Hepples v The Commissioner of Taxation of the Commonwealth of Australia

[1991] HCATrans 55

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S114 of 1990

B e t w e e n -

PETER WILLIAM HEPPLES

Appellant

and

THE COMMISSIONER OF TAXATION OF

THE COMMONWEALTH OF AUSTRALIA

Respondent

MASON CJ
BRENNAN J
DEANE J
DAWSON J
TOOHEY J
GAUDRON J

MCHUGH J

Hepples(2) 1 28/2/91

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 28 FEBRUARY 1991, AT 10.19 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC:  May it please the Court, in that matter

I appear with my learned friend, MR B.J. SULLIVAN,

for the appellant. (instructed by Clayton Utz)

MR B.J. SHAW, QC:  If the Court pleases, in that matter I

appear with my learned friend, MR A.H. SLATER, for

the respondent. (instructed by the Australian

Government Solicitor)

MASON CJ:	Yes, Mr Shaw.
MR SHAW:	If the Court pleases, we have filed a notice of

motion seeking leave to rely on a notice of

contention and another matter which I think is not

opposed. But, in relation to the notice of

reliance and the notice of contention, that is

opposed. Is it convenient to deal with that matter

now, or later at the time when I would put those

arguments if I were to be allowed to put them?

MASON CJ:  You may as well present the application now,

Mr Shaw.

MR SHAW: If Your Honour pleases. In the court below two

provisions were advanced in reliance on which the

amount in question here was said to form an

assessable capital gain. They were section 160M(6)

and section 160M(7). Both those subsections were

fully argued below and the court held against the

Commissioner in relation to 160M(6) and for the

Commissioner by a majority in relation to 160M(7).

It is submitted that in the context of

section 160M as a whole it would, in any case, be

difficult to construe section 160M(7) without

having regard to the other provisions of the

section including section 160M(6), so that it is

likely that the argument will explore the meaning

of the other parts of the section as well as that

part of the section that we successfully relied on

below.	So that it seems likely that, looking at
the matter in a theoretical way for the moment, the

Court will have to consider what section 160M(6)

means even if the matter were confined to

section 160M(7).

The certainty of that is, it is submitted,

greatly increased by the provisions of

section 160M(7) itself, because section 160M(7) is

expressly made subject to the other provisions of

the part. In other words, section 160M(7) only

operates where other provisions of the Part do not operate. It therefore follows that one reason for

saying that section 160M(7) does not apply is that

section 160M(6) does.

DAWSON J:  Why do you need a notice of contention at all?

Hepples(2) 2 28/2/91

MASON CJ:  You are out of time, that is the reason why

you -

DAWSON J: Endorse the reason why you insist it.

MR SHAW:  Indeed. It is debatable, Your Honour, whether a

notice of contention is necessary at all. We filed

one for extra caution, but it is certainly open to

say that, without a notice of contention, assuming

one to be necessary, that section 160M(7) does not

apply because section 160M(6) does. If the Court

were to come to that conclusion, it is submitted it

would be a very unusual result to conclude that

the - - -

MASON CJ:  We need not trouble you further, Mr Shaw.

MR SHAW: If the Court pleases.

MASON CJ:	You oppose this, do you, Mr Bloom?
MR BLOOM:	Yes, we do, Your Honour, on the basis that, first

of all, as Your Honours know, the amount of

assessable income involved in this case is only

$40,000 and tax on that about $20,000, that we say

the 160M(6) question will not arise in any relevant sense because the meaning of 160M(6) is to be taken

as having been settled by the decisions of four

judges in the Federal Court below, all to the same

effect, and it forms a very discrete point about

which we have not adequately or properly prepared

to assist this Court and on the basis that we did

not expect it to be raised or dealt with on a basis
otherwise than that it was settled as construed by

the court below.

MASON CJ: But you have had, what, seven days notice that

the matter was going to be the subject of a notice

of motion?

MR BLOOM:  No, Your Honour, it did not happen that way, with

respect. We had seven days notice well outside the

time for a notice of contention, of course, but

seven days notice that our consent would be asked

for and we expected that if, in the absence of our

consent, the respondent wished to proceed he would,

in accordance with the rules, put on a notice of

motion. He did not do that until yesterday and we

had expected, fairly confidently, that in the

absence of our consent he would not pursue any

argument based on 160M(6). That certainly was our

- and we say legitimate - expectation.

MASON CJ: But you cannot really say that you are prejudiced

if this matter proceeds with subsection (6) as an

independent ground because the two grounds are so

interrelated?

Hepples(2) 3 28/2/81

MR BLOOM:	They are, although if the meaning of 160M(6) is settled then one proceeds to construe 160M(7) upon
that basis.  One has no need to go to the very many
cases that were dealt with by the courts below in
relation to 160M(6), to the English legislation and to the various writings.
MASON CJ:	But how can you present argument in this Court on

the footing that the meaning of subsection (6) is

settled because, as far as this Court is concerned, it might take a different view? You cannot proceed

to construe subsection (7) in isolation,

constrained by views with which it does not agree,

perhaps, about subsection (6).

MR BLOOM:  I accept what Your Honour says. If that be the

case then I am wrong but we had proceeded upon the

basis that 160M(6) was a discrete issue, that the

Commissioner had lost on that issue and that the

meaning of 160M(6) was to be taken as settled for

the purpose of this case.

McHUGH J:  Few things are settled in this Court, Mr Bloom.

MR BLOOM: Well, ultimately, perhaps, Your Honour. We do

say this, Your Honour, that we have· been led to the

position, at least up until seven days ago and

possibly beyond that, to believe that 160M(6) would
not be litigated in the fullest of that sense and

we do feel that the appellant should be protected

as to costs and we would seek those on an indemnity

basis in so far as 160M(6) is concerned. And we

would seek Your Honours' leave, if it be necessary,

to perhaps reply further in writing in relation to
the 160M(6) point if Your Honours were minded to do

that. If Your Honours please.

MASON CJ: Yes, thank you, Mr Bloom. The Court will make

orders in terms of the notice of motion and the
Court will give leave to the appellant to

supplement its argument if so advised by written

submissions in relation to the argument on
subsection (6).	So far as costs are concerned, the

Court will reserve the question of costs and deal

with that at the conclusion of the case, if need

be.

MR BLOOM: If the Court pleases.

MASON CJ: Yes, Mr Bloom.

MR BLOOM:  Yes, if Your Honour pleases. Your Honours, might

we hand up copies of our outline of submissions?

MASON CJ: Yes, Mr Bloom.

Hepples(2) 4 28/2/91

MR BLOOM:  If Your Honours please, might we also hand to

Your Honours a bundle of documents, it is a fairly

large bundle, but have actually reproduced

Part IIIA as it was when it was inserted into the

Act, and the relevant extrinsic materials and

sections of other statutes upon which we will seek

to rely?

MASON CJ: Thank you.

MR BLOOM:  May I commence by taking Your Honours to tab 7,

which is a green tab towards the end of that bundle

of documents we have just handed up. There is a

page there from Whiteman on Capital Gains Tax, the

English book, and if I might commence with a

passage from a speech of Lord Macnaghten, at a time
before any of us had capital gains, His Lordship

said that:

Income tax, if I may be pardoned for saying

so, is a tax on income. It is not meant to be

a tax on anything else.

The author then says:

The original British definition of income

for tax purposes, unlike that of the United

States of America, did not include a gain made

by the acquisition and disposal of an asset

unless that asset could be regarded as a

revenue, as opposed to a capital, asset of a

trade when it was disposed of:

In the case of an isolated transaction of purchase or sale of property there is really

no middle course open. It is either an

adventure in the nature of trade, or else it

is simply a case of sale and resale of

property.

That coming from the judgment in the well-known

case of Jones v Leeming. Hence, before 1946 it could be asserted

without qualification that a person who was

not carrying on a trade, profession or

vocation could not be taxed on any profit he

made by purchasing and selling an asset and

that a person who was carrying on a trade,

profession or vocation could not be taxed on a

similar profit if the asset in question was a

capital, as opposed to a revenue, asset of his

trade, profession or vocation. The phrase

"capital gain" was used to denote a gain of

this kind which was not regarded as of an

income nature and so was not taxable.

Hepples(2) 28/2/91

So a gain on disposal of an asset. Now, Your

Honour the Chief Justice pointed out in Whitfords

Beach, which is on our list Part B, that the first

limb of section 26(a) of the Income Tax Assessment

Act was enacted precisely to cover the facts of

Jones v Leeming. Now, while the word "precise",

Your Honours, might have aptly described section

26(a), it is our respectful submission that

"precise" is not an apt word in relation to the

capital gains tax provisions.

What we emphasize in the beginning of our

outline is that, like section 26(a) or section 25A

as it became, capital gains are included in the

assessable income, there is no separate capital

gains tax in this country. The assessable income

includes a whole lot of things and amongst them are

those things which are net capital gains under

Part IIIA and it is not a tax upon capital receipts

per se. And we have referred Your Honours to a

passage in the speech in Aberdeen Construction

Group, (1978) AC 885 and in the speech of

Lord Wilberforce, at the bottom of 892,

His Lordship talking of the English provisions

said:

The capital gains tax is of comparatively

recent origin. The legislation imposing it,

mainly the Finance Act 1965, is necessarily

complicated, and the detailed provisions, as

they affect this or any other case, must of

course be looked at with care. But a guiding

principle must underlie any interpretation of

the Act, namely, that its purpose is to tax

capital gains and to make allowance for
capital losses, each of which ought to be

arrived at upon normal business principles.

No doubt anomalies may occur, but in

straight-forward situations, such as this, the

courts should hesitate before accepting

results which are paradoxical and contrary to

business sense. To paraphrase a famous

cliche -

no doubt that of Lord McNaughton -

the capital gains tax is a tax upon gains; it

is not a tax upon arithmetical differences.

Your Honours, it is necessary to take Your Honours

briefly to some of the sections in Part IIIA.

Section 160ZO appears at the page numbered 44 in

our bundle and it is the section which says that:

Assessable income to include net capital

gain -

Hepples(2) 6 28/2/91

that has -

accrued to a taxpayer in respect of the year

of income.

One goes then to section 160ZC(l), which is at

page 31B of the materials, and capital losses apart

- that, in essence, says that there will be:

a net capital gain ..... accrued to a

taxpayer ..... if a capaital gain ..... accrued to

the taxpayer.

S~ction 160Z, which is back at page 30,

identifies the amount of capital gain by reference

to:

the consideration in respect of the disposal -

and the -

cost base to the taxpayer in respect of the

asset -

and Your Honours note the reference in section 160Z

to taxpayer and, as we will be pointing out to

Your Honours, there is a special definition of

"taxpayer" in Part IIIA upon which something may

turn. That special definition is at page 8 of the

materials and it is clear that a reference in this

Part to a taxpayer in relation to an asset that has

been disposed of is a reference under

paragraph (a):

to the person who owned the asset immediately

before the disposal took place.

That, we say, is a guiding principle, that one has

the owner of an asset in relation to which a

disposal, or a deemed disposal, or dispositive act takes place, but one starts with a taxpayer who is

the owner of the asset.

If Your Honours were to turn to the very first

page in the bundle, Your Honours have there the

amended definition of "taxpayer" in section 6 and

that is:

a person deriving -

inter alia -

gains of a capital nature.

Now, if the taxpayer were simply a person

deriving capital gains, the draftsman could have

rested, we say, with the definition in section 6

Hepples(2) 28/2/91

but he went further and thought it appropriate for

capital gains purposes to define the taxpayer as

the owner of the asset, not merely its disponor,
but the person who was the owner of the asset

before its dispossession.

Your Honours, the equation to which

section 160Z refers is found firstly in 160ZD,

which Your Honours will find at page 33 of the

materials. That sets out the consideration in

respect of the disposal of an asset and it brings
in either the amount of money received or entitled
to be received or property other than money, and in
subsection (2) deals with the situation where

assets are disposed of for less than full

consideration. So there is no doubt that the

capital gains tax provisions apply where there is a

disposition of an asset for less than its full

value. So, in that sense, a disposition of an

asset by way of gift is within the capital gains

tax net but, of course, gifts, per se, are not and

were never intended to be.

Section 160ZH is the other part of the equation and that Your Honours will find at

page 36. That is the cost base to the taxpayer of

that indexation commences only after 12 months, and
on that basis section 26AAA was omitted from the
Act. Section 160ZH is a little bit larger for
necessary reasons than its counterpart ZD. Section
160ZH(9) deals with acquisitions of assets - this
is on page 38 - for less than full consideration. the asset before indexation and Your Honours know consideration and an acquisition for full consideration, what is deemed to be given is the market value of the asset in question.

Section 160U is at page 26 of the materials

and it deals with timing, when somebody is deemed

for the purposes of the provision to be treated as

having acquired or disposed of something. There is

no particular part of 160U to which we would want
to take Your Honours, simply to alert Your Honours

to its presence.

Section 160L is the pivotal section.

Your Honours will find that at page 15 of the

materials. It says and identifies the disposals of

assets to which Part IIIA applies. In

subsection (1):

this Part applies in respect of every disposal

on or after 20 September 1985 of an

asset, ..... that -

Hepples(2) 28/2/91

(a) immediately before the disposal took

place, was owned by -

(i) a person ..... -

and -

(b) was acquired by that person on or after

20 September 1985.

Section 160L(2) deals with non-residents and subjects them to tax, in effect, on disposals:

of a taxable Australian assets -

That term is dealt with rather strangely in

section 160T, which is at page 25. It does not say

an asset is a taxable Australian asset. It says:

a disposal of an asset shall be deemed to have

been a disposal of a taxable Australian asset

if -

(a) the asset comprised land or a building

situated in Australia;

or certain businesses in Australia or shares and
those sorts of things. It may not be important at
the end of the day, but it would seem very hard to
accommodate the language of 160M(7) to a
non-resident, because the asset first appearing -

it matters not if it is a taxable Australian asset,

because that is not the asset disposed of. The

second asset is a fictitious asset and so that

cannot be a taxable Australian asset, unless one

was, and we will take Your Honours to it in due

course, to read asset where first appearing in

section 160M(7) in such a way to enable 160M(7) to

have some working in relation to non-residents, and

that would mean identifying as the asset an asset

owned by a non-resident, upon the disposal of it,

of which, in the ordinary course, would be deemed	to be a disposal of a taxable Australian asset. If
it is not done that way 160M(7) will have
absolutely no operation to non-residents. That, we say, is an unlikely legislative intent.

So, Your Honours, we then identify, as best we

can, the basic elements for inclusion of a capital

gain in the assessable income of an Australian

taxpayer being resident or non-resident. There

must be a disposal of an asset by a person who is a

taxpayer and that has a special definition;

someone who is the owner of the asset immediately

before its disposition and that disposition must

give rise to a net capital gain.

Hepples(2) 9 28/2/91

"Asset", Your Honours, is defined in

section 160A. The court below held unanimously

that "asset" means an asset and includes right of a

proprietary nature and we understand, looking at

the notice of contention, that that is not in

issue. It does not include, Your Honours, what

might be described as the right to work. That was

held to be the case in England as well in Kirby's

case, Kirby v Thorn EMI. We have given

Your Honours a reference to that in the outline,

and if I might take Your Honours to a passage in

the judgment of Lord Justice Nicholls. That

involved a sale of a business accompanied by a

covenant by the parent of the vendors not to

compete and it was argued that the covenanter had given away a right, an asset, namely the right to work, its liberty to trade.

Lord Justice Nicholls dealt with that at 452,

about point 6 of the page, the paragraph beginning:

I can dispose of one point at once. I agree

that the liberty or freedom to trade enjoyed

by everyone is not a form of "property" within

the meaning of section 22. This liberty or

freedom is a "right" if that word is given a

very wide meaning, as when we speak of a
person's "rights" in a free society. But in
section 22 the words used are "assets" and
"property". "Property" is not a term of art,

but takes its meaning from its context and

from its collocation in the document or Act of

Parliament in which it is found and from the

mischief with which that Act or document is

intended to deal. The context in the instant

case is a taxing Act which is concerned with

assets, and with disposals and acquisitions,

gains and losses. I can see no reason to

doubt that in section 22 "property" bears the

meaning of that which is capable of being

owned, in the normal, legal sense, and that it

does not bear the extended meaning that would

be needed if it were to include a person's

freedom to trade. I accept, therefore, that

if the taxpayer company had no goodwill in

respect of the trades in question, and its

non-competition covenant impinged only on its
freedom to trade, the giving of the covenant
would not constitute the disposal of an asset.

That decision was given, of course, after

Part IIIA had been enacted and it may well be, as appears from the extrinsic materials, that the

draftsman of Part IIIA had the view that the right

to trade or the right to work was a proprietary

asset, was a proprietary right and so came within

the definition of asset. Whether he should have

Hepples(2) 10 28/2/91

held that in the light of what Sir Garfield Barwick

said in Forbes case, to which we have given

Your Honours a reference, is another question but

it does appear that he certainly held that view.

Your Honours, section 160M then, is the

section that supplies disposal. It is at page 17

of the materials. Now what subsection (1) says is

that where there is a change in ownership of an

asset there is deemed to be a disposal. So we have

a taxpayer as the owner of an asset: where there

is a change in ownership of an asset, we have a

deemed disposal for the purposes of Part IIIA.

Subsection (2) sets out various means by which

changes in ownership might be effected. Likewise

subsection (3) which is expressed:

Without limiting the generality of sub-

section (2) -

and deals with certain releases of debts and choses

in actions and other rights, being assets.

Likewise subsection (7), when Your Honours come to

it you will see, is expressed not to limit:

the generality of sub-section (2).

I am not sure that we can make anything of that

either way, but it is curious that it was felt

necessary to make subsection (7) so worded, not:

limiting the generality of sub-section (2) -

which sets out changes in ownership; means in which

there are changes in ownership of an asset. It may

have been for more abundant caution but one cannot

say.

Your Honours, subsections (6) and (7), as

Your Honours well know, are the subsections that

were dealt with by the Full Federal Court. All	three members of the Court in Cooling v Hepples
held, as had Mr Justice Spender before in Cooling,
that the construction to be put upon 160M(6) is that it deals with the carving out of, or from, an existing asset, of a new asset, such as a lease or
an option, or perhaps a profit a prendre, or an
easement, without disposing, in the ordinary sense, of the asset that one began with.

Your Honours, we would not propose in-chief to

say anything more about 160M(6), but to perhaps

save further submissions on it to reply. But we

have proceeded upon the basis that that is the

meaning that 160M(6) has and should have for the

reasons which the court below has given. The

Hepples(2) 11 28/2/91

question which divided the court below was as to

the word "asset" where first appearing in 160M(7):

Without limiting the generality of

sub-section (2) but subject to the other

provisions of this Part -

so there are two limitations, immediately

and M(7) -

where -

(a) an act or transaction has taken place in

relation to an asset or an event affecting an

asset has occurred: and

(b) a person has received, or is entitled to
receive, an amount of money or other

consideration by reason of the act,

transaction or event (whether or not any asset

was or will be acquired by the person paying
the money or given the other consideration)

including, but not limited to -

and then there are two examples, each of which, of

course, depends upon the person receiving the money

being the person who has the asset -

(i) in the case of an asset being a right -

not just in the case of a right, but in the case of

an asset, as defined being a right -

in return for forfeiture or surrender of the
right or for refraining from exercising the

right: or

(ii) for use or exploitation of the asset,

the act, transaction or event constitutes a

disposal by the person who received, or is

entitled to receive, the money ..... of an asset

created by the disposal and -

he is deemed, in effect, to have paid nothing for

it and he is taxable on the entirety of what he has

received, or is entitled to receive.

Now, the question is should "asset" in

subparagraph (a) be limited, as we contend, to an

asset of the taxpayer, the person receiving the

money and being taxed upon it so that the act,

event or transaction in question is one which

affects or relates to an asset of his, it is some
sort of dispositive act, some act whereby he

retains the original asset but does something in

relation to it whereby he gets some money from

Hepples(2) 12 28/2/91

exploiting it, or from using it, or from giving it

up, or promising not to use it.

The alternative is, as the majority below

held, that "asset" where first appearing means an

asset of anybody, not limited to but including the

payer of the consideration so that every time a
payment can be said to be related to an asset of any person it will in its entirety be assessable

pursuant to these provisions. An example given by

Mr Justice Hill below was payment to a repairman

for repairing property. That would be assessable

income under section 25 but the whole of it would

also under this provision, if construed the way the

majority below construed it, be assessable under

Part IIIA.

It may well be that the double taxation position of ZA(4) are intended to alleviate that

problem but it may also well be that the capital
gain is assessable in one year and the income,
because of the difference between accruals and

cash, assessable in another.

It is a very wide provision, obviously,

Your Honours, if one looks at it. If farmer A

promises farmer B that farmer A will repair farmer

B's tractor, if farmer B will help him cut his crop, on the wide words of it, literally,

section 160M(7) would apply to even that

transaction. But that is not an argument which

depends upon the problem that we see in the

judgment of the court below, that is, as to whose

asset it must be. Rather it indicates that given

the width of the provision some reading down is

going to be necessary.

Your Honours, we have referred Your Honours to

Mills v Meeking. Your Honours are well familiar

with the passages in that case and of course in

Cooper Brookes. If I may trouble Your Honours

briefly by going to Mills v Meeking, 169 CLR 214.

Your Honours, there is an error in our outline.

There is a passage in the joint judgment of the

Chief Justice and Justice Toohey at 223, after

referring to extrinsic materials and whether or not

one should look at them. Point 5 of the page, the

paragraph beginning:

Later, reference is made to the

difficulties associated with an argument which

relies upon discerning the intention of
Parliament with respect to the operation of

the provisions in issue, other than that which

may be inferred from the statute itself. For

the present, there is no need to have resort

to extrinsic material; the provisions may be

Hepples(2) 13 28/2/91

given their ordinary grammatical meaning. If

the language of a statute is ambiguous or

uncertain -

or to use a word which Your Honours Justice Brennan

and Justice Gaudron used in Catlow's case,

"doubtful" -

a risk of injustice will bear upon the

construction to be given to words used. But,

if the language is not ambiguous or uncertain,

a court will apply its ordinary and

grammatical meaning unless to do so will give

the statute an operation which obviously was

not intended.

And Your Honours held that that:

legislation is not relevantly ambiguous or

uncertain.

Your Honour Justice Dawson, at page 234, at about

point 3:

The difficulty has been in ascertaining the

intention of Parliament rather· than in giving

effect to it when it is known. Indeed, as

everyone knows, the intention of Parliament is

somewhat of a fiction. Individual members of

Parliament, or even the government, do not

necessarily mean the same thing by voting on a

Bill or, in some cases, anything at all. The

collective will of the legislation must

therefore be taken to have been expressed in

the language of the enactment itself, even
though that language has been selected by the

draftsman, who is not a member of Parliament. In the past this has meant that

preference has been given to the literal

meaning of a statute, this being the only safe

guide to the intention of the legislature.

Such was the approach of -

Sir Harry Gibbs -

in Cooper Brookes, where he said:

" ... if the language of a statutory provision

is clear and unambiguous, and is consistent

and harmonious with the other provisions of

the enactment, and can be intelligibly applied

to the subject matter with which it deals, it

must be given its ordinary grammatical
meaning, even if it leads to a result that may

seem inconvenient or unjust •... On the other

hand, if two constructions are open, the court

Hepples(2) 14 28/2/91

will obviously prefer that which will avoid

what it considers to be inconvenience or

injustice."

Perhaps that approach gives insufficient

emphasis to the purpose of the legislation,

for as Mason and Wilson JJ. in the same case

observed:

"Quite obviously questions of degree

arise. If the choice is between two strongly

competing interpretations, as we have said,

the advantage may lie with that which produces

the fairer and more convenient operation -

and that is what we contend for, Your Honours -

so long as it conforms to the legislative

intention. If, however, one interpretation

has a powerful advantage in ordinary meaning

and grammatical sense, it will only be

displaced if its operation is perceived to be

unintended."

However, the literal rule of

construction, whatever the qualifications with

which it is expressed, must give way to a

statutory injunction to prefer a construction

which would promote the purpose of an Act to
one which would not -

Then Your Honour Justice McHugh put the same thing a little differently at page 242, point 5:

A court cannot depart from the literal

meaning of a statutory provisions because that
meaning produces anomalies or injustices if no

real doubt as to the intention of Parliament

arises. But, when the literal meaning of a

provisions gives rise to an absurdity,

injustice or anomaly, a real doubt will

frequently arise as to whether Parliament

intended the literal meaning to prevail. In

such a case, a court may be entitled to

disregard the literal meaning. In

Cooper Brookes -

Sir Harry Gibbs -

pointed out:

"There are cases where the result of giving

words their ordinary meaning may be so

irrational that the court is forced to the
conclusion that the draftsman has made a

mistake, and the canons of construction are

Hepples(2) 15 28/2/91

not so rigid as to prevent a realistic

solution in such a case ... "

We, of course, are asking Your Honours for that.

But this does not mean that a court is

bound by the literal or grammatical meaning of

a statutory provision unless that meaning

produces an irrational result. This was made

plain by -

the present Chief Justice and Justice Wilson -

in Cooper Brookes where their Honours said:

"On the other hand, when the judge labels

the operation of the statute as 'absurd',

'extraordinary', 'capricious', 'irrational' or

'obscure' he assigns a ground for concluding that the legislature could not have intended

such an operation and that an alternative

interpretation must be preferred. But the

propriety of departing from the literal

interpretation is not confined to situations

described by these labels. It extends to any

situation in which for good reason the

operation of the statute on a literal reading

does not conform to the legislative intent as

ascertained from the provisions of the

statute, including the policy which may be

discerned from those provisions."

If I might take Your Honours to a further

passage in Cooper Brookes, 147 CLR 297. The

relevant passage is in the joint judgment of

Your Honour the Chief Justice and Justice Wilson

at 323 in the second paragraph:

The fact that the Act is a taxing statute

does not make it immune to the general

principles governing the interpretation of

statutes. The courts are as much concerned in

the interpretation of revenue statutes as in
the case of other statutes to ascertain the

legislative intention from the terms of the

instrument viewed as a whole.

If I might take Your Honours back in the same

volume to the Western Australian Trustee Executor &

Agency case, the judgment of Sir Harry Gibbs

at 126, the last paragraph on the page:

The principles of construction applicable

to an Act which imposes a tax or duty are set out in Anderson ..... The established rule that

no tax can be imposed on a subject by an Act

of Parliament without words which clearly show

Hepples(2) 16 28/2/91

an intention to lay the burden upon him does

not mean that the court will strive to find

loopholes where none are apparent; the words

of the Act must be given a fair and reasonable
construction, without leaning one way or the

other. However, although, if the terms of the

Act plainly impose the tax they should be

given effect, equally if they do not reveal a

clear intention to do so the liability should

not be inferred from ambiguous words.

Your Honours, we say the contest between

subsection (7) being seen as a provision intended

to deal with dispositive acts by a person in

relation to an asset owned by him, which fits very

well within the policy and:the scheme of Part IIIA

and, on the other hand, its being of itself a

section which has an operation such as to widen the
entire scope of capital gains to include very many

capital receipts which have nothing to do with the

disposal by the person who is taxed of any asset of

his or the performance by him of any dispositive

act in relation to such an asset.

McHUGH J:	You do not limit it to capital receipts, do you?
MR BLOOM:	I do not mean capital receipts, I am sorry,

Your Honour.

McHUGH J:  I thought you used the expression "capital receipts".

MR BLOOM:  I used the expression "capital receipts". What I

say is that the respondent's submission, with

respect, and what the majority held below, is such

as to take it beyond capital gains to capital
receipts because, again, there is net concept that
profit arising upon the sale of property, or

disposition of property, goes to the profit or

gain.

McHUGH J:  I thought you said the section would go beyond,

in capital receipts, ..... what was ordinarily an

income receipt?

MR BLOOM:  Thank you, Your Honour, yes, it would bring

certain income receipts as well into the net and

treat them as capital gains. Yes, thank you,

Your Honour.

The majority dealt with this below, in the

appeal book, firstly Mr Justice Lockhart at 45-46,

and, with respect, dealt with it very shortly. We

would like to think that it has more complexity and

deserves perhaps greater depth of dealing.	The
first full paragraph on page 45:

Hepples(2) 17 28/2/91

I cannot accept the submission of counsel

for the applicant that the existing asset on

which sub-s (7) operates, as distinct from the

deemed asset which emerges at the end of the

operation of the deeming provisions, eo

instantur with its own disposition, must be

the asset of the person who receives or is

entitled to receive the money or other

consideration.	The sub-section itself does
not state that this is a requirement.	On the

contrary, the words used are perfectly general

and on their face are intended to encompass

the situation of an asset owned by someone

other than the person receiving the money

subject to taxation. The only indication on

the face of the subsection pointing to this

restriction is the fact that the examples

provided in paras. 160M(7)(b)(i) and (ii) are

circumstances in which the asset may be owned

by the taxpayer. Plainly these examples are
not intended to be exhaustive. If the section

was intended to be confined in the manner

suggested it would have been simple for the

legislature to have said so.

And then, over the page:

To read into the section a restriction

that the asset must be owned by the taxpayer

can only be justified if, without it, the

section is unworkable, leads to absurd results

or otherwise offends what must be the clear

intention of the legislature. In my opinion

there is not sufficient reason to imply this

restriction.

And a little later, at page 48, the first full

paragraph:

The asset of which para. 160M(7)(a)

speaks (i.e. the asset in relation to which

the relevant asset or transaction is said to

have taken place) consists of the trade

secrets and trade connections and the goodwill

attaching to the business of Hunter Douglas.

That is the payer.

These were not the assets of the applicant. In my opinion that does not prevent the operation of the sub-section for the reasons already

given.

Mr Justice Gummow dealt with it at page 81,

firstly, at about line 14 in the first full

paragraph, where he simply says:

Hepples(2) 18 28/2/91

Further, I do not accept the applicant's

submission that on its proper construction the

sub-section requires this asset to have been

owned by the recipient of the money or other

consideration.

Then at page 86, line 19:

I have also expressed my view that, contrary

to the applicant's submission, the asset in

relation to which the act or transaction takes place or which is affected by an event, within the sense of sub-s. 160M(7), need not be an

asset which is owned by the applicant before

the act or transaction takes place or the

event occurs.

Mr Justice Hill's reasons for dissenting were given in His Honour's judgment in Cooling, 22 FCR.

Before taking Your Honours to His Honour's

judgment, if I might just indicate the sort of

unexpected result that might flow from the

interpretation for which my learned friends contend and the majority below held. Your Honour's see the

headnote in Cooling at page 42:

The respondent, a member of a firm of

solicitors, was assessed to income tax in
respect of his interest in the receipt of an

incentive payment made by a landlord to induce

that firm to occupy the landlord's premises.

It was held that that was assessable both under

section 25 and under section 160M(7) by the

majority. At page 43 Mr Justice Lockhart said, at

point 5:

I am of the view, however, that

section 160M(7) applies to include in the

assessable income of the respondent the moneys
in question in this case.	The relevant asset

mentioned in section 160M(7)(a) was not an

asset of the respondent or of the firm of

solicitors of which he was a member; it was

the premises being the 8th floor of the "Blue

Tower" at 4 Creek Street, Brisbane.

I do not know whether they were a strata title or

whether His Honour is referring to the land, but

they refer to it as the "8th floor".

In my opinion the "asset" first mentioned in

section 160M(7) is not confined to an asset of

the taxpayer. There was an act or transaction

which took place in relation to the 8th floor

Hepples(2) 19 28/2/91

of the Blue Tower building or the occurrence

of an event that affected that asset, namely,

an amount of money "by reason of" those acts or transactions. In the result the deemed disposal and creation of an asset to which section 160M(7) is directed occurred, with the consequence that the Commissioner

the entry into the lease and the giving of the received

guarantee by the respondent and his partners.

succeeds in this case in his argument as to

the operation of section 160M(7).

Mr Justice Gummow dealt with it on pages 44 to 45,

point 5 of page 44:

There remains section 160M(7). On

16 December 1985, the Lessor paid to the

taxpayer $21,060, at the direction of his

firm. The lease had been executed by the

Lessee on 12 December 1985, in respect of the

premises being the 8th Floor of the "Blue

Tower" building at 12 Creek Street, Brisbane.
The guarantee, embodied in the lease ..... on or

about 12 December 1985.

The Commissioner's submission was that acts or transactions took place (entry into

the lease and the giving of the guarantee) in

relation to an asset (namely the 8th Floor in

the "Blue Tower" building), and the taxpayer
received and was entitled to receive an amount

of money by reason of those acts or

transactions. It was then submitted that

within the terms of section 160M(7), those

acts or transactions constituted a disposal by

the taxpayer of an asset created by the
disposal, the $21,060 constituting the

consideration in respect of the disposal and

that the cost base effectively was nil. It

was emphasized in the submissions for the

Commissioner that the learned primary judge

was apparently in error in thinking that the
subject premises were not an existing asset at
the time of entry into the lease and

guarantee. The building was in fact completed

in July 1984.

But pausing there, Your Honours, does this mean

that if that building had still been on the plan,
that the solicitor would not have been assessable

under section 160M(7), whereas, because the

building was in existence and the payer made his

payment, he was assessable? That is an unintended

result, one would have thought, upon whether or not

the person making the payment has the 8th floor of

a particular building in existence at that time, so

Hepples(2) 20 28/2/91

that that can be said to be the asset affected, or

whether the person paying, in this case, has or has

not any goodwill, both of which might, of course,

be matters not within the knowledge of the person

receiving the payment and the person liable to

declare it as part of his assessable income.

Mr Justice Hill dealt at page 65 with 160M(7)

and I will trouble Your Honours by taking

Your Honours to a large proportion of His Honour's

judgment because he deals, with respect, helpful

and cogently with the construction of 160M(7). At

the bottom of 65 he refers to the subsection and
then sets it out over on to 66. Then His Honour

says:

There are a number of propositions that

can be gleaned from the wording of subs (7)

which provide a guide to the interpretation of

the subsection. First, it is to be noted that

the subsection is subject to the other
provisions of Pt IIIA. It is not totally
clear what the precise effect is of making the
subsection subject to the other provisions of

Pt IIIA. Presumably however if a particular

act or transaction gives rise to the inclusion

of a particular gain in assessable income under some other section or subsection of Pt IIIA in the hands of the same taxpayer but

the cost base is to be differently calculated,

the other section or subsection will prevail.

For example, when an asset is disposed of in

circumstances that give rise to a change of ownership of that asset, literally subs (7) could apply because -

presumably the disposal is itself -

an act or transaction will have taken place in

relation to that asset in circumstances where

the owner of that asset will have received or

or other consideration for the disposal. If	become entitled to receive an amount of money	subs (7) were to apply to such a case the consequence would practically be that there
would be no cost base so that the whole
consideration would be taxable as the gain.

That is not the scheme of the

legislation. Where an asset is the subject of

a disposal otherwise brought within the

legislation the general scheme of the Act is

to determine the cost base and indexed cost

base of the asset having regard to s 160ZH and

tax the net gain rather than the gross gain.

Hepples(2) 21 28/2/91

As a matter of construction of the subsection it follows also that the subsection

will only operate where there is an existence

prior to the act or transaction to which the

subsection refers an asset as defined but the

consequence of the transaction is not to

involve a disposal of that asset.

The second proposition is that the act or

transaction must be either in relation to the

asset of which the section speaks or there

must be an event which affects the asset in

some way. The words "in relation to" are very

broad words but they do require a real

relationship between the act or transaction on

the one hand and the asset on the other.	The
section is silent as to whether the "asset" referred to must be an asset owned by the
taxpayer. I will return to that question subsequently.

Third, it is clear that the consideration received or to be received by the taxpayer

must be derived by reason of the relevant act,

transaction or event. There must be a causal

connection between them. The use of the word

"consideration" suggests that there will be
some contractual relationship between the

recipient and some other person giving rise to

a receipt or entitlement to receive that

consideration, be it a monetary consideration

or otherwise.

Fourth, it is clear that it will not be a

necessary precondition to the operation of the
section that the person paying the money or

providing the consideration himself acquire

any property.

The Treasurer's explanatory memorandum is

of little assistance in elucidating the

operation of the paragraph. It says:	"Subsection 160M(7) also applies, subject
to the other provisions of Part IIIA, in situations where there is a disposal of
an asset created by the disposal. It
will deem a disposal of an asset to have
occurred where a taxpayer receives or
becomes entitled to receive an amount of
money or other consideration for the
forfeiture or surrender of a right or for refraining from exercising the right or
receives consideration for the use or
exploitation of an asset.  The
sub-section provides that the act,
transaction or event which results in the

Hepples(2) 22 28/2/91

taxpayer receiving the consideration will

constitute the disposal by the taxpayer of an asset created by the disposal for the purposes of Part IIIA. Examples of the acts, transactions or events affected

by this provision include that of an

amateur sportsman who receives a payment

on becoming a professional -

Now, Your Honour, just pausing there, below my

learned friends were completely unable to indicate

how that could come within 160M(7) on any view of

it -

the receipt of consideration for entering

into exclusive trade tie agreements or

restrictive covenants, or in connection

with the variation, cancellation or

breach of business contracts or agency

agreements."

Not all that is said in the memorandum

can be accepted. First, it is hard to see how

the section can be said to apply where there
is a disposal of an asset created by the
disposal. Rather the consequence of the

operation of the subsection is to constitute

or deem there to be a disposal of an asset

created by the disposal. The effect of that

deeming would seem to be that the "asset"

created by the disposal is not an actual asset

(and in particular is not the asset referred

to in par (a) of the subsection) but a

fictitious asset. This may be thought to create a problem for the operation of the

subsection having regard to s 160L which

requires not only that there be a disposal of

an asset but also that the asset have been

acquired on or after 20 September 1985 and be

owned by that person immediately before the

disposal took place. However, I do not

believe the subsection to be unworkable.

Section 160M(S)(c) deems inter alia the

creation of an asset by a person to be an

acquisition of the asset by the person and

s 160U(6) provides a time of acquisition for

the purpose of the Part. That subsection

provides relevantly:

"Where the asset was created by a person

otherwise than pursuant to a contract

under which the person created the asset

for another person, the asset shall be

taken to have been acquired by the

first-mentioned person -

(a) if the asset did not exist (either by

itself or as part of another asset)

Hepples(2) 23 28/2/91

before the disposal - immediately before

the asset was disposed of;,.,tt

Once one finds the deemed acquisition to

occur immediately before the disposal it is

not a big jump to conclude that in between the

deemed acquisition and the deemed disposal of

the deemed asset it was for the purposes of

the Part to be deemed owned by the taxpayer.

In so concluding I am conscious of the

numerous cases that require deeming provisions

to be confined and which caution against

extending a deeming for one purpose to another
purpose.

The Commissioner pointed to Comalco House

owned by the AMP Society or that part of it
which was subjected to the lease to the firm

as being the relevant asset. Alternatively he

pointed to the guarantee given by the parties

as the relevant asset. The last alternative

may be disregarded because even if the
obligations under the guarantee are properly
an asset as defined they were not in existence

at the time of the relevant act, transaction

or event. The same cannot be -said of Comalco

House. There is raised, accordingly, the

question whether the section can have

application where there is an event which

affects an asset and which gives rise to

consideration payable to the taxpayer but
where the asset affected is not the asset of
the taxpayer.

If the literal words of the subsection are read without reference to the scheme of

Pt IIIA as a whole, it can readily be said

that the subsection is capable of referring to

any asset at all, be it an asset of the

taxpayer or an asset of some other person. So read, the only qualification is that the asset

be one that is either affected by the event or	one in relation to which an act or transaction
has taken place. If the subsection is given a
literal reading then it can be said that the
exact words appear to apply in which tax will
be levied whenever an act or transaction has
taken place in relation to an asset of some person other than the taxpayer or an event
affecting the asset of such a person has
occurred and the taxpayer has received, or is
entitled to receive, an amount of money or other consideration by reason of the act, transaction or event.

But the process of statutory construction

does not consist merely of ascertaining the

Hepples 24 28/2/91

meaning of words used aided, if necessary, by

a dictionary -

and then there is a reference to Cooper Brookes.

At the bottom of the page:

A good example of a case where the

provisions of a taxing statute which on its
face applied literally to subject a taxpayer
to tax yet which, having regard to the context
of the legislation as a whole and the

inconvenient results which a literal meaning

of the words used produced was read down, is

to be seen in Ellis & Clark -

in relation to the sales tax legislation and,

likewise, in Brayson Motors:

Accordingly it is necessary to look at

the context of Pt IIIA as a whole to see

whether the literal meaning of the words used

conforms "to the legislative intent as

ascertained from the provisions of the

statute, including the policy which may be

discerned from these provisions": Cooper

Brookes ..... In so doing it is .also relevant to

have regard to the consequences which the

literal interpretation may give rise to.

His Honour says -

First, it seems to me that the purpose of

s 160M(7) was to deal with the case where an
asset of a taxpayer was not disposed of in the

ordinary sense as a result of the transaction

(that is not withins 160L), and was not the

subject of the creation of an interest out of

that asset (that is not withins 160M(6)) but

nevertheless there was a transaction etc which

related to or affected that asset which gave rise to consideration being paid or becoming

payable. Because the taxpayer may be left, so

far as the specifics 160M(7) transaction is

concerned, with the existing asset in his
ownership it is appropriate not to allow him

any cost base just as was the case withs

160M(6) where the existing asset also

continued in the taxpayer's ownership. To

consider the section by reference to an asset

of a person other than the taxpayer seems to

me to turn the policy of the legislation upon

its head.

By way of illustration, a taxpayer has a

asset being a business acquired by him after

20 September 1985. He contracts to sell that

asset and as part of the transaction covenants

Hepples(2) 25 28/2/91

for consideration not to compete with the

purchaser. The sale of the business will be a

disposition in the ordinary sense. There will

be obvious difficulty in determining how much

of the consideration relates to the -

that should be "sale" -

of the goodwill of the business and how much

to the personal covenant. The transaction

giving rise to the payment of consideration
for the personal covenant relates to or
affects the goodwill but does not dispose of
ft. In this sense the goodwill continues in

the hands of the vendor unaffected, although

of course that goodwill may be dealt with by

an actual disposal of it. It is, in such a

case, clear what works 160M(7) was intended

to do.

Second, the two examples contained in

pars (i) and (ii), while not limiting the
construction of the section, both suggest that

the relevant asset was intended to be the

asset of the taxpayer and not some other

person. For example, if the taxpayer has a

right which is an asset ..... and he is paid a

sum of money for refraining from exercising

that right the section operates. The section

thus avoids the difficulty of determining

whether the payment on termination of agency

agreements is income or capital.

The second example contained in

par (b)(ii) seems even more clearly to relate

to a case where the asset was owned by the taxpayer. It deals with the class of case where the taxpayer owns a patent or other

industrial property right and "sells" to

another the exclusive right to use or exploit

the patent in a particular territory.	The
difficulties which such a situation creates
for the characterisation of a receipt as income of capital are well illustrated by the decision of the Supreme Court of Queensland in
Kwikspan .....

It was argued for the Commissioner that a

case such as Federal Coke may have have been

intended to fall within the first example.

That case involved a payment made by Le Nickel

to the taxpayer at the instigation of

Bellambi, the holding company of the taxpayer.

The occasion of the payment was the alteration

of the agreement between Bellambi and Le
Nickel under which Bellambi agreed to sell to

Le Nickel coke produced by its subsidiaries.

Hepples(2) 26 28/2/91

On the facts of the case there was the decided

possibility that the payment could have been

income of Bellambi which it had directed to

the taxpayer but that was irrelevant to the

assessability of Federal Coke.

It was said by the Commissioner that in

such a case the relevant asset for

consideration under s 160M(7) would be the

contract between Le Nickel and Bellambi. With

respect to this argument the payment in the

hands of Federal Coke was a mere gift, and was

for that reason not assessable income of that

company. The policy of Pt IIIA was clearly

not to tax gains in the form of gifts not

involving disposals of assets owned by a

taxpayer. It was to tax realised gains in

respect of assets. Federal Coke had no asset.

In my view it could not have been intended to

tax a taxpayer in the position of Federal

Coke, although it was clearly intended to ensure that a taxpayer in the position of

Bellambi was taxed. See too s 160D(l) which -

like section 19 of the main Act -

provides:

"(a) a taxpayer shall be deemed to have

received money or other property if the money

or other property has been applied for the

benefit, or in accordance with the

directions -

et cetera.

It cannot one would think have been

intended that in a factual situation such as
occurred in Federal Coke both Bellambi and

Federal Coke were assessable in respect of the

same gain.

Indeed, the Commissioner's argument

brought about the result that where a contract
of sale of an asset by a husband provided for

payment of the purchase money to the wife, both

husband and wife would be potentially

assessable, the husband to the gain arising

from the difference between the indexed cost

base of the land and the consideration payable

to the wife and the wife on the whole of the

consideration received by her by virtue of

s 160M(7). Such a peculiar result is avoided

only ifs 160M(7) is construed so that the

asset referred to in the section is confined to
an asset belonging to the taxpayer. It is

pertinent to note that counsel for the

Hepples(2) 27 28/2/91

Commissioner could not suggest why two amounts of tax were not payment in the example cited on

the assumption that the Commissioner's

submission was correct.

An even more absurd example of the

consequences of giving to the subsection an

interpretation such that the asset involved is

not that of the taxpayer can be seen by

analysing the consequences of the handing over

of a cheque to a person by way of gift.	The
delivery of a cheque to a donee is an act

which takes place in relation to the donor's

bank account (a chose in action against the banker and thus an "asset") or which can be

said to affect that bank account. By reason

of the delivery of that cheque, a person, the

donee, becomes entitled to receive money when

the cheque is drawn upon. Can it seriously be

suggested that the recipient of the cheque is

to be deemed to have made a chargeable gain

equal to the cash received? Yet this would

seem to be the result which follows unless the

asset of which the subsection speaks is
confined to an asset of the taxpayer who

receives the money or other consideration or

becomes entitled to receive it.

Whatever else is clear, the legislative

policy of Pt IIIA of the Act was not to

introduce a gift tax by stealth. The clear

policy was to bring to tax gains made by a

taxpayer only where the taxpayer held an asset

acquired by him on or after 20 September 1985

which he turned to account by either disposing

of it in the normal sense of that word or by
entering a transaction that by force of one or

other of the subsections of s 160M of the Act

asset in (a) and the person in (b) did coincide

that subsection (7A) would operate. With respect,

that could not be the case, could not have been

intended.

My learned friend then dealt with the various

examples given by Mr Justice Hill and said that

they were too technical, too analytic, and one
should not do that sort of thing. Your Honours, in

every case concerning the income tax legislation or

Hepples(2) 71 28/2/91

stamp duties legislation, the legal analysis of the

transaction in question always precedes the

application of the relevant statute to it, always,

and on very fine points of distinction, analysis if

one likes, these cases go off.

Just to give Your Honours an example, I

referred Your Honours to subsection ZH(9), which is

at 38 of the materials. Section 160ZH(9)(a) deals

with the situation where:

the taxpayer acquired the asset from another

person and did not pay or give any

consideration in respect of the acquisition.

There has just been heard, judgment reserved,

in the Federal Court, a case in which the

Commissioner wants to say that rights coming from a company have not been acquired "from" another

person. That is the sort of technical matter which

comes up before the courts all the time. And to

say that there should not be such analysis, with

respect, even if ideally it is right, is not the position and is not the way that these cases are

run and conducted.

Your Honours, in relation to section 160M(6),

we do of course rely upon what all four judges

below have said on that subject and, with respect,

adopt what they have said. But, if we are wrong and they are wrong in what they have said, there

was another construction of 160M(6) that we put

below. It appears from the judgment of

Mr Justice Lockhart, at page 40. If Your Honours

were to go back to 160M(6), it is possible that

160M(6) performs a very limited function indeed.

Section 160M(6) is at page 18 of the materials,

Your Honours. Section 160M(6) starts off by

saying:

A disposal of an asset that did not exist -

and that in the common sense of it has none -

(either by itself or as part of another asset)

before the disposal, but is created by the
disposal -

and then adds these words -

constitutes a disposal of the asset for the

purposes of this Part -

Now, the sole function of 160M(6) may be, on one view, to take other cases where something is

deemed to be "a disposal of an asset that did not

exist before" - the opening words of 160M(6) - and

Hepples(2) 72 28/2/91

treat that situation as "constituting a disposal of

the asset for the purposes of this Part".

Now, if Your Honours go to page 40 of the

appeal book, Mr Justice Lockhart dealt with this at
about line 10:

There are certain provisions in the Act which deem certain acts or events to be deemed

disposals even though there are no pre-

existing assets. For example, s 160ZS deems

the grant of a lease to constitute the

disposal by the lessor to the lessee of an

asset, namely, the lease. An asset did not

exist before the disposal but is created by

the disposal.

Section 160ZZC deals with options and

provides that the grant of an option shall be

deemed to have constituted a disposal of the

option at the time when the grant took effect

and the option shall be deemed to have been

owned by the granter immediately before the

disposal took place (sub-s 160ZZ(C)(3)).

There is something to be said for the

view that sub-s 160(M)(6) will apply only if

another provision of the Act deems there to be

a disposal of an asset that did not exist before the disposal but is created by the disposal. That work is not done by

sub-s 160M(6) itself or any other provision of
the Act ..... save those provisions mentioned

relating to leases and options.

And one might add one more, 160M(7), because

160M(7) does that too. And 160M(7) might supply,

into the opening words of 160M(6):

A disposal of an asset that did not exist

(either by itself or as part of another asset)

before the disposal, but is created by the

disposal -

Your Honours see, when Your Honours go back to

160M(7), the person has received the money:

the act, transaction or event constitutes a
disposal by the person who received, or is
entitled to receive, the money •.... of an

asset created by the disposal -

Now, that might fit back into the opening words of

160M(6), the reverse of what Your Honour

Justice Brennan put to me before. And if one goes

to 160ZS, which is at page 50 of the materials, one

sees the same thing:

Hepples(2) 73 28/2/91

For the purposes of this Part, the grant of a lease of property shall not be taken to

constitute the disposal of part of the

property but shall be deemed to constitute the

disposal by the lessor to the lessee of an

asset created by the lessor -

Now, that fits again back into the opening of

160M(6) and then that disposal is treated by
160M(6) as constituting a disposal of the asset for

the purposes of this Part.

BRENNAN J:  What does it add?

MR BLOOM: Well, nothing, really, with respect, Your Honour,

but it might be there just for more abundant
caution so that section 160M(6) or a subsection of

160M, which is the disposal section, picks up,

sweeps up, these other deemed disposals and makes

it clear that within 160M a deemed disposal of that

kind constitutes a disposal of the asset for the

purposes of this part.

What I cannot explain, Your Honours, with

respect, is - and this was a problem Their Honours had below - why is it that 160ZZC, the one dealing with options, and 160ZS and 160M(7) all talk about different considerations; and they do. If one

goes to 160ZS, again at page 50 of the materials:

the disposal by the lessor to the lessee of an
asset created by the lessor for a

consideration equal to the premium paid or

payable for the grant of the lease.

Section 160M(6)

the person who so disposes of the asset shall

be deemed not to have paid or given any

consideration -

within 160ZH, that is the cost base, then one goes

back to 160ZS(2, cost base of lease is specifically

dealt with:

the amounts of expenditure incurred by the

taxpayer in respect of the grant of the lease

and does not include any other amounts.

Now, it was the existence of subsection 160ZS(2)

and 160ZZC(3), I think, it is at page 64 of the

materials, I am sorry 160ZZC(6) which is at page 65

gives one the cost base of an option. It was the

existence of those provisions which seemed, on

their face, to conflict with what was in subsection

(6) as to cost base that led Their Honours to

conclude below that 160M(6) was not intended to

Hepples(2) 74 28/2/91

sweep up options and leases through those two
provisions but none the less was still somehow

intended to deal with options and leases. But it

is another - - -

BRENNAN J: Are not options and leases dealt with in

divisions specially designed to cope with them and

160M(6) is just a general provision.

MR BLOOM:	Yes, Your Honour.
BRENNAN J:	If that be right one cannot derive much in the

interpretation of 160M(6) from the special

provisions in the passages dealing with leases and

options, can they?

MR BLOOM:  I think if that be right, but the difficulty is

that the wording, leaving aside the explanatory
memorandum which continually refers to those leases
and options as the two examples and which are a
very good example, of course, of something which is
not disposed of by the grantor or creator of the

lease or option to the grantee or lessee, then it

really is the same wording in 160ZZC and 160ZS as

appears in the opening of 160M(6) and the only

thing that 160M( 6) would seem to do· that 160ZZC and

160ZS do not, leaving aside consideration, is to

make it clear that those deemed disposals

constitute a disposal for the purposes of this

Part.

Now, with respect, once one gets away from

that and gets to reading the words of 160M(6) just

as they are, one has nothing to which the opening

words of 160M(6) applies, on the face of it:

A disposal of an asset that did not exist

(either by itself ..... ) before the disposal,

but is created by the disposal -

that really covers nothing known to man or lawyer,

but it certainly could be filled in by the deeming
provisions, which deem certain things to be

precisely within those words.	The only difficulty,
of course -

BRENNAN J:  Does not 160M(6) deal with cases where, by the voluntary act of the taxpayer, he creates an asset?

MR BLOOM: In any situation?

BRENNAN J: Yes, but classically by contract, one would

think.

MR BLOOM:  One would have hoped not, Your Honour, in the

sense that he would have somehow been assessable on something as a result. If a taxpayer simply enters

Hepples(2) 75 28/2/91

into a contract voluntarily, because there is no

reference to money or other consideration

in 160M(6) - if a taxpayer simply enters into a

contract, that is not a disposal by him of that

contractual right; that is the difficulty.

Your Honours, Camphin's case is in one of the

volumes which was on our list, although the case

was not specifically referred to. It is in

57 CLR - we had put a case a little later in the

reports, Elders Trustee and Executor Company

Limited, that is at page 610, and that is a case

only t~at shows, from what is said at 625 to 626,

that diverse meanings equals ambiguity - that is

diverse meanings of a provision as opposed to a

particular word. But, Camphin's case is earlier,

at 127, and Sir John Latham, at page 134, was

dealing with options - talks about the equitable

interest of a grantee of an option; says:

The equitable interest is measured by what a

court of equity would decree in an action for

specific performance. The right of the person

who may be called the owner of the option is a

right to prevent the owner of the property in

question from disposing of it inconsistently
with the option, together with a right, if he
exercises the option, to compel the owner of

the property to carry out the contract which

has been made by the exercise of the option.

This right of the optionee is a right which

has been created by the option, but it is not

a right which the owner of the property ever

possessed. He has created a new right in the optionee which is a right of property, but he has not transferred to the optionee any right

which previously belonged to him as the owner

of the property in relation to which the
option was given. thus there has been no sale

of any property -

or interpolating, no disposition. And I think he

said the same earlier, in relation to a lease -

yes, at the bottom of page 133, last paragraph:

When an owner of land grants a lease the

lessee obtains a proprietary interest in the

land, which is personal property, but the

owner has not sold this personal property to

the lessee.	He himself never was the owner of
that personal property.	He has created a term

in the lessee, and the lessee owns a

proprietary interest which he did not own

before, that that interest has not been sold

to him. The transaction is properly described

by saying that the owner of the land has

Hepples(2) 76 28/2/91

leased his land and has created a term in the

tenant and a reversion in himself.

there is no disposal by the lessor or the granter
of the option of the asset created in the optionee,

or lessee, by the transaction.

That must be the same, even with respect to a

contractual right, if it comes into existence for

the first time, assuming it is an asset with which

we can be concerned, then there is no disposal of

it, because what the draftsman did not say is that,

where 9ne does do what Sir John Latham was talking

about, that amounts to a disposal.

BRENNAN J: 

The difficulty with that argument - and I see

the force of it - is that it runs against the very
curious words of the section itself. The section
contemplates disposal of that which did not exist

and so one has to, as it were, strain and push the

traditional concepts, in order to give those words

some meaning.

MR BLOOM: That is one way to do it.

BRENNAN J: Is there any other?

MR BLOOM:  Yes, it is to pick up those provisions which deem

the creation of leases and options to be a

disposition and there are such provisions	and
160M(7) is that sort of provision itself.	That is

one way to do it. As to whether there is a third

way, Your Honour, I cannot suggest one.

Your Honours, if it is said that 160M(6)

applies to the creation of a contractual right,

then the right here created was not, in our

respectful submission, an asset for the reason

which the members of the court below held. There
was no creation of the proprietary right of a kind

which fits within asset.	The cases in the
United Kingdom adopt a far wider view of the

meaning of the word "asset" than has been adopted

in this case and with which the commissioner now

says he is content, that is proprietary asset.

Your Honours, those are our submissions.

MASON CJ: Yes, thank you, Mr Bloom. The Court will

consider its decision in this matter.

AT 3.37PM THE MATTER WAS ADJOURNED SINE DIE

Hepples(2) 77 28/2/91