Commissioner of Taxation v Stone
[2004] HCATrans 368
[2004] HCATrans 368
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S245 of 2004
B e t w e e n -
COMMISSIONER OF TAXATION
Appellant
and
JOANNA STONE
Respondent
GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
HEYDON J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 29 SEPTEMBER 2004, AT 10.17 AM
Copyright in the High Court of Australia
MR G.T. PAGONE, QC: If the Court pleases, I appear with MR S.H. STEWARD, for the appellant. (instructed by Australian Government Solicitor)
MR D.H. BLOOM, QC: May it please the Court, I appear with MR T.M. THAWLEY for the respondent and with the leave of the Court for the cross‑appellant. (instructed by Blake Dawson Waldron)
GLEESON CJ: Yes, Mr Pagone.
MR PAGONE: If the Court pleases, in this appeal there are broadly speaking two distinct matters or issues arising. The first is to determine the test for determining assessability of an income receipt by elite athletes. More specifically, that involves consideration of the relationship between a subjective motive which is not income producing and activities which exploit to commercial advantage the potentials the taxpayer has as part of her general activities.
GLEESON CJ: What kind of athletes?
MR PAGONE: An elite athlete, your Honour.
GLEESON CJ: What is that?
MR PAGONE: Your Honour, we would say that an elite athlete is somebody who has reached a certain level within the sporting community that puts her in a class apart from what might be regarded as a hobby athlete or somebody who does athletic activities for recreational or hobby, so that we would say that ‑ ‑ ‑
GLEESON CJ: It sounds like another way of expressing the question rather than providing an answer.
MR PAGONE: Your Honour, it is a way of saying that the answer needs to be made in the context of the activities and position of this particular taxpayer and taxpayers like her have achieved. The second matter, your Honours, is the assessability of recurrent payments which were made to the taxpayer under the Medal Incentive Scheme, which gives rise to a different consideration. If I may turn first of all, your Honours, to this question of what ‑ ‑ ‑
GUMMOW J: What is the different consideration with the subsidy, or whatever you call it?
MR PAGONE: The Medal Incentive Scheme, your Honour?
GUMMOW J: Yes.
MR PAGONE: That it is a recurrent and regular payment. It is in the nature of a grant, like, I suppose, scholarships or pensions or that kind of thing, and that the assessability of that payment arises, even on the assumption that we are unsuccessful on the principal argument, namely that her activity has reached such a level that it can be regarded as business or income‑producing activity.
KIRBY J: Now, business is not in the statute.
MR PAGONE: Not for these purposes, your Honour, no.
KIRBY J: A lot of the distinctions that you are drawing are not in express terms in the statute and have, as it were, been developed by jurisprudence around the statute.
MR PAGONE: That is correct, your Honour.
KIRBY J: But it would be helpful to me if we could start in the proper place, which is with the statute.
MR PAGONE: Your Honour that will be very easy because the statute has ‑ ‑ ‑
KIRBY J: That is what one normally does when one is applying a statute of the Federal Parliament or any Parliament.
MR PAGONE: It is, your Honour. The provision in the statute, your Honour, is section 6-5 of the 1997 Act.
KIRBY J: That was the applicable statute.
MR PAGONE: It is, your Honour, yes. We are concerned with the 1999 year. The 1997 Assessment Act was in force by that stage and section 6-5 provides in subsection (1):
Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Your Honours, that is the essence of the provision. There are no other ‑ ‑ ‑
KIRBY J: Who is the “your”? The “your” referred to is the taxpayer?
MR PAGONE: Yes, your Honour. It is drafted in that style, thought to be more user friendly.
KIRBY J: What, they are saying this statute is user friendly?
MR PAGONE: Your Honour, I did not say the statute was. I said it was written in a style thought to be user friendly, your Honour. Your Honour, the only other provision that I suppose I should make reference to ‑ ‑ ‑
KIRBY J: Could you just help me for the old cases and Justice Dixon’s elaboration, was it basically the same as this or was it in a different form?
MR PAGONE: Your Honour, it was in a different form but basically the same. I will read that out to your Honour. The provision was section 25(1) and the provision in 1936 Act provided:
The assessable income of a taxpayer shall include:
(a) where the taxpayer is a resident -
which he is in this case -
the gross income derived directly or indirectly from all sources whether in or out of Australia -
So the critical concept there was what is meant by the words “gross income”. In the 1997 Act, your Honour, I should, I suppose, draw attention to section 1-3 which provides that this Act contains provisions of the 1936 Act in rewritten form. Subsection 2 provides that:
If:
(a) that Act expressed an idea in a particular form of words; and
(b) this Act appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style;
the ideas are not taken to be different just because different forms of words were used.
I think it is common ground between us that so far as section 6-1 is concerned there was no change in principle that was intended by the 1997 Act so that ‑ ‑ ‑
KIRBY J: Section 6-5(1)?
MR PAGONE: Yes, 6-5(1), so that the general concept of income that was known to us since 1936, if not earlier, continues to be the concept that is incorporated in that provision.
KIRBY J: And there is nothing else in the 1997 Act that throws light on the problem that is before the Court?
MR PAGONE: Not directly, your Honour. Indirectly there is a definition of “business” in section 995-1 of the 1997 Act.
KIRBY J: Can you give me that again?
MR PAGONE: Section 995-1 and the definition of “business” there is:
includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.
Now, section 6-1 does not use the word “business”, but insofar as the concept of business might be thought to be relevant some guidance might be obtained from that definition as the cases have said in a slightly different context.
KIRBY J: Nothing in the Act about ad hoc games or prizes or benefits? There is nothing that is, as it were, an analogous provision that shows how Parliament has dealt with say, lottery winnings. They have all had to squeeze through 6-5(1), is that correct?
MR PAGONE: That is essentially correct, your Honour. There are some provisions that deal with certain pensions, for example, so far as the grant is concerned, and they are provisions usually based upon the assumption that recurrent grants would be accessible and they need to be taken out. So there are provisions dealing with things like scholarships and grants and bursaries and that kind, but winnings generally have been dealt with as a matter of general concept and the cases have so dealt with them.
KIRBY J: And scholarships? Could you just give me, just so that I can – I am not familiar with this territory, Mr Pagone, and I want to be. If there are sections that deal with scholarships which bear some analogy to the Institute of Sport type grants, then it might be interesting to see how Parliament has dealt with them, and the very fact that Parliament felt it necessary to make particular provision for them.
MR PAGONE: In the 1936 Act the provision was in section 23Z. I might just mention, your Honour, that that provision, 23Z, was the subject of the proceedings in one of the cases to which we have referred, the case of Commissioner v Ranson (1989) 25 FCR 57. In the 1997 Act, your Honour, we are still hunting for the exact provision. So perhaps if I can come back to that.
KIRBY J: Yes, indeed.
MR PAGONE: Your Honours, Justice Hill at first instance described the income‑earning activity of Ms Stone, both for the purposes of the inquiry and also for the purposes of the conclusion, as being the business of being a professional athlete.
Essentially, the Commissioner’s case is that by the 1999 year of income, Joanna Stone, the taxpayer, had become an elite athlete in the sense that she was well known, was receiving a great deal of prominence within the community both because of her own achievements and because of the context in which she performed, had achieved public prominence and was receiving a certain degree of public exposure and by the 1999 year of income she had assumed commercial value through sponsorships.
KIRBY J: Did this notion of having a business precede the 1936 Act? Does it go back to older English elaboration of what income is? How did the notion of a business come to be intruding into the notion of income? Many people, judges for example, have an income but they do not have a business so why is a business intruding into this idea.
MR PAGONE: Perhaps the best way in which I can show your Honour the answer to that question is by the decision of this Court in Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47, which is in our authorities. At page 54 of the decision of Justice Fullagar – this was a case concerning the receipt of a voluntary payment ultimately found to be a gift - his Honour says in the middle of the page:
A voluntary payment of money or transfer of property by A to B is prima facie not income in B’s hands. If nothing more appears than that A gave to B some money or a motor car or some shares, what B receives is capital and not income. But further facts may appear which show that, although the payment or transfer was a “gift” in the sense that it was made without legal obligation, it was nevertheless so related to an employment of B by A, or to services rendered by B to A, or to a business carried on by B, that it is, in substance and in reality, not a mere gift but the product of an incoming-earning activity –
So that, your Honour, what the courts have said is, we ask ourselves what is income. In order to answer that question we must ask ourselves is it the product of an income-earning activity and there are three examples, product of employment, product of services rendered or product of a business carried on, all of which will answer the question that the receipt will be from an income-producing activity.
GUMMOW J: Those examples do not encompass the situation of the evangelist, do they, in the New Zealand case? I suppose you might say what was he doing. He was not carrying on a business, I suppose.
MR PAGONE: Your Honour, in fact, the case was decided on the basis that it was a business and the reason for that is that the word “business” has come to mean business in the context and hence broadly defined. Indeed, if one does go to the definition of “business” in 995‑1, one sees that “vocation” and “calling” are relevantly encompassed within the meaning of the word “business”. Now, I do want to come to the evangelist case in G because it is plainly relevant and we would say plainly helpful.
HAYNE J: But we have gone, have we not, from what may have been the base proposition that all receipts on revenue account from pursuit of a business are income to something that is coming close to the inverse of that, that you have to first identify what is being done as a business before you can determine that the receipt is in the nature of income? Now, there is an inversion happening, is there not?
MR PAGONE: Your Honour, I am not sure that inversion is quite the word. It is certainly true that if there is a business activity that the fact that a business is being carried on will stamp all the receipts ordinarily derived in the business with the character of income, and that was said in more or less those words in Myer Emporium.
What one has to ask is, however, is there a business? The problem with that question is that businesses are not just Myer Emporium running a department store; businesses can be all sorts of things. The more interesting question for present purposes is, how do you decide whether a business is being conducted by somebody who is effectively, if there is a business at all, exploiting her own commercial reputation or, if I may put it as badly as this, commercial exploitability?
The courts have traditionally said, “Well, is there income‑earning activity?” In part we answer that by reference to “Is there a business?” In the context of that kind of activity, one needs to realise that “business” means somewhat different than the paradigm that one might have of a department store or somebody selling trading stock or that kind of thing. So I am not sure that “inversion” is the right word, your Honour, but it is certainly the case that there is not a simple transposition of one model from one to another.
HAYNE J: Well, the search for whether there is a business may unintendedly carry with it a deal of baggage dividing the world into trade and non-trade, you and non-you activities. It is that kind of reasoning which one may need to be aware of and to at least take account of, if not avoid.
GUMMOW J: I think a problem, Mr Pagone is this notion of ordinary concept which was not in the Act before. It was in the case law, was it not?
MR PAGONE: That is so, your Honour, yes.
GUMMOW J: The ordinary concept was a 19th century view of what a business was, I think, in the English cases, and then they discovered with a bit of a shock that the Institute of Law Reporting was probably carrying on a business, shock horror, but they took the step.
MR PAGONE: It was thought to be obvious to some judges, your Honour.
GUMMOW J: Yes, quite.
HAYNE J: Had not just paid their bill.
GLEESON CJ: Was not the expression “income according to ordinary concepts” intended, amongst other things, to embrace the contrast between section 25 and section 26(a)?
MR PAGONE: Your Honour, it is true that that was one of the dividing lines between the two, if there was a dividing line, but as that line of cases, I suppose beginning from Jones v Leeming and ending perhaps in Whitfords Beach, show it was a dividing line that was possibly never really there anyway, so that it is true that ordinary concept income was very wide and 26(a) through to (d) was intended to catch something if it was not otherwise caught. That is true, but the Council of Law Reporting was caught under ordinary concepts, not under extended concepts.
GLEESON CJ: But it was common to argue cases in which the Commissioner relied on 26(a) as an alternative. He would say this is income according to ordinary concepts, alternatively, it is income under section 26(a).
MR PAGONE: Correct, your Honour, yes it was.
GLEESON CJ: And the problem arises because income does not mean whatever comes in.
MR PAGONE: Well, it cannot mean whatever comes in, no, although ‑ ‑ ‑
GLEESON CJ: As Justice Fullagar recognised, the Act proceeds upon, or used to proceed upon a basic distinction between receipts of capital and receipts of income.
MR PAGONE: And, your Honour, to a large extent it still does, at least those parts that deal with income still have with them that fundamental notion which is why I took the Court to section 1-3 to say that although there had been a change in language, it is thought not to have been a change in underlying concepts, but ‑ ‑ ‑
GUMMOW J: But the notion of capital comes out of trust law and it is different, it is not co-extensive anyway.
MR PAGONE: Yes, your Honour, and this Court recently drew attention to whether that was a satisfactory way of applying the principles in Montgomery’s Case, but the bottom line seems to be that unsatisfactory though those notions may be, it is all now far too entrenched.
GUMMOW J: But might not what an ordinary concept is change over time, that is to say, what one can turn to account and how one turns to account to retain receipts?
MR PAGONE: It may, your Honour, and the sporting context may be just such a notion where one does see, perhaps – I read somewhere, your Honour, that the original notion of the Olympics was conceived of by aristocratic notions of Olympic activities being undertaken by gentlemen who did not need to earn money, and that may or may not be the explanation for why it was that professional sportspeople could not participate at one stage.
But as the documents in the appeal book show, the Olympic event is fundamentally dependent upon commercialisation, and one can see that by again, the documents in the appeal book which show logos of large multinational companies, Mercedes Benz, TDK, and what is more, a restriction upon people exploiting their position in the Olympics. This country enacted a legislation to ensure that you could not identify yourself in particular ways. Joanna Stone was restricted in the uses that she could make of her connection with the Olympics, all designed to ensure that there was this ‑ ‑ ‑
GUMMOW J: We had better have reference to those sections in the Olympic legislation which imposed restrictions on them – not now, but at some stage.
MR PAGONE: Your Honour, they are in the appeal books actually, but I can certainly add that to the list of things that my learned junior ‑ ‑ ‑
GUMMOW J: I have had to go through it for another case, but it would be useful to have it again.
MR PAGONE: Can I just address a point that your Honour Justice Hayne raised, that the usefulness of the concept of “business” as the determining factor in cases such as these is partly the explanation for why we say what we do in grounds 6 and 7 of the notice of appeal at 1640. Your Honours will see, having said as our main proposition that she is involved in a business, we say in 6:
Further, or alternatively, the full Federal Court should have decided if a sportswoman exerts her personal skill and effort in systematically engaging in activities that have the natural or inherent tendency to cause the taxpayer to obtain money or profit or gain there from, the gain so obtained is income, whether the activity is a business or not.
7. The full Federal Court erred in holding that there is no ‘intermediate category’ where a casual connection exists between activities that do not amount to a business and the receipt of gains.
His Honour Justice Hill dealt with that argument and said that it was wrong, so we lost that particular point at first instance, but the Full Court does not deal with it at all.
GUMMOW J: Where does Justice Hill reject it, Mr Pagone?
MR PAGONE: In volume 7 of the appeal book there is a heading ‑ ‑ ‑
GUMMOW J: Is it the heading “A reward for services?”?
MR PAGONE: No, your Honour, I think at page 1595, paragraph 108 and over the page ‑ ‑ ‑
GUMMOW J: Now, I mean the various notion that there are categories of income ‑ ‑ ‑
MR PAGONE: Yes, 105, I am indebted to my learned friend. At 1594 at paragraph 104 at the bottom of the page:
Senior counsel for the Commissioner placed emphasis upon the regularity or periodicity of the payments made to Ms Stone in support of the submission that they were a product of an income producing activity. Reference was made to what I said in Brown v Federal Commissioner of Taxation . . .
105 I would not resile from what I said there. However, the reference to income producing activity does not refer to something that is neither a business, nor an employment or where the reward is not for services rendered in the sense that s 26(e) requires.
GLEESON CJ: Incidentally, before you leave that judgment, on 1582 there is reference to Professor Parsons’ propositions. Do you disagree with them?
MR PAGONE: We do not disagree, your Honour, with those propositions. We do disagree with the criticism that Professor Parsons makes of the decision in Dixon’s Case, although we do agree with his reason for disagreeing, if I have not had too many – that is to say, Professor Parsons looks at the decision in Dixon’s Case, and we would respectfully say misreads the decision, but assuming his decision was read correctly, he goes on to criticise the outcome in Dixon’s Case because the general principle, the professor says, should be broader.
We agree with the professor that it should be exactly as broad as he says. We also say that that is what the Court did say in Dixon’s Case notwithstanding Professor Parsons’ reading of it, and we say, notwithstanding the reading of it that the Full Court gave in Harris’ Case to which I will refer hopefully in due course.
GLEESON CJ: Thank you.
KIRBY J: Has the changing character of work that has occurred over the course of the last century and increasingly in recent years because of the changing nature of technology and people working at home part‑time and so on, working with their own computers, the changing nature of business and of work that brings in regular income, does that teach us anything about the need to keep an open mind about the changing character of income in Australia today to which the Act applies?
MR PAGONE: Yes, your Honour.
KIRBY J: Was anything said by the Minister about that in introducing the 1997 Act or not?
MR PAGONE: Your Honour, I can safely say, nothing.
KIRBY J: Because they thought they were basically just re‑enacting the 1936 Act?
MR PAGONE: Insofar as the Minister had appreciation of what was being done by the 1997 Act, yes, your Honour.
KIRBY J: Has the court said over the years, well, business is changing, employment and the nature of work is changing and, therefore, of necessity, income is changing, and the Act attaches to the world to which it operates, not the world of past relationships?
MR PAGONE: Your Honour, I do not think so. I do not think that I could point to any authority that deals with the notion of income in that way.
KIRBY J: It is self‑evident, is not it?
MR PAGONE: Your Honour, that may be why it has not been said.
KIRBY J: It would seem to me, just as a matter of general principle.
MR PAGONE: That is in large part probably why the legislature in 1997 was not only content to re‑enact what it thought was there before, but to leave it general, so that income will have whatever is encompassed by the ordinary notions at the time.
The Full Court, your Honours, dealt with this intermediary point, although not saying much about it, at page 1633, paragraph 93, in the second line:
The Commissioner . . . suggested that there was some intermediate category between sportsmen or sportswomen for whom sport or athletic contest is clearly a recreation, pastime or hobby, on the one hand, and sportsmen and sportswomen who are turning their talent to account in money by the pursuit of business activity, on the other.
GUMMOW J: Well, the second sentence of 94 just cannot be right, can it?
MR PAGONE: Plainly right, your Honour?
GUMMOW J: No, it cannot be right. It is just a non sequitur. It has set up a dichotomy that the Act does not specify.
MR PAGONE: That is right, your Honour. Indeed, your Honour, I had been hoping to go to the decision of the Full Court in order to point out to this Court some of the errors, of which that was one.
KIRBY J: Do I understand that the structure of your argument is, first of all, it falls within “income”, and all of them fall within “income”, in the ordinary connotation of that word?
MR PAGONE: Yes, your Honour.
KIRBY J: Second, having regard to the elaboration of business, that in any case if it does not appear to fall within that, it appears within “income” as it has been elaborated in this particular context as money coming from a little business of the taxpayer? Thirdly, that in any case the notion of business has changed, and even though you might not originally say this is her business, looked at with today’s eyes this is a business and therefore it becomes income?
MR PAGONE: Your Honour, I think we put it differently. We would say that, firstly, it is income because her activity has reached a stage which means that the receipt has been received from an income‑producing activity which is a business.
GLEESON CJ: That is your primary submission.
MR PAGONE: That is our primary submission, yes.
GLEESON CJ: A business argument.
MR PAGONE: A business argument, your Honour, yes.
KIRBY J: I see. You put that first.
MR PAGONE: We do, your Honour.
KIRBY J: Why do you do that? Is not the proper way for a court to approach a statute to just look, first of all, at whether, within the ordinary meaning of the word, without regard to all the glosses that are put upon it, this falls within the ordinary meaning of “income” and, if it does, that is it, is it not?
MR PAGONE: Your Honour, that is so.
KIRBY J: See, the problem for you there is that most people would not say, I think, that a prize is income in the ordinary sense. I do not think I would be inclined to say that, uninformed by authority.
MR PAGONE: Your Honour, I think it is safe to say that probably those instructing me would take the same view as your Honour, that a prize ‑ ‑ ‑
GLEESON CJ: Exactly, because they have other considerations to bear in mind. If you do not win on the business argument, it is a little difficult to stop your second argument short of a proposition that all little children who receive prizes for competing in any sporting events around Australia have to pay tax on them.
MR PAGONE: Well, your Honour ‑ ‑ ‑
KIRBY J: Would the crown on your forehead that I used to get at school, are you going to tax that too?
MR PAGONE: No, your Honour, because the first proposition as Chief Justice Gleeson correctly, with respect, points out is that we focus upon the business nature of the activity so that what we say is, the reason it is assessable is because this elite sportsperson has got to a stage, not just by virtue of being elite I hasten to add, but by virtue of other factors, to a stage where she has converted her activity, or her activity has become – and I will use the word “business” for the minute.
KIRBY J: I just have a problem with that, Mr Pagone. I think Justice Hayne put his finger on what the problem is. It is one thing to say one source of income is businesses. It is another thing then to elevate that notion into, as it were, a precondition.
MR PAGONE: Your Honour, what we say about “business” is that the word “business” in this context must be understood very broadly. But as our second submission we say if what causes us to lose is that it does not fit some pre-existing idea of a business then it is sufficient and still sufficient for the point that Chief Justice Gleeson put to me, still sufficient that the activity is to be regarded as income producing, so that the star on the forehead will not be caught and all of those people who do sporting activities for recreational activities still will not be caught. What we substitute is an inquiry into the activity as an income-producing activity for an inquiry into whether there was a business. In substance, at the end of the day, we say the way the authorities are developed, these are matters of mere words.
HAYNE J: In the end does your proposition come to a two-part proposition that there is a receipt as a consequence of personal exertion, exploitation – I know personal exertion has lots of echoes in the Act, I do not use it to sound those echoes – but receipt as a consequence of personal endeavour associated with a degree of repetition.
MR PAGONE: No, your Honour, we would go further. We would say repetition but commercial exploitation.
HAYNE J: And what is entailed by that tailpiece other than a touch of question begging?
MR PAGONE: Your Honour, what we say is that in this case it is clear to see what the indicia should be both for the taxpayer and more generally because she entered into three sponsorships, one of which has a contract that says her reputation is of commercial value and they buy that commercial reputation. That, we say, is clear illustration of the commercial exploitation or the commercial activity so that it is not simply a matter of receiving and regularity. That, the Commissioner does not contend.
HAYNE J: Not regularity, repetition.
MR PAGONE: Well, nor even repetition, your Honour. The Commissioner does not say that it is sufficient for there to be repetition. That would not be enough. What has to colour, what has to stamp, to use the word in Myer Emporium, the receipt with the character of income is something which we here say certainly it has repetition but it also here has commercial exploitation by virtue of the transactions that she entered into and which others, if you like, when ‑ ‑ ‑
HAYNE J: Does it mean then that absent the sponsorship deal, your case falls away?
MR PAGONE: Well, your Honour ‑ ‑ ‑
HAYNE J: I know you are arguing this case, not a case on different facts, but is the sponsorship deal, or are the sponsorship deals, critical?
MR PAGONE: In this case, yes, your Honour.
HAYNE J: Well, I understand that is the convenient forensic answer, Mr Pagone, but what is the principle? Absent sponsorship, does the bare fact of entering competitions for prizes and succeeding more than once or twice suffice?
MR PAGONE: The answer, your Honour, to the latter part of your Honour’s question is no, it is not sufficient for assessability.
GLEESON CJ: Because if it were it would be also sufficient for deductibility.
MR PAGONE: Your Honour, I am not – that is not the reason for the answer, your Honour.
GLEESON CJ: Then you would have to pay for people’s tennis rackets and things like that.
MR PAGONE: Well, that is certainly not the reason for the answer, your Honour. One is trying to come up with a principle reason and in answer to ‑ ‑ ‑
HAYNE J: Yes, and I am trying to get you to state it.
MR PAGONE: Exactly, your Honour, and what is critical, your Honour, we accept that – I will elaborate on the answer in a moment and I will explain why I am answering in this way, your Honour, so if your Honour will bear with me for a moment. We do say that here the sponsorship is critical. It is conceivable, your Honour, that in other cases there will not be sponsorships and yet there will be something which would fill the place of sponsorship. It is conceivable, your Honour, that somebody sets about a task of exploiting their talent in a way or their presumed talent in a way which shows, just as a sponsorship here shows, that there was an attempt to make, as it were, a buck of out it, if I may use that expression, the talents, that it becomes bankable for a different reason.
HAYNE J: But that seems to be a threshold argument. It seems to be an argument that says competing for the tray of meat at the local golf club each week is in one class. Competing for $5,000 prizes is somehow in a different class.
MR PAGONE: No, your Honour. The competing itself, whether it be for $1,000, $5,000, $50,000 or $1 million in Tattslotto of itself would not convert the activity into a relevant income‑producing activity. Sponsorships here do and there is a reason why they do, your Honour, which is fundamental to our argument. The reason they do is because it is evidence of external parties regarding the taxpayer as having commercial value and that is significant.
KIRBY J: Why does their opinion matter as to the true character and quality of the money flow as income? That sounds like a bit of a subjective test; not the subjective view of the receiver, but the subjective view of the payer.
MR PAGONE: Your Honour, on the contrary, we would say that it is an objective test, and it provides a good guide to where to draw the line between somebody who is engaged in a hobby and somebody who is not engaged in a hobby. When other persons regard you as being sufficiently prominent as having commercial value, and you then embrace what is offered to you, or you go out and seek it, that, we say, is a useful dividing line between that which is and that which is without income‑producing activity. Indeed, we say precisely that, for example, in our submissions, in paragraphs 12 and following of our primary submissions, having said that the concept is to be understood broadly, and in paragraph 13, saying that his Honour Justice Hill correctly found that she had “turned her undoubted talent to account for money”.
We then go on to say in paragraph 14 that this must depend upon measurable criteria to the facts. We say that the correct criterion is that enunciated by Justice Hill, namely, whether the athlete has turned her skill to account, and in that inquiry the subjective purpose of the athlete is a critical thing. Then in paragraph 15 we say that a point at which an athlete may be seen to have turned her talent and skills to account for money may be seen to be when she is recognised by others as a celebrity or personality having marketable value. Thus, it may be said that an athlete is able and has turned to account her talents and skills for money when, as here, an athlete is paid to endorse a product, or when, as was on occasion the case here, the athlete is paid to appear at an event other than as mere reimbursement of expenses.
HAYNE J: Or does the point come when someone will pay to come and watch? That is, is the quality of the event the relevant criterion, because this prize money is not the prize money assembled from the members’ subscriptions in the local golf club. This is prize money provided by an entrepreneur putting on a spectacle, dare one suggest it, in the hope of the entrepreneur making a profit.
MR PAGONE: Your Honour, the Commissioner’s case does not go that far. It may be thought to be a convenient position for the Commissioner to adopt. We do not go that far. In other words, we conceive of the possibility that the taxpayer may be participating in somebody else’s business, but not herself having been engaged in a business.
HAYNE J: So the athlete is exploitable but is not exploiting.
MR PAGONE: Correct, your Honour.
KIRBY J: A pretty telling figure or fact, I suppose, is the schedule in paragraph 10 of your primary submissions which shows the steady and then very substantial increase in the amount being received from sport in this case, as against the police income, which remained very steady and rather modest.
MR PAGONE: Yes, your Honour. Her competing in the World Cup had, I think, 300 million people as part of the audience.
KIRBY J: But then again with such an audience you are going to get bigger prize money, which is not normally thought of in the ordinary connotation as income because it is so problematic. It depends on your skill on the night, your luck on the night, the competitors, a whole series of other factors and it is not, therefore, something that you think of as having the regularity and quality of income ‑ ‑ ‑
MR PAGONE: No, your Honour. Your Honour, something else that is also telling – your Honours will hear a lot of debate about the resume which my learned friend likes to describe as an amateurish document produced by her mum. We obviously take a different slant on it. It begins in volume 7 of the appeal book at page 1546. The document was produced some time between 1992 and lasted used apparently 1997, according to the evidence.
KIRBY J: Which page again?
MR PAGONE: It starts at 1546, your Honour.
KIRBY J: Yes.
MR PAGONE: It, by the way, your Honour, is the last document in the appeal book before the court papers, as it were. You will see a table of contents at 1547:
SECTION B – SPONSORSHIP PROPOSAL
. . .2. What I Can Do For You !!!
At 1551, addressing the “What I Can Do For You !!!”, she begins by saying:
I have not had a great deal of experience in the corporate promotional area and will not presume to attempt to advise you . . .
However, I compete on a local, national and international level and as a result I receive substantial media coverage. I could therefore offer your company regular exposure in the media as I could display logos etc. on my training and competition uniforms.
Now, your Honours, part of this document, as section E, includes a photo profile, and the photo profile is quite interesting. I will not read it all. It begins at 1555 and your Honours will see on this page there is a picture from Runner and Athlete magazine, the April 1997 issue, so we know that this document was at least last updated in April 1997. It shows Joanna Stone – your Honours can take it from me that is a photo of her. It shows the clear display of a commercial company, Optus, emblazoned across the top. If one then goes in two more pages at 1557 ‑ ‑ ‑
KIRBY J: You cannot really blame her for the fact that the magazine has got Schweppes on the front cover.
MR PAGONE: Of course not. I am not blaming her for it; I am saying the level at which she had reached as a media personality. At 1557 she is the front page of the magazine proudly displaying “asics” on her top, described as “JOANNA STONE AUSTRALIA’S NEWEST STAR”. If one goes down a few more pages, at 1562 ‑ ‑ ‑
HAYNE J: The notion of buying any sporting apparel without its maker’s name firmly emblazoned across the chest is one I find a little difficult to grasp, but we will pass by that, Mr Pagone.
MR PAGONE: Well, your Honour, there are very strict rules that the Olympic Federation has, the Australian Olympic Committee has, Athletics Australia has, where you are not allowed to show fully emblazoned the sponsorships of companies, except for shoes, which is interesting. It is only shoes that have the exception. In all other cases, there is a complete prohibition and, your Honour, there is a reason for it. It is called trying to avoid what is called ambush advertising so as to ensure that it is the Olympic Committee ‑ ‑ ‑
HAYNE J: So that the entrepreneur can exploit.
MR PAGONE: Exactly.
HAYNE J: Yes. Now, you resolutely reject the notion that participation in competitions which are commercial competitions in the sense of mounted by an entrepreneur with a view to profit is the demarcation.
MR PAGONE: I do, your Honour. I do not need to go that far and it would, with respect, be no more than evidence that it is the entrepreneur that is in the business, not the athlete. If I just complete the examples at 1562, an article “Sweet taste of success”, your Honours will see that she is one of four prominent Queensland athletes, along with at least some others that the Court will doubtlessly have heard of, including Cathy Freeman. Now, all this is part of her resume and it shows her ability to exploit her prominence and she does it quite cleverly. She gives examples of how she is able to do it in the photograph.
Your Honours, may I take the Court, if I may, to what the Full Court said about all this. The court’s decision is marked by no references to any authority at all.
KIRBY J: Is it true that we are dealing with the three categories, that is to say in paragraph 1 the prize money, the incentive scheme and personal appearances.
MR PAGONE: Yes, your Honour.
KIRBY J: They are the three categories.
MR PAGONE: They are the three categories. The relevant part, if there is a test, articulated by the Full Court’s decision is at page 1629 where in paragraph 76 their Honours say:
It is necessary to consider whether Ms Stone undertook the Activities for the purpose of obtaining receipts of the nature described above in a way that demonstrates that obtaining the receipts was the object of the Activities.
“The Activities”, your Honours, is a defined term. It is defined in paragraph 1 of their Honours judgment as being the activities of javelin throwing. More specifically, in paragraph 1:
in respect of certain monies she has received in connection with the pursuit of her javelin throwing activities (‘the Activities’).
One can go back to paragraph 76:
It is relevant to consider whether there has been some system in the way in which she has engaged in the Activities and whether she has engaged in the Activities in a business like way in accordance with ordinary commercial principles.
Now, your Honours, we would say that is an erroneous statement of the law for a number of reasons. First and foremost, it is not the test to ask whether she has undertaken the activities, that is to say the javelin‑throwing activities, for the purpose of obtaining, as it were, income because as the case of G shows there may be all sorts of motives for undertaking an activity and it is not a question of characterising the activities which are not income producing as the critical and only factor to take into account.
In any event, we would also say, your Honours, that the relevant test is not whether the activities taken as a whole were undertaken for the purpose but rather with the purpose of income producing and what we say, your Honours, is that what is clear here is that although she may have been motivated by some higher, if I may use that word, non‑income‑producing purpose, nonetheless she also had an income‑producing purpose and that here the income‑producing purposes were of such a kind as to mean that her activities had become income producing with the consequences of the receipts – are therefore business receipts.
We also say, your Honours, that the court was in error in its view that the relevant characterisation must be by reference to ordinary commercial principles. We would say that whether there is a business for tax law purposes has to be understood as being an inquiry into whether there is income‑earning activity, and whether there is an income‑earning activity, given the enormous breadth of activities that people embark upon, depends not upon applying some preconceived idea of ordinary commercial principles, but rather a more appropriate and adaptable notion that would ask oneself, as we say we have done, whether there has been something of commercial value which has been exploited.
Your Honours, may I take the Court briefly to a couple of cases to make good these propositions. First of all, the New Zealand case of G v Commissioner of Inland Revenue [1961] NZLR 994 ‑ ‑ ‑
KIRBY J: What principle is this being read for?
MR PAGONE: That for a business to be found to exist, it is not essential that the ultimate purpose of a taxpayer was not the derivation of income. This case concerned the receipts of a preacher who, I think, was a member of the religious group known as the Open Brethren, and sums were paid to him pursuant to which there was no contractual relationship, so there was no obligation to make the payments. Your Honours can see that at page 994 in the second last line of the page. Over the page, at 995, his Honour Justice McCarthy says:
As might be expected, a substantial portion of the appellant’s work has been performed amongst the Open Brethren of the district in which he lives –
and he emphasises that:
he has not been appointed by, nor is he accountable to, any church body –
However, there was a custom. Over the page, at 997, line 24:
There is, of course, no question but that the donations received by the appellant were made voluntarily by their donors. No doubt the donors accepted a moral or religious duty to contribute towards the preaching of the Gospels and the exercise of Christian charity by such men as the appellant; but there was no suggestion of a legal obligation to make such donations. It is basically for this reason that the appellant claims that the payments to him were gifts and did not attract tax.
Then, at 998, on the top of the page – I suppose I could refer to this for two principles, the other principle is the notion of the word “business”. His Honour said at the top of the page, line 4:
The word “business” as used in common speech has a wide coverage. It is commonly used to refer to a person’s occupation. According to the Shorter Oxford –
and he goes through a number of dictionary definitions. Then at about line 23:
Lord Coleridge C.J. in In re Duty on Estate of Incorporated Council of Law Reporting for England and Wales (1888) 22 Q.B.D. 279, 293. “It does not prevent operations amounting to a trade if they are not undertaken with the intention of making profits . . . If you do the operation of trading and make a profit . . . you are carrying on a trade . . . and you are carrying on a trade whether you make a profit or not, and whether you want to make a profit or not, because it is not a mere question of motive” –
Then there is a reference to Justice Rowlatt in the Royal Agricultural Society Case:
These observations though they refer specifically to a trade can also be applied, I consider, to a profession or calling where money is shown to have been received, but I would think that where the activities of the taxpayer may not strictly be described as trading, the inferences to be drawn from an absence of a profit motive or intention may be very much stronger in favour of that taxpayer.
KIRBY J: We do seem to be getting away from the statutory word. Now, what has happened is to define the statutory word one judge says it has to be one factor; not sufficient but useful as a guide is business. Then we go into other judges elaborating what business is, and the more we do that the further away we get from what Parliament has enacted which is the only real source of the legal obligation.
MR PAGONE: Your Honour, of course, I accept that. Unfortunately, though, the cases have said that if there is a business activity that will be the source of income. This case is illustrative of a case where that notion was applied in circumstances where there was a voluntary payment, there is no employment, and where there was a purpose for undertaking the activity that was not primarily the purpose of deriving the receipts. Primarily, the purpose was that of preaching the gospel. The court accepted that and, of course, we accept that, but what the case is illustrative of is how, once there is an activity that is not necessarily undertaken for the purpose of income but, nonetheless, with the purpose of income, that is sufficient.
KIRBY J: It just seems a bit curious to be saying that an evangelist of the gospel is in a business.
MR PAGONE: Your Honour, it would seem more curious to say that the receipts that he received were not income and ‑ ‑ ‑
KIRBY J: That is so, but then you are getting back to the statutory word, and I am happier.
MR PAGONE: Your Honour, may I share your happiness.
KIRBY J: That may be a bit of a black hole for you, because I have a real problem in seeing prize money as income.
MR PAGONE: But, your Honour, even if one does not need to focus on the word “business”, the underlying reasoning that one sees in this case would apply all the same, namely ‑ ‑ ‑
GLEESON CJ: But “business” was the statutory term in New Zealand, was it not?
GUMMOW J: Section 88, was it not?
GLEESON CJ: Section 88 in England and then the Land and Income Tax Act 1954 in New Zealand defined “business”.
MR PAGONE: Your Honour, that is so.
KIRBY J: Well, this is a very typical way lawyers reason. We have seen this in “unsafe and unsatisfactory” in the criminal sphere. It was in the English statute and, therefore, judges picked up cases, and that is what the English judges used, and then it just became part of our law – a complete gloss. Is that how “business” came into this area?
MR PAGONE: No, your Honour, my learned friend says that I must prove “business”. I refer to this case because this case shows that there may not be a sole or primary or predominant or overwhelming profit‑making purpose in undertaking an activity, and yet it will be regarded as business. That, we would say, is a sufficient answer if I must show “business”.
GLEESON CJ: Your primary submission is that you must and do show business. You are walking a tightrope here, Mr Pagone. If you succeed on too broad a ground, then all kinds of people are going to be entitled to tax deductions.
MR PAGONE: Your Honour, I appreciate that there is some degree of double edge to the proposition and I am content to argue the proposition that there needs to be income‑producing activity, whether it be business or something broader, but nonetheless that that is the critical test. At page 999 his Honour begins at the top of the page by agreeing with what was said by:
the authors of Gunn’s Commonwealth Income Tax Law and Practice, 6th ed, that the essential test as to whether a business exists is the intention of the taxpayer . . . The question then in this case, as I see it, is whether the conduct of the appellant can fairly be said to disclose an intention to carry out his evangelistic activities in the material years with the intention of making a profit.
That is what we say is a relevant test – “with the intention”, not “is that the intention?” but “is there that intention as well?” He then turns to the facts. At about line 30:
I do not suggest that the appellant was motivated by the thought of the money which he expected to flow to him; I accept that his motives were of a higher order, but I think it would be unreal to believe that after some seven or eight years of this activity and these means of livelihood, he did not intend that his work should lead to gifts being made to him, gifts which he knew he would accept and use for his support. This, of course, was not the only purpose or intention of his activity; but intention to make a profit is commonly only one of the intentions of those in business. The true artist rarely paints for monetary reasons only; but even a Picasso intends to sell sufficient of his work to keep body and soul together.
The other case to which we would wish to refer your Honours was Tweddle’s Case (1942) 180 CLR 1, a decision of this Court. The primary income‑producing activity of the taxpayer was being the manager of a company. The company was called Andrews Bros. That is primarily what he did. However, at one point he acquired a property and not long after that he acquired another property. It was not his predominant intention in the acquisition of one property to conduct a business. That may be seen towards the bottom of page 3. He had a property in Berwick:
But a fire destroyed the buildings, and the appellant had to transfer his stud to Berwick where he entered into partnership with two friends Dr Sewell and an accountant, Mr Flack . . . The venture was not a success and he sold the stud in 1930. He was not satisfied with his nephew as a manager and he decided to sell the property at Sunbury, which was then worth about ₤7,000.
So he has a property. However:
He had an opportunity of exchanging it for the vendor’s interest in Wonga –
which is another property –
under a contract of sale by which the vendor had sold this property for £13,000; £10,000 of which still remained unpaid at the date of the exchange.
So he has acquired the vendor’s interest in a contract of sale and he ends up holding that property.
He was ill at the time and unable to make a personal inspection.
For one reason or another the contract does not proceed. He ends up taking possession of the property and does some preliminary work to work it. However, it was not a financial success, as your Honours can see from page 4 and, as your Honours can see from the last paragraph beginning on page 4, the finding is that:
It is clear that the appellant never intended to enter into possession of Wonga or to carry on business there . . . His main desire was to sell it, but he only succeeded in doing so in March 1942 . . . In Rolls v Miller, Lindley LJ said “the word” (business) “means almost anything which is an occupation, as distinguished from a pleasure – anything which is an occupation or duty which requires attention is a business.” His dominant purpose was to sell the property, but I think that the facts are just sufficient to establish that pending realization he was carrying on the business of a farmer there.
KIRBY J: Lord Justice Lindley was giving meaning to the word “business” in the English statute as it stood at that time.
MR PAGONE: He was, your Honour.
KIRBY J: Then this is picked up to give meaning to a common law gloss on the meaning of the word “income” in our statutes.
MR PAGONE: The same word that your Honour is concerned with, yes, and it is the last sentence that I was referring to, your Honour, that the dominant purpose was not the derivation of income but still ‑ ‑ ‑
KIRBY J: This is the grip of people in the colonial mind. They still think they are applying English law and it is just not concentrating on the word of the Australian statute. We should be really struggling to give meaning to the word “income” in the Australian statute, not the meaning of “business” which was in the English and New Zealand statutes and possibly in earlier Australian statutes.
MR PAGONE: Of course, your Honour, but even if one embarks upon that notion, I would still come back ‑ ‑ ‑
KIRBY J: I know I am not going to be able to shift you on this and it may be that it is unshiftable at this stage of the development of our doctrine on income.
MR PAGONE: It is a bit like that, your Honour.
KIRBY J: But this Court has said repeatedly in recent years, “Go back to the statute”.
MR PAGONE: But it is helpful, your Honour.
KIRBY J: I question that because, you see, my notion of “income” is something that is changing with changing work practices, and that may favour your client, but you are not grappling with that. You are just looking at these old cases where judges in the grip of colonial mentality applied English law. I am sorry, but that is my reaction to all this. It is a big burden not to be an expert in tax law.
MR PAGONE: If I may then move on to immediately under the sentence that I have quoted. His Honour then turns to the other question of the other property, the related property, which is all farming land, and he sets out the acquisition of it. It also was not primarily undertaken for the predominate purpose of profit making. Over the page at about two‑thirds of the way down the page, beginning with the words:
As a business entered into with a view to profit, it is no doubt in the nature of a hobby when compared with the business of Andrews Bros.
So we have a comparison between what he is really doing and the other thing, which is just by comparison a mere hobby.
The appellant will probably not be unduly disappointed if he has to carry on at a loss in the future, so long as he can, as he said, obtain a change of business from the routine and monotony of Flinders Lane, make a name for himself as a stud-master and help the country of his adoption by improving the quality of some of its stock. It is not essential that a person who engages in business should do so with the motive of making a profit for himself. It is notorious that in many businesses, as for instance an insurance or newspaper business, serious losses are usually suffered –
and so on. Then at page 7 there is the criticism levelled at my current client that it is not for the Commissioner to tell people how to run profitable business, we do not just tax. This is the other double edge of the sword point, your Honours, that if the profitable ones get taxed, the unprofitable ones get deductions.
GLEESON CJ: This taxpayer, in this case, was claiming, and succeeded in getting, a deduction.
MR PAGONE: Correct, your Honour. At the very bottom of the page the conclusion, fourth last line, his Honour finds that:
in the relevant year the appellant was engaged in the business of farming both at Wonga and Winlaton.
So profit making does not have to be the purpose of the activity. We would say that the Full Court just got it wrong. Here there is ‑ ‑ ‑
KIRBY J: But even in this case the respondent said something like, “This is the first year in which I’ve made some real money out of my sport”. So it is not as if she was unaware of the income flow that she was getting at a certain point in her career ‑ ‑ ‑
MR PAGONE: No, that is right.
KIRBY J: ‑ ‑ ‑ by reason of her fame and prowess and skills and reputation as a sportsperson.
MR PAGONE: That is so, your Honour, and we have set out in the table the flows, at least since 1995. May I just dip into a couple of bits of the evidence to make good some of these propositions. I would like, as it were, to start with what might appear to be an end position because it is quite telling, we would say. If I can take your Honours, first of all, to page 1376, which I think is in volume 6. Multiplex had been one of her sponsors. She was provided with a motor car.
GLEESON CJ: This arose out of some personal friendship, did it not?
MR PAGONE: That was said to be the occasion that prompted the sponsorship being given to her.
KIRBY J: She put the logo on the doors of the motor vehicle.
MR PAGONE: Of the motor car, yes, and the examples, being artwork, as it were, are also in the appeal book. But she suffered serious injury before the Olympic Games and she ultimately finished 17th in the Olympic Games, having gone from really a very high position to 17th. In November of 2000 – so this is after the Olympic Games – there was a question about what was to happen with the sponsorship. Mr Anderson writes to her, referring to a conversation that they had just had:
Further to our telephone discussion yesterday, I would like to clarify our sponsorship position with you. The current sponsorship agreement (to 31/12/00) calls for notice to exercise the option on or before 30/11/00 (s 3.4). Given the current situation with your impending surgery and the fact that your future in athletic competition cannot be predicted, we propose to reconsider an extension of our agreement to a time when a decision can be made. To this end we would like you to keep the current fully maintained vehicle we have provided you on the terms originally provided ‑ ‑ ‑
KIRBY J: That is beginning to look like a gift. I mean, she is not performing but she is still keeping the prize.
MR PAGONE: I am getting there, your Honour.
KIRBY J: I am just telling you how my mind is working. I am trying to be helpful.
MR PAGONE: I am indebted, your Honour. Then at 1545, which is in volume 7, on 4 May 2001, Mr Anderson writes back to Joanna Stone and he says:
On behalf of Multiplex Constructions Pty. Ltd. I would like to response to your advice of your forced “semi retirement” and your response to our letter of 21 November 2000.
That is the one that I have just taken the Court to –
As stated in our letter of 21 November, 2000, Multiplex has enjoyed its association with you since our initial sponsorship agreement on 13 May, 1997 and could not have supported a better athlete.
We have also enjoyed your “off field” support and were wondering whether you would like to accept a position of honorary ambassador for our company.
This would involve attending several events during the year as a Multiplex representative (not unlike what you have previously experienced).
In exchange for these services over the next few years we would like to discuss with you an appropriate remuneration package.
Please contact me, and it appeared she does. If I can go back to volume 6, the next page, 1377:
Dear Joanna
As per our discussions today I would like to confirm our agreement in writing.
We are pleased that you have agreed to accept the position of honorary ambassador for our company over the next four years –
so the few years has now become four –
Also, as agreed, in lieu of an annual payment of $2,500 –
we do not know what that was because Multiplex was never paying her $2,500, however, in lieu of that, presumably there were discussions about that –
we will pass the title of your current sponsored motor vehicle to you. I will organise the transfer papers –
Now, what is significant and telling about this is that even after or at least immediately, even immediately after the height of her career, she is still perceived to be of commercial value so that the financial controller of a publicly listed company is able to enter into a transaction whereby he secures the services of her for four years to do the same as she had been doing for them beforehand, the occasional ‑ ‑ ‑
KIRBY J: That is one way to interpret it, a rather cold‑blooded way; the other was that this is an act of generosity and kindness to a person who has given her all in sport and who is now out of the business of really being a great help to them as a sporting person, and that in those circumstances, they are going to give her the car and are going to have an arrangement as an honorary ambassador with them.
MR PAGONE: Your Honour, the arrangement with the honorary ambassador requires her to perform some services, and one cannot assume that the financial controller of Multiplex Constructions Pty Ltd has the authority to go making a gift that is not of commercial value to the company. There is no reason to assume ‑ ‑ ‑
HAYNE J: Well, is not of commercial value or is not charitable properly so called. There may be power to make a charitable donation.
MR PAGONE: I accept that, your Honour, but there is no reason ‑ ‑ ‑
HAYNE J: But this is neither.
MR PAGONE: Exactly, your Honour.
HAYNE J: This is not charitable at least.
MR PAGONE: Exactly, your Honour. There is no reason not to accept every word that is said in the letter.
HAYNE J: And is the vehicle signed with Multiplex signs?
MR PAGONE: It was originally, your Honour. The signage is in volume 7, at page 1544 and it had on the side of the vehicle:
THIS VEHICLE IS BEING DRIVEN BY JOANNA STONE proudly sponsored by MULTIPLEX -
The ASICS agreements, your Honours, there are many of them in the appeal books. I wish to take your Honours only to two briefly. Volume 4 at page 898 – this was the original agreement in 1995 and your Honours will see that in the recitals at line 25:
WHEREAS The Athlete is known as an (expert javelin thrower), whose endorsement is of commercial value.
AND WHEREAS The Company desires to obtain the right to use of the endorsement and other services –
Then over the page there are services, exclusivity of endorsements at clause 4, clause 5, advertising and promotion. At this point there was no cash; it was just goods. If I could then take your Honours to volume 6 at 1435 ‑ ‑ ‑
KIRBY J: In paragraph 6 it does talk of remuneration, expenses, bonuses.
MR PAGONE: At that stage, your Honour, though, it was just goods.
KIRBY J: In fact there was no cash?
MR PAGONE: No, your Honour, but that changed. At 1435 there is a fax sent to her at the Hotel Darwin from Lawrie McKinna and at 1436 your Honours will see:
DEAR JOANNA,
AFTER TALKING TO YOU ON FRIDAY I HAVE PUT DOWN THE PAYMENTS WE DISCUSSED ON THE PHONE.
Now, if I just pause there for a minute. There is plain evidence of negotiations between she and somebody about money.
CONTRACT STARTING ON THE 1ST JULY 1998 FOR A THREE YEAR TERM.
SIGN ON FEE $7,500 PER YEAR.
Plus there are bonuses. So that from 1 July 1998 she gets 7,500 annually and on top there are bonuses. Now, the relevant contract – when I say relevant contract, for the relevant year of income – is in volume 3 at 687.
KIRBY J: Who is this organisation?
MR PAGONE: ASICS. ASICS are the people who provide sporting goods, shoes, T‑shirts, tracksuits. Indeed, I was not proposing to take the Court to it, but there are about 20 pages, I think – anyway, a large number of pages – of listing the goods she received. I can certainly tell your Honour there were shoes, there were T‑shirts, there were running shorts and things like that, and I will come to one of them in a minute. I am sorry, your Honours, I have gone to the wrong volume. It is volume 6 again, I think.
HAYNE J: Page 687 goes through to a term ending 30 June 1999, does it not?
MR PAGONE: The one that began 1995, your Honour?
HAYNE J: No, the agreement at 687 in volume 3:
“Contract Year” shall mean each successive, consecutive (12) month period commencing on 1st July, 1998 ‑ ‑ ‑
MR PAGONE: Yes, your Honour, so that we missed just a slight period, but nonetheless that would do. Really what I was going to do was just tell your Honours where the particular contract was because it provided essentially the same thing with a slight change in the recital so it is now just “as an expert.” They have deleted the “as javelin thrower” presumably to make it easier to have the one standard form contract but there is still the recital “is of commercial venue”, want “use of the endorsement”. Paragraph 3, “Personal Appearances”, the other terms remain the same. However, there is now an exhibit at 692 which has the ‑ ‑ ‑
HAYNE J: Well, 689, clause 6 has the $7,500 a year, is that right?
MR PAGONE: Yes, your Honour. If I can then take your Honours to yet another telling event, in volume 6 again, at page 1432, Joanna Stone is shown as sending a fax to someone. Then over the page at 1433, your Honours will see that it is to ASICS Sydney with the fax number, “Dear Karen” and she lists a number of the items that she would like – polo shirt, T-shirt, et cetera. Then at 1434, at line 16, there is a:
P.S. for Lawrie. The large T-shirts & shorts are for my coach. I hope you don’t mind. I’ve been doing a –
you cannot read the next word, but it is probably “heap”. I say that because the word “heap” appears later on and it looks like the same form of lettering -
of stuff with the media & he can wear it for his interviews.
Thanks heaps Karen.
The other sponsor was DDS and in volume 3 we have DDS saying that they see potential. At 686 in the letter of 31 October 1997:
Dear Joanna
DDS Consulting is proud to sponsor you in the run up to the 2000 Olympic Games . . .
We view the following as the potential activities you will be required to undertake.
1. Have photos taken . . .
2. Attend DDS Consulting functions . . .
3. Use your association with DDS Consulting as part of our promotional activities.
KIRBY J: What page was that, I am sorry?
MR PAGONE: Page 686, your Honour.
KIRBY J: What volume is that in?
MR PAGONE: Volume 3.
HAYNE J: That letter is directed to Ms Stone, care of Well Sports. Do we need to know who they were at that point?
MR PAGONE: I am not sure that I am able to provide a full answer other than an inference. At page 1383 in volume 6 there may be an answer to your Honour’s question, as well as my next point. Well Sports is probably her manager, but I think the answer to your Honour’s question is that one does not need to trouble. At 1383 – it will not tell us about Well Sports, your Honour, I apologise, but it will extend the point about – we have her manager in what are clearly negotiations on her behalf with DDS Consulting about the terms upon which she will undertake her arrangements with them. So we see a fax to Mr Smith from Bob Hynes, reference to the letter:
Joanna is agreeable to:
(a) Attend when required to have photos taken wearing your promotional gear.
. . .Your sponsorship of $5,000 per year will greatly assist Joanna . . . We are willing to accept the exchange of letters as constituting the sponsorship contract.
On the next page, page 1383A, DDS write back saying:
we would like to make the following amendment:
(b) Joanna Stone to attend each year, three (3) DDS functions or at least one (1) and to speak if required.
Over the page, at 1384:
Thank you for your letter of 12 January 1998 the terms of which are agreeable to Joanna –
and there is a reference to the bank account where moneys can be paid. Your Honour, I think the answer to your Honour’s question is that Well Sports is supposed to be World Sports, which is probably the slightly inaccurate name.
Your Honours, we would say that she has achieved commercial ability. She is, to use the expression that my learned junior is fond of, capable of being “banked”, and she banked herself, she turned to account. We have seen some of that already. Whilst I still have volume 6 there, page 1434 – I have taken your Honours to 1434. At 1439, you will see Joanna Stone sending out invoices to ASICS – 1439, 1440 and 1441. Whilst I have that there, at 1442, your Honour Justice Kirby can see the list of products that Joanna Stone was getting from ASICS Tiger Oceania. It goes on for very many pages, but at 1444 we have Energy Hi‑Neck Tee White, Promo T/Suit and so on it goes.
In July 1997 she goes part time in her principal employment and at the same period of time appoints a manager. In volume 3 at 614, in her affidavit she says in paragraph 92:
Between September 1997 and June 1998, I did not compete in any meets as I was rehabilitating from both elbow and shoulder surgery.
In paragraph 93 she says:
For a 9-month period from July 1997, I was managed by Mr Hynes of World Sports Pty Limited.
Then over the page there is details of how that came to an end. Volume 5 at 1069 is her management agreement between herself and Mr Hynes or, rather, World Sports Pty Limited, and the terms of it. In volume 6 at 1428 her manager writes to ASICS in September 1997. In the second‑last paragraph the manager was saying:
Joanna does not feel that she is able to continue to work full time, and, simultaneously devote to training the time required to take her to number one in the world in her event.
A similar letter appears to Multiplex in volume 7 at 1538. This is a month later, in October 1997. Mr Hynes is writing on her behalf and in the middle of the page at about line 28:
Training commitments have forced her to recently cease full time employment with the Queensland Police Service and she now works for the Service part time resulting in a severe reduction in her income.
Both letters to which I have referred the Court to are letters where her manager is seeking an upgrade of the sponsorship arrangements.
KIRBY J: Which was described by World Sports as her salary, at 1429.
MR PAGONE: Yes, your Honour. At 1539 we have what Mr Hynes seemed to think were perfectly sensible proposals to put on her behalf to be a major sponsor, a principal sponsor or other sponsor. Your Honours, can I just while I am here note that at 1540 there is the correspondence between Multiplex and some form of advertising promotions company arranging the photo shoots for Joanna Stone. The only point I wish to make about that is that whatever might be said about the Multiplex contract, there was absolutely no reason to assume that for whatever reason the introduction arose, it was of commercial value to Multiplex. Not only did they provide her with a car to which they were perfectly happy to stamp the logos, but there we have photos being taken to promote their objective of seeking to use her for their commercial gains.
I will not take the Court to these passages other than to indicate the page numbers, but she was paid for some television appearances. Your Honours can see that in volume 3, pages 619, 633, 637. She accepted the sponsorships and she performed on all of these sponsorships. The consequence, we would say, is that she has now, at least in the 1997 year, undertaken her activity with, if not for, the intention of profit making. Therefore, the receipts, prize money, appearances, grants are all receipts in that income‑earning activity.
GLEESON CJ: Does the old-fashioned expression “turning professional” match your submission on “business”?
MR PAGONE: No, your Honour. His Honour Justice Hill dealt with that concept at first instance. We think not.
GLEESON CJ: You see, the largest single amount that you are trying to get your hands on is the $50,000 prize. There were much lesser sums of money paid under sponsorship agreements and there is the value of the car and so forth, but it is that prize of $50,000 that is the largest single component of what you say is her assessable income, is it not?
MR PAGONE: That is true.
GLEESON CJ: If you are right about the “business” argument, I understand why you say that prize money is assessable income, but on page 1633 in the first sentence of paragraph 95 the Full Court put a proposition about your argument. Do you accept that?
MR PAGONE: Paragraph 93, your Honour?
GLEESON CJ: Paragraph 95, the first and second sentences.
MR PAGONE: If your Honour were to substitute the words “business activity” for “income‑producing activity”, then the mere receiving of prizes would not be assessable. I hope I have understood what your Honour is putting to me.
GLEESON CJ: I understand how you get your hands on the $50,000 if your business argument is right.
MR PAGONE: I wish your Honour would not put it like that.
HAYNE J: I think the taxpayer might.
GLEESON CJ: What I am concerned to know is how you bring the $50,000 to tax if you are not right about your business argument.
MR PAGONE: Well, you cannot, with the qualification, the business argument needs to be understood as being either business or income‑producing activity in lieu thereof.
HAYNE J: But that seems to be definitional.
MR PAGONE: It does, your Honour, and I do not seek to hide that. It is simply another way of putting the proposition. What we do not want to be forced into saying is that the test of income under the 1997 Act or the 1936 Act depends upon a finding of business. Business is merely one of the indicators of something that is productive of income. As it happens, we say that is enough here, but with that qualification, your Honour, yes I accept that we do not get our hands upon the winnings if there is not business as so understood.
GLEESON CJ: It may be that we have to resign ourselves to the fact that there is an element of circularity in these arguments. I am not saying that is necessarily against you, but in a sense it is all definitional, is it not? I mean, if you get away from the concept of business and you ask whether some of these amounts are income, then if you throw in a phrase like “received on revenue account” by doing that you answer the question because as somebody famously said in relation to another well‑known occupation, it is a question of income as opposed to what?
MR PAGONE: Your Honour, we are conscious of that possibility and for that reason, for that very reason, we have attempted to articulate the principle that we have in paragraph 16, that is to say, because we wish to avoid the circularity, one asks oneself, well how can one determine that something is income? In the business context, in the ordinary case of the business context it is easy because businesses are ordinarily conducted for the purpose of making profit so that any receipt in that business would ordinarily be stamped with it. That is what Myer Emporium said and with respect, that is clear.
However, how does one apply that kind of notion more generally? What we have said is – if I may use an expression that I understand Americans are familiar with – when one sees the bright red line, or the bright line or the bright lights or whatever they are, of external people saying, “I think you are valuable” and then the person saying, “Well, yes, I am happy to be used in that way for my own commercial gain”, that converts an activity that might not otherwise have been on revenue account into one that is. But, your Honour, that is as good as we have been able to do it.
HAYNE J: But does that depend upon an assessment of the motive for the participant, that is, “I am participating for reasons which include reasons of gain”?
MR PAGONE: Your Honour, it does not depend upon an assessment of motive but it does depend upon assessment of her intention or her purpose. So that if one of her intentions and one of her purposes is the gain, then it is sufficient. It does not matter that her motive might have been to win a gold medal or to wear the blue and ‑ ‑ ‑
HAYNE J: Or to be the best athlete in this discipline.
MR PAGONE: That is right, your Honour.
GLEESON CJ: Does “gain” have to mean net gain? I mean by that that there would be plenty of athletes, huge numbers of people, who compete in sporting events in the hope of winning some prize money but in circumstances where they could never entertain a realistic expectation that over the financial year they would show a profit.
MR PAGONE: Well, your Honour, in that event, it may be that the intention of making a gain is absent on our analysis.
GLEESON CJ: Because “gain” means net gain?
MR PAGONE: No, not because “gain” means net gain, but because the test that we have articulated in paragraph 16 just is not met, so that you never get to the stage where you can say that that athlete is ever likely to have to be participating with a purpose – subsidiary, secondary, whatever – of making profit. But if I can answer a different question that your Honour might ask, and that is assuming that the person does have a hope but does not succeed, the Commissioner’s contention still is that it would be on, as it were, revenue account with the losses flowing as deductions. We are not unmindful of the double edge to the sword, your Honour, but what we have tried to do is to find a principled measure for that sword.
KIRBY J: You only do that by this notion of business. In other words, you concede that if the test is solely “income”, in the ordinary connotation of that word, then you are in trouble.
MR PAGONE: No, your Honour, because we would say “income”, in the ordinary connotation of that word, includes activity through which there is a commercial exploitation. There will be a commercial exploitation where there is a business, but if the Court were to define “business” narrowly, then we would say, “No, no, there is still commercial exploitation, provided the activity can be seen to be analogous”.
KIRBY J: I understand that, and I am happier with that way of putting it, because that is, as it were, trying to flesh out the notion of what income is. But ultimately in a court, where you are applying a statute, if the judicial elaboration and the legal elaboration take you so far from the word that is used in the statute that you snap the connection, then you have to ask yourself whether the elaboration is correct. You see, ultimately we have to ask ourselves, “Is a prize income?”, because that is the statutory word. I just have to say to you, I have real difficulty in saying that a prize of $50,000 is income, because it depends on so many chances and it is so problematic, it depends on so many risk factors. It is really not what the ordinary person would say is income. If that is so, then the question is, have you snapped the connection?
MR PAGONE: Your Honour, the vagaries that chance plays are active in any kind of commercial activity; the securing of any contract, putting in a tender ‑ ‑ ‑
HAYNE J: Investing in government bonds is the only thing that is risk free, is it not?
MR PAGONE: Risk free, your Honour?
GLEESON CJ: I imagine if Lleyton Hewitt won the American Open that would be income, I would guess.
MR PAGONE: Your Honour, I am not in a position to say what Lleyton Hewitt’s position would be, nor do I wish to deprive myself of a brief for Lleyton Hewitt if it turns out otherwise.
HAYNE J: Good luck, Mr Pagone.
GLEESON CJ: Well, his chances of winning were less than even money.
MR PAGONE: That is so, your Honour.
GLEESON CJ: But one thing we know is that income does not equal receipt.
MR PAGONE: Exactly, your Honour. And one has to ask, how was it received? I keep coming back to our paragraph 16.
HAYNE J: Now, as for prizes, are prizes to be considered separately from sponsorship? I know ultimately you say that the same test can solve both aspects of it, but is there a difference between, for example, agreeing that you will put in your front yard or on your car a sign which reads “I am sponsored by the well‑built Australian” ‑ ‑ ‑
MR PAGONE: The answer is yes, your Honour.
HAYNE J: ‑ ‑ ‑ compared with competing for prizes?
MR PAGONE: Yes, your Honour.
HAYNE J: Now, in competing for prizes, what is the relevant criterion that is engaged?
MR PAGONE: Well, your Honour, I do not wish to be flippant, but once the activity that she has been – I will put it differently, your Honour. Once she has turned to account her position as a javelin thrower, then the competing is partly done with the maintenance of the position that she has through which she exploits by the sponsorships. The sponsorships are only there, your Honour, because there is a precondition. They want her because she has that prominence. So competing, and competing successfully, is a precondition to ‑ ‑ ‑
HAYNE J: And the mark of athletic success now is not simply winning, but winning events of a particular standing.
MR PAGONE: Yes, your Honour.
HAYNE J: Do we know from the evidence, do we infer, do we assume that the events – take, for example, the Grand Prix events that Ms Stone entered, which do have a particular standing in athletic competition – that all of these are commercial ventures in which valuable prizes are awarded?
MR PAGONE: No, on the contrary, your Honour, the evidence, as my learned friend will readily say, was that she did not choose her competitions primarily on the basis of winning prizes.
HAYNE J: That does not surprise me. That an athlete may choose competition with a view to improving overall performance as the dominant criterion does not come as a great shock, rather than “Where is the weakest field with the biggest prize money that I can maximise my take?”. But with Grand Prix events, are we to assume that this is where the cream of the cream meet and compete?
MR PAGONE: Your Honour, I think the answer is yes, if you put it in that way. Your Honour can assume that the cream of the cream do compete in those meets. The Olympics, we would have thought, is self‑evident; the same with the Goodwill Games, the Commonwealth Games and the Optus Grand Prix. I am pretty confident, I think, your Honours, that in all of the Grand Prix documents, and I think there are four of them in the appeal books, there is a list of who holds the world record and who is competing in each of them and there are also, of course, words of description of the events, particularly the Optus one, saying it had become the major event and very significant within the community.
Perhaps if I can pick one up. Volume 6 had one, I hope, the Optus 2000 handbook, beginning at page 1262. At 1265, one has the description in the second paragraph:
In preparation for the world’s largest sporting spectacle Australia’s athletes and many of the world’s best will compete in the 2000 Optus Grand Prix ‑ ‑ ‑
HAYNE J: Yes, that was in preparation for the Sydney Olympics?
MR PAGONE: Yes. Your Honour, words like this your Honour will find in the preceding one as well, the 1999 one.
KIRBY J: The problem with your notion of “elite”, though, is that what some people might think is elite, others might pay no heed to. It is a very problematic – I mean, getting prizes at school, getting your little vouchers for so many pounds, as it used to be in my day, or dollars now, and it may be that this is a form of elite, but one person’s “elite” is another person’s complete ignorance. I mean, I know nothing about the world of javelin throwing.
MR PAGONE: No, your Honour, but your Honour does know something about these competitions, and what your Honour knows about these competitions is that what makes them relevantly “elite” is that these competitions attract a lot of money.
KIRBY J: Exactly. Now, that I am beginning to understand. Your word “elite” is a sort of code word for when it passes from when you get a bottle of champagne and a gift voucher at the local supermarket into big bucks. But where does that happen, otherwise it is all in your discretion?
MR PAGONE: Your Honour, it happens, we would say, at very least when an athlete has reached such prominence in her chosen endeavours that she is participating in events which attract a lot of public exposure which, in its turn, attracts lots of people who wish to use that vehicle as the vehicle of merchandising themselves.
KIRBY J: Let me just test that with the Nobel Prize with which comes a very substantial amount of money which I would not myself have thought to be income, because it is one‑off, but it does attract a lot of other fame and fortune and lots of trips and invitations and other source of income, but it is a one‑off amount. Now, I accept what you said to me earlier that why a prize is not income cannot be determined by reference to risk factors, but it takes on the character of a gift at a certain point. Some prizes take on the character of a gift and others do not.
MR PAGONE: Yes, your Honour.
KIRBY J: Now, what is the discrimen?
MR PAGONE: Your Honour, in the context of the Nobel Prize, there is no marketing involved with the giving of the prize.
KIRBY J: That is a question in some scientific circles.
MR PAGONE: Can I test it this way – well, even in marketing with a sense of self‑promotion, I meant marketing in the sense that – say, his Benz does not say the Nobel Prize is proudly sponsored by Mercedes Benz & Co, but that is exactly what happens here – exactly what happened.
KIRBY J: You say we have to look at the fact that in today’s world, for good or ill, it is a very firm feature of sport at beyond the school or hobby level, that there is income attached to it and sportspeople have to live and they therefore have become in a sense, playthings of the sporting promotional sponsorship business of corporations for economic gain.
MR PAGONE: Yes, your Honour, and confining ourselves just to the 2,000 because that happens to be the page that I have it open at, the handbook which begins at the page that I took your Honours to and goes on for quite a long way, at page 1333 there is a list of the sponsors who are thought worthy of thanks, and your Honours will see that Athletics Australia is thanking ‘yes’ Optus, Ansett Australia - no longer, TNT, that tick is a symbol for Nike, Australian Sports Commission and News Limited. Now, let us just test how important it is. If we go back to the beginning, at 1266 under the heading ‑ ‑ ‑
KIRBY J: What does this have to do with the respondent?
MR PAGONE: She participated, your Honour, this is the kind of thing that she – this is an event where these commercial concerns are sponsors, they pay money, and let us see how important this is. Going back to 1266, paragraph 3, “UNIFORMS – ADVERTISING/LOGOS”, this:
Applies to all events at all Optus Grand Prix Meets.
Athletics Australia encourages athletes to wear their member association . . . when participating . . .
Any athlete who wears unpermitted advertising (ie other than clothing manufacturer’s logos or approved club sponsor logos of the permitted size – please read IAAF Regulations if you are in doubt) will be disqualified from the event and be ineligible to receive any awards, prizemoney or votes. For a second ‘offence’, the athlete will be disqualified from participating –
any further. This is reproducing all of these major events and in some of them, and I cannot put my finger on this one at the minute, there is then clear provisions about when consent will be given to permit an athlete to have displayed logos other than the approved logos.
KIRBY J: What is the purpose of that, to ensure that at an Optus function you do not turn up with a Telecom logo?
MR PAGONE: Exactly, exactly.
KIRBY J: Or Telstra.
MR PAGONE: Or some other form of ‑ ‑ ‑
KIRBY J: The competitors do not get a look in.
MR PAGONE: That is exactly – it is called ambush advertising, yes. The 1998 document is in volume 5 at 1014. Again, your Honours can see a letter, a welcome from the president:
It is now eight years since the introduction of the Grand Prix Series . . . A number of our athletes have achieved outstanding international success –
If one goes far enough, one will find similar kinds of logos. Your Honours, I would like at this point to say just one thing, I think in partial answer to a question Justice Hayne put to me, appearance fees are different again. Insofar as she has received payment for appearance fees, they are a payment for service and are assessable as such. In paragraphs 36 and 37 of our submissions, we deal with the appearance fees, which is in response to our friend’s claim. In paragraph 36, we say that both the Full Court and the judge at first instance correctly concluded that the appearance fees were assessable income.
In paragraph 37, we say, similarly, the taxpayer performed a service, namely, by appearing and competing when she participated in the Goodwill Games. Unlike an ordinary sporting competition, it is not in dispute that every competitor in the Goodwill Games is eligible to receive a payment ‑ ‑ ‑
MR BLOOM: That is in dispute.
MR PAGONE: My learned friend says that that is in dispute and I propose to hand up from page 17 of the transcript, but I propose to say this also. If my learned friend contends and if the Court is of the view that the submission is not one that should properly be put, then we will withdraw paragraph 37. As far as we can see, it was uncontentious, as fact, and it is no more than a different argument to support the conclusion in respect of the Goodwill Games. But if my friend is able to show that he is prejudiced in some way by the putting of that argument, then we will not persist with the argument in paragraph 37.
KIRBY J: Anyway, for the moment you press it.
MR PAGONE: I do, your Honour.
KIRBY J: Now, just let me get it absolutely clear in my mind. I am just concerned about the notion of what a prize is, and I do see a distinction between income generally and prizes generally. But you say this is not the Nobel Prize, this is not the Australia Prize, this is not a one‑off prize or a prize in the nature of a gift; this is a prize which is in the nature of something for services rendered, sometimes called salary, sometimes called income, but, however called, is being paid in the real world of sport as it is played in the world and in Australia today, and that in that context, where it has become an important part of the inflow to sporting people, that is, though a prize, income within the Act.
MR PAGONE: Your Honour, yes, but with this qualification, that the athlete herself must have taken a step so that the activity that she undertakes may be regarded as being with the purpose of deriving income.
KIRBY J: Why is the purpose of the taxpayer important for the character of the receipt?
MR PAGONE: Because the Commissioner accepts that a mere winning of a prize without it being received by a taxpayer undertaking an income‑earning activity would not be income.
KIRBY J: Does that not open up a whole field of problematic factual questions to be determined in every case of every prize?
MR PAGONE: Your Honour, we have sought to provide a measure for the answer to those problematic questions ‑ ‑ ‑
KIRBY J: I know you have, but you have gone back to colonial mentality as far as I am concerned.
MR PAGONE: Not in paragraph 16, your Honour. No reference to colonies in paragraph 16.
KIRBY J: I will think about that.
MR PAGONE: May I turn to the second aspect ‑ ‑ ‑
GLEESON CJ: How long do you expect to take for the rest of your argument?
MR PAGONE: Your Honour, I have obviously gone more than I had wanted to. I think I can probably deal with this in 20 minutes.
GLEESON CJ: Thank you.
MR PAGONE: The second aspect of our argument concerns the grant money that was received by her under the Medal Incentive Scheme. It was dealt by the Full Court at paragraph 96 at page 1634, when their Honours said:
The grants in dispute were not made in order to compensate Ms Stone for income that she would otherwise have derived. They were grants made to enable her to bear the additional costs and expenses of competing. Those costs and expenses include, as indicated above, training –
et cetera. At 97 they say:
The payments were not a reward for services. However, his Honour proceeded on the basis that ‘to a great extent’ the award was paid to make up income. We disagreed.
Now, all of that, your Honours, echoes the more detailed analysis undertaken by Justice Hill at 1595 to 1597. Your Honours will see at the bottom of 1595 that was put to his Honour was that Dixon’s Case resulted in these payments, the Medal Incentive Scheme payments, as being assessable income in any event because they were recurrent, repetitive and they were part of that which she depended for her maintenance and support. The argument about all that depends upon what was said in Dixon’s Case (1952) 86 CLR 540 and ‑ ‑ ‑
GUMMOW J: I think the critical passage really is at 556, is it not, in the joint judgment?
MR PAGONE: Your Honour, the critical passage we would say is at 557.
GUMMOW J:
payments are really incidental to an employment ‑ ‑ ‑
MR PAGONE: No, your Honour, 557. The case was not answered by reference to it being incidental to employment because the person making the payment in question was not the employer.
GUMMOW J: I understand that.
MR PAGONE: What the majority Judges say at 557 just a bit above halfway down the page:
We do not think it necessary to say more concerning ‑ ‑ ‑
GUMMOW J: Just go to the bottom of 556 and favour me a little minute:
Indeed, it is clear that if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else and are obtained as of right or merely as a recognized incident ‑ ‑ ‑
MR PAGONE: That is right, your Honour.
GUMMOW J: Is that not the point? Then they develop that on 557.
MR PAGONE: Your Honour, that is ‑ ‑ ‑
GUMMOW J: I do not think they were working themselves up in that very long paragraph starting at the bottom of 555 and finishing at the bottom of 556 to no effect ‑ ‑ ‑
KIRBY J: It certainly is a long paragraph.
GUMMOW J: They were working themselves up the concluding sentences and then they went over and applied it at 557.
MR PAGONE: With respect, I accept that one may be able to see it that way. The case particularly by Professor Parsons and ‑ ‑ ‑
GUMMOW J: I know that.
MR PAGONE: Yes, have seen it differently.
GUMMOW J: It has been going on for years.
MR PAGONE: This debate has been going on for years.
KIRBY J: Do I have to go there? Is it important in this case?
MR PAGONE: Absolutely critical, your Honour.
KIRBY J: Tell me about it.
MR PAGONE: Because, your Honour, there is this question: why is it that pension payments are assessable as income? In a sense that is what is raised by the medal incentive payments. It is thought that one of the fundamental features of income is regularity.
GLEESON CJ: Periodicity.
MR PAGONE: Periodicity. The closest we have come to an enunciation of that principle seems to be what appears at 557, where their Honours say:
Because the £104 was an expected periodical payment arising out of circumstances which attended the war service undertaken by the taxpayer and because it formed part of the receipts upon which he depended for the regular expenditure upon himself and his dependants and was paid to him for that purpose, it appears to us to have the character of income ‑ ‑ ‑
KIRBY J: What is the alternative argument? That it has a character, as a pension, being a statutory character that is different from income?
MR PAGONE: No, the alternative argument would be that it was a mere gift that is not ‑ ‑ ‑
GLEESON CJ: And therefore received on capital account.
MR PAGONE: And therefore received at least not on income account, your Honour – yes, probably capital account. What their Honours say in that passage is important because there are three criteria that are apparently identified: dependence, which we say has been misunderstood by Professor Parsons, and I will come to that ‑ ‑ ‑
GUMMOW J: Where do we see dependence?
MR PAGONE:
Because of the £140 was an expected periodical payment arising out of circumstances which attended the war service undertaken by the taxpayer and because it formed part of the receipts upon which he depended for the regular expenditure upon himself and his dependants ‑ ‑ ‑
GLEESON CJ: Is that not just an aspect of periodicity?
MR PAGONE: Your Honour, it is an aspect, we would say, of what appears in the third line at the top of the page, namely:
The circumstances in which the taxpayer entered into that service were such as to enable him to rely with more or less confidence on the periodical payments ‑ ‑ ‑
GLEESON CJ: Yes, the fact that you were dependent on them was one of the reasons why you kept getting them regularly.
MR PAGONE: Correct, your Honour, but it is not a complete yes to your Honour’s answer because it has enabled him to rely, as distinct from proof of dependence upon. There was no evidence at all in this case of actual dependence in the sense of needing the 104 to live, and yet that is the way Professor Parsons has construed the meaning of the word “dependence” and that was clearly the way Chief Justice Bowen construed the word in Harris. So he says at one point the notion would seem to be unfair for people who were impecunious because if you are actually dependent, you get taxed upon it, whereas if you are not dependent in actual fact, then you will get it scot‑free.
GLEESON CJ: Pensions do not cease to be taxable when the means test goes.
MR PAGONE: That is right. What we would say is that both his Honour in Harris’ Case and the learned professor placed too much weight on the word “dependent” and it does not mean dependence in the sense of actual dependence; it just simply means is a part of the regular recurrent receipts upon which he was able to rely. If I can hand up the relevant parts of Parsons’ analysis of all this, at proposition 11 ‑ ‑ ‑
GUMMOW J: Professor Parsons was bound by this in a way but we are not. These are not holy words you know.
MR PAGONE: No, your Honour, of course not, but it is just that Professor Parsons, we say, is right about what he says the principle ought to be. Proposition 11 begins at paragraph [2.172] and at paragraph [2.177] he talks about the periodicity and the principle and says, yes, but there are some exceptions to this notion of dependence. Covenanted payments, for example, are an exception to the principle, and we would say that ‑ ‑ ‑
GLEESON CJ: Well, if that was right judges’ pensions would not be taxable, in some cases.
MR PAGONE: We would say, your Honours, that we would in any event fit within the exceptions that are mentioned there, but the relevant principle that the learned professor urges is at page 74 in paragraph [2.183] where he says:
It may be thought that the relevant substance –
by that he means the relevant principle –
should be the purpose of the payments in a series, determined objectively. The series of receipts will be income if their purpose may be said to be to provide the taxpayer with money on which he might rely for regular expenditure on himself and his family.
Your Honours, we say that is exactly what Dixon’s Case decided, and that but for that complaint that the learned professor had with the use of the word “dependence”, he would have been embracing the majority judgment.
Now, can I just go back to 557 for a moment because there are three factors identified. The second is the dependence. The third is a payment for that purpose. A payment for that purpose here is satisfied. In the affidavit of Mr Phillips, tendered by our learned friends, in volume 1 of the appeal book at 114, in paragraph 24, line 24, the purpose of the payments are described as being to provide financial incentives. In the AOC Annual Report for 1998, which is in volume 2 of the appeal book at 412, and for 1999 in volume 3 of the appeal book at 519 ‑ ‑ ‑
GUMMOW J: Just before we get to that, Mr Pagone. Is there some statutory source in all of this?
MR PAGONE: The answer is I do not know, your Honour.
GUMMOW J: These are public moneys being disbursed in some way or other and the statutory power must be relevant.
MR PAGONE: I am not able to answer that, your Honour. I can only assume that no one has taken issue that the purpose as identified in the papers is not within power.
GUMMOW J: Where does the funding come from?
MR PAGONE: Your Honour, I am not able to answer that question either. We know that some of it is sponsorship money. We do know that there was an agreement between the city of Sydney and the AOC that provided some other parts of the money. There is some evidence about where some of the money has come from, your Honour. Some of it was no doubt sought to come from the activities – television rights and sales and sponsorships and so on.
GUMMOW J: Anyhow, it is all designed to promote the commercial success of the Games. That is what it is all about.
MR PAGONE: Absolutely, your Honour.
GUMMOW J: So they are people who put on a good show and people will go along to look at them.
HAYNE J: Or people would turn their sets on to look at them.
GUMMOW J: Exactly, and sponsors will pay to get the right to turn on the set.
MR PAGONE: At 519 in volume 3, to take but one place where your Honours will find this, the Medal Incentive Scheme is described by the IOC at the left-hand column at lines 11 and 12 and so on:
MEDAL INCENTIVE SCHEME
The MIS continued to provide much needed support to athletes, allowing them to continue to pursue their Olympic dream. Grants to athletes and their coaches are intended to be applied towards their ongoing professional and personal development and wellbeing and their other preparation and participation costs as likely medal winners –
A grant for use without restriction.
GLEESON CJ: Does a regular allowance paid by a father to a student son constitute assessable income in the hands of the son?
MR PAGONE: I will come to that in just a minute, your Honour. I need to deal with that, but I just want to finish the evidence on this, if I may. In volume 2 at page 494 is the letter to Ms Stone. At about line 43:
The MIS is not intended to be a reward – rather it provides an incentive to continue to prepare for the Olympic Games and succeed at the world standard comparable to the standard of the Olympic Games.
GUMMOW J: How do these people get to put the Australian coat of arms on their letters?
MR PAGONE: I am not sure what basis they get, but probably under statute, your Honour.
GUMMOW J: Yes.
MR PAGONE: That letter, your Honour, also says that it is not a right. It may be varied, it may be suspended. Your Honours will see that at lines 26, 27. However, those rights will not be exercised capriciously; they are indeed exercised by reference to objective standards, as was accepted in cross‑examination by Mr Phillips. The source of funds – my learned junior tells me that in volume 3 at page 546 there is a statement of income expenditure of the IOC, and there are others for other years and other places.
Now, can I deal with the problematic question that the Chief Justice puts to me and can I answer that problematic question by going back to Dixon’s Case on that page at ‑ ‑ ‑
GUMMOW J: What is the significance of page 495, volume 2, under the heading “Taxation”?
MR PAGONE: So far as the outcome of these…..none. There was a relevance to questions of discovery at one stage, but the position of the Commissioner has always been that the MIS payments were assessable and there was some toing‑and‑froing about what happens in respect of amateur, that is to say people who are not in the elite position. But so far as the legal principles here are concerned, your Honour, it does not have an impact.
KIRBY J: What about the Chief Justice’s question? I want to know the answer to this.
MR PAGONE: The Chief Justice’s question, yes, your Honour. If I can answer it by reference to 557. The majority in Dixon’s Case said there were three factors. The first of the factors is important because the payment is taken out of the realm of what might be regarded as a gift explicable by reference to the pure personal relations that exist between the donor and the donee. The answer to your Honour’s question is, a regular payment that I might make to my son or daughter, even dedicated for particular purposes as long as they are at school, regular, relied upon, would have all of the hallmarks of some of the factors identified but would not be sufficient because one of the many dichotomies that the Act does depend upon, apart from capital income, is that if something is truly a gift, it does not fall within the taxable net.
We have attempted to deal with that again in our submissions by articulating in paragraph 28 four principles which we would say are encapsulated in the Dixon Case, periodicity, reliance, paid for the purpose – and I have taken your Honours to the evidence above the purpose for the payment – but, d, not made as a pure gift based upon love or affection or upon the personal relationship between the donor and the donee, so that ‑ ‑ ‑
GLEESON CJ: That is another example of the danger of thinking that income means that which comes in.
MR PAGONE: Correct, your Honour, but does explain the first factor in the three factors that their Honours had in mind. I have not taken the Court to Justice Fullagar’s approach which your Honours will see at 567 to 568. Essentially he took the view that this was a substitution for what would otherwise have been income. I suppose in our case we could say if she did not spend her time on these activities, she might have spent her time on other activities that would have produced income, but one does not need to go there.
GLEESON CJ: I will forget that one.
MR PAGONE: I cannot remember it already, your Honour.
KIRBY J: Can I just ask you do other countries pivot their tax law around the notion of income and have they explored what it means in general terms, or not?
MR PAGONE: Your Honour, in general terms the answer to the latter part of your Honour’s question is yes. There are indeed many cases that have considered the notions of income, many of which have been referred to in judgments of this Court, including most recently in Montgomery.
KIRBY J: But in the context of sporting prizes.
MR PAGONE: In the context of sporting prizes, we have found no useful authority one way or the other.
KIRBY J: Yet this is an international phenomenon. It must be happening everywhere. Maybe the tax commissioners in other countries are not quite so vigorous.
MR PAGONE: No, your Honour. The evidence here is that she won a prize in – I think it was the United States, and tax was taken before she left the country, and similarly, I think, in Johannesburg. I can find the reference to that quickly enough. There is evidence of tax having been taken out of the receipts that she got on the prize money that she got. So, far from being generous ‑ ‑ ‑
HAYNE J: Your client does it with the Tennis Open participants, I am sure, Mr Pagone.
MR PAGONE: Your Honour, I was not for a minute suggesting that my client was more benevolent, only that others are in like position. It is partly dealt with, your Honour, by statute. So we have not been able to find helpful general principles on the notion of income. The Goodwill Games, for example ‑ ‑ ‑
KIRBY J: That, of course, is a possible answer in this case, that if you want to get your hands on prize money it ought to be spelt out specifically in the statute. I mean, I understand you say it is within the statute already, but that is the other way to approach these things if in doubt. After all, it is not a tiny statute.
MR PAGONE: No, your Honour. At page 1390 is the evidence of the Goodwill Games receipt having been deducted – tax having being deducted at source by the United States people.
GLEESON CJ: Yes.
MR PAGONE: Your Honours, they are my submissions.
GLEESON CJ: Yes, thank you, Mr Pagone. How long do you expect to be, Mr Bloom?
MR BLOOM: Your Honour, my learned friend has canvassed a lot of factual matter, a fair bit of which we have in turn dealt with in our written submissions, and upon the assumption your Honours have had the opportunity to read those, I will try to keep the factual inquiry to as short a compass as possible, but I would think it could take a couple of hours, your Honour.
GLEESON CJ: We will resume at 2.00 pm.
MR BLOOM: If your Honour pleases.
AT 12.48 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.02 PM:
GLEESON CJ: Yes, Mr Bloom.
MR PAGONE: Before Mr Bloom starts there is only one housekeeping item to deal with and that was the transcript that we seek to rely upon for that point about the Goodwill Games, if I can hand up copies of the transcript to the Court. I presume my learned friends have a copy of it. The relevant passage to which we refer is on page 17 where Mr Bloom says at line 14:
I say “in the main” because in the Goodwill Games there appear to have been eight participants and eight prizes, so it is just like a carnival when you throw things at a clown, there is a prize for
everyone, but that would not appear to be the case in relation to the World Cup.
That passage that we rely upon for the proposition that there was to be a prize for every competitor in relation to the Goodwill Games. If the Court pleases.
GLEESON CJ: Thank you, Mr Pagone. Yes, Mr Bloom.
MR BLOOM: Your Honour, that was said in opening and it was not intended, I can say this as a concession, but it is put to your Honours that it is a concession of an evidentiary nature and we would say in those circumstances, given it was never raised at either level below, that the Court has on the authority of Eastman no power to now receive it. Mickelberg’s Case would also support that proposition and we would therefore ‑ ‑ ‑
HAYNE J: What, we need evidence of what counsel said below. Is that your proposition, is it, Mr Bloom?
MR BLOOM: No, your Honour. The court is exercising appellate jurisdiction ‑ ‑ ‑
GUMMOW J: This is on the record.
MR BLOOM: Yes, but it was never referred to below before the trial judge or referred to in the Full Court.
GUMMOW J: That is a different point.
MR BLOOM: Nothing was made of it, and therefore it did not form part of the evidence effectively ‑ ‑ ‑
GUMMOW J: What do you mean by “effectively”?
MR BLOOM: ‑ ‑ ‑ that the court was asked to deal with. Your Honour, we say it does not even get to the stage of being concession, that, in fact, it probably is wrong, but nothing was made of it. The court below simply did not deal with it. And if it is put as an evidentiary concession, not put to the court below, then on the authority of Mickelberg and Eastman, it is fresh evidence.
GUMMOW J: It is nothing to do with Mickelberg . It is a question of whether a point is taken below, that is all. You may be right, but it is not a Mickelberg point.
MR BLOOM: Yes. Well, the point was not taken below and it does not form the basis for any grant of appeal.
GUMMOW J: It is a Moustakas point.
MR BLOOM: Yes. That is all we say about its admission, your Honours, but I will come back to it in terms of the effect of it should your Honours wish to take it in. Your Honours, there are statutory provisions that my learned friend did not take you to. Those include, in the 1997 Act, firstly section 6‑10, and that says that:
Your assessable income also includes some amounts that are not ordinary income.
They are called statutory income. What that brings in to the 1997 Act are the provisions of section 26 of the 1936 Act. So the contradistinction between income according to ordinary concepts which was brought into section 25 and the statutory items brought in under section 26 is still maintained.
The second thing is that in section 3‑5 it is stressed that income tax is an annual income tax and “payable for each year by each individual and company”. I will come back to the relevance of that subsequently. Section 8‑1 is the 1997 equivalent to section 51(1) of the 1936 Act and it, of course, allows deductions:
incurred in gaining or producing your assessable income; or
. . . necessarily incurred in carrying on a business for the purpose –
the word “business” specifically appears there.
In the majority judgment in Montgomery 198 CLR 639, which your Honours have, I think, on my learned friend’s list, at page 659 their Honours point out that in the 1936 Act there was no definition of “income”, although there was a definition of:
“income from personal exertion or income derived from personal exertion” and “income from property –
that is at paragraph 61, towards the bottom of page 659, and the definition of “income from personal exertion” is relevantly there set out as:
“income consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, superannuation allowances, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee or in relation to any services rendered, the proceeds of any business carried on by the taxpayer either alone or as a partner with any other person, any amount received as a bounty or subsidy in carrying on a business . . . any profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit‑making by sale or from the carrying on or carrying out of any profit‑making undertaking or scheme . . . but does not include –
(a) interest . . .
(b) rents or dividends.”Income from (or derived from) property was defined as meaning “all income not being income from personal exertion”.
The distinction between income from personal exertion and income from property was important when the two forms of income were taxed at different rates and the distinction has been drawn for other purposes. But the definition of income from personal exertion “has always been used as a possible guide or test in cases where the question is whether a particular receipt is income or not”.
I pause there to say that the definitions themselves have not reappeared in the 1997 Act in section 995.
Given that the 1997 Act is simply meant to be the plain English version of the 1936 Act and given that section 26 is incorporated effectively into that Act from the 1936 Act, the definitions maintain their relevance. They maintain their relevance as having informed some 80 years of tax law in this country. Their Honours went on:
The definition of income from personal exertion thus casts some light on what was meant by the Act when it said in s 25(1) that:
“The assessable income of a taxpayer shall include –
(a) . . . the gross income . . .But both of the definitions in s 6 (of income from personal exertion and income from property) begin by saying the term “means income . . .” or “means all income . . .” Both definitions, therefore, presuppose that “income” has a meaning. It follows, then, that the question what is income cannot be answered simply by resorting to the words of these definitions.
Then there is a reference to Lord Macnaghten and to what Sir Frederick Jordan said in Scott and there is the formula, your Honours, “income . . . in accordance with the ordinary concepts” that finds its way into the 1997 Act, and it is said way back then. There is a reference then to the decision of the Supreme Court of the United States in Eisner v Macomber. Over at page 662 their Honours of the Supreme Court say:
After examining dictionaries . . . we find little to add to the succinct definition adopted in two cases . . . ‘Income may be defined as the gain derived from capital, from labor, or from both combined,’ provided it be understood to include profit gained through a sale or conversion of capital assets –
So criteria are identified. Income is that which is derived from capital, from labour, or both defined. Criteria provide, of course, some certainty to enable one to know what is income and what is an income‑producing activity. Then your Honours went on:
Brief as it is, it indicates the characteristic and distinguishing attribute of income essential for a correct solution of the present controversy.
Pausing there, your Honours, your Honours asked this question. Section 74 of the Internal Revenue Code of the United States taxes prizes and awards. It says:
Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.
The only other place we have been able to find with certainty where it is taxed is India, where the relevant statute – the name of which I am not certain of at the moment, but we will get copies of these to your Honours ‑ includes as income any winnings from lotteries, crossword puzzles, races, including horse races, card games and other games of any sort, or from gambling or betting of any form or nature whatsoever.
GLEESON CJ: And do you get a deduction for losses at cards?
MR BLOOM: I have not looked at that, your Honour. I am not sure that there ever are any in India, your Honour.
KIRBY J: We were told that in South Africa it was deducted at source.
MR BLOOM: Yes, I am not sure of the basis upon which that was done, your Honour. It is not at all clear, and we certainly have not found anything in the South African legislation that would support it. It was certainly deducted in source in the United States in the Goodwill Games.
GLEESON CJ: Paragraph 68 of Montgomery may be of some relevance also.
MR BLOOM: Yes, your Honour. We thought 66, 67 through to 68, and in the middle of 67, if I might pause there, or just above 68:
Most receipts from carrying on a business are income. But some receipts, such as amounts paid on disposing of capital assets of the business, are properly classified as receipts on capital account.
Paragraphs 68 and 69 we also rely upon. While we are there, there is a finding of fact in Montgomery which seems to have been quite important. That is set out in paragraph 70, about:
The uncontradicted evidence . . . was that . . . it was an ordinary incident of renting premises in a new building in the centre of Melbourne –
at the time that you could get one of these sorts of payments. It is very similar to the finding which the majority made in Dixon 86 CLR 540 at 557 at about point 4 of the page where their Honours Sir Owen Dixon and Sir Dudley Williams say:
A widespread policy amongst employers both in Australia and in England led to this sort of thing being done.
So, again, it was the sort of ordinary incident of taking up service that this patriotism in Dixon’s Case followed.
Your Honours, the next question is, what is an income‑producing activity? In our written submissions at paragraph 22 we extract two passages, one from the decision of Justice Fullagar in Hayes and the other Sir Nigel Bowen’s judgment in Harris – sorry, Harris is a bit further on. In 22 your Honours see – and it is a passage my learned friend took you to, but I need to come back to it:
A voluntary payment of money or transfer of property by A to B is prima facie not income in B’s hands. If nothing more appears than that A gave to B some money or a motor car or some shares, what B receives is capital and not income. But further facts may appear which show that, although the payment or transfer was a “gift” in the sense that it was made without legal obligation, it was nevertheless so related to [a] an employment . . . [b] services rendered . . . or [c] to a business carried on by B, that it is, in substance and in reality, not a mere gift but the product of an income-earning activity –
So what he does is there define income‑earning activity as one of three things, not just examples ‑ ‑ ‑
GUMMOW J: No, he describes it. I do not think he defines it, Mr Bloom.
MR BLOOM: Your Honour, that is the way in which it has been approached.
GUMMOW J: I do not think he would have been so foolish.
MR BLOOM: The criteria might be developed that allow one, for instance, to apply the concept of business and its own criteria to different activities, developing activities. But if one takes an income‑producing activity, and in the context of income from personal services not income from property, but as one of these three things, then one has a certainty in working out whether or not what is produced is income.
HAYNE J: Was any of the payments now in question a voluntary payment?
MR BLOOM: The MIS grant was entirely discretionary and voluntary, so were the other grants, yes. There was no right to them in any way, shape or form.
HAYNE J: Was there not a mutual undertaking of obligations as a condition for the receipt?
MR BLOOM: No.
HAYNE J: Those are the grants. What about the prizes and other sums? Do you classify any of those as a voluntary payment?
MR BLOOM: Your Honour, our learned friend concedes that absent a business as he defines it ‑ ‑ ‑
GUMMOW J: Are you saying that this institute scheme was in the business of making gifts to these people?
MR BLOOM: Yes, your Honour.
GUMMOW J: What was the incentive?
MR BLOOM: Medals for Australia at the Olympic games, your Honour.
GUMMOW J: I suppose so.
MR BLOOM: And a desire for Australia to come from 10th in 1992 to within the top five in 2000.
KIRBY J: There was a bit of commercial cashing in on this, logos on items that sportspeople wore, logos on motorcars and so on.
MR BLOOM: Let me come back to sponsorships because your Honour what my learned friend did not emphasise, and it is not really his job to do so, but we have always conceded that the sponsorship income is income and we do so because it satisfies the definition of something which is a reward for services, therefore one of the three things nominated by Justice Fullagar as an income‑producing activity. Might I take your Honours to what is said in Harris’ Case 43 FLR 36 and the relevant passage is at page 39, second‑last paragraph:
Whether any particular receipt is an income receipt falls to be determined in accordance with the ordinary concepts and usages of mankind –
so it is not a new concept that one is talking about. Here one is talking about the 1936 Act –
except in so far as the Income Tax Assessment Act 1936 (Cth) provides otherwise (see Scott . . . It was not argued that the Act contained any provision covering the present receipt. The question whether it is to be regarded as being of an income nature has to be determined by these general considerations.
It may be said that a gift by one person to another will not ordinarily be regarded as income in the hands of the recipient. Thus, a present given by a father to his son out of natural love and affection is not income in the hands of the son. On the other hand, a tip given to a waiter or a taxi driver is income in the hands of the donee. It is considered to be the product of the services which have been rendered. It is not easy to formulate a simple test. Some guidance is afforded by decisions of the High Court. It is clear that the whole of the circumstances must be considered –
He refers to the two decisions in Squatting Investment, one of the High Court and one of the Privy Council –
Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. The motives of the donor may be relevant but are seldom, if ever, decisive. A generally decisive consideration is whether the receipt is the product in a real sense of any employment of, or services rendered by the recipient, or of any business, or indeed, any revenue producing activity carried on by him.
Now, at first blush he appears to be extending the concept beyond business, but when one has regard to the cases to which he refers - they are Squatting Investment, Hayes, Scott, Phillips and A.L. Hamblin Equipment at first instance, the judgment of Sir Ninian Stephen and the passage to which he is referring at pages 172 point 8 to 173 of 130 CLR makes it clear that what Sir Ninian is referring to is the sort of extraordinary transaction of a Myer kind on the part of one who is carrying on a business.
He is really referring to that as another revenue‑producing activity. He is not meaning to extend it beyond the concept of those three kernels that Justice Fullagar was really referring to. Your Honours, what we say then is that the courts have endeavoured to set out in the form of real equation what an income‑producing activity is, in the context, of course, it is not an income from property but income from personal services. They have said it is one of three things, and then they set out criteria for determining whether one has one of those three things.
Now, what our learned friend says is this. If you have an equation that says income‑producing activity equals services, employment or business, he says substitute for “business” “income‑producing activity”. So you get now, on both sides of the equation, income‑producing activity. Well, that is easy, an income‑producing activity is an income‑producing activity, he says, and what is an income‑producing activity, he then says, is something which produces income, and ergo income is that produced by an income‑producing activity.
That sort of circularity is a good thing, perhaps, to be putting on behalf of the Commissioner, but in terms of the certainty which we need as taxpayers, and which the Court really needs to assist in, it is much better to go to the established criteria. You establish three things which have been identified, and see that the courts have had no trouble at all in adapting those three things to every modern circumstance.
HAYNE J: Starting with Chief Justice Bowen at pages 39 to 40, was his Honour there concerned to deal only with voluntary payments and whether particular voluntary payments were properly to be classed as income?
MR BLOOM: Yes, he was dealing with a voluntary payment, although there had been an employment. What had happened is that a bank had decided that a pension that had been paid to its former employees had so fallen in its value that it might be a good thing for the bank to pay some more.
HAYNE J: Now, I understand you to say that the two forms of grant now in issue are voluntary payments.
MR BLOOM: Yes, your Honour.
HAYNE J: Do you say each item of the prize money is a voluntary payment?
MR BLOOM: Your Honour, that is a very difficulty question to answer, but my learned friend concedes that the prize money is not assessable income if the taxpayer is not carrying on “a business” as he defines it. So he accepts that, for instance, somebody who wins the gardening prize in the Herald or the Age is not going to be taxed on it, and that is because it involves that degree of skill. That is why, for instance, prizes are specifically dealt with in the United States. Prizes, per se, unless a person is carrying on a business, will not be income unless it can be said that they are guaranteed. The trial judge said, look, if you enter into a competition where there is a participation fee, then the situation might be different. But if you enter into a competition and you win, then you are being paid for the skill of winning, not for a service of entering.
It may not be right to say that it is voluntary, although if you are the winner presumably a legal obligation would be enforceable for its payment. So at that point certainly it would not be voluntary. But it is not a reward for services, it is not the consequence of an employment and unless a business is carried on, we say, and the Commissioner accepts, it is not income, but I have to allow for the fact that he says, “Well, for “business” substitute “income‑producing activity” - whatever that means.
Your Honours, an example of the use of the word “business” in interpreting whether the activities of a taxpayer constitute the carrying on of a business is Martin’s Case, Martin v Federal Commissioner 90 CLR 470. The headnote is a fair reflection of the facts which are otherwise rather lengthy:
A taxpayer . . . carried on business as an hotel keeper. In the year 1945 he sold his business and carried on farming . . . during the year ended 30th June 1946. Over these three years he had a considerable number of bets on racehorses and kept records of the result of each such bet, furnishing his tax agent with particulars from time to time for entry in his books of account. For the year ended 30th June 1944 his credit balance from betting was £2,389 –
a very large sum at that time –
for the year ended 30th June 1945 it was £4,674 and for the year ended 30th June 1946, £1,864. In all he made 602 bets of which 275 were winning bets and the money staked ranged from £4,687 to £10,352. His largest bet was £500 to £40 on one of his own horses. He made use of a betting system, placed the bets himself, but sometimes got a friend to lay bets for him, when he was occupied in the saddling paddock. Only one race-course was frequented by him on ordinary racing days and he had no more than one bet on each race. Otherwise his time was spent in conducting the hotel and farming business. For one period of nine months after he acquired the hotel he did not attend race-meetings, because he was devoting all his time to his new business. He raced and bred his own horses, owned blood stock and engaged trainers to train them. He was successful in his racing, his expenses for the year ended 30th June 1945 being –
and they are there set out.
At page 479 in the joint judgment, Acting Chief Justice Williams and Justices Kitto and Taylor say in the first full paragraph:
The definition of income from personal exertion includes the proceeds of a business carried on by the taxpayer, but the pursuit of a pastime, however vigorous the pursuit may be, does not usually amount to carrying on a business and gains or losses made in such a pursuit are not usually considered to be assessable income or allowable deductions in computing the taxable income of a taxpayer. The onus, if the case is one in which onus assumes any importance, is on the appellant to satisfy the Court that the extent to which he indulged in betting and racing and breeding racehorses was not so considerable and systematic and organized that it could be said to exceed the activities of a keen follower of the turf and amount to the carrying on of a business. But no question of onus appears to us really to arise. It is simply a question of the right conclusion to draw from the whole of the evidence. Although the issue is one of fact there is no conflict of evidence and the case is one of those cases where the court of appeal is in as good a position to reach a conclusion as the judge below: “many, perhaps most cases, turn on inferences from facts which are not in doubt, or on documents: in all such case the appellate Court is in as good a position to decide as the trial judge” . . . Webb J. held that the taxpayer was carrying on a business of racing and betting because of (1) the considerable amount of time spent by him in racing and betting operations; (2) the very large proportion of his assets and income applied by him for that purpose; and (3) the systematic methods employed by him which were, his Honour thought, really directed more to making profit than pursuing pleasure. With all respect to his Honour the evidence does not appear to us to justify these conclusions. In fact, the taxpayer frequented one race-course and then only on ordinary racing days. If the number of bets he made appears at first sight to have been large, they do not seem to add up to more than about one bet on each race and therefore not to point to more than a normal propensity of racegoers who bet as a pastime.
The importance of that case is to show that one can apply the tests in relation to business in relation to such a pastime. It is not as though that is forever in concrete in the 1940s. Cases of the Federal Court of Australia – and, indeed, I think your Honour Justice Gummow was on the Full Court in one case – have right through into the late 1980s certainly continued to apply the business test to persons who carry on – the question arises about persons who carry on the business of betting and it is very much a test which is capable of being applied to current circumstances.
Your Honours, in our respectful submission, if the whole of the respondent’s sports-related receipts for the year of income are to be brought to account as income, as the appellant contends, then that must be because she was in the 1999 income year carrying on business. That, we say, can be ascertained by applying accepted and certain criteria to the respondent’s activities and seeing whether the answer is that she was carrying on a business. Again, your Honours, in our submission, it is especially important in a case such as the present to first focus on the year in question. That is not to say that events outside the year cannot be taken into account. I will come to those events, but focusing on the 1999 year, which is the year in question, the respondent had a full‑time job. Participation in her sport is ‑ ‑ ‑
KIRBY J: Was it full time the whole time? Did she not become part time?
MR BLOOM: She became a senior constable on 1 July 1998 and she was fully employed for the entirety of the year of income. She was only ever part‑time employed for a short time in the previous year of income. Why it is important to focus on each year and on the year in question is that a person like the respondent is likely to have a varied participation in the sport. It will depend upon injury, it will depend upon age, it will depend upon success, all those sorts of things, and it will vary from year to year.
As I have said, your Honours, she was fully employed in her job as a policewoman throughout the entirety of the year of income, having on the first day of that year been promoted to senior constable. She competed in the year of income in four meetings, two of which offered no prize money. In one of the two which did offer prize money, which was the World Cup, she received her highest ever prize of $US50,000. As we have said, the appellant accepts that, absent a finding of business in his formulation, this prize is not income according to ordinary concepts. She was invited to attend and attended 31 functions, some 90 per cent of which attracted no payment whatsoever. She received assistance under her three sponsorship agreements, one of which terminated during the year of income on 1 December 1998, and that was the sponsorship with DDS. I will give your Honours a reference to the appeal book. It is volume 6, page 1392.
GLEESON CJ: Did you say there is no dispute about the assessability of the income she received pursuant to the sponsorship?
MR BLOOM: Yes, your Honour, never has been.
GLEESON CJ: That was a reward for services?
MR BLOOM: Yes, your Honour. She received the grants, one of which was the grant from the Australian Olympic Committee. Of themselves, it is difficult, in our respectful submission, to categorise those taken together as business activities and the respondent’s pursuit of her sport in the 1999 year as carrying on a business.
But this, your Honours, we say is a fortiori, when one adds the following. There are concurrent findings of fact below to the effect that the respondent never took leave from her job over and above that available under the relevant award. That is at paragraph 65 of the trial judge’s judgment in volume 7, page 1583, and paragraph 52 of the Full Court’s judgment at volume 7, page 1623. Likewise, there are concurrent findings of fact below to the effect that she did not select the competitions in which she competed on the basis of money, but rather on the basis of the need to participate in competition in order to contain competitive experience. The trial judge’s finding is in paragraph 81, appeal book 7, page 1588; the Full Court’s at paragraph 77, page 1629.
Now, pausing there, the judgment of Justice Mason in Hope v Bathurst City Council does provide some support for the proposition that in considering whether someone is carrying on a business, activities which ‑ ‑ ‑
GUMMOW J: For the purpose of a town planning case, is it not?
MR BLOOM: Yes, but activities which themselves lack a significant profit purpose should be left out of account. It is the case which generally tax cases refer to as supplying the ordinary meaning of “carrying on a business”.
GUMMOW J: Yes, I know they do. Whether they should is another question.
MR BLOOM: It is at (1980) 144 CLR 1. The relevant passage in the judgment of Justice Mason begins at page 8, and the other judges of the Court agreed with him. At the bottom of page 8, he says:
I accept, then, that “business” in the sub‑section has the ordinary or popular meaning –
GUMMOW J: In the subsection?
MR BLOOM: Yes:
has the ordinary or popular meaning –
and it is that I rely upon –
which it would be given in the expression “carrying on the business of grazing”. It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis. Putting aside the question whether the activities have a “grazing” character, the critical issue for decision is whether the material before the Court reasonably admits of different conclusions on the question whether the appellant’s activities constitute a “business”. On the facts as found, I conclude that the appellant’s activities amounted to a business and that no other conclusion was reasonably open. In this respect I agree with what Reynolds J.A. said in his dissenting judgment. Transactions were entered into on a continuous and repetitive basis for the purpose of making a profit. The activity had a permanent character in that it had been carried on without interruption since 1965. The appellant sought customers by advertising and kept appropriate financial records.
Then in the middle of the page:
Certain it is that their Honours below were beguiled by the remarks of Walsh J. in Thomas . . . As par. 18 of the case shows, Rath J. concluded that the appellant’s use of the land was not “significant enough” to constitute a business, although, as we have seen, his Honour expressed it very differently in his judgment. A similar idea, albeit otherwise expressed, emerged in the judgment of Glass J.A. when he spoke of the primary judge’s conclusion that the activities “did not amount to a genuine, real or significant business.” And Samuels J.A. expressed the view that “significant”, as used by the primary judge, meant “important”, “real”, “genuine” or “weighty”.
It seems that the emphasis given to the need for activities which were “significant”, “real”, “important”, “genuine” or “weighty” had its origin in what was said in Thomas by Walsh J:
“But a man may carry on a business although he does so in a small way. In my opinion the appellant’s activities in growing the trees ought not to be found to have been carried on merely for recreation or as a hobby. I leave out of account the pine trees, the growing of which did not have, I think, a significant commercial purpose or character.”
The issue in Thomas was whether the taxpayer was carrying on the business of growing avocado, macadamia nut and pine trees. Walsh J. in the passage quoted did no more than say that he left the pine trees out of account because the growing of them did not have a commercial purpose or character which was significant for the purpose of characterizing the taxpayer’s other activities as a business.
So we say, given those concurrent findings of fact concerning the respondent’s entry into competitions, given the complete absence of a profit motive in relation to those, one leaves them out of account in considering the question of whether she was carrying on a “business” in the accepted sense of that term.
Your Honours, in paragraphs 31 and 32 of our written submissions we have pointed out what this Court said in Myer Emporium, talking of course in a tax case, a business is carried on with a view to profit, and what Sir John Latham said in Nevill’s Case which concerned the 1922 Act which contained a very similar definition of “business” to the one in the 1997 and 1936 Acts:
[I]t is necessary, for income tax purposes, to look at a business as a whole set of operations directed towards producing income -
and, as we have pointed out, that talks about profit purpose overall. When you find business you are looking for a profit purpose from the set of operations overall.
GLEESON CJ: Mr Bloom, it was put against you, as I understood it, that what stamped your client’s activities in the 1999 year as a business was the sponsorship arrangements even though there is no dispute about the assessability of the income derived directly from the sponsorships. Was there any evidence about the extent to which sportspeople, not limited to elite sportspeople, have access to sponsorships of one kind or another in modern sport?
MR BLOOM: There was no such general evidence, your Honour. Much was said in submission about one famous swimmer or another without ever using a name but the comparison was made without any evidence in order to enable that comparison to be made for your Honour’s purposes.
GLEESON CJ: But we do not know to what extent, for example, there might be what I might call minor league sponsorships, sponsorships in the form of financial assistance coupled with some promotional activity available to athletes who are not elite athletes.
MR BLOOM: Not in terms of evidence, but I do want to make some submissions to your Honours shortly based upon the facts that suggest that if minor league exists, this was minor league. I think I have to say that my learned friend has been a fairly unreliable guide in this respect in terms of the factual material that says what Ms Stone actually did in terms of her sponsorships as opposed to what the contract she signed said she might be asked to do.
Can I come back to that, your Honours, but say this, while we are on the World Cup, the evidence is clear that the respondent was a reluctant participant in the World Cup because she was afraid that she might exacerbate an injury and miss out on competing for Australia in the Commonwealth Games and, for the reasons set out in paragraph 15 of our written submissions, she was not able to withdraw from the World Cup. Had she done so and competed in the Commonwealth Games she would not have been eligible to compete in the Olympic Games, so she had to compete in the World Cup and her fears were realised. She exacerbated the injury very, very seriously and, as a consequence, was unable to compete in the Commonwealth Games although she did attend the Commonwealth Games as female track captain, but she was unable to compete and, indeed, for three-quarters of the year of income, from September to the following 30 June, after the World Cup which was on 11 September, she was unable to compete and she was unable really to train.
The evidence shows that she underwent surgery in early 1999 and only recommenced training six months later, that is in the next year of income. So for three quarters of the year of income with which your Honours are concerned she is unable to compete and effectively unable to train.
GLEESON CJ: Was it accepted by the courts below that she would have preferred not to compete in the World Cup?
MR BLOOM: Yes, your Honour.
GLEESON CJ: So the $50,000 prize she got was a prize for competing in an event that she would have preferred not to compete in?
MR BLOOM: She was a reluctant participant in that. Yes, your Honour.
GUMMOW J: As a condition of getting these grants, did your client have to sign a team membership agreement?
MR BLOOM: Not as a condition of getting the grants because there are a lot of people who were, as I understand it, members of the Olympic team potentially but not all of those were entitled to medal incentive schemes. Medal incentive schemes because the fund was limited.
HAYNE J: That seems at odds which what appears at page 483, particularly subclause (i) at page 483. It is also at odds with what appears at page 484, particularly lines 30 to 40.
MR BLOOM: Your Honour, paragraph (d) at the top of 483:
Most payments to athletes and coaches under the MIS will be determined by the end of the calendar year preceding the year of grant and generally be available for quarterly payment in advance from 1 January. They will be subject always to the continuing likelihood of them winning medals at the 2000 Olympic Games.
HAYNE J: I can read, Mr Bloom. I am putting to you a specific question. Either answer it or not as you see fit. What you put to us seems at odds with what is said at 483 point (i), 484 between lines 30 to 40. I have in mind 484.
MR BLOOM: Yes, your Honour.
HAYNE J:
athletes, coaches and other officials who are recipients of funding under the MIS will be required to enter into a Team Membership Agreement, which will be similar to the 1996 Team Agreement ‑ ‑ ‑
MR BLOOM: I was only saying to your Honour, and I obviously was not putting it sufficiently, that not all people who sign the agreement as members of the team were entitled to the MIS. That is not to say ‑ ‑ ‑
HAYNE J: That is not the question you were asked, Mr Bloom. The question you were asked was, was you client required to make a team agreement?
GUMMOW J: As she had done in 1996, page 866.
MR BLOOM: If that was your Honour’s question, I am sorry I misunderstood. Yes, she was because she was a member of the Olympic team.
GUMMOW J: That is right, so that takes us to 865, does it not, volume 4?
MR BLOOM: Page 865, your Honour?
GUMMOW J: Yes. Then that in due course takes us to 874 line 45?
MR BLOOM: Yes, your Honour.
GUMMOW J: It is starting to look a bit contractual.
MR BLOOM: Well, your Honour, it has never been put before, obviously ‑ ‑ ‑
GUMMOW J: Well, it is being put now.
MR BLOOM: Yes, I understand that, your Honour.
GUMMOW J: What is the answer?
MR BLOOM: It is starting to look a bit like that, your Honour ‑ ‑ ‑
GUMMOW J: You took us to Sir Wilfred Fullagar talking about gifts, and I am putting to you that this looks a little more contractual than a gift.
MR BLOOM: Well, your Honour, the selection to participate in the 1996 Olympic Games – if one goes to 865 – is what is conditional on entering into the agreement. Not all people selected were the recipients of the MIS. They had to have qualified at a relevant games in a particular position – up to fourth – to show that they were likely to win a medal before they would get the MIS. So the contract, if you like, is with every Olympic athlete, but the MIS is given to people some of whom are qualifiers for a different reason, because of positions that they have reached on a worldwide basis. That is dealt with, your Honour, exhibit GWP8 to the affidavit of Mr Phillips, which is at page ‑ ‑ ‑
GUMMOW J: I do not regard this as responsive, Mr Bloom, I am afraid.
MR BLOOM: Well ‑ ‑ ‑
GUMMOW J: Others might, so carry on.
MR BLOOM: Well, your Honour, indulge me, if you would, for a moment because I will endeavour to ‑ ‑ ‑
GUMMOW J: I have no choice.
MR BLOOM: The strategic plan at page 343 of the appeal book in volume 2 at page 346 talks about who will be selected and sent to the games. It will:
assist National Federations [to] prepare those athletes –
in particular, through giving a number of different sorts of grants. Now, funding support is dealt with over at the next page. It includes the “Medal Incentive Scheme” at about line 38. Then, at page 367, the class of athletes selected who were entitled to grants under the Medal Incentive Scheme are there set out:
Athletes and their coaches winning medals at the 1996 Olympic Games or in World Championships or other agreed major international events . . . will be eligible for grants in the following year under the MIS.
All potential Olympians have had to sign the agreement to get selected, but not all of those get the MIS, and the MIS is, the evidence showed, entirely discretionary.
The affidavit of Mr Phillips begins at page 110 in volume 1. He says in paragraph 15 on page 112, line 42:
Each athlete selected . . . was required to sign a Membership Agreement –
and paragraph 16 he says the same about the 2000 Olympics, and says the applicant would have entered into those things. Then he deals with the Medal Incentive Scheme, which is quite separate. They undertook research, there was a “Gold Medal Plan”, wanting to get Australia from 10th to fifth:
The Gold Medal Plan proposed a fund of money to be paid to athletes which was to form an increasingly large percentage of Olympic funding . . . in order to fund medal prospects.
They needed significant resources. In 1993 they had this forum, and then 24 he says, “Exhibit GWP8”, to which I have taken your Honours, is “the AOC’s ‘Strategic Plan for the Participation’ and it contains details of the Medal Incentive Scheme. Paragraph 27 he says, and this was accepted:
The granting of Medal Incentive Scheme awards was at the discretion of the AOC and was based on the prior medal performance of the athlete and the continuing training that athlete. The AOC recognised the importance of long-term and consistent preparation in order to achieve medal standard performances. In order to be eligible for consideration under the Medal Incentive Scheme it was necessary that the AOC be satisfied that the athlete had the necessary ongoing dedication to the pursuit of his/her sporting endeavours. The relevant National Federation was required to confirm that the athlete was so continuing –
Then over at page 115, line 9:
Thereafter, based on the advice of the relevant sporting body (such as Athletics Australia), the AOC made a decision whether or not to make a payment to the athlete under the Medal Incentive Scheme. An athlete was not required to render any services whatsoever to any person to be eligible to receive an award under the Medal Incentive Scheme.
GUMMOW J: Now, that is a motherhood statement that comes out of something in the Olympic structure, does it not?
MR BLOOM: Yes, your Honour. He sets out the amount of payments ‑ ‑ ‑
GUMMOW J: She nevertheless had to sign up this agreement, did she not?
MR BLOOM: But everybody who went to the Olympics did.
GUMMOW J: I do not care.
MR BLOOM: But ‑ ‑ ‑
GUMMOW J: She nevertheless had to sign it.
MR BLOOM: Your Honour, it is like saying that you had to go through the first door before forming the group amongst whom a selection might be made for this grant. Everybody had to go through that door, but not everybody would get the grant. Furthermore, as he says at page 115 at the end – about line 49:
The fact that payments were made by the AOC quarterly assisted the AOC in reviewing the on-going eligibility of each athlete to ensure that funds were not being expended on any individual who had ceased the pursuit of his or her sporting endeavours for the Olympic Games.
So they actually ceased to be within medal contention; then they were not eligible for the MIS. But these were people who had signed, and there were people who had signed who were not eligible for the MIS because they had not reached that position which would enable them to qualify.
GLEESON CJ: Would not eligibility for a medal incentive depend, amongst other things, on the administrator’s view of the strength of performance of athletes from other parts of the world?
MR BLOOM: Yes, because they had to reach a ranking in competition with those other athletes. It had to be that they were ranked, and it is set out, I think, on page 115, paragraph 30:
In the 1998 and 1999 years, the payment potentially available under MIS for each placing in a recognised international event –
So what triggered the entitlement to the payment of the MIS was not the signing of the agreement. Everybody did that. But there was something quite different that triggered the entitlement to the MIS and that was being ranked in the first four in the world in the relevant sport.
GLEESON CJ: Which would depend not only on your performance, but of course on the performance of others.
MR BLOOM: Of course. There was some evidence given in cross‑examination that there were times when the payments under the MIS scheme were discontinued.
GLEESON CJ: Was there any evidence about whether, assuming you had the necessary ranking, you would get the same incentive payment regardless of what sport you were competing in?
MR BLOOM: Yes, your Honour, it was across the board.
GLEESON CJ: It just occurred to me as a possibility that those amounts of money you see on page 115 might be significant to a javelin thrower but not necessarily to a swimmer.
MR BLOOM: Yes, your Honour. When one looks at the sorts of things that are involved in performing in the Olympics, the sorts of things that are necessary – my learned friend referred to personal development and that sort of thing, but the athlete needs supplements and they need physiotherapy.
GLEESON CJ: You had better not get into that area.
MR BLOOM: Legal supplements, your Honour. We are talking about young people here who are kept away from any of the contrary in their own interests and away from the usual sorts of activities that young people would enjoy. These are people who are being asked to train in the interests of winning medals for Australia.
GUMMOW J: It sounds like ‑ ‑ ‑
KIRBY J: But, after all, this program of incentives has been very successful from the national point of view.
MR BLOOM: Of course it has, your Honour, it has been wonderfully successful. A country with a population the size of New York State comes fourth in the Olympics. We win 49 medals in the Olympics and 100 medals in the Paralympics.
GUMMOW J: Yes, we do not have East Germany to worry about these days.
MR BLOOM: No, your Honour. I will come back to giving your Honours a note of where Mr Phillips in his cross‑examination says that there were occasions when most certainly the MIS was withdrawn and discontinued. Page 71, my learned friend says. I am still on the 1999 year of income. What is said to be her activity of accepting invitations to attend functions – and the evidence suggests she did not solicit any of this; she just accepted many invitations that were made to her. Annexed to our submissions in the cross-appeal are the details of every so‑called appearance that she ever made, every function she ever attended, and you will see that the very large number of entities for whom she does this are schools and charitable sorts of organisations, Little Athletics, things like that. In the year of income, about 90 per cent of those functions she attended attracted no payment whatsoever.
So if you look at the attending of functions as an activity, it is not a very profit‑making one; indeed, quite the contrary. It is carried on with a view, really, she said, to putting back into the community what she was getting out. She was not disbelieved on that. Her credibility was not an issue. Now, can I come to the sponsorships, because my learned friend relies on those. All of them took place ‑ ‑ ‑
KIRBY J: Of course, the more that she went to functions, the more she became a public figure, and therefore the more valuable was her persona to sponsors.
MR BLOOM: Perhaps that is right, but then if it was attended by a significant profit purpose, one would expect that she would have sought these out, and the evidence suggests quite to the contrary of that. Can I come to her sponsorships. The evidence was clear that none was the result of solicitation by her. The principal one with ASICS, who provided the gear, if I may use that term, came about almost as a matter of chance, and there are concurrent findings of fact to this effect at paragraph 23 in the trial judge’s judgment, 7 appeal book 1572, Full Court paragraph 32 at 7 appeal book 1619.
The sponsorship with Multiplex, which was not then a public company, your Honours, came about as a result of a personal relationship between Ms Stone’s father and the financial controller of Multiplex. The concurrent findings to this effect are the trial judge, paragraph 76 at page 1586, and the Full Court, paragraph 82 at 1630. She met the representatives of her third sponsor, DDS, at a wedding.
Further, although she wore gear provided by ASICS and she sewed some DDS logos on her uniform and she drove a car with Multiplex emblazoned on the side of it, she did not do anything else but go along to the occasional Multiplex function, which she said was more a social event than anything else, anyway. In particular, she did not endorse any product or any of her sponsors and did not act as a spokesperson for any of them.
My learned friend relied upon the word “endorsement” in the ASICS contract. I will not take your Honours back to it, but “endorsement” is defined and in its defined terms – it is defined in two different ways, and in either of those ways she did none of the things which the definitions of “endorsement” refer to.
Again, there were concurrent findings below to the effect that the sponsorships enabled her to defray some of her sporting and travelling expenses, reducing her need to draw upon the resources of her family. That is the trial judge, paragraph 75 at page 1586, and the Full Court, paragraph 83 at page 1631. The Full Court also found at paragraph 96, 7 appeal book 1634, that:
They were grants made to enable her to bear the additional costs and expenses of competing –
the one made to her by the Queensland Academy, because she was a Queenslander who had been selected in the Commonwealth Games Team, and the other by the AOC, because she was a likely medal winner for Australia at Sydney. The reference is at 1 appeal book page 115 and 1 appeal book 69 to the discontinuance at times of Medal Incentive Scheme payments.
Your Honours, when there is added to these facts the absence of any relevant system, and, in that connection, the absence of any books or records such as would usually be found where a business was being carried on ‑ ‑ ‑
KIRBY J: There is a pretty good set of records that has emerged. I imagine many of them came from the providers of the alleged income, but it is all pretty well tracked down, is it not?
MR BLOOM: They are not hers, though, they are not her books and records. The invoices that my learned friend relies upon the bulk of were ASICS documents, obtained from ASICS on subpoena.
KIRBY J: My recollection is that it was she who declared these receipts to the Tax Commissioner but said they were not income. Is that not correct?
MR BLOOM: The reason that she did that was because the Commissioner ‑ ‑ ‑
KIRBY J: I am not criticising. I think it was entirely a proper thing for her to do.
MR BLOOM: But the Commissioner published a ruling and said, “From now on I am taking a different approach to that which I have taken previously and I say that in certain circumstances I am going to regard some of those receipts as income.” She had no choice.
KIRBY J: Is that in the Commissioner’s changed ruling? Was that explained?
MR BLOOM: I do not think the ruling is in there, but the correspondence between her and the Commissioner is there and ‑ ‑ ‑
GLEESON CJ: I thought we saw some evidence this morning in relation to what Mr Pagone showed us that it was well‑known in the sporting world that this dispute, if I can call it that, was brewing with the Commissioner and that people were acting on advice all along.
HAYNE J: See pages 495, 496, which were the pages to which we were taken – 496 more than 495 marks the proposed change in the Commissioner’s attitude.
MR BLOOM: Yes, and at paragraph 12 and following in her affidavit at page 587 and following, your Honour, she sets out the correspondence with the Tax Office who sent her a letter on 4 December 2000 requesting information about various matters apparently relevant to her javelin throwing, and so it began. I mean, she really had no choice. But she points out at those paragraphs how difficult it was for her, because she had no records of any of these things – in order to find out details about competitions in which she had competed she had to go onto the Net and ascertain all of this stuff. It is all set out at those paragraphs, your Honour.
KIRBY J: What made the Commissioner change his attitude? Is that disclosed? Just different advice, I suppose.
MR BLOOM: Your Honour, my learned friend mutters he did not change his attitude, and that is true ‑ ‑ ‑
GLEESON CJ: Do not treat this as an invitation to a free kick, Mr Bloom.
MR BLOOM: Yes. What he did was to decide, as the Commissioner does decide, that here was another fruitful area in which more revenue might be raised. There is nothing more to it than that.
KIRBY J: Another way to look at it is the Commissioner looked at the reality of the world of sport as it is today and that, as Mr Pagone said earlier, the gentlemanly amateur days were passing and, as in so many other things now, privatisation had set in and therefore that there was a new world of income.
MR BLOOM: Your Honour, that is true and no doubt the attraction to the Commissioner is informed in part by the size of the prizes being offered. $50,000 taxed is better for the Commissioner than $50,000 untaxed. But the problem is that javelin is not exactly a high profile sport, particularly ‑ ‑ ‑
KIRBY J: No, but we have to look at this as a matter of principle. It is not just javelins that are involved in this case.
MR BLOOM: But your Honour knows that swimming is a high profile sport or that cricket or rugby or Aussie rules are high profile sports and that there are Olympic sports like swimming that are also high profile sports.
KIRBY J: But you could not have a rule that we are going to tax swimmers but we are never, never going to tax javelin throwers.
MR BLOOM: I am not asking for that, your Honour. I am not even cheeky enough to ask for that.
KIRBY J: Even you would not do that, Mr Bloom.
MR BLOOM: Not even me, your Honour, no. But, your Honour, I do say that it is relevant when we come to this concept of turning oneself to account to look at the sport in which one is operating because what is put is she had a high profile. Well the sport was not a high profile sport, particularly women’s javelin, and turning to account, as I will come to shortly, really means turning to profitable account but I will come to that in a moment.
What my learned friend says, to put his submission clearly, is that she was carrying on business in the 1999 year because she had acquired the attributes of a sporting celebrity or personality capable of being turned to account and had commercially applied that personality during the 1999 year. You are almost talking like it is a piece of property that she is supplying instead of an area where we are concerned with income from personal exertion.
Your Honours, it is enough of an answer that she did not do the second of those things, that is, she did not commercially apply the personality during the 1999 year except by continuing to be the recipient of her sponsorship benefits, but nor is the first correct because in order to show that she was a person with a high profile, the appellant relies upon the resume prepared by the respondent’s mother in 1994 in connection with her going off to the Commonwealth Games, and your Honours have seen in our written submissions the context in which that was prepared. We do say it was fairly unsophisticated, given that context included lamington drives and sending this off to people in the hope that they might get prizes from a raffle and any sponsorship, of course, that might come up and none did.
The second thing is the appointment in the previous year of Mr Hynes of World Sports as her manager. The third thing is the involvement also in the 1998 year of Mr Giles who had left the Brisbane Broncos at that stage and was looking for a position. Reliance is also placed upon a paragraph in a magazine article from December 1995, and I will come to those. Dealing with the resume first, the circumstances in which in the entities to home Ms Stone’s mother sent out the resume are dealt with in our written submissions. They were to businesses in the vicinity in Queensland.
None of Ms Stone’s three sponsorships arose as a result of the resume. The resume does not appear to have been sent out at all after 1997, so in the 1999 year, or indeed very much at all after 1994/1995. So far as concerns the attempts of Messrs Hynes and Giles to market the respondent, they were completely unsuccessful. We are talking about someone with an allegedly high profile here. Two people come in and offer to market the respondent in some fashion and they are completely unsuccessful, just as is the resume prepared by her mother. The concurrent findings of fact to this effect of the trial judge are at paragraphs 41 and 80 at 7 appeal book 1577 and 1587, and the Full Court at paragraphs 53 and 86 at 1623 and 1631.
The lack of success does not, with respect, suggest the submission that she become a personality, a fortiori one capable of being turned to account. If one gives “turned to account” its ordinary meaning – and I understand that your Honours have been given a copy of the Oxford Dictionary definition of “turn to account” and it is probably enough merely to note it is in the middle column on page 703, paragraph 62. Each of the definitions a. and b. talks about “profit”, “to employ profitably”.
KIRBY J: I do not see where this is going. Why are you belittling or denigrating or putting your client down? I mean, it is true that javelin throwing does not grab the population generally as much as, say, swimming does, but it is still, at Olympic time especially, an important aspect of our national life. Your client was able to attract the interest of a number of what one might say a public spirited private sector and some public sector organisations and from that flowed money and that was seen to be in the national interest. It just does not seem to me to be relevant to diminish your client’s achievements and her life. The fact that she got a bit of money is I think good, but this is just part of sport today.
MR BLOOM: But, your Honour, the submission I am dealing with is that of the Commissioner, who says she had acquired the attributes of a sporting celebrity.
KIRBY J: Yes, but you do not have to be a huge – there are celebrities and celebrities and there are pseudo celebrities and there are people who can use whatever celebrity status they have to their advantage, and that is all that is said. It does not diminish your client to say that she is not as celebritified as Mr Thorpe, but she still represented her country and made achievements, and that apparently had enough to attract some money into her pocket.
MR BLOOM: Your Honour, what we say attracted the money into her pocket were not celebrity attributes, whatever they might be, but were, rather, the need to be able to compete at the international level to afford to train and do all those sorts of things outside her full‑time job as a policewoman. The sponsorships and the grants were all made with that in mind, not as a means of somehow purchasing attributes of her personality.
Now, I am not denying that, of course, she was our most successful female javelin thrower. Indeed, in the year in question, in the four competitions in which she entered – the two with prize money, the two without – she was placed first in each one against international competition. I am not denigrating in any sense her achievements, but in order to be able to compete internationally with athletes from America and Russia and places like that, she needed what assistance the community could marshal for her. It is in that context that one sees that the sponsorships were all the result of approaches to her, none as a result of any approaches by her, and any attempt to market her – and my learned friend relies upon Mr Hynes and Mr Giles – was singularly unsuccessful.
I come back to Mr Hynes because it is very important that the circumstances of his termination, not just his appointment, are taken into account. Mr Hynes approached her, she signed an 18 month contract with him. Any effort he made on her behalf was completely unsuccessful and after nine months she terminated it because she said, “It just wasn’t me”.
If I could ask your Honours to go to volume 1 of the appeal book, page 76, about line 7:
Why did you want to terminate it early?---It just wasn’t me.
At line 24, I asked, “Did you” – not “he”:
Did [you] ever seek management after that?---No, I didn’t. I had some offers but---
And in that period 1997‑1998 in relation to your career, was that a high point at your career or otherwise?---1997?
To 1998?---Yes, I’d just – I won a silver medal at the World Championships so I was ecstatic in – I think it was August or September 1997, I won a silver medal. So I realised for the first time that I could win an Olympic medal.
And the World Cup where you were placed first---?---Mm.
---in 1998, that was after you had terminated the management arrangement?---Yes, it was.
You placed first but you didn’t seek to again enter into any management situations?---No, I didn’t.
Over the page, while you are there, my learned friend, Mr Pagone, asked her at the top of the page:
You never sought sponsorship money?---Well, the sponsors that I had had always approached me.
And it is the case, isn’t it though, that you when you did have sponsors were quite keen to have them and did whatever it was you needed to do to maintain them, is that correct?---Well, yes, I was – it was great to have sponsors.
And one of the big problems with sponsorship in relation to javelin throwing is that it is not a big sponsorship drawcard activity, as I understand it, is that ---?---I’d say that’s right, yes.
Indeed, one of the constant complaints I think that people in your position have had is that it has been difficult and almost impossible to attract sponsorship income for javelin throwing, whether it be you or anybody else in javelin throwing?---Sure, in Australia, yes.
HIS HONOUR: That is different overseas, is it?---Yes, Europeans like javelin.
So I am not diminishing what she achieved, your Honour. I am just trying to get a perspective on her sport, when it is said about her that she was a “sporting celebrity” who was marketing attributes and for circumstances of that marketing was singularly unsuccessful.
As far as concerns the 1995 magazine article, the passage relied upon by the appellants at 7 appeal book 1559, if I could ask your Honours to turn to that, the last four paragraphs on that page:
Stone will still have to save up all of her recreational leave to go to the Olympics after taking four weeks in 1994 to go to the Commonwealth Games and eight weeks this year.
This year Stone had to withdraw from the Grand Prix season and give up the opportunity to compete for an $8000 first prize at the grand prix meeting in Berlin so she could return to her police duties.
“I’d already exhausted all my rec leave and although I may have been able to request more time off to stay in Europe and continue competing it would have been for all the wrong reasons,” she said.
And then the paragraph relied upon:
“This year was the first time I was able to make some reasonable money from my sport but it hasn’t changed my attitude. I’m still focussed on where I’m going. My mind is still on improving, it’s still the reason I do this.”
Now, in volume 1 of the appeal book at page 87, your Honours, line 30, in cross‑examination by my learned friend, Mr Pagone:
Yes, and you said to his Honour that your impression was that Bob was relieved by the termination of the arrangement between you. Is that because there had been some – there hadn’t been much success on his part in trying to find sponsorship for you?---I don’t know. I remembered I called, I asked – I called him and asked him to come around home. I mean he was a nice man and we got along fine but he was just a bit different and yes, I asked him to come around home and he had his briefcase and everything with him and he opened it up and I thought: oh. So I got in quick and just said: look, Bob, is it okay if we don’t do this any more. And he seemed relieved, like it wasn’t like he asked me why or anything. He just said: yes, sure. And that was it.
This was Mr Hynes.
But he had been trying to get sponsorship for you?---Probably, I imagine so.
And at about line 17:
Yes, and indeed getting sponsorship was a matter of perhaps not overwhelming concern for you but of some concern for you?---Look in hindsight, and it was only a short time after I had signed the agreement with Bob that I wished I hadn’t. I hadn’t seen the letter that he sent to Multiplex before last Friday but Adrian Anderson rang me from Multiplex a little bit unhappy that Bob had sent him a sponsorship proposal so – and they were already my sponsor, but he had been asking for more money and – and it was a bit embarrassing.
Well, you were asked, at least in one interview if not several by journalists about matters of sponsorship, were you not?---Sure, probably, yes, numerous occasions.
You expressed some disappointment about not being able to get sponsorship, did you not?---Well, it is always – sponsors are terrific if you can get them, most certainly, and it is always nice if people believe in you, yes, if somebody had offered me sponsorship then that would have been great but ‑ ‑ ‑
You wouldn’t have been indifferent to sponsorships at the time, or indeed now, would you?---I am now, as a result of all this, yes.
Well, you wouldn’t have been at the time indifferent to sponsorship – you were not at the time indifferent?---No, probably not indifferent.
No. Indeed at least in one interview that you gave in apparently around about November ’97, you said:
To get a big sponsor would be a definite advantage, but it is not something that I worry about.
And I objected, saying:
the witness can be asked whether she did say that, but that cannot be put to her as something she said –
and then he put it that way:
You said, Ms Stone, to at least one person interviewing you around 16 November 1997:
To get a big sponsor would be a definite advantage, but it is not something I worry about.
Didn’t you?---Probably, yes. Not that I’ve always been quoted correctly but I might have been asked a question, then I probably would have answered it, yes.
Now, there was no cross‑examination on this paragraph in the article at page 1559 in the light of an answer that had already said, “Look, I am not saying that everything that is in an article written about me is true and correct”. My learned friend simply did not cross‑examine on it. So to put it forward as truth of the contents is really, with respect, in those circumstances going a bit far.
KIRBY J: We seem to be getting into rather tangential issues.
MR BLOOM: No. I am just going, your Honour, to the number of things relied upon because my learned friend, in moving from business to this concept of an income‑producing activity, whatever that means, points to this commercial attributes and points to this article ‑ ‑ ‑
KIRBY J: But you cannot challenge the schedule in the appellant’s written submissions. There were two years where it was low and 47 per cent of the police income and then it shoots up to 70 or 80 per cent.
MR BLOOM: But, your Honour, as we have pointed out in our submissions, the courts have said time and time again the size of the amount cannot convert it into income. Lotto, for instance, the weekend before last was $19 million. If she had won $19 million in the year of income ‑ ‑ ‑
KIRBY J: Yes, but this is not a one-off. This is an aggregation of a number of sources and she herself said that she wanted to – she looked to have a percentage of people supporting her with income.
MR BLOOM: No, not with income, your Honour, and that is the problem.
KIRBY J: I think it was in the reply of the Commissioner as a quote ‑ ‑ ‑
MR BLOOM: Yes, but the Commissioner, of course, calls it income in a quest to have your Honours find it income.
KIRBY J: I do not put any store on the use of the words.
MR BLOOM: I accept that, your Honour, but in that thing that he puts together – you see one of the things your Honours do not have ‑ ‑ ‑
KIRBY J: It is this. “I was able to make some reasonable money from my sport for the first time.”
MR BLOOM: Yes, but that is the article I just took you to. She was never cross‑examined about it and in the light of the question ‑ ‑ ‑
KIRBY J: It is the fact. You cannot ignore the fact.
MR BLOOM: Well, I cannot ignore the fact that there was a newspaper article that says it.
KIRBY J: But you cannot ignore the schedule which shows that it is true. I am talking of that schedule in the Commissioner’s – you see this is the world of sport – the suggestion that comes into my mind from that schedule, on page 5 of the appellant’s – paragraph 10, this is the world of sport as it is becoming and as it is and as she was happy for it to be, and I do not blame her. I mean let us face it. In terms of what barristers make and judges and others, it is peanuts. Yet these are people who are appearing before 300 million people and representing their country. It is very small. But for her it is very significant, and it is sustained.
MR BLOOM: Your Honour, instead of looking at comparative between the amount that she earned in that year from her police full-time job, and the amounts of sports-related receipts, we come back to principle and we ask is it a reward for services, is it from an employment or is it the consequence of carrying on a business? If, in applying those principles, we come up with answers that negative some or all of these amounts as income, that is different.
You see the Commissioner accepts, he accepts that $80,000 of that 145 in the 1999 year is not income, according to ordinary concepts, unless she is carrying on a business. He accepts that. So the question has to be was she carrying on a business? If she was not, then the Commissioner agrees the 80,000 is not assessable. It is only if she is found on ordinary principles to be carrying on a business or his term, income‑producing activity, which we say is really not a way that it can be put, that all of the receipts, including the grants and things like that, can be brought to account.
That is, unless, of course, individual amounts are a reward for services, and the sponsorship amounts are. My learned friend suggests that the amounts in connection with attending functions are and that the grant, the medal incentive scheme grant is.
The question comes back, your Honours, to whether she was carrying on a business in the 1999 year of income, three‑quarters of which she was injured and unable to compete and unable to train, in a system we have of annual taxation, and taxpayers who carry on or are said to carry on business as an athlete, that question surely must be looked at on a year by year basis having regard to what they are capable of doing in relation to their sport in that year.
KIRBY J: How would you characterise what she was doing given the rise in the flow of funds into her pocket?
MR BLOOM: Your Honour, the evidence accepted below is – her desire was to get an Olympic or Commonwealth medal or both for Australia.
KIRBY J: You say she was just carrying on her sporting activity?
MR BLOOM: Yes.
KIRBY J: And the flow of income was providential?
MR BLOOM: The flow of moneys was providential and ‑ ‑ ‑
KIRBY J: I am sorry, the flow of money.
MR BLOOM: I am sorry to correct your Honour, but if I do not my learned friend will see ‑ ‑ ‑
KIRBY J: No, you were quite right.
MR BLOOM: And the flow of moneys was both intended to assist her to achieve those goals, that is, of Olympic and/or Commonwealth medals for her country.
GUMMOW J: This notion of getting an Olympic medal for Australia is really, on one way of looking at it, a wish to enter into a vast commercial enterprise, is it not, partly ‑ ‑ ‑
MR BLOOM: Your Honour, with respect, that is a very cynical view.
GUMMOW J: I do not think of it as cynical or not. It is a question of looking at all the documents that constitute the Olympic operation.
KIRBY J: When you see them on the podium crying for their country, I will accept for my part that they do it in very large measure for their country. It is a big motivation.
MR BLOOM: But that was the evidence here, in particular in relation to ‑ ‑ ‑
GUMMOW J: But that…..which is a vast business enterprise.
MR BLOOM: The AOC, your Honour?
GUMMOW J: Of course, partly supported by government, no doubt for motives that are publicly appealing, but it is a vast commercial enterprise. You only have to think about the millions that go into the purchase of television rights, some of which finds its way down eventually, I guess, in this Medal Incentive Scheme.
MR BLOOM: Only one country ever, I believe ‑ ‑ ‑
GUMMOW J: This is a huge business activity.
MR BLOOM: Only one country ever has made a profit from the Olympics, your Honour.
GUMMOW J: That is right, but they queue up to join, do they not?
MR BLOOM: Yes, and they queue up to join because we get the Telstra Stadium built, which we have trouble filling unless there is a rugby match on, and I can understand why it might be filled for that, and Greece will have the same problem, of course. It will have stadiums all over the place that will not be attended and will not be filled, but at the time, it puts the country on the map and tourists come.
GLEESON CJ: One thing we can all agree on is, is it not, that motive does not matter?
MR BLOOM: No, your Honour.
GLEESON CJ: As Mr Pagone said this morning the fact that Picasso was paid for his artwork which he did because of his love of art does not mean that his receipts were not income, and one of the cases he showed us this morning said it is not motive that matters, it is intention. What do you say was the intention relevant to the derivation of these receipts?
MR BLOOM: It was not to make a profit from them. I will leave the sponsorships aside – she rendered services and received an amount and that is income according to ordinary concepts. But it was not to make a profit from them, it was to enable her better to prepare for and compete in the Olympic and Commonwealth Games. That was the evidence. The courts below accepted that when she entered into the competitions where she won the serious money, she was not motivated by the money.
KIRBY J: But you have agreed motive is not the test; it is intention or purpose. It is a legal characterisation.
MR BLOOM: Yes, they overlap, but the purpose in going into the competition was not to make a profit from the competition. It was to get competition at an appropriate level.
HAYNE J: Has it come to this, Mr Bloom? The appellant’s intention was to be the best. To be the best, she had to compete. To compete, she needed money. Part, at least, of the intention of competing was to get the money to continue competing to be the best.
MR BLOOM: Except for the part that she needed the money. The rest of it we could accept. The evidence was that she ‑ ‑ ‑
HAYNE J: You cannot be the best in this endeavour without entering this milieu of the commercial endeavour that the Olympic Games has now become.
MR BLOOM: Your Honour, in relation to this particular taxpayer – and she is the only one with whom I am concerned – the evidence was that she was capable of funding her sporting activities from her police salary and drawing on the resources of her parents. The benefit of these various receipts ‑ ‑ ‑
GUMMOW J: Javelins cost $1,000, do they not?
HAYNE J: It is $350 per pair of boots, which last a couple of weeks.
MR BLOOM: It is $1,000 per javelin. The boots were provided by ASICS and so were the clothes, so that helped. It helped defray the need to call upon her parents, who had been supporting her since her Little Athletics days. There was no suggestion other than that – she said, “Yes, it was nice if I could get one of these things”, but she was not at any stage in a position where she consciously went into it to try to get money because she needed money, your Honour.
Your Honours, if there is not a finding of business, then my learned friend still says that the Medal Incentive Scheme payments were assessable income and the moneys in connection with the various functions, 10 per cent attracted some sort of payment. If your Honours are able to accept it and treat it as a concession, the evidence about the Goodwill Games would establish that there were eight competitors for eight prizes, and so, he says, whatever prize she won would be assessable income in those circumstances.
GLEESON CJ: I think one way he puts it is to say, where you have eight competitors and eight prizes, it is no different, in substance, from an appearance fee.
MR BLOOM: Yes, although there was no concession below and no evidence below about what portion of any amount was an appearance fee per se, but, if it is in the nature of an appearance fee, all we say could be taxed is 500. That was the minimum that she was capable of getting. If your Honours go to volume 6 of the appeal book at 1389, there is the amount set out. Her sport, your Honours will see at about line 12, is a “Gold” sport, women’s javelin. At line 24:
Total Purse per event: $17,500
World Record per event: $50,000
1st Place: $6,000
. . .
8th Place: $500
What we say is that the only amount that she was certain to get, if the evidence establishes eight people for eight prizes, is $500.
GUMMOW J: What is Goodwill Games Inc?
MR BLOOM: It is something run by Mr Ted Turner and it is intended to bring the best athletes in the world together at a time in between Olympics with a view to staging a competition which gives them the competition and him a set of games that he can associate with. It has nothing to do with the goodwill of a business, if that is what your Honour was suggesting to me.
GUMMOW J: I am just wondering, is it run for profit?
MR BLOOM: I am not sure about that. There will no doubt be television and those sorts of rights attached to it.
GUMMOW J: Anyhow, there is no evidence about it?
MR BLOOM: No. There is a promotional brochure for the Goodwill Games in evidence. I will get Mr Thawley to tell your Honours what page number that is. The Medal Incentive Scheme – and again we are looking at it upon the assumption that she was not carrying on a business, that being, we say, the relevant income‑producing activity – we rely upon our submissions in paragraph 17 of our written submissions and, in particular, the argument set out in paragraphs 56 to 59, where we distinguish Dixon’s Case as, with respect to my learned friend, a million miles away from the circumstances of this case.
We remind your Honours that the payments were of a sum which was paid quarterly. The reason it was paid quarterly was so that if an athlete was not keeping up to standard, it could be stopped. It was from time to time discontinued with particular athletes, the taxpayer. And it was not within the terminology in Dixon’s Case to make up income, because it did not replace income which she had foregone or part of her regular dependence for herself and those who depended upon her, in the sense that Mr Dixon, the soldier, depended upon his payments. Again, it does not continue, like a pension does, for a lengthy period of time, but rather was limited to the period of time around the Olympic Games.
In relation to the appearances, we rely what is said in our written submissions at paragraphs 61 to 63 inclusive and ask your Honours to consider the total chronology of appearances, which is annexed to our submissions as cross appellant. Looking at those as a whole, we say that one can infer from the natures and identities of those who invited her to attend that the small number of payments she received in respect of them were made to her because of personal qualifies as a potential Olympian and not as a reward for actually turning up. Would your Honours excuse us for a moment? I am sorry, your Honours, I am wrong. There is not a Goodwill Games brochure in there, apparently.
GUMMOW J: It seems to be based in Atlanta, the home of CNN.
MR BLOOM: Yes. Page 1391. If your Honours please, those are our submissions.
GLEESON CJ: Yes, thank you, Mr Bloom. Yes, Mr Pagone.
MR PAGONE: Just a few matters, your Honours. Perhaps if I can just mention on that last point my learned friend mentioned, in volume 6 at 1391 the withholding agent is described. It shows:
GOODWILL GAMES, INC –
at the address of CNN, as we have indicated. There is something in relation to the matter at 1386, about the middle of the page. Under the heading “Timetable”, there is a reference to the Goodwill Games being “a creation of Turner Broadcasting” but that is about all there is in evidence.
GUMMOW J: With this Queensland grant system, is there evidence of a signing in this case of the form at 1399? That is volume 6.
MR PAGONE: Your Honour, I think there is, can I just ‑ ‑ ‑
GUMMOW J: Page 1395 refers to it but that is a communication from the Queensland Government to the AGS.
MR PAGONE: Yes.
GUMMOW J: Explaining, I think, how the system worked and I guess we infer that the taxpayer went through this system.
MR PAGONE: There may actually be a contract with the Queensland system, I am not entirely sure. Perhaps if I could ask my junior to just check that up whilst I deal with one or two other matters. I suppose on ‑ ‑ ‑
GUMMOW J: But the grant is on condition that you turn up to the Games. If you do not, you pay it back, so it said.
MR PAGONE: My learned friend said in relation to the point that I think was put to him about it sort of sounding like a contract that it had not been put like that below. It is not put quite like that here, although it is put a bit like that here, but what was certainly put at first instance from paragraph 45 of the submissions that were put before Justice Hill was this, if I may just read it, “Further under the guidelines, the relevant athlete must maintain a training competition program which in the opinion of the AOC is at the level of intensity required to win a medal. In addition, the MIS scheme contemplates that athletes would enter into a team management agreement with the AOC. That agreement of itself contains obligations which impose upon athletes. In the respondent’s submission”, that was us at that stage, “the guidelines and the conduct of the AOC and the applicant pursuant to them evinced an implied contract governing the disbursements of funds set aside by AOC for the MIS scheme”.
Now, your Honours, I am not seeking to elevate my submission to that level, but my learned friend in saying that it was not put below was not accurate. What is put here is not quite that but it is a bit like that. In paragraph 10 of the reply we say the payments were made pursuant to the published criterion which, when satisfied, created an ongoing expectation that payments would be made consistently with the money set aside to fund the MIS program. The only uncertainty facing an athlete was whether he or she did or did not continue to satisfy the applicable criterion.
GUMMOW J: It certainly takes it away from the notion of gift in Hayes’ Case.
MR PAGONE: Your Honour, we would have thought so.
HAYNE J: There were, for example, obligations to repay on failing doping tests.
MR PAGONE: There were, absolutely, your Honour, and it is perfectly clear that they were always intended to comply with certain minimum standards or they would not get it. It was very carefully crafted in order to achieve performance.
Now, my learned friend has said that there was a provision in the American Code dealing with winnings. I do not doubt that the provision is there, indeed, we recall seeing something like that ourselves. I have not wanted to go into the American provisions because the American system is quite complex and different. It is true that winnings of whatever kind are taxed in the way that my learned friend says. However, that is not the complete end of the story.
May I just refer to one case which deals with the matter. It is a case of Robertson v United States 343 US 711 (1952), a decision of the Supreme Court. The provision there is gross income under section 22 of the Internal Revenue Code. That itself is defined to include, amongst other things, the provision of services or income from business activities, a lengthy definition.
What the Americans have apparently adopted as the criterion for assessability of winnings, other than the specific provision, is a notion of contract, so that what the United States Supreme Court held in that case was that, in the legal sense, payment of the prize to a winner of a contest is a discharge of contractual obligation. The acceptance of the contestants and the offer tendered by the sponsors of the contest creates an enforceable contract. In those circumstances, there is a discharge. Now, that is a notion that does not fit comfortably into our jurisprudence, and I do not put it forward for any other reason than to complete the picture.
GUMMOW J: They all learn the Carbolic Smoke Ball Case in law schools in America.
MR PAGONE: Yes, your Honour, I know.
GUMMOW J: It is in all the casebooks. It is really at the centre of their notions of contractual ideas. It is not surprising it has cropped into this area.
MR PAGONE: One can see conceptually how they would adopt the notion of quasi contract, and that informs the view that we had put forward in section 46 of the submissions at first instance, which I read out to the Court. But, at the end of the day, as has been said many times to me today, it depends upon the meaning of the word “income” in our statute.
There are other provisions in our statute dealing with scholarships under the present regime at 51.35(c). Pensions are generally dealt with under Division 52A, annuities under 27H. I was asked about the provisions in the Olympic scheme. In the material before the Court in volume 1, at page 248, there is a summary of the provisions being found in the Olympic Insignia Protection Act 1987 and at page 264 of the same volume there are some of the by‑laws. What your Honours might find of interest also on that page 264 is the picking up of by‑law 61 at about line 34, showing the restriction on publicity and propaganda of the athlete personally.
My learned friend took the Court to the evidence of Mr Phillips, and I think mentioned one page of cross‑examination. I should mention also page 70. He was asked at line 20 by me, the swimmer’s draft. I should tell the Court about the swimmer’s draft. My learned friend tendered in evidence a letter of an actual withdrawal of funding of a swimmer and that is a letter which is in the appeal book – I will come back to that in a moment, your Honours, but anyway, that is what the reference was about. It was an actual withdrawal and I asked about that:
The swimmer’s draft. Is it the case, Mr Phillips that the withdrawal or consideration for a withdrawal of the grant depended upon the athletes maintaining a training and competition program of sufficient level to continue to perform at a like level to achieve a medal result at the 2000 Olympic Games?---Yes.
Did that apply across the board, did it?---Yes.
My learned friend wishes to say something about the resume and the amount of work that she did ‑ if the Court pleases, the relevant letter, is a letter to Anna Windsor. It is at page 1400 in appeal book volume 6.
My learned friend says that apart from these couple of sponsorships, she did nothing, or very little. That is to underplay the significance of what she did do in the performance of these sponsorships. Although there is no evidence about how much time she spent in a motor car going from A to B, one can assume that she did use the motor car, and every time she was in transit she was advertising Multiplex. Every time she wore ASICS gear, she was advertising ASICS. Every time she appeared at one of these functions, she was endorsing Multiplex or ASICS functions. She did sew on to her gear some of the DDS products. In doing so, every time she wore that gear, she was advertising their products. That, with respect to my learned friend, is not nothing.
GUMMOW J: The signed Queensland grant form is at 1375 in appeal book 6.
MR PAGONE: I am indebted, your Honour. I hope my learned junior was about to tell me just that. My learned friend says that the sponsorships, in particular, the ASICS one, were fallen upon by chance. That is not quite the evidence. In appeal book volume 3 at page 599 in paragraph 49, she tells us that:
The first sponsorship I received was from ASICS . . . My association with ASICS commenced in 1995 at the World Championships in Gothenburg, Sweden. I was competing in the World Championships with Louise Currey (then Louise McPaul), who is a fellow Australian and a good friend. I was with Louise Currey when she visited the ASICS tent at the championships. While at the tent Louise Currey introduced me to the Australian representative whose name I cannot now recall. He said to me words to the effect of:
“ASICS would be interested in sponsoring you. Give us a call when you get back to Australia.”
In response to ASICS’s request at the World Championships, I contacted ASICS sometime later after returning to Australia and ASICS offered to supply me with free sports clothing and boots.
Well, that is hardly chance. She happens to be at an event where commercial enterprises has what is referred to as a tent. It does not really matter whether it is a tent or a store; it is part of their marketing exercise. She approaches it – admittedly, with a friend – and after she is given an offer, she accepts it.
The significance of all this in her case should not be underestimated. Javelin throwing may not be the most exciting event for those of us in this Court but she had achieved a great prominence. At 1014 in the appeal book, volume 5, the President of Athletics Australia, after saying how significant the 1998 Optus Grand Prix Olympic Series had become, in the fourth paragraph says:
A number of our athletes have achieved outstanding international success since we farewelled the 1997 Optus Grant Prix Series. Cathy Freeman, Joanna Stone, Tim Forsyth, Steve Moneghetti, Emma George and Melinda Gainsford-Taylor have produced outstanding international performances.
This was a very prominent athlete.
Your Honour, I think there may only be perhaps one matter in reply to make and that is this. My learned friend refers to the Hope Case and appears, so far as we can tell, to try to ring‑bind the notion of business by saying really the business, if there be a business, is very confined. Let us just for a minute assume that be so. With respect to my friends, that form of analysis would not help him very much because one is still left with the question then, what is incidental to that business? If the business be narrower than that for which we contend, one is still left with a narrow business and then one must ask what is incidental to that business and one comes back to the same kind of analysis. To win is a necessary precondition to the business activities of even the narrow business of my learned friends. If the Court pleases.
GLEESON CJ: Thank you, Mr Pagone. We will reserve our decision in this matter and the Court will adjourn until 10.15 tomorrow morning.
AT 3.56 PM THE MATTER WAS ADJOURNED
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