Hayes v Federal Commissioner of Taxation

This case concerned an appeal to the High Court of Australia by Lewis Hayes against a decision of a Taxation Board of Review. The dispute arose from the Commissioner of Taxation's inclusion of £3,000, representing the face value of shares gifted to Hayes by one George William Richardson, in Hayes's assessable income for the year ended 30 June 1951. Hayes contended that these shares were a gift and not assessable income.

The primary legal issue before the High Court was whether the shares received by Hayes constituted assessable income. This required the Court to determine if the receipt of the shares was income in the ordinary sense or if it fell within the scope of section 26(e) of the *Income Tax and Social Services Contribution Assessment Act 1936-1950*, which addresses benefits received in respect of employment or services rendered. A preliminary issue was whether the appeal itself involved a question of law, as required by section 196(1) of the Act for an appeal from a Board of Review decision.

The Court held that an appeal from a Board of Review decision on whether a receipt constitutes assessable income involves a question of law. Applying this, the Court found that the shares received by Hayes were not assessable income. The reasoning was that while the gift may have been motivated by gratitude for past services and advice, and a desire to compensate Hayes for reluctantly parting with his earlier shares, it was impossible to relate the receipt of these shares to any income-producing activity on Hayes's part. The Court emphasised that a voluntary transfer of property is prima facie capital, and for it to be income, it must be substantially the product of an income-earning activity. The informal advice Hayes provided to Richardson, even if beneficial, did not constitute an employment or business activity capable of producing income for Hayes in this context.

Consequently, the High Court allowed the appeal, setting aside the assessment and ordering that the sum of £3,000 be excluded from Hayes's assessable income for the relevant year.