Booth v Federal Commissioner of Taxation

[1987] HCA 61

HIGH COURT OF AUSTRALIA

Mason C.J., Wilson, Deane, Toohey and Gaudron JJ.

BOOTH v. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

(1987) 164 CLR 159

16 December 1987

Income Tax—Choses in Action

Income Tax (Cth)—Assessable income—Transfer of right to receive income from property—Transfer for period—Ineffective for tax purposes if period will or may terminate before prescribed date—Assignment of right to receive rents from premises for period terminating after prescribed date—Premises leased at date of assignment for period terminating before prescribed date—"Right to receive income from property"—Income Tax Assessment Act 1936 (Cth), ss. 102A(1), 102B(1). Choses in Action—Assignment—Equitable—Right to receive rent Possibility of future lease.

Decisions

MASON C.J. The facts in this matter are set out in the reasons for judgment of Toohey and Gaudron JJ. with which I agree subject to the additional reasons set out below.

2. In essence we have to determine what was the scope of the destructive operation of s.102B(1) of the Income Tax Assessment Act 1936 (Cth) ("the Act") before it was amended by Act No. 46 of 1986, in particular what was meant by the words "where ... a right to receive income from property is transferred ..." In resolving this question the definition in s.102A(1) of the expression "right to receive income from property" is not of much assistance. The expression is defined to mean:

"... a right to have income that will or may be derived from property paid to, or applied or accumulated for the benefit of, the person owning the right".

3. At first instance McGarvie J. considered that s.102B(1) referred to the right to receive income from property which the owner of property enjoys as "part of the bundle of rights of ownership". The owner enjoys the right to income produced by his property unless he has disposed of that right or part of it to another. As the general law did not restrict the capacity of an owner to alienate his right to income from his property, many taxpayers exercised this capacity by alienating their right to income from property for short terms. Section 102B(1) was directed to this situation. It strikes at transfers, otherwise than by way of will or codicil, of a right to receive income from property for a period that will or may, for any reason other than death or legal disability, terminate within seven years of the date on which the income is first paid to, or applied or accumulated for the benefit of the transferee. But the sub-section did not apply where the right to receive income "arose from the ownership by the transferor of an interest in the property and the transferor has transferred that interest": s.102B(2)(b). In other words, s.102B(1) has no application when the transfer of the right to receive income takes place as the result of the transfer of the underlying proprietary interest which generates the right to receive income.

4. McGarvie J. thought that the word "transferred" should be understood in its popular, as distinct from its technical, sense. According to his Honour, when so understood, the word embraced a transaction whereby it was provided that another person should enjoy or have the benefit of the right to income from the transferor's property to the exclusion of the transferor, even if the transaction did not operate as a transfer or assignment to that other person of a proprietary interest or a chose in action. On this view s.102B(1) had no application if the transaction deprived the transferor of the right to income from the property for seven years or more, even if the transaction happened in the circumstances of the case to give the transferee actual enjoyment of the income for less than seven years. This consequence might come about because the property generated no income or no relevant income for part of the period during which the right to income was transferred.

5. The Full Court of the Federal Court rejected this interpretation of s.102B(1). Jenkinson J. (with whom Northrop J. agreed) considered that the language of the sub-section was apt to comprehend any transfer of a right to income from property, however expressed, unless it is effective to assign a chose in action, being a right to receive such income, for the prescribed period. Burchett J. interpreted the sub-section more strictly, by concluding that it applied unless the transfer of the right expressly provided for its duration for at least the prescribed period.

6. It is often said that an essential characteristic or attribute of ownership is the right to the income of the property owned: see, for example, A.M. Honore, "Ownership", Oxford Essays in Jurisprudence, ed. A.G. Guest, (1961), 107, at pp 117-118 and W.E. Hearn, The Theory of Legal Duties and Rights (1883), esp ch 10. As this statement implies, the right to income in this general or abstract sense is different from the right to receive payments of rent or licence fees under a lease or a licence. Because the receipt of such payments has the character of income, the right to receive them is a right to receive income. And the right, being a chose in action, is very different in its nature from the abstract right of the owner to income from his property. On the other hand the abstract right to income contemplates income derived from property in any form. It includes income derived from activities conducted by the owner of the property, such as cropping, as well as income arising under a lease, a licence or for that matter, a contract with respect to the use of the land, but it is by no means confined to income so arising.

7. The principles of law which govern the transfer of rights apply to proprietary rights, including choses in action. Although rights other than existing proprietary rights are not capable of immediate transfer, they may be dealt with by contract. If they are dealt with by contract, the contract may eventually operate in equity to effect a transfer of them, but only in so far as they consist of future proprietary rights and as and when those rights come into existence. When the property comes into existence the assignor eo instanti becomes trustee of it for the assignee, the prospective right in property which the assignee obtains being a higher right than the right to have specific performance of a contract, as Dixon J. noted in Palette Shoes Pty. Ltd. v. Krohn (1937) 58 CLR 1, at p 27. A purported present transfer or assignment of future property, including a future chose in action, is construed in equity as a contract to transfer or assign the property when it is acquired. In this way a would-be present assignment of a future chose in action operates as an assignment of that property when it comes into existence. See the discussion by Windeyer J. in Norman v. Federal Commissioner of Taxation (1963) 109 CLR 9, at pp 24-25.

8. On the other hand the owner's abstract right to income from his property is not a right capable of transfer in isolation from the ownership of that property within the framework of the principles of law governing the transfer of proprietary rights, even though the owner can contract to deal with the income which is derived from his property. And, as we have seen, s.102B(1) did not apply to a transfer of property which carried the right to receive income from that property.

9. The extent to which a taxpayer could effectively assign for tax purposes a right to income from property, independently of a transfer of the property itself, has been discussed in such cases as Norman, Shepherd v. Federal Commissioner of Taxation (1965) 113 CLR 385 and Federal Commissioner of Taxation v. Everett (1980) 143 CLR 440. Generally speaking, attempts to alienate income for such purposes have proved ineffective when the assignor has retained such control of the income or fund that he can divert the income back to himself or the attempted assignment is no more than an application and disposition of income which he has derived or is deemed to have derived. See Arcus v. Commissioner of Inland Revenue (N.Z.) (1962) 13 ATD 101, at p 103.

10. Income tax is levied and paid on "the taxable income derived during the year of income" by the taxpayer: s.17 of the Act. The Act does not define the word "derived" so that it bears its ordinary meaning, that is "get, gain, obtain" and this does not necessarily correspond with "earned": Brent v. Federal Commissioner of Taxation (1971) 125 CLR 418, at pp 427-428; and see Federal Commissioner of Taxation v. Clarke (1927) 40 CLR 246, at p 261. In the assessment of income generally "the object is to discover what gains have during the period of account come home to the taxpayer in a realized or immediately realizable form", in the words of Dixon J. in Commissioner of Taxes (S.A) v. Executor Trustee and Agency Co. of South Australia Ltd. ("Carden's Case") (1938) 63 CLR 108, at p 155.

11. Income tax is levied not only on income derived by a taxpayer but also on income deemed to have been derived by him under s.19. That section deems income to have been derived by a taxpayer, though it is not actually paid over to him, which:

"... is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on his behalf or as he directs."

To what extent s.19 extends the concept of derivation of income is by no means clear. There is much to commend the view that once an income receipt accrues due to a taxpayer it is derived by him so as to form part of his assessable income. In Tindal v. Federal Commissioner of Taxation (1946) 72 CLR 608, Starke J. said (at p 624):

"'Derived' is not a technical word. It means arising or accruing or coming in by way of income, not necessarily actually received 'but ordinarily that is the mode of derivation' ..."

Although the taxpayer can assign it, the assignment would not affect its character as assessable income in the hands of the assignor. The assignment is simply an application of the assignor's income or perhaps a dealing with it. As such it would answer the description in s.19 of income deemed to be derived by the assignor. However, it may well be that it is income derived by the assignor, without there being any need to resort to s.19 in order to include the receipt in his assessable income.

12. There is no occasion in the present case to identify the true foundation for the proposition that once an income receipt accrues due to the taxpayer it forms part of his assessable income. Barwick C.J., Stephen, Mason and Wilson JJ. implicitly accepted the proposition in Everett when they said (at pp 450-451):

"For present purposes the point to be made is that an equitable assignment of present property for value, carrying with it a right to income generated in the future, takes effect at once whereas a like assignment of mere future income, dissociated from the proprietary interest with which it is ordinarily associated, takes effect when the entitlement to that income crystallizes or when it is received, and not before."

13. It is possible to assign immediately a present right to future income, independently of the proprietary right which generates that income, before that income arises. Shepherd is an illustration of such an assignment. But, as Norman demonstrates, in some cases it may be impossible to identify a present right to future income divorced from the proprietary right which generates that future income. In such cases an attempted assignment deals with future property or an expectancy and operates to vest the future income in the assignee as and when that future income accrues due, but not before it accrues due. Accordingly, the assignment would not be effective to prevent the income being derived or being deemed to be derived by the assignor.

14. When s.102B(1) is examined in the light of the foregoing discussion, it is evident that the sub-section was directed to transfers (or assignments) of a right to receive income capable of transfer (or assignment), not to the owner's abstract right to income from his property. The expression "right to receive income from property" naturally embraces a presently existing chose in action, such as the right to payment or royalties which was the subject of the assignment in Shepherd. Whether the expression also embraces a right not presently existing, to receive income from property, that is, an expectancy, is another question.

15. It is perhaps possible that the definition of the expression in s.102A(1), when it spoke of a "right to have income that will or may be derived from property paid to ... the person owning the right", was intended to comprehend an expectancy, such as the payment of future interest on a loan repayable at any time, which was the subject of the attempted assignment by way of gift in Norman. And s.102A(2) provided that a reference to a transfer of a right to receive income from property should be read as a reference to any such transfer. However, s.102B(1) was directed to transfers which would have effectively alienated income for tax purposes, but for the operation of the sub-section. It is expressed to apply to "income that, but for the transfer, would have been included in the assessable income of the transferor". On the view which I have expressed an assignment of future income before it accrued to the assignor would not be effective for tax purposes to alienate that future income.

16. But if the would-be present assignment for value of an expectancy is an assignment of a right to future income, for example, the right to rent under a lease to be entered into subsequently, there are strong reasons for thinking that the assignment falls within the purview of Div.6A of Pt III. True it is that the language of the sub-section naturally contemplates the transfer of a right to receive income which has an existence antecedent to the transfer. However, the equitable assignment of future property as and when it comes into existence answers the statutory description. Moreover, it conforms to the object of Div.6A as an anti-tax avoidance measure to treat the provisions as having an application to equitable assignments of this kind. Otherwise, Div.6A would be easily circumvented and fail in its purpose.

17. Section 102B(1) applies only in those cases in which the period for which the right to receive income is assigned, otherwise than by will or codicil, will or may, for any reason other than the death of any person or his becoming under a legal disability, terminate before the prescribed date. The words "that will, or may ... terminate before the prescribed date" govern the period for which the transfer of the right to receive income is to subsist. They do not relate to the right which is the subject of the transfer. Does it follow that, so long as a right to receive income from property is transferred for a period which will not terminate before the prescribed date, the transfer is immune from the operation of s.102B(1), even if the right to receive income itself will or may terminate before that date? If the language of the sub-section could be construed as evincing an intention not to strike at transactions by which a transferor deprives himself of the right to receive income for the stipulated period, there might be a case for giving an affirmative answer to the question. But the sub-section applies to transfers, not transactions, and it is therefore not to the point that the taxpayer deprives himself by contract of the right to receive income for the stipulated period unless the contract operates as a transfer for that period.

18. Moreover, there was simply no point in excluding a transfer for seven years or more which was not susceptible of earlier termination if the right to receive income thereby transferred would terminate or was itself susceptible of termination within the stipulated period. That the object of Div.6A was to strike at alienations of the right to receive income for less than the stipulated period appears not only from the terms of s.102B(1) but also from the heading to the section. The heading is in these terms: "Certain income transferred for short periods to be included in assessable income of transferor."

19. Once this is accepted, it is inescapable that the present assignments fall foul of s.102B(1). At no time could it be said that a right to receive income was transferred for a period which would or might not terminate before the prescribed date. When the 1976 assignment was executed, the right to receive income which it assigned, a percentage of the rentals payable by Bovell under his 1976 lease, was liable to terminate in January 1980 if the option to renew was not exercised. Likewise, when the 1981 assignment was executed, the right to receive income which it assigned, a percentage of the rentals payable by Bovell under his 1980 lease, was liable to terminate in July 1983 if the option to renew was not exercised.

20. It is not enough that, with the advantage of hindsight, we can see that, as events actually transpired, the transfer operated to vest the right to income from particular property in the transferee for the stipulated period. It is necessary to ascertain the identity of the taxpayer whenever income is derived or deemed to be derived. In order to ascertain the identity of the taxpayer on those occasions it is necessary to apply s.102B(1) to the particular transfer in the first year of income. This exercise entails an examination of the prospective operation of the transfer. And the words of s.102B(1) "that will, or may ... terminate before the prescribed date" demand that the operation of the transfer be examined prospectively. In order to escape the destructive operation of the sub-section, the transfer must necessarily vest in the assignee a chose in action for the stipulated period. The assignments in the present case did not have this effect.

21. There is an instructive discussion of Div.6A in an unpublished dissertation "Alienation of Income by Assignment" (1986, University of Adelaide) by R.B.C. Wilson.

22. I would dismiss the appeal.

WILSON AND DEANE JJ.: Subject to what is said hereunder, we agree with the judgment of Toohey and Gaudron JJ. We also agree with the analysis of the provisions of s.102B of the Income Tax Assessment Act 1936 (Cth), in the form applicable to the 1982 and 1983 tax years, which is contained in the judgment of the Chief Justice.

2. The question whether s.102B applies so as to avoid, for the purposes of the Act, the effect of a transfer of a right to income from property requires the identification of two reference points, namely, the relevant "right" and the relevant "period". The relevant "right" is the "right to receive income from property" which is actually "transferred". In the present case, that right was the right to receive income under an existing lease and not the hope or expectancy of some future "right" (e.g., a "right" to receive rent which might or might not be created by the grant of, or the exercise of an option for, some future lease) of which an assignment, even if worded in present terms, would only be operative as such if and when the lease (or agreement for lease) creating the right came into existence. The relevant "period" is the period for which the right to receive income is transferred. In one sense, it could be said that an absolute assignment of a right to receive one week's rent is a transfer of the right forever and that, that being so, the period for which the right is transferred cannot terminate before the prescribed date. Construed in context however, the period to which the section refers is the period to which the transferred right relates. That period will be inadequate if, as a matter of fact, it will, or may for any reason other than those allowed by the section, terminate before the prescribed date. In other words, it will be inadequate if the right which is actually transferred may be exhausted or may otherwise come to an end before that date. If that be so, the transfer will be of a right to receive income from property for what may be some lesser period than the minimum period contemplated by the section.

3. We would dismiss the appeal.

TOOHEY AND GAUDRON JJ. This appeal concerns the meaning and operation of Pt III Div.6A of the Income Tax Assessment Act 1936 (Cth) ("the Act") before it was amended in 1986. Division 6A then bore the title "Alienation of Income for Short Periods".

2. In broad terms, s.102B (as it then stood) treats a transfer of a right to receive income from property as not having been made if the right will or, for any reason other than death or legal disability, may terminate before "the prescribed date". The "prescribed date" is defined in s.102A(1) to mean:

" ... the day preceding the seventh anniversary of the date on which income from the property is first paid to, or applied or accumulated for the benefit of, the other person by reason of the transfer".

3. At all material times the appellant Douglas Franklin Booth ("the taxpayer") was the registered proprietor of land at 471 Chapel Street, South Yarra, on which were erected shop premises. By a lease dated 25 January 1974, the taxpayer leased the land to Walter Fischer and Nicholas Bovell for a term of three years from that date. On 16 May 1975 the taxpayer executed a deed of assignment relating to rentals from the shop premises in favour of his wife Lynn Elizabeth Booth. The precise terms of the assignment are crucial to the issues argued in this appeal but it is convenient to leave reference to those terms until this chronology is complete.

4. On 23 June 1975 the taxpayer granted to Fischer and Bovell an option to extend the lease for a further term of three years from 25 January 1977. On 21 September 1976 the taxpayer granted to Bovell a lease of the land for a term of three years from 25 January 1977, the lease containing an option of renewal for a further term of three years. This lease must be taken to have superseded the option granted to Fischer and Bovell on 23 June 1975. On 18 November 1976 the taxpayer executed a further deed of assignment of rentals, this time in favour of The Lynn Elizabeth Booth Family Trust. Again, consideration of the terms of the assignment may await completion of the chronology.

5. The lease of 21 September 1976 to Bovell came to an end on 24 January 1980 without the option for renewal having been exercised. Thereafter, until 18 February 1980, Bovell held over as a weekly tenant while building permits were sought in respect of the land. On 18 February 1980 the taxpayer entered into a further agreement with Bovell whereby the latter remained as a weekly tenant until buildings on the land were renovated. On completion of the renovations the taxpayer, by a lease dated 5 July 1980, granted a further lease of the premises to Bovell, this lease being for a term of three years with an option of renewal for a further term of four years.

6. There was a third assignment by the taxpayer to his wife, this time on 2 January 1981. Again, we shall deal with its terms at the end of this chronology.

7. On 5 April 1983 Bovell exercised the option of purchase contained in the lease dated 5 July 1980. There was a dispute between the parties as to Bovell's entitlement to exercise the option, having regard to the state of repair of the demised premises. In the event the lease to Bovell was not renewed. On 8 July 1983 the taxpayer leased the premises to Nordmende Australia Pty. Ltd. for a term of four years. That completes the chronology.

8. While the terms of the three assignments varied, they followed a common format. In each case what was assigned was a right to a percentage "of all rentals payable in respect of the said premises" for the period referred to in the assignment.

9. The assignment of 16 May 1975 recited the registered proprietorship of the assignor and the lease of 25 January 1974 (which had then been on foot for almost sixteen months). It further recited that, for the consideration thereinafter appearing, "the Assignor has agreed to transfer and assign to the Assignee the right to receive a fractional part of the rentals from the said premises for as well the residue unexpired of the said term as thereafter until the 30th day of June 1982". This latter date had no relevance to anything in the existing lease but thereby the assignment was expressed to operate for a period in excess of seven years. For a consideration of $1,500 and an assumption of responsibility for seventy per cent of all outgoings and expenses in relation to the premises, the assignee was to receive seventy per cent "of all rentals payable in respect of the said premises from and inclusive of the 28th day of June 1975 until and inclusive of the 30th day of June One thousand nine hundred and eighty-two to be held by the Assignee for her own use and benefit absolutely".

10. The second assignment, that of 18 November 1976 made to The Lynn Elizabeth Booth Family Trust, recited the registered proprietorship of the assignor, the lease of 25 January 1974 to Fischer and Bovell and an agreement to transfer and assign in terms similar to the recital in the assignment of 16 May 1975. For a consideration of $200 and an assumption by the assignee of responsibility for thirty per cent of outgoings and expenses, the assignor transferred and assigned to the assignee "the right to receive thirty per centum of all rentals payable in respect of the said premises from and inclusive of the 18th day of November 1976 until and inclusive of the 30th day of November 1987 to be held by the Assignee and dealt with in accordance with the terms of the Trust Deed absolutely". Again the assignment was for a period in excess of seven years. The reference to a trust deed was to a deed of settlement made on 10 November 1976. Under that deed the taxpayer was the trustee. Thus the second assignment was from the taxpayer to himself as trustee.

11. The third assignment, that dated 2 January 1981, again recited the assignor's registered proprietorship. It recited the assignment made on 16 May 1975 and spoke of an agreement to extend the terms of that assignment from 30 June 1982 to 30 June 1988. It also recited the lease to Bovell on 5 July 1980 and an agreement to transfer and assign in terms similar to the recital in the assignment of 16 May 1975. For a consideration of $19,000 and an assumption of responsibility for seventy per cent of all outgoings and expenses, the assignor transferred and assigned to the assignee "the right to receive seventy per centum of all rentals payable in respect of the said premises from and inclusive of the second day of January 1981 until and inclusive of the 30th day of June 1988 to be held by the Assignee for her own use and benefit absolutely".

12. This appeal concerns the financial years ended 30 June 1982 and 1983, thereby involving the third assignment relating to seventy per cent of rentals and the second assignment as to thirty per cent. (Whether the third assignment be regarded as a variation of the first assignment or a substitution for it does not affect the outcome of the appeal.) In each of those years Mrs. Booth and the Trust included in their income tax returns the proportion of the rent paid in respect of the premises to which each was entitled under the deeds of assignment. The Commissioner, taking the view that s.102B of the Act applied to the transactions, assessed the taxpayer as if there had been no assignments. The taxpayer's objections to the assessments having been disallowed, his objections were referred to the Supreme Court of Victoria where they were upheld by McGarvie J. On appeal to the Federal Court of Australia, the decision of McGarvie J. was set aside by Northrop and Jenkinson JJ., with Burchett J. dissenting. Mr. Booth appeals to this Court primarily on the ground that each assignment was effective and outside the destructive operation of s.102B.

13. The first step is to determine exactly what was assigned by the deeds of assignment. The taxpayer's submissions were put this way. What was assigned in each case was a mere expectancy. That expectancy having been assigned for valuable consideration and the consideration having been paid, the expectant property vested in the assignee eo instanti as and when the property arose. But, the argument continued, none of the assignments of itself effected a transfer of the right to receive income from the demised land. The fact that there was, at the time of each assignment, a lease in existence made no difference for, as expressed in his outline of submissions, the taxpayer:

" ... did not purport specifically to assign the choses in action for payment of rent arising under the existing leases for so long as the leases should remain on foot ...".

Section 102B operates where there is a transfer of a "right to receive income from property" as defined in s.102A(1), that is, "a right to have income that will or may be derived from property paid to, or applied or accumulated for the benefit of, the person owning the right". In the taxpayer's contention, each assignment did not transfer to the assignee a right to receive income from property but if it did the right would not or might not, for any reason other than death or legal disability, terminate within seven years. Hence, it was said, each assignment was outside the operation of s.102B.

14. The taxpayer had an alternative submission, based on the reasons for judgment of Burchett J. in the Federal Court. It was that the assignments operated to transfer existing property in the form of choses in action for rent arising under the leases existing at the time of assignment, and further arising (albeit contingently) under the options for renewal of those leases and also under any holding over clauses therein contained. In that event, so ran the argument, Div.6A would not apply because expectant rights to rental income were assigned for a period in excess of the minimum prescribed in the division.

15. The Commissioner answered these arguments in the following way. Each of the assignments operated as an immediate transfer of the right to receive rent payable pursuant to the lease in existence at the date of each assignment, and as a contract to transfer for the period of the assignment the right to receive rent payable pursuant to any future lease which might be made during the period of the assignment. Each right immediately transferred necessarily terminated before the prescribed date, for each lease in existence at the date of the assignment was for a term of less than seven years. When leases were entered into by the taxpayer after the assignments, the right to rental payable under those leases was transferred only when the lease was entered into and in each case the right transferred necessarily terminated before the prescribed date. Each right, it was said, was transferred as and when it came into existence, for in equity the assignment operated as a promise to transfer and the consideration for that promise was not satisfied until the right came into existence.

16. The Commissioner further submitted that if the right in existence at the time of any assignment was one which was to terminate in less than seven years, then even if the period expressed in the assignment was for seven years or more, its effective operation was dependent upon the assignor electing to create further interests on which the transfer could operate. If the subject-matter of the transfer was rent (as in this case), the assignor could redirect the income by entering into transactions which did not produce rent, such as sharefarming agreements, licences, agistment agreements, profits a prendre, royalty agreements and the like. The Commissioner argued that s.102B was part of anti-avoidance legislation and that its clear intention was to operate on all attempts to avoid income tax from property by directing the income therefrom to others, unless the owner had put it out of his power for a period of at least seven years to redirect the income.

17. McGarvie J. dealt first with the third assignment and was of opinion that as soon as it was made, "it transferred to Mrs. Booth the right to receive payment of 70 per cent of all rental income that would or might be derived from the property to 30 June 1988". His Honour concluded that the assignment having been made on 2 January 1981, there was a transfer of the right to receive income from property which would not, for any reason other than those permitted by s.102B(1), terminate before the prescribed date. It followed that the assignment was effective to exclude the operation of Div.6A. McGarvie J. took a similar view of the second assignment and rejected arguments on behalf of the Commissioner that because of the language of s.102A(4) there could have been no transfer effected by that assignment. It is unnecessary to refer to the content of sub-s.(4).

18. In the view of Jenkinson J., with whom Northrop J. agreed generally, the taxpayer had at relevant times no right to receive rent, other than a right deriving from each lease or agreement to lease made by him. Therefore, said his Honour, "each transfer, of a right to receive income by way of rent from the land, which at a relevant time (the taxpayer) effected was for a period of less than seven years".

19. It is necessary now to look more closely at the language of the assignments. It is apparent from decisions such as Shepherd v. Federal Commissioner of Taxation (1965) 113 CLR 385 and Williams v. Commissioner of Inland Revenue (1965) NZLR 395 that much may depend upon the way in which an assignment is drafted. See also Cullity and Ford, "Gifts of Future Income from Choses in Action", The Conveyancer and Property Lawyer (N.S.), (1966), vol.30, p 286.

20. As already mentioned, the assignment of 16 May 1975 recites the lease of 25 January 1974 and further recites an agreement by the assignor to transfer and assign to the assignee the right to receive a fractional part of the rental from the premises "for as well the residue unexpired of the said term as thereafter until the 30th day of June 1982". While the operative clauses of the assignment do not refer expressly to the lease then in existence, the agreement must, in our view, operate as an immediate transfer of the right to receive seventy per cent of the rent payable under the lease then existing.

21. The assignment of 18 November 1976 also recites the lease of 25 January 1974 but, curiously, makes no mention of the option granted to Fischer and Bovell on 23 June 1975 nor of the lease for a term of three years granted to Bovell on 21 September 1976. The recitals to the assignment speak of "the right to receive a fractional part of the rentals from the said premises for as well the residue unexpired of the said term as thereafter until the 30th day of November 1987". Although the operative clauses of the agreement make no mention of any particular lease, the deed must be taken to effect an immediate transfer to the assignee of the right to receive thirty per cent of any rent payable in respect of the premises under any lease then existing.

22. The assignment of 2 January 1981 recites the lease of 5 July 1980 and also recites a right in the assignee "to receive a fractional part of the rentals from the said premises for as well as the residue unexpired of the term of the said lease as thereafter until the 30th day of June 1988". Again, though the operative clauses of the assignment make no mention of any particular lease, it is an inevitable consequence that by force of the assignment there was an immediate transfer to the assignee of seventy per cent of the rent payable under the lease of 5 July 1980.

23. In those circumstances it is not right, at least so far as leases in existence at the time of the assignments are concerned, to speak of a mere expectancy. In the case of each such lease, there was present property in respect of which the assignor had, as against the lessee, a present right to rent payable at future dates in accordance with the terms of each lease. At the time of each assignment there was in existence a lease for a term of three years. In the case of the second and third assignments there was also an option to renew which had not then been exercised. In each case, as far as existing leases were concerned, there was a right to receive income from property that was transferred by force of the assignment. The right so transferred was a right that would terminate no later than seven years, hence the transfer was within the operation of s.102B of the Act. The situation is analogous to Shepherd where it was held that the taxpayer had disposed of a percentage of his existing contractual rights to royalties under a deed. It is not analogous to Norman v. Federal Commissioner of Taxation (1963) 109 CLR 9 where there was an assignment of interest to accrue due on a loan repayable by the borrower at will and dividends which might be declared on shares.

24. What then of the leases entered into after the assignments were made? As to the first assignment, mentioned now only as a matter of history, the option granted to Fischer and Bovell on 23 June 1975 was not exercised. The lease granted to Bovell on 21 September 1976 for a term of three years was within the period of that assignment. The option of renewal in that lease was not exercised. As to the second assignment, Bovell was in possession as a weekly tenant from 25 January 1980 until 5 July 1980, when a lease for a term of three years was granted to Bovell. As mentioned earlier, Bovell exercised the option of renewal in that lease but the exercise was rejected by the taxpayer. As to the third assignment, the only lease that came into existence during the period of its operation was the lease of 8 July 1983 to Nordmende Australia Pty. Ltd., a lease which is irrelevant for the purpose of this appeal. As each of the leases mentioned came into existence, it was then and only then that a percentage of the rental payable under the lease was transferred from assignor to assignee.

25. The effect of a purported immediate assignment of an expectancy is (as Deane J. noted in Federal Commissioner of Taxation v. Everett (1978) 38 FLR 26, at p 50; 21 ALR 625, at pp 643-644) set out in Jordan's Chapters on Equity in New South Wales, 6th ed. (1945), pp 51-52:

" ... a purported assignment of a mere expectancy (in the sense of the chance of becoming entitled under the will or intestacy of a person who is still living), or of property to be acquired in the future, is inoperative as an assignment, and has no effect unless made for valuable consideration. If there be consideration, it will operate as an agreement to assign the property when acquired, or to hold it in trust (the latter if the whole of the consideration has been satisfied) and this agreement will be binding on the parties as from its date and binding on the property in equity (although not at common law), if and when it is acquired by the assignor, if it is of such a nature and so described as to be capable of being identified. In the interval between the making of the agreement and the acquisition of the property by the assignor, the interest of the assignee is not contractual merely, but he has, as between himself and the assignor, a prospective interest in the property to be acquired which has some of the incidents of a proprietary right."

26. In the present case, there being a promise for consideration to assign future property and that property being capable of identification, the promise binds the property itself from the moment when the contract becomes capable of being performed. Equity considers as done that which ought to be done and when the property is acquired by the assignor, he forthwith holds it in trust for the assignee: Palette Shoes Pty. Ltd. v. Krohn (1937) 58 CLR 1, per Latham C.J. at pp 16-17, Dixon J. at p 27.

27. In his reasons for judgment McGarvie J. noted that s.102B is concerned with the transfer of rights to receive payment of income that will or may be derived from property and that it does not refer to the transfer or assignment of other interests or property. In concerning itself with those rights, his Honour said the section "is concerning itself with what will determine whether the flow of income is transferred".

28. As to this, the Commissioner's submission was to the effect that an assignment of the right to receive all rentals payable in respect of named premises, even if made for a period in excess of seven years, does not necessarily deprive the assignor of the right to receive any income from that property for the stipulated period. Rent is one source of income but not the only source. And when, at the time of the assignment, there is a lease in evidence which is for less than the required period, it by no means follows that the assignor has deprived himself of the income from the premises for the stipulated time. Whether he has done so must depend upon the events that transpire. In the case of the present appeal, neither the circumstances existing at the time of each assignment nor subsequent events deprived the taxpayer of the income from the premises for the required time.

29. It seems to us that this argument has two distinct aspects. It is not to the point that the taxpayer may not have deprived himself of the right to receive any income from the property, whatever its source may be. Section 102B is concerned with a particular right to receive income from property that is transferred, in the present case the right to receive a percentage of rentals payable in respect of identified premises. Whether the assignor might have been able, during the period of the assignment, to derive income from the premises in some way other than rental is neither here nor there for there was no transfer of any right other than a right to receive rental. What is to the point is that, when made, each assignment did not thereby transfer the right to receive rental for the period of the assignment. The assignment did no more than transfer the right to receive income from any existing lease and constitute an agreement to transfer income from future leases as and when entered into. It is not legitimate to aggregate the terms of leases retrospectively to see whether they equate a period of seven years. The proper analysis is that there was a series of transfers, none of which was outside the destructive operation of s.102B.

30. The appeal should be dismissed.

Orders

Appeal dismissed with costs.