pty. Ltd. (called M.T.S.) offers on ats own behalf and on behalf of other associated companies to procure donations to

your institution from various persons and companies, most of whom are likely to be complete strangers to you.

In exchange for procuring the donations you will be required to pay a fee to M.T.S. or to its nominated associated company an amount (which need not necessarily be from the same funds) equal to 98.8% of the amount of the gifts.

As a result of entering into the transaction M.T.S. undertakes that the Order will receive a net

amount of not less than $100,000.00 between now and December 3lst 1977.

As a bond of performance M.T.S. and its associated interests herewith tender a bank cheque for the sum of $50,000.00. If the net proceeds of the transactions do not exceed $50,000.00 by July lst 1977, then any deficiency may be met by you from these funds and any surplus is to be returned to us.

You will appreciate that the donations to be procured by M.T.S. are to be obtained on the understanding the Order has in the past qualified as a public benevolent institution under Section 78(1)(a)(11) of the Income Tax Assessment Act and that donations have customarily been allowable deductions for taxation purposes in the past. Accordingly, you are required to produce correspondence from the Deputy Commissioner of Taxation to that effect that also to confirm that your constituent documents have not changed since the approval was given. M.T.S. also relies on your constituent documents enabling you to enter into the transaction and these have not yet been sighted at this stage.

M.T.S. would ask that you open an account in the name of the Order at the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne and that you

arrange for attendance of a suitable person, at the expense of M.T.S. where necessary to handle the receipt of money, the issue of receipts, and banking procedures.

(a) that you do not change your constitutional documents without reference to us;

(b) you do not negotiate with any other persons in relation to a transaction of a similar kind until after June 30th 1978.

8. After June 30th 1977 the arrangement may be terminated by you on twenty-four hours notice but up to June 30th 1977 the fund raising arrangement would

be arrevocable. The arrangement may be terminated on the part of M.T.S. only if amendment to the legislation takes place. In either event the second

part of the guaranteed amount may be prorated over the twelve month period.

9. There are six persons associated with M.T.S. and 1ts associated companies and these persons will enter unto a Deed of Covenant to indemnify you against any claim or loss arising out of the arrangement or any associated transactions. That deed is to be prepared by ourselves and submitted to Mr. Guest of Counsel on your behalf.

If you are agreeable to the terms of the arrangement proposed herein would you please arrange

execution of the confirming copy letter attached and retain this original letter as your record."

By letter dated 20 June 1977 from the Order of St.John to

I wish to acknowledge your letter of 20th June 1977 concerning contractual arrangement for the collection of donations to the Order of St.John in Australia, St.John Council for Victoria and St.John Holdings.

The arrangements set out are acceptable and the copy approved by St.John 1s enclosed."

Also on 20 June 1977 the following authorities were given by the Order of St.John to the Commercial Bank of Australia

receive such funds and to issue our receipts on behalf of the Order of St.John of Australia."

"AUTHORITY In connection with funds lodged to the credit of our account with your Bank opened this day, save and except in relation to the initial deposit of $50,000.00, would you please transfer an amount equal to 98.8% of amounts received to the credit of that

account to the order of Metropolitan Taxation Service Pty. Ltd."

On 20 June 1977 five individuals executed a Deed of Covenant in favour of the Order of St.John giving an indemnity in respect of their entry into the arrangement which has been mentioned.

On 23 June 1977 an authority was given by Metropolitan Taxation Service Pty. Ltd. to the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne, providing that the balance of the account at the end of each business day should be transferred to Sadar Finance Pty. Ltd. The account referred to was described as Metropolitan Taxation Service Pty. Ltd, trustees for W.F. Clemens Family Trust. On J]1 July 1977 a meeting of directors of St.John Holdings Incorporated resolved to repay to Messrs. Clemens Iucas & Mulvany the sum of $50,000.00 which had been lodged to assure performance and further resolved that the sum of $155,000.00 from the account

held by the account of the Commercial Bank of Australia Itd.,

• 13 - 260 Swanston Street, Melbourne should be invested with that Bank for thirty days at 10 per cent.

It will be seen that the plan envisaged that not less than $100,000.00 would be made available to the Order of St.John by various donors whose gifts to the Order of St.John would have to total more than $8,300,000.00 to make this sum available under the arrangements. It was envisaged that the donors would be able to claim allowable deductions for tax in respect of $8,300,000.00 which at the lowest general rate of tax would mean that close to $3,000,000.00 in taxation relief would be obtained by the donors and presumably would have to be made good by the general body of taxpayers. Fer procuring the donors, Metropolitan Taxation Service was to take a fee of 98.8 per cent of the receipts which it obtained for the Order of St.Jonn. The Order of St.John, which has been granted the privilege of having gifts to it for its own purposes subsidised pursuant to the provisions of para.78(1)(a) by the general body of taxpayers, appears with the support of some legal advice, to have been willing to allow this privilege to be used in such a way that these taxpayers would, in effect, carry a burden of some millions of dollars, although the Order would not benefit except to a fraction of this amount.

I may add that the learned trial Judge admitted the evidence in relation to what arrangements were made by the Order of St.John and what was done with the money received by the Order of St.John with doubts as to its relevance. Ile did

not himself rely upon it. It appears to me to be admissible,

• 14 - though its materiality depends on whether the taxpayer knew or suspected the existence of the plan. If a taxpayer makes a genuine gift by way of benefaction to a prescribed body, he should not be defeated in claiming his allowable deduction simply because that body, without his knowledge or partici- pation, chooses to make some unusual arrangement to deal with the money.

I turn to the facts concerning Mr. Leary. On 29 June 1977 he executed a loan agreement with Sadar Finance Pty. Itd. (Sadar). Under this agreement Sadar was to advance to Mr. Leary the sum of $8,500.00. Mr. Leary undertook to repay this at the expiration of forty years with interest at the rate of 5 per cent per annum simple, payable at the expiration of the forty years. Under clause 4, Sadar had the option, subject to the provisions of clause 5, to require payment of the principal sum together with interest at the rate of 14 per centum per annum from the date of the agreement down to the

date of payment. By clause 5 it was provided as follows:

"5. In the event that the Borrower shall after the date hereof make a gift at any time to one or other of the charitable institutions whose names are set out in Part FOUR of the First Schedule hereto of the amount set out ain Part FIVE of the First Schedule hereto then -

A. The option of the Lender set forth in the immediately preceding Clause 4 to require repayment of the Principal Sum at call together with interest at the rate of Fourteen per centum per annum shall forever cease and determine and

B. The Borrower shall at any time also have the raght to be exercised by seven days prior notice in writing either on behalf of the Borrower personally

or on behalf of a nominee of the Borrower as agent of such nominee to purchase the rights and benefits of the Lender under this agreement including the amounts of principal and interest hereby secured at a price equal to the current commercial value thereof by reference to an appropriate cash flow discount chart to be prepared by Messrs. E.S. Knight & Co., Consulting Actuaries of 233 Collins Street, Melbourne, the partners of which firm are appointed as arbitrators to the parties for the purpose of this provision AND the Lender hereby agrees notwith- standing the aforesaid that during the period of five years from the date hereof the price at which the Lender will sell to the Borrower or the nominee of the Borrower the rights and benefits of the Lender under this Agreement pursuant to the provisions of this Clause shall not exceed the percentage amounts of the amount of the Principal Sum set out opposite each of such five years respectively listed in the Second Schedule hereto and the Lender warrants that the percentages of value so set forth in the said Second Schedule hereto have been compiled by reference to calculations made by the said Messrs. E.S. Knight & Co., Consulting Actuaries to reflect the market value of such a loan at June 8th 1977."

In Part 4 of the First Schedule the following were specified: 1. Order of St.John in Australia; 2. Salvation Army; 3. The Western Australia Property Trust.

The amount of the gift to be made in order to secure the benefits offered by clause 5 was stated in Part 5 of the First Schedule to be $10,000.00. In the Second Schedule the

purchase price of the loan for purposes of clause 5 was fixed

During the first year of the loan 0.202% During the second year of the loan 0.244% During the third year of the loan 0.293% During the fourth year of the loan 0.352% During the fifth year of the loan 0.4233"

On 29 June 1977 the sum of $8,500.00 referred to in the loan agreement was paid to Mr. Leary by Sadar. On 30 June 1977 Mr. Leary paid $10,000.00 to the Order of St.John. This payment of $10,000.00 was effected by the Commercial Bank of Australia in Perth remitting by telegraphic transfer on account of the taxpayer $10,000.00 to the Commercial Bank of Australia to be credited to the Order of St.John in Melbourne. At the time of that transaction Mr. Leary had an overdraft limit enabling him to draw an amount which was. stated variously as $10,000.00 or $15,000.00. Pursuant to the arrangement between Metropolitan Taxation Service and the Order of St.John, $9,880.00, being 98.8 per cent of the amount of $10,000.00, was on 30 June 1977 transferred from the Order of St.John account to the account of Metropolitan Taxation Service as trustee of the W.F. Clemens Family Trust. On 30 June and 1 July 1977, the moneys that stood to the credit of

the account of Metropolitan Taxation Service as trustee as

• 17 - aforesaid including the sum of $9,880.00 were transferred to the credit of the account of Sadar.

Mr. Leary, 1n his income tax return for the year ended 30 June 1977, claimed a deduction for the sum of $10,000.00 which he had paid to the Order of St.John. This claim was disallowed. He objected and his objection was disallowed whereupon he requested his objection be treated as an appeal and forwarded to the Supreme Court of Western Australia. The Supreme Court dismissed his appeal, the learned trial Judge taking the view that he should follow the Cyprus Mines

Corporation Case. It is from that decision that Mr. Leary has

The first question which arises is whether the payment of $10,000.00 by Mr. Leary was voluntary in the sense that 1t was not made as a result of a contractual obligation.

Under the loan agreement of 29 June 1977, Mr. Leary became obliged to pay the sum of $8,500.00. There were various methods laid down in the agreement whereby he might relieve himself of this obligation. One was to walt forty years and then repay the loan with 5 per cent interest provided the lender waited so long. Another was to repay the loan under clause 3 at an earlier time with interest down to the date of payment. Another was to pay Sadar the amount with interest at 14 per cent per annum from the date of the agreement to the date of payment in the event that Sadar acted under clause 4. Another was for Mr. Leary to exercise his right under clause 5

and pay $10,000.00 to one of the three bodies specified in the

• 18 - Schedule to the loan agreement of which the Order of St.John was one and then to exercise the right given by clause 5 to purchase the loan for a nominal sum and following that to claim a tax deduction in respect of the amount of $10,000.00 paid to the Order of St.John.

Mr. Leary chose the last mentioned method of terminating his contractual obligation to repay Sadar. He was not obliged to follow that particular method but it was one of the contractual methods provided and, if he followed it, he was acting in accordance with the contract with consequences which were provided for in the contract.

Nevertheless, as at present advised, I am not satisfied that Mr. Leary would necessarily lose his deduction, if this was all that appeared from the evidence. In view of the conclusion to which I come on other grounds it is unnecessary to express a final view on this aspect of the matter.

The next question which arises 1s whether when Mr. Leary made the payment of $10,000.00 to the Order of St.John, there was any material advantage received by him in return. From what has been said, it is clear that he did gain an advantage as a result of his payment in that he became entitled to purchase a loan of $8,500.00 owed by him for a sum which was nominal ($17.17) and thus extinguish his liability to repay the loan of $8,500.00 to Sadar. This, of course, was a material advantage which flowed from the terms of the agreement with Sadar. The advantage did not proceed to him,

As I have indicated, it appears to me that in some circumstances a payment to a body prescribed under para.78(1)(a) may be a gift notwithstanding a material advantage 1s received by the donor from a third party. It 1s necessary to consider the circumstances of the case. Here, there was a link between the Order of St.John and Sadar from whom the material advantage flowed to Mr. Leary. This lank was not fully explored in the evidence tendered in the case. What is clear, however, is that Sadar, in accordance with arrangements in fact made preceding the gift, received 98.8 per cent of the amount of $10,000.00 paid by Mr. Leary to the Order of St.John. Commercially, it would seem that Sadar could not afford to "collapse" the loan of $8,500.00 to Mr. Leary unless something of this kind had occurred. Stating the matter in another way, it may be said that although it 1s not clear what were the precise arrangements under which the 98.8 per cent of the $10,000.00 came to Sadar, what "1s clear is that 1t did come to that company. It 1s not inapt to say that the Order of St.John, which was the recipient of the $10,000.00, fed the source of the material advantage which came to Mr. Leary as a resuit of his gift. The Order of St.John beneficially retained only $120.00 from what Mr. Ieary had paid them. Applying the words of para.78(1)(a) it does not appear to me to be a correct use of language to say that an all the circumstances of this case Mr. Leary made a "gift"

The next question which arises is whether the payment of $10,000.00 by Mr. Ieary to the Order of St.John was by way of benefaction. So far as Mr. Leary's knowledge is concerned, the evidence is to the effect that he did not know the total plan, in particular the arrangements between the Order of St.John and Metropolitan Taxation Service and the arrangements between Metropolitan Taxation Service and Sadar. Mr. Leary relied upon his tax agent Mr. Westlake who was an accountant, and on his solicitor Mr. Collinson of the firm Parker and Parker. Mr. Westlake "introduced" him to the proposal to make a gift to the Order of St.John to obtain "tax relief". Mr. Collinson advised him on "the legalities of it".

Mr. Westlake gave evidence. Obviously he had more detailed knowledge of the proposals than Mr. Leary, although the precise extent of his knowledge 1s not clear from his evidence. He had discussed the plan in a general way with Mr. Collinson. Mr. Westlake said "he mentioned it to me and priefly explained how it operated and so on". Mr. Westlake then said "TI mentioned the transaction with St.John to him (Mr. Leary) and suggested that if he wished to pursue this plan he should contact Parker and Parker". Mr. Westlake was generally aware how the figures worked out. He himself made a payment of $10,000.00 to the Order of St.John under these arrangements. But the effect of his evidence was that he did not really explore the method by which moneys would return to

"Did you give consideration to how Sadar could afford to make an agreement whereby its loan could be,

in effect, collapsed? --- I had no details of how that would operate. I wasn't given that. You mean did I guess at what they were going to do?

MR. BATT: Yes. That 1s excactly what I mean --- That's a very hard question, whether at the time I would guess how they would deal with the loan. No; I don't think I did. I just knew they would - I didn't exercise my mind. That would be a waste of my time, I would think.

I was not meaning a particular way. In general terms did you guess there would be some steps taken?

anything of course; I just guess - in the whole
transaction they'd work that out for themselves.
I was only concerned with how it affected me and
my clients.

As an accountant at that time, in your' general guessing, did you believe in the case of a $10,000.00 payment to the Order, that the whole $10,000.00 would remain with the Order? --- I wouldn't have thought so; no; but again I didn't really exercise my mind as to what

happened to it after I made the donation of $10,000.00.

I think I asked you this --? --- I certainly didn't question anybody about how it worked."

In my opinion such knowledge as Mr. Westlake had on this matter must be taken to be the knowledge of Mr. Leary. Mr. Collinson did not give evidence.

So far as Mr. Leary's intention in making the payment to the Order of St.John 1s concerned, the evidence is to the effect that he, of course, intended to make the payment and, to use his own words, "it was basically a tax relief situation

and that was at". There was also the need to get rid of the

• 22 - obligation to repay the loan of $8,500.00. His evidence on

"You would not, in June 1977, have incurred -the obligations of a borrower of $8,500.00 for the purpose of making a payment to the Order of St.John of $10,000.00 unless you had expected to be able to be released from or have extinguished your obligation of paying back $8,500.00, or virtually the whole of that obligation? --- That 1s correct.

Is not the position that Mr. Westlake told you that the object of this transaction was to enable you to be able to get released from or to have extinguished that obligation to repay the eight and a half or almost the whole of that

obligation? --- That 1s correct, yes. That is here."

In the circumstances the only significant element of benefaction on the part of Mr. Leary seems to have been to benefit himself by way of tax relief. A conclusion that Mr. Leary was engaged in providing a benefaction of $10,000.00 to the Order of St.John would be contrary to the evidence. It would also be contrary to the evidence to hold that a benefaction of $10,000.00 was in fact conferred upon the Order of St.John.

In the result it 1s my opinion that Mr. Leary did not make a gift of $10,000.00 to the Order of St.John within the

meaning of para.78({1)(a). I propose that the appeal be

IN THE FEDFRAL COUrT OF AUSTRALIA No. W.A.02 of 1963

BL7Ww=EN Appellant AND Mal COUMISSTONCR OF TY hare ol OF 'HE COM wEALIT JF AUC Ratlaé

"he Orde~ oF St.Jchn in fustralia (tie Order) »o 1¢ of $2 or more are

public benevolent institution, and Geductible Crom the donor's assesbable income pursaant to

8.78(1)(a) (ii) of the Income emanations of the Order include St.John Holcings(Inecorporaled) and

St+.dchn Couneil for Vieteria. Although these bodies had a role to

play in the arrangements presently to be mentioned, it was commor.

ground that the Order may be regarded for the purnoscs of these including those bodies, and cnaat no relevant

The circumstances out of which this appcal arises have their origin (so far as the evidence chows) in a meeting held on

19 June 1977 between an accountant anda solicitor representing Metropolaten Taxation Survice [ty.Ltid. (MTS), and officers of St.John Holdings (inesrporatec). On behalf of MTS, a scheme was proposed to procure for the Order of St.John in Australie, St.John Council for Victoria and St.John Iloldings, donations

"to be allowable Sor isncore tax deductions". MUS was to receive

a fee of 99.8% of the donations procured. At that meeting it was agreed that St.dchn Holdings weuld participate in the schere proposed.

he solicitors for MTS wrole a letler to the Secrecary

of the Order the neat day, setting out the propocal in nine

"lL. Metropolitan VYaxation Service ty. utd. (called M.7.3.) of*ers on its own benalf and on behalf of other asscc1eted companies to procure conations to your insticabion fron various persons and companies, mosl of whom are likely to be cemplete strangers Lo youl.

2. In exchange for procuring the donatiors you 111 Ee required to pay a fee tou .T.S. or to its nominated associated company an arount (which need not necessarily be from the same fundz) equal to 98.8% of the airounc of the giv"ts.

3. As a result of entering into the trénsaction i.T.S. undertaxes that the Order will receive a net amount ot not less than $109,029.53 between now and Decenber 3lst

4, As a bend of perforrance M.T.S. and 1ts associated interests herewith tender a bank cheque for the sum of $50,090.00. If the net vroceavds o* the transacticns do

not exceed $50,009.00 by July Ist 1377, then anv Seticieney may be met by you from these funds and any surpias is to be returned to us.

5. You will appreciate that the dcenations to Le precured by M.T.S. are to Le obtatnec or. the understanding tnat the Order has in the past jualified as a public benevolent institution anier Section 78(2)(a)(ii) of the Income Tax Assessment Act and thet donations have customarily been allowable deductions for taxation purposes in the past. Accordingly, you ere recuired to produce correspondence from the Deputy Commissioner of Taxatien .o that effect and also to confirm that your constituent Gocumer.ts have not changed since the approval was given. N.T.S. also relies on your constituent documents enabling you to enter into the transaction and these have not yet been sightea at this stage.

6. M.T.S. woutd ask that you open an account in the nane of the Order at the Commercial Bank of Australie itd., 262 Swanston Street, Melbourne ané that you arrange for attendance of a suitable person, at the expense ci M.S. where necessary to handle the receint cf money, the iscre of receipts, and banking prcecedures.

(a) that you do not change your constitutional docuncnts without rerterence to us,

(b) you de not negotiate with any cther persons *n relation to a transaction of a similar kind until after June 30th 1976.

8. Af-er June 30th 1977 the arrangement may be terminated by you on twenty-Lfcur hours novice but up to Jun: 20th 1977 the fund raising arrangement would be irrevocabie. The arrangenent mcy be terminaved on the part of M.T.S. only if amendrent to the legislation tekes place. In either event the secone part of the guaranteed amount may be proraced over che twelve month period.

9. There are six persons associatec with M.T.S. and its associaved companies and these persons wili enter into a Deed of Covenant to indemnify you against any claim or arising out of the arrangement cr any ansaciated transactions. ... "

Cn the seme day, the proposal was accepted Ly Jetter from the Secrecary of St.John Holdii.gs: " Iowiph to acknowledge your letts

r concerning contractual arrangement ror of donations to the Crder of St..ohn in

of 26th Jun: 2977 the collection Austral+a, St.vohn Couneil for Victoria anc Et.John Holdi

The arranccements set out ame acceptable and the copy approved by St.John ls enclosed. "

Alse on the same day, pursyant to the arranserent thus mace by the Order and MTS, the following steps wore taken:

(a) a letter was procurec by the Order from the Denuty Commissioner of Taxation stating that gifts of $2 and upwards madc to the Order were allowable ceductions uncer s.78(1)(a)(ii) of the Income Tax Assessment Act 1936 (par.5);

(b) a deed was executed whereby six pcorsons (cwo =ccountantr and four solicitors) who were recited to be "lTanancZally interested 1m the arrangement set out sm the ... letter" andemnified the Order against any claim or less arising out of the arrangerent (par.9);

(ce) an account was opened in the nane of the Orcer with the Comrerecial Bank oF Australia Ltd., °60 Swanston Street,

Melbourne, with authority to the bank to reoeive Lands

(d) a direction was given to the kank that there be transferred to the credit of the if1S account an amcunt equal to 98.6% oF amounts received to the credit of

the Order's acecunt (par.2) except in relation to the

On 23 dune 1977, ETS gave a direction te the bank that it transfer to the credit of a moncylencing company, Sader

Tinance Pty.Ltd. (Sader), the balance of the MTS account at th

At some time before 30 June 1377, Ivo publashez hat it called a "Charity Plan" which was stated to be "Gesignzed to allow any taxpayer to obtain the advantare of a deduction for taxation purposes of donations to charities made curing the current financial year without necessarily being out of pocket to the extent of the full amount of the donation." Under the plan, a taxpayer was to dcenate a chosen sun to 2 particular charity (in

this case, the Crdar), having bowrovet $55 of thac sum [rom a

moneylending company associated with ifLS (in this case, Sadam). The terms cf the Loprowing were to previde that, if the donatacn were mace to 2a charity specificd in Lhe loan aprezsnent, "the taxpayer or his nominee will be entitled to purchase che loan agrecmonct...at an amount equal to its current casl vaiue dy reference to a cash discount [low chart." This curioucly wordad passage retlects the previsions of the loan agrcement, pursuant to which a texpayer could purchase the debt he ower for a nominal amount, and thus (to use the convenient tarm adopted at the hearing of these proceedings) collapse ine loan. The circular movement of Funds woulc Le compicte: Sadar the sending cemmany

would lend to a taxpeyer ¢b°% of the sum to be pazd by the

taxpayer to the Order and the taxpayer, contributiny from Ais on

funcs the Lalance, 155, of the sum to be paid, would nay the sum to the credit oF the Qider's bank acecunt; the Order weuld transfer an amount equal to 94.0% of thet sain to NTIS wheeh would transfer that amount to Sadar, sce that Sadar would receive arn amcunt equal to 98.3% of the sum paid to the Order (unless NTS with crew some moneys en passant) plus the nominal sum 'which the taxpayer mignt pay Sadar to "purchase the loan asrcement". It

was inicnéed by the promoters of the plan that the taurayor should oDdltain the advantage of a Gecuction under 5.78(1)(a)(ii) in the sum paid to the Order, that the Oréer shoulé be left wath an

amount «qual to 1.2% of the sum so paid; and that an amount ecual

to 13.8% of that sum should find its way to MTS or Sadar.

The poliey of s.73(1)(e), as Bowen C.J. pointed oat

écral Commissioner of Tanacion (€(1377) 77 AVC 4329

"So ernoccurag? gifts to established and paintained exclusively he specified purpose, so tha co the fund will

(-2e 52 ALL.J.R.164 in the High Court). The plan socims incorpatzble with that policy, for the plan required the Order to use its status a» a benevolent unslitution under the Aet not to attract donattons to be applied far its senevo_ent purpeses but to attract payyents which woulc enure 'o the bonefil of otnaers, the Order taxing a Teo of 1.23 for the service whieh it agreed to

an support of those who were seeking to avoid = liability to tax.

News of the plan evidently reachcd e firm of solicitors in Perth

anc, at some tine before 29 Junc 1977, a solicitor in that fir mentioned 1t to a Mr. Westlake, the appellant's tax agert, and briefly explained how it epereted. Mr. Westlake dic not know each step in the movement of moneys, but no krew that a texpayer migrit borrow 35% of the amourt to be paid to the Order from a moneylending company, pay the amount selcated to the Order in the eapectation of obtaining the advantage cr an allowable dcduerion, and procure e discharge fron his ucbt to the moncylcending company by the payment of a nominal sum. He did not learn how the moneylencing company could afford to naxe en agreenent whereby its dehtor ccule procure his discharge from liability by payment

of a nominal sam, but he die not think that the whole oum paid to

lip. Westlake commended the scheme toa his clienl, the appellant, ana referred him to the soltciter for information snd

aavice. The appellant save evidence that the solicrter cévised

him in relation to the "legalities" of the schere. 'The solic1ito»

also arranged for a loan of $8,590 from Sadar to the appellant and

for the irahang of a payment of $16,900 by the aprellent to the

Crdey. The appellant hed made hitherto only omal] donmeztions co the Order but on 29 or 30 June 1977 he, having signed a loan

agreement with Sadar and having received $38,500 Crom Sader, seid

$10,000 to the Oréer. The payment waz made to the credil o7 Lag

acecunt of the Order which 1t had opened with the Commercial Bank of Australia Ltd., in Swanston Street, "elbourne, as earlier mentioned. The loan agreement permitted the appellart to ccllapse the loan for a nominal sum (some $17 during the first year of the lean), and the aprellant said in evidence that he would probably not have made the payrent to the Order if he head not obtaincd the loan on those terms. He had not bLcen advised by Mr. Westlake of the detcils of tne scheme. He said he could not recalzi cetails

"Leeaase 1t was basically a tax relief sztuation and that was 1%".

When the eppellant made the payment of $10,000 to the

eredit of the Order's account, the planned movement of funés occurred: $9,869, being 94.8% of Lhe amount paid in, was transferred te the credit of the MTS acccunt, and thence to the cradit of the Sudar account in accorience with the arrangenents earlier mentioned. ne appellant claimed a deduction in respect o* his payment of

$10,090 to the Order. 'The clain Veing disallowed, he lodged an

the decision om his objection te the Supreme Court Australia, there Wickham J. dismissed the anpeal wilh costs, ard From that judgment the present appeal is brought.

lt 18 submitted that the payment of 510,900 to rhe Order

was by »ay ef gift in that it wes by way of "ae transference of fhe

beneFiclal tnterest in property by cne person to ancther without

any consideration from thet other" (Collector of Imosts(Viet.) v. Peors (1°01) 29 C.L.8.115 at p.1°1). Consonantly with thie

eubtission it was argued that the circumstances surreuncing the Payrent by the aptellant to the Order arc irrelevant, and that che character of the payment is to be ascertained by looking solely to the relationsnin of the peyer and payea. lf "Gift" in 5.72(1)(e) connetes merely a mode of transferring the bernefici4zl interast in Property, the argument would be well-founded. But "gift" in that paregraph 1s net so used, for the list of recipients of gifts set out in s.78(1)(a) 1s not confined to persons who have the l_gal perscnality requizite to taxe and holjd a benetie1al wterest in property. The paragraph encompasses piyments mace to "funcs,

authorities or instituticns". Tn Yedcral Commisgicner of Taxation

v. McPhail (1968) 117 C.L.P.121 at p.118, Gwen J. held thet "eitt"

un that paragraph is usec "in the ecenee in whien it is underszocd

Tt is, of course, mo ncvelty to deny tc the term "gift"

for "sgifc" ais a tapm which frequently has been tortured out of ite technical meaning by its statutory context (see per Dixon J. in Colluctor of

Inposts (Vict.) v. Caminz Camplels Inveecments Flv.Ltd. (Loo)

63 C.L.R.619 at py.6'1-644). But when the avplicetion of a statutory provision depends not upon the technical meaning of "oi-t" but upon the orcinary usage of th vemm, Lhe ordinery u3saze

must yet yield criteria for applyins the provision. The

ascertainment of criteria is no less imperative on that accounz, though the criteria may not be absolute and may involve matter: of degree.

The ordinary notion cf gift and "gilt" in its technical meaning have common features: a transfer of a beneficial inverest in property by way of benefaction, and an absence of a pocuniary or proprietary benefit passing to the tranelZeror by way of raturn. But the relevant circumstances in whicl these indicia may be Found are more narrewly confinec when the enquiry is as to a gift in the technical sense than when the enquiry is as to a gilt according to ordinary notions. 'The former enquiry is narrower in

ascertain whether a »eneficiat interast in property has been

transferred by a mode which falls "mthin the classi

gift. The intention cf the transferor and translurce as to tne

ownership of the beneficial intcrest and the fo>m of its transZear

investing of the interest, and the absence cf consideration passing from the transferee to the tranoverer serves to distinguish

But an enquiry inte the making of a gift according to

ordinary notions requires reference to wider circunstar.ces.

In the first piace, it 15 relevant to encuire as cto the return (if any) which a dicponor seeks and receives ty dispcsing ot the relevant preperty. The ordinary notions of a gift co not rey much regard to the difference batween a return to 4 @isponor which he receives as consideration uncer a contract

and a return which 18 furnishec «under some other arrengement

does not come directly from a disponee, but indirectZy. It will always be of Significance that a dispcnor has received fron a disvonee, elther Cirectly or indirectly, the return sought for

Secondly, it "5s relevant to encuire whether the cisponee is, to the knowledge of the disponor, [ree to enitoy without burden the property Cisposed of; or whether, tc the knowledge of the disponor, the taking of that preperty under the dispesition is the occasion and reason for incurring

soagal by making the paymont. whe asnellant hec no knowledge a

to 'vhether, under the scheme in which he was participating, the

Orcer might de required to part with the sum (or part of the eur)

which he nad paid to it or whether it might use that sum for its

own Pappeses. Mr. Westlake susveated that the Order vould not

retain all of the moneys taid to it, anc in fact th. SGrlevr ves

reculred to disgo-rge to MTS forthwith s7,33¢ of the sum rectived.

Vhe payment of $19,009 was eirsly not by way of ben2faction 1T

was made to actuire benefits for the Gisponor, nut ta confer

benefats upon tie cisponse. Even if 16 were conceded that Lhe

avvellant was cantent that the Crdur should aczuire some bene

"ram the payrent, thal was neither his dominant motive nor the Jominant purpass of his disposition. There was uo gile according

to oréinary notions, and the appeal must be dismrlesed.

promotes by mwerbers cf the Icgel and accounting professions, wig assameé the mantle of entrepreneur. but it does not appear that any of the entrenreneirs in the trerent case escutied the Lunclions of proltecsionc! adviser to a cliant, nor dors 1b anpear tiet «ny

essional adviser assumed the role oF ar entrepreneur. It nas

not been material to consider whether it is possible for the role of a professicnal adviser ane the role oF an entreprencur properly to coincide or overlap, but che appearance of solicitors performing these respective rolcs in the present case leads me to invite attention to significant differences

between the two functions. These differences do not arise out

of any judicial view as to the law"ulness or morality of tax

avcidance: as to which see Federal Commicotioner o* lIaxation v.

Westraders Tty.Ltd. (1980) 11 A.".P.24; Inland Revenuc

inland Fevenuc Commissioners [1943] A.C.377 at p.381; In Eytale

ot Vicars (13%4) 45 S.P.CN.S.W.) 85 at p.93; In re Wecton'.

5. They arise because the field of prefessionali activity is co-extensive with a lasyer's professional duty. That cuty is to five advice «s to the meaning and operation of the law and to render proper professional assistance in furtherance of a client's interests wiLlhin the terms of the client's retainer. lv is a auty which 15 cack upen a lewyer, as a member of an independent profession, whelher his services are sought with respect to the operation of taxing statutes, the provisions of da contract, charges under the criminal law or ary other of the variec *+1elds of professional conezrn. It is a duty which arises out of the velacionship cf

Ls Treanant vic. the poes Mility oF conrliot cf eaen.rep

ON APPEAL FROM THE SUPREME COURT OF WESTERN AUSTRALIA

AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

DEANE J: The Order of St. John in Australia ("the Order") is a public benevolent institution within s.78(1) (a) (11) of

the Income Tax Assessment Act, 1936 ("the Act"). Gifts of

$2.00 or more made to it have, at all relevant times, been deductible in the assessment of taxable income. On 30 June, 1978, the appellant Brian Arthur Leary ("the taxpayer") paid

$10,000 to the Order. The issue between the taxpayer and the

respondent Commissioner of Taxation in this appeal is whether

that payment constituted a "gift" for the purposes of

The payment which the taxpayer made to the Order was made in the course and for the purposes of a related series of transactions organized and orchestrated by a company called Metropolitan Taxation Service Pty. Limited ("MTS"). MTS had arranged with the Order that it would procure donations to the Order "allowable for income tax deductions" and the Order had agreed to pay to MTS or its nominee 98.8% of all donations procured by MTS. If the circumstances had been that MTS or its nominee had received 98.8% of donations which the persons whom MTS had persuaded to make them believed were being applied for the purposes of the Order, the overall arrangement would have involved a fraud on those persons. In fact, however, the donors must have realized that the Order would keep but a small part of what they paid to 1t for the reason that they were well aware that the payments were made pursuant to a scheme under which they would receive from a company associated with MTS, a loan of 85% of the amount of their planned payment to the Order which, by reason of that payment, they would be able to redeem for a comparatively nominal amount. Thus, treating MTS and its associated lender company as one, the transaction in the taxpayer's case involved MTS lending $8500 to the

taxpayer, the taxpayer paying $10,000 to the Order, the Order

paying $9880 to MTS and the taxpayer being entitied to redeem the loan for some $17. In the result, if the taxpayer immediately redeemed the loan, the Order would effectively retain only $120 while issuing a receipt, for income tax purposes, for the full $10,000, MTS would effectively retain $1397 and the taxpayer would hopefully become entitled to a deduction in the amount of $10,000 for an effective outlay of $1517. All involved would benefit financially. The only

The word "gift" 1s not used in s.78({1)(a) in a technical sense. It is intended to bear the meaning which it bears as a matter of ordinary language. It is used "in the sense in which 1t 18 used in ordinary parlance" (per Owen J.,

Federal Commissioner of Taxation v. McPhail (1968) 117 C.L.R.

111 at p. 116). It is a monosyllabic old English noun of norse derivation which designates a descriptive category of transfer of property. Once it is accepted that it 1S to be given the meaning which it bears as a matter of ordinary language, 1t is not to be assumed that its ambit can properly be defined, with a lawyer's or logician's precision, by reference to a number of unqualified propositions or tests or by identification with different polysyllabic words whose etymological origins provide greater scope for reasoning as

Investments Pty. Limited ((1940) 63 C.L.R. 619 at p. 642),

Dixon J. expressed the view that "the essential idea of gift is the transfer of property by way of benefaction seen As I understand the meaning of "benefaction", a distinction between that word and "gift" 1s that "benefaction" focuses upon the effect of the transaction upon the recipient whereas "gift" focuses more on the nature of the transaction itself. Benefaction does not necessarily involve an element of benevolence. It is not, however, a conveyancing term meaning no more than that the relevant property is transferred to the use of the transferee. It involves, in my view, the concept that the relevant transfer 1s by way of well doing in that the recipient will be advantaged, in a material sense and without any countervailing material detriment arising from

the circumstances of the transfer, to the extent of the

Investments Pty. Limited (supra) was concerned with the

effect of the extended meaning given to "Deed of Gift" ina schedule to the Stamps Act, 1928 (Vic). The case 1s not authority for the proposition that the concept of benefaction provides a universally -definitave touchstone for determining whether a particular transfer should as a matter of ordinary

language, properly be classified as a gift. It 2S a common

attribute of a gift that the relevant transfer of property is by way of benefaction. It 1s not however, 1n my view, either nesessary or desirable to say in advance that there could not be a case where one would, as a matter of ordinary language, properly describe a transfer of property as a gift notwithstanding the absence of benefaction or that there could not be a case where a transfer of property by way of

benefaction would not properly be described as a gift.

C.L.R. 115 at p. 121), Knox C.J., Gavan Duffy and Starke JJ. expressed the view that the word "gift", when used in its non-conveyancing sense, "usually means a transference of the beneficial interest in property by one person to another without any consideration from that other". The High Court, in that case, was concerned with the meaning to be given to the effect of statutory provisions enlarging the ordinary meaning of the phrase "deed of gift" and their Honours' comments cannot properly be treated as binding in relation to the meaning to be given to the word "gift" in s.78(1) (a) of the Act. In any event, a careful reading of the judgment leads to the conclusion that their Honours were not attempting to propound any universally applicable touchstone for determining whether a particular transaction should, as a Matter of ordinary language or parlance, properly be described as a gift but were concerned to indicate a

necessary negative attribute of a gift, namely, that

recompense or consideration from the transferee not form the basis or foundation of the transaction (see, particularly, ibid, at p. 122 and note the references to Peers Case in

Collector of Imposts (Vic) Ve Cumming Campbell Investments Pty. Limited (1940) 63 C.L.R. 619 at pp. 632 and 644-5). So

understood, I would respectfully agree with their Honours' comments. A transfer of property as a quid pro quo for consideration passing from the transferee to the transferor will not be a gift by the transferor (see Collector of

Imposts (Vic) v. _Cumming Campbell Investments Pty. Limited,

supra, at pp. 629, 631, 632, 640, 644-5). That is not to say that a transfer of property made without consideration passing from the transferee to the transferor must, in all

circumstances, be a gift (see per Dixon J., ibid, at p. 643).

C.L.R. 111 at p. 116), Owen J., sitting as a single justice of the High Court in a case involving the meaning of the word "gift" in s.78(1)(a) of the Act, expressed the conclusion that a disposit1ron of property would not constitute a gift unless 1t appeared "that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return". It 1s plain that his Honour was not purporting to lay down any criteria of inclusion in the sense that if a

transaction satisfied them one would necessarily have a gift.

His Honour waS indicating criteria of exclusion which would preclude a transaction which did not satisfy them from properly being so classified. Even so understood, and notwithstanding their subsequent application beyond Australia (see Her Majesty v. Zandstra (1974) 74 D.T.C. 6416 at p. 6419), I would question the unqualified nature of his Honour's comments. Ordinarily, a gift will not be made in pursuance of a contractual obligation: the mere fact that a person has made a contractually binding promise to make a gift may not, however, necessarily deprive it of its character as such when it is made (see, e.g., the 1llustration of the father of the prospective bride given by

Ridley J. in A-G. v. Holden [1903] 1 K.B. 832 at p. 837).

Ordinarily, a gift will be without valuable material return: again, the mere fact that a donor receives, either from a Stranger or the donee, a valuable return which he may or may not welcome may not prove conclusively that there was no gift

(see, e.g., Collector of Imposts (Vic) v. Peers, supra, at

If a transfer of property 1S in return for valuable consideration received by the transferor from the transferee, it will not be a gift by the transferor. If the relevant property 1s not, for that reason, precluded from being properly regarded as a gift, the abovementioned considerations indicate usual attributes of a gift, namely,

that a gift will ordinarily be by way of benefaction, that a

gift will usually be not made in pursuance of a contractual obligation and that a gift will ordinarily be without any advantage of a material character being received in return. I would add, to those usual attributes of a gift, the attribute that a gift ordinarily "proceeds from a 'detached

and disinterested generosity', Commissioner v. Lo Bue 351

U.S. 243, 246; 'out of affection, respect, admiration, charity or like impulses'. Robertson v. United States, 343

U.S. 711, 714" (Commissioner of Internal Revenue v.

Duberstein et ux. (1960) 363 U.S. 278 at p.285. See also The

Overseers Etc. of The Savoy v. The Art Union of London [1896]

A.C. 296 at pp. 308 and 312; Collector of Imposts (Vic) v.

Cumming Campbell Investments Pty. Limited, supra, at p. 641).

In the clear case, one will be able to determine from overall impression of the circumstances whether the relevant transfer can properly be described as a gift. In a borderline case involving dispute as to whether a particular transaction constitutes a gift for the purposes of s.78(1) (a) of the Act, the presence or otherwise of these usual attributes of a gift will provide the reference point for answering the essential question. That essential question remains, however, the question which s.78(1) (a) itself poses, namely, whether the transfer in question can as a matter of ordinary language,

in B.P. Australia Limited v. Federal Commissioner of Taxation

((1965) 112 C.L.R. 386 at p. 397) in relation to the question whether a particular outgoing was of income or capital according to ordinary concepts, the solution to the problem whether a transfer of property constitutes a gift for the purposes of s.78(1) (a) 1S not to be found by any rigid test Or description but has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that 1t dominates other and vaguer indications in the contrary direction. It 1S a common sense appreciation of all the guiding features which must provide the ultimate answer. In the obvious case that lies away from the boundary, 1t will be easy to decide whether or not a particular transfer is a gift. The line of distinction between what does and what does not constitute a gift may however prove difficult to draw in the borderline case and conflicting considerations may produce a situation where the answer turns on questions of emphasis and degree. A court required to resolve the question is entitled to look to the substance or reality of

the whole of the relevant transaction (see In re The Finance

Act, 1894, and Cochrane [1906] 2 I.R. 200 at p. 201;

Comptroller of Stamps v. Joe White Maltings Pty. Limited

[1956] V.L.R. 253 at p. 270; I.R.C, v. Church Commissioners

for England [1977] A.C. 329 at pp. 347-8; A-G. v. Worrall

-10- [1895] 1 Q.B.D. 99 at p. 104). The question arises as to which of the related transactions between the Order, the taxpayer and MTS or its nominee, are properly to be treated as relevant to the ascertainmment of the substance or reality

of the payment which the taxpayer made in the present case.

The taxpayer was introduced to the Order by MTS pursuant to the contractual arrangements made between the Order and MTS. The payment which he made to the Order was made pursuant to the overall contractual arrangements between MTS' nominee and himself. The contractual arrangements and transactions between the Order and MTS and its nominee and between the taxpayer and MTS and its nominee were the sine qua non of the payment which the taxpayer made and provided the context and the explanation of that payment. The substance and reality of that payment cannot, in _ these circumstances, be determined in artificial isolation. The substance and reality of the payment fall to be determined by reference to all of those contractual arrangements and

transactions of which 1t constituted an integral part.

Once the conclusion is reached that the question whether, aS a matter of reality and ordinary language, the Payment is properly to be classified as a gift, falls to be determined by reference to the overall arrangements and transactions which constituted its context, it is apparent

that the present case 1S not a borderline one in which that

essential question requires to be resolved by a nice weighing of conflicting considerations. As a matter of both ordinary language and reality, the payment of the $10,000 in the present case falls nowhere near the boundary between what is and what is not a gift. It is contrary to both ordinary language and reality to suggest that the taxpayer made a gift of $10,000 to the Order or that the Order received a gift of $10,000 from the taxpayer. Humpty Dumpty, for whom words meant what he chose them to mean, might have described the payment as a gift of $10,000 to the Order. Ordinary language and reality would see the outlay of $10,000 as being made by the taxpayer so that he might enjoy the benefit of being entitled to redeem the $8500 loan for some $17 while obtaining the anticipated advangage of a tax deduction of the full amount of $10,000. Nor would ordinary language or reality see the Order as having received a gift of $10,000. Ordinary language and reality would see the Order as having received $120 as the price of being a party to a tax avoidance scheme utilizing its privileged position under the Act. The payment of $10,000 to the Order was one step in a series of related transactions undertaken by all parties to

them for self-interested commercial or fiscal reasons.

Even if it were appropriate to determine the present case by detailed consideration of whether the payment exhibited what the authorities indicate to be usual

attributes of a gift, the result would be the same. The

absence of no less than three of those usual attributes of a gift make it clear that the payment did not constitute a gift

"First, the taxpayer's payment to the Order was not made by way of benefaction to the Order. True it is that the taxpayer wasS not aware of the precise details of the arrangement under which the Order was obliged to pay an amount equal to 98.8% of the $10,000 to MTS or its nominee. Plainly, however, the taxpayer either presumed that some such arrangemment would effectively prevent the Order from enjoying the real benefit of the money which was paid to uit, or, at the least, was indifferent on the subject. These overall arrangements, which are properly relevant to the determination of the substance or reality of the transaction, largely negatived the advantage which the payment represented to the Order and precluded the payment of $10,000 being by way of actual or, in the circumstances, even intended

of a material character was received by the transferor by way

of return" for the payment (Federal Commissioner of Taxation

v. McPhail, supra, at p. 116). The taxpayer received an advantage of a material character by way of return for the payment. That advantage was the right to redeem for a

nominal amount the loan of $8500 which had, on the previous

day, been made to him and of which, but for the payment, the lender could have required repayment, with interest at a rate of 14% per annum, at any time.

Thirdly, the payment did not proceed from a "detached and disinterested generosity". It was the direct

result of the pursuit of self-interested commercial and

fiscal objectives. Its origins were untainted by trace of

| certifv that Uhis and the preeeding pages are a true copy of the reasuns for Judgiwal herein of His Honour Mr Justice Deane