Leary v Federal Commissioner of Taxation

[1980] FCA 134

Re: BRIAN ARTHUR LEARY
And: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
(1980) 47 FLR 414
No. WAG 2 of 1980
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Bowen, C.J.(1), Brennan(2) and Deane(3) JJ.

CATCHWORDS

Income Tax - Deductions - Claim of gift to a public benevolent institution - Nature of "gift" discussed.

Income Tax Assessment Act 1936, sub-para.78(1)(a)(ii).

Income Tax - Deduction - Gift to public benevolent institution - Material advantage to donor - Nature of "gift" discussed - Income Tax Assessment Act 1936 (Cth), s. 78 (1) (a) (ii).

HEADNOTE

The taxpayer paid $10,000 to a "public benevolent institution" within the meaning of s. 78 (1) (a) (ii) of the Income Tax Assessment Act 1936. As part of the arrangements the taxpayer borrowed $8,500. This loan, as a result of a series of transactions, would become not repayable. (The public benevolent institution, also as part of the transactions, transferred most of the $10,000 to an associate of the original lender to the taxpayer.) The taxpayer sought a deduction for the $10,000 paid. Wickham J. of the Supreme Court of Western Australia held that the $10,000 was not an allowable deduction. The taxpayer appealed.

Held, appeal dismissed, that the taxpayer had received a material advantage by making the $10,000 payment, namely not having to repay the $8,500 loan. The payment was therefore not deductible as a gift.

Federal Commissioner of Taxation v. McPhail (1968), 117 CLR 111; Bray v. Federal Commissioner of Taxation (1978), 140 CLR 560, referred to.

HEARING

Sydney, 1980, July 29-30; October 2. #DATE 2:10:1980

APPEAL.

Appeal from a decision of Wickham J. of the Supreme Court of Western Australia dismissing the taxpayer's appeal against the disallowance by the Commissioner of his objection to an assessment in respect of the year of income ended 30th June, 1977.

A. P. Webb Q.C. and I. C. F. Spry Q.C., for the appellant.

J. M. Batt Q.C. and G. Griffith, for the respondent.

Cur. adv. vult.

Solicitors for the appellant: T. J. Mulvany & Co.

Solicitor for the respondent: B. J. O'Donovan, Commonwealth Crown Solicitor.

J. H. TELFER

ORDER

1. The appeal be dismissed.

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

Order accordingly.

JUDGE1

On 30 June 1977 Brian Arthur Leary paid $10,000 to the Order of St.John. It is common ground that the Order of St.John was a "public benevolent institution" within the meaning of sub-para.78(1)(a)(ii) of the Income Tax Assessment Act 1936. The question before us is whether the payment by Mr. Leary was a "gift" within the meaning of that provision. This must depend upon the words used in sub-para.78(1)(a)(ii), the material part of which is as follows:

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

(a) Gifts (not being testamentary gifts) of the value of Two dollars and upwards of money or of property other than money which was purchased by the taxpayer within twelve months immediately preceding the making of the gift, made by the taxpayer in the year of income to any of the following funds, authorities or institutions in Australia:

(i) . . .

(ii) a public benevolent institution;"

In law there are various technical rules relating to gifts of particular kinds of real and personal property but this provision is not concerned with such niceties. The word "gift" is not defined in the Act. The context and the obvious intention of the section suggests that it is used in its ordinary non-technical sense. In view of the facts relating to the payment of $10,000 in this case, to which I shall come later, it is convenient to consider first a number of questions relating to when a payment may properly be described as a gift. The first question is whether such a payment to qualify as a gift must be voluntary. In Federal Commissioner of Taxation v. McPhail (1968) 117 C.L.R. 111, Owen J. (at p.116) said:
"But it is, I think, clear that to constitute a 'gift', it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return."

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

Counsel for the Commissioner of Taxation placed some reliance upon Cyprus Mines Corporation v. Federal Commissioner of Taxation (1978) 36 F.L.R. 295 as also did the trial Judge in the proceedings now before us. In that case, Smith J. of the Supreme Court of Western Australia held the taxpayer was not entitled to a deduction under para.78(1)(a), one of the grounds being that the payment was not voluntary because it was made in accordance with the terms of an agreement between the taxpayer and the State of Western Australia. The Cyprus Mines Corporation Case is the subject of an appeal to this Court which has not yet come on for hearing. I express no view as to its correctness.

The next question is whether such a payment to qualify as a gift must be made without material advantage being received in return. Owen J., in McPhail's Case, supra, observed that Lord Radcliffe in Rennell v. Inland Revenue Commissioners (1964) A.C. 173 at p.193 described a gift as "a present made without return of any kind" was perhaps too wide for the purposes of para.78(1)(a) in its reference to a return of any kind. Owen J. considered that only a return by way of material advantage would be relevant in the case of para.78(1)(a). A man may, by his gifts, gain fame or formal honours without losing his tax deductions. A different question not expressly covered by Owen J. is whether a deduction is allowable notwithstanding that the person making the payment receives a material advantage provided that material advantage does not proceed from the payee.

In McPhail's Case the taxpayer, upon making a gift to the trustees of the Camberwell Grammar School Building Fund, received a material advantage not from the trustees but from the School itself in the form of reduced school fees for his child. Perhaps because the School was the beneficiary of the trust deed under which the Fund was administered, it might be said that the School was the recipient of the gift as well as the giver of the advantage.

Counsel for Mr. Leary argued strongly that notwithstanding a material advantage was received by the taxpayer, this would not deprive him of the deduction under para.78(1)(a) unless the advantage emanated from the payee. On this aspect of the case we were referred to the Cyrpus Mines Corporation Case, supra, and to Collector of Imposts (Vic) v. Peers (1921) 29 C.L.R. 115. In the last-mentioned case the question was whether a transfer of land under seal made by a husband to his wife after marriage in pursuance of an agreement entered on the treaty for the marriage was a "deed of gift" within clause (ix) of the Third Schedule to the Stamps Act 1915 (Vic). Knox C.J., Gavan Duffy and Starke JJ. (at p.121) said:
"The word 'gift' has two distinct meanings in English law: it is used by conveyancers to describe certain assurances of real property, but it usually means a transference of the beneficial interest in property by one person to another without any consideration from that other."

Later, (at pp.121-122) they said:

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

It was held that the deed was a deed of gift liable to stamp duty under clause (ix) and that it was not within the exception in favour of instruments executed before marriage.

In Peers' Case the particular point concerning the source of any return to the donor does not appear to have been a basis for the decision. Their Honours were directing their minds to a case concerning a deed of gift, i.e. an instrument, and seeking to relate that instrument to a somewhat artificial statutory definition. They were speaking of consideration in a legal technical sense.

Peers' Case was cited with approval in Collector of Imposts (Vic) v. Cuming Campbell Investments Pty. Limited (1940) 63 C.L.R. 619. There, the High Court had to consider a somewhat similar clause in the Third Schedule to the Stamps Act 1928 (Vic) but their Honours did not really address their minds to the question which is under consideration in the present case.

In my opinion, neither Peers' Case nor the Cuming Campbell Investments Case govern the decision to be made in the present case. Under para.78(1)(a) it appears to me that the receipt of some return by the payer may prevent the payment from being regarded as a gift within the meaning of that paragraph. It will depend upon the circumstances.

Another question which arises is whether the payment must be by way of benefaction. It seems that a transfer of property, to qualify as a gift under para.78(1)(a) need not be made out of motives of benevolence (Peers' Case, supra, at p.121; cf. Cuming Campbell Investments Case, supra, at p.644), but the essential idea of a gift is the transfer of property by way of benefaction (Cuming Campbell Investments Case, supra, at p.642, and see at pp.634 and 641).

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

It therefore seems relevant in applying para.78(1)(a) to consider whether benefaction is intended towards and conferred upon the prescribed body when considering whether there has been a "gift" within the meaning of the provision. Intention may generally be gathered best from objective circumstances. However, evidence on the matter from the taxpayer is admissible and may be cogent. In determining whether a benefaction is conferred upon the prescribed body, it may be relevant to look at the matter both from the point of view of the donor and the donee. The donor may have erected a structure which is such that he can take back a benefit of the gift as in Bray v. Federal Commissioner of Taxation (1978) 52 A.L.J.R. 482 where the taxpayer transferred shares in a private company but maintained control of the private company so that he could and afterwards did extract the value from the shares for his own benefit. Or the donee may to the knowledge of the taxpayer have so arranged its affairs that it can never beneficially retain the gift he makes which will simply pass through its hands. I am not suggesting that a donor making a gift to a body prescribed under para.78(1)(a) will ordinarily be concerned at all with the affairs of that body so long as it is prescribed. What I am suggesting is that if the taxpayer is aware or suspects that his gift will not benefit the prescribed body the element of benefaction essential to the notion of "gift" in para.78(1)(a) may be missing.

I turn now to the facts of this case. In the documents reference is made variously to the Order of St.John in Australia, St.John Holdings (Incorporated) and the St.John Council for Victoria. No relevant distinction was drawn between these bodies in the case. I refer generally in the course of these reasons simply to the Order of St.John. On 19 June 1977 a meeting of the Order of St. John took place at which, according to the Notes of Meeting, the following occurred:

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

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

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

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

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

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

(c) A bank account will be opened with the Commercial Bank of Australia at 260 Swanston Street Melbourne.

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

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

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

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

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

By letter dated 20 June 1977 from Messrs. Clemens Lucas & Mulvany, solicitors for a company called Metropolitan Taxation Service Pty. Ltd. to the Order of St.John it was stated:
"Re Metropolitan Taxation Service Pty. Ltd.

Further to our discussions, we confirm that we act for the above company which is in contact with a number of persons interested in making donations to your Order.

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

1. Metropolitan Taxation Service Pty. Ltd. (called M.T.S.) offers on its own behalf and on behalf of other associated companies to procure donations to your institution from various persons and companies, most of whom are likely to be complete strangers to you.

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

3. As a result of entering into the transaction M.T.S. undertakes that the Order will receive a net amount of not less than $100,000.00 between now and December 31st 1977.

4. As a bond of performance M.T.S. and its associated interests herewith tender a bank cheque for the sum of $50,000.00. If the net proceeds of the transactions do not exceed $50,000.00 by July 1st 1977, then any deficiency may be met by you from these funds and any surplus is to be returned to us.

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


6. M.T.S. would ask that you open an account in the name of the Order at the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne and that you arrange for attendance of a suitable person, at the expense of M.T.S. where necessary to handle the receipt of money, the issue of receipts, and banking procedures.

7. M.T.S. would require -

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

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

8. After June 30th 1977 the arrangement may be terminated by you on twenty-four hours notice but up to June 30th 1977 the fund raising arrangement would be irrevocable. The arrangement may be terminated on the part of M.T.S. only if amendment to the legislation takes place. In either event the second part of the guaranteed amount may be prorated over the twelve month period.

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

If you are agreeable to the terms of the arrangement proposed herein would you please arrange execution of the confirming copy letter attached and retain this original letter as your record."
By letter dated 20 June 1977 from the Order of St.John to Messrs. Clemens Lucas & Mulvany it was stated:
"re Metropolitan Taxation Service Pty. Ltd.

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

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

Also on 20 June 1977 the following authorities were given by the Order of St.John to the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne.
"AUTHORITY

In connection with funds to be donated by persons introduced by metropolitan Taxation Service Pty. Ltd., would you please accept our authorisation to receive such funds and to issue our receipts on behalf of the Order of St.John of Australia."

"AUTHORITY

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

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

On 23 June 1977 an authority was given by Metropolitan Taxation Service Pty. Ltd. to the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne, providing that the balance of the account at the end of each business day should be transferred to Sadar Finance Pty. Ltd. The account referred to was described as Metropolitan Taxation Service Pty. Ltd, trustees for W.F. Clemens Family Trust. On 11 July 1977 a meeting of directors of St.John Holdings Incorporated resolved to repay to Messrs. Clemens Lucas & Mulvany the sum of $50,000.00 which had been lodged to assure performance and further resolved that the sum of $155,000.00 from the account held by the account of the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne should be invested with that Bank for thirty days at 10 per cent.

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

I may add that the learned trial Judge admitted the evidence in relation to what arrangements were made by the Order of St.John and what was done with the money received by the Order of St.John with doubts as to its relevance. He did not himself rely upon it. It appears to me to be admissible, though its materiality depends on whether the taxpayer knew or suspected the existence of the plan. If a taxpayer makes a genuine gift by way of benefaction to a prescribed body, he should not be defeated in claiming his allowable deduction simply because that body, without his knowledge or participation, chooses to make some unusual arrangement to deal with the money.

I turn to the facts concerning Mr. Leary. On 29 June 1977 he executed a loan agreement with Sadar Finance Pty. Ltd. (Sadar). Under this agreement Sadar was to advance to Mr. Leary the sum of $8,500.00. Mr. Leary undertook to repay this at the expiration of forty years with interest at the rate of 5 per cent per annum simple, payable at the expiration of the forty years. Under clause 4, Sadar had the option, subject to the provisions of clause 5, to require payment of the principal sum together with interest at the rate of 14 per centum per annum from the date of the agreement down to the date of payment. By clause 5 it was provided as follows:
"5. In the event that the Borrower shall after the date hereof make a gift at any time to one or other of the charitable institutions whose names are set out in Part FOUR of the First Schedule hereto of the amount set out in Part FIVE of the First Schedule hereto then -

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

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

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

The amount of the gift to be made in order to secure the benefits offered by clause 5 was stated in Part 5 of the First Schedule to be $10,000.00. In the Second Schedule the purchase price of the loan for purposes of clause 5 was fixed as follows: "Purchase Price During First Five Years of Loan Year Market Value (Expressed in percentage term of Principal Sum) During the first year of the loan 0.202% During the second year of the loan 0.244% During the third year of the loan 0.293% During the fourth year of the loan 0.352% During the fifth year of the loan 0.423%"

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

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

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

Under the loan agreement of 29 June 1977, Mr. Leary became obliged to pay the sum of $8,500.00. There were various methods laid down in the agreement whereby he might relieve himself of this obligation. One was to wait forty years and then repay the loan with 5 per cent interest provided the lender waited so long. Another was to repay the loan under clause 3 at an earlier time with interest down to the date of payment. Another was to pay Sadar the amount with interest at 14 per cent per annum from the date of the agreement to the date of payment in the event that Sadar acted under clause 4. Another was for Mr. Leary to exercise his right under clause 5 and pay $10,000.00 to one of the three bodies specified in the Schedule to the loan agreement of which the Order of St.John was one and then to exercise the right given by clause 5 to purchase the loan for a nominal sum and following that to claim a tax deduction in respect of the amount of $10,000.00 paid to the Order of St.John.

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

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

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

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

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

Mr. Westlake gave evidence. Obviously he had more detailed knowledge of the proposals than Mr. Leary, although the precise extent of his knowledge is not clear from his evidence. He had discussed the plan in a general way with Mr. Collinson. Mr. Westlake said "he mentioned it to me and briefly explained how it operated and so on". Mr. Westlake then said "I mentioned the transaction with St.John to him (Mr. Leary) and suggested that if he wished to pursue this plan he should contact Parker and Parker". Mr. Westlake was generally aware how the figures worked out. He himself made a payment of $10,000.00 to the Order of St.John under these arrangements. But the effect of his evidence was that he did not really explore the method by which moneys would return to Sadar to enable them to "collapse" the loan.
"Did you give consideration to how Sadar could afford to make an agreement whereby its loan could be, in effect, collapsed? --- I had no details of how that would operate. I wasn't given that. You mean did I guess at what they were going to do?

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

I was not meaning a particular way. In general terms did you guess there would be some steps taken? --- Yes. I knew that somewhere - I didn't know anything of course; I just guess - in the whole transaction they'd work that out for themselves. I was only concerned with how it affected me and my clients.

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

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

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

So far as Mr. Leary's intention in making the payment to the Order of St.John is concerned, the evidence is to the effect that he, of course, intended to make the payment and, to use his own words, "it was basically a tax relief situation and that was it". There was also the need to get rid of the obligation to repay the loan of $8,500.00. His evidence on this was as follows:
"You would not, in June 1977, have incurred the obligations of a borrower of $8,500.00 for the purpose of making a payment to the Order of St.John of $10,000.00 unless you had expected to be able to be released from or have extinguished your obligation of paying back $8,500.00, or virtually the whole of that obligation? --- That is correct.

Is not the position that Mr. Westlake told you that the object of this transaction was to enable you to be able to get released from or to have extinguished that obligation to repay the eight and a half or almost the whole of that obligation? --- That is correct, yes. That is here."

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

In the result it is my opinion that Mr. Leary did not make a gift of $10,000.00 to the Order of St.John within the meaning of para.78(1)(a). I propose that the appeal be dismissed with costs.

JUDGE2

The Order of St.John in Australia (the Order) is a public benevolent institution, and gifts to it of $2 or more are deductible from the donor's assessable income pursuant to s.78(1)(a)(ii) of the Income Tax Assessment Act 1936. The emanations of the Order include St.John Holdings (Incorporated) and St.John Council for Victoria. Although these bodies had a role to play in the arrangements presently to be mentioned, it was common ground that the Order may be regarded for the purposes of these proceedings as including those bodies, and that no relevant distinction is to be drawn between them and the Order.

The circumstances out of which this appeal arises have their origin (so far as the evidence shows) in a meeting held on 19 June 1977 between an accountant and a solicitor representing Metropolitan Taxation Service Pty. Ltd. (MTS), and officers of St.John Holdings (Incorporated). On behalf of MTS, a scheme was proposed to procure for the Order of St.John in Australia, St.John Council for Victoria and St.John Holdings, donations "to be allowable for income tax deductions". MTS was to receive a fee of 98.8% of the donations procured. At that meeting it was agreed that St.John Holdings would participate in the scheme proposed.

The solicitors for MTS wrote a letter to the Secretary of the Order the next day, setting out the proposal in nine paragraphs:
"1. Metropolitan Taxation Service Pty. Ltd. (called M.T.S.) offers on its own behalf and on behalf of other associated companies to procure donations to your institution from various persons and companies, most of whom are likely to be complete strangers to you.

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

3. As a result of entering into the transaction M.T.S. undertakes that the Order will receive a net amount of not less than $100,000.00 between now and December 31st 1977.

4. As a bond of performance M.T.S. and its associated interests herewith tender a bank cheque for the sum of $50,000.00. If the net proceeds of the transactions do not exceed $50,000.00 by July 1st 1977, then any deficiency may be met by you from these funds and any surplus is to be returned to us.

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

6. M.T.S. would ask that you open an account in the name of the Order at the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne and that you arrange for attendance of a suitable person, at the expense of M.T.S. where necessary to handle the receipt of money, the issue of receipts, and banking procedures.

7. M.T.S. would require -

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

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

8. After June 30th 1977 the arrangement may be terminated by you on twenty-four hours notice but up to June 30th 1977 the fund raising arrangement would be irrevocable. The arrangement may be terminated on the part of M.T.S. only if amendment to the legislation takes place. In either event the second part of the guaranteed amount may be prorated over the twelve month period.

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

On the same day, the proposal was accepted by letter from the Secretary of St.John Holdings:
"I wish to acknowledge your letter of 20th June 1977 concerning contractual arrangement for the collection of donations to the Order of St.John in Australia, St.John Council for Victoria and St.John Holdings. The arrangements set out are acceptable and the copy approved by St.John is enclosed."
Also on the same day, pursuant to the arrangement thus made by the Order and MTS, the following steps were taken:
(a) a letter was procured by the Order from the Deputy Commissioner of Taxation stating that gifts of $2 and upwards made to the Order were allowable deductions under s.78(1)(a)(ii) of the Income Tax Assessment Act 1936 (par.5);

(b) a deed was executed whereby six persons (two accountants and four solicitors) who were recited to be "financially interested in the arrangement set out in the . . . letter" indemnified the Order against any claim or loss arising out of the arrangement (par.9);

(c) an account was opened in the name of the Order with the Commercial Bank of Australia Ltd., 260 Swanston Street, Melbourne, with authority to the bank to receive funds donated by persons introduced by MTS and to issue receipts on behalf of the Order (par.6);

(d) a direction was given to the bank that there be transferred to the credit of the MTS account an amount equal to 98.8% of amounts received to the credit of the Order's account (par.2) except in relation to the initial deposit of $50,000 (par.4).

On 23 June 1977, MTS gave a direction to the bank that it transfer to the credit of a moneylending company, Sadar Finance Pty.Ltd. (Sadar), the balance of the MTS account at the end of each business day.

At some time before 30 June 1977, MTS published what it called a "Charity Plan" which was stated to be "designed to allow any taxpayer to obtain the advantage of a deduction for taxation purposes of donations to charities made during the current financial year without necessarily being out of pocket to the extent of the full amount of the donation." Under the plan, a taxpayer was to donate a chosen sum to a particular charity (in this case, the Order), having borrowed 85% of that sum from a moneylending company associated with MTS (in this case, Sadar). The terms of the borrowing were to provide that, if the donation were made to a charity specified in the loan agreement, "the taxpayer or his nominee will be entitled to purchase the loan agreement. . . at an amount equal to its current cash value by reference to a cash discount flow chart." This curiously worded passage reflects the provisions of the loan agreement, pursuant to which a taxpayer could purchase the debt he owed for a nominal amount, and thus (to use the convenient term adopted at the hearing of these proceedings) collapse the loan. The circular movement of funds would be complete: Sadar the lending company would lend to a taxpayer 85% of the sum to be paid by the taxpayer to the Order and the taxpayer, contributing from his own funds the balance, 15%, of the sum to be paid, would pay the sum to the credit of the order's bank account; the Order would transfer an amount equal to 98.8% of that sum to MTS which would transfer that amount to Sadar, so that Sadar would receive an amount equal to 98.8% of the sum paid to the Order (unless MTS withdrew some moneys en passant) plus the nominal sum which the taxpayer might pay Sadar to "purchase the loan agreement". It was intended by the promoters of the plan that the taxpayer should obtain the advantage of a deduction under s.78(1)(a)(ii) in the sum paid to the Order; that the Order should be left with an amount equal to 1.2% of the sum so paid; and that an amount equal to 13.8% of that sum should find its way to MTS or Sadar.

The policy of s.78(1)(a), as Bowen C.J. pointed out in Bray v. Federal Commissioner of Taxation ((1977) 77 ATC 4339 at p.4358) in this Court, is
"to encourage gifts to funds established and maintained exclusively for the specified purpose, so that the benefit to the fund will equal the deduction allowed to the taxpayer"
(see 52 A.L.J.R.484 in the High Court). The plan seems incompatible with that policy, for the plan required the Order to use its status as a benevolent institution under the Act not to attract donations to be applied for its benevolent purposes but to attract payments which would enure to the benefit of others, the Order taking a fee of 1.2% for the service which it agreed to render.

However, the plan did not fail to secure the interest and support of those who were seeking to avoid a liability to tax. News of the plan evidently reached a firm of solicitors in Perth and, at some time before 29 June 1977, a solicitor in that firm mentioned it to a Mr. Westlake, the appellant's tax agent, and briefly explained how it operated. Mr. Westlake did not know each step in the movement of moneys, but he knew that a taxpayer might borrow 85% of the amount to be paid to the Order from a moneylending company, pay the amount selected to the Order in the expectation of obtaining the advantage of an allowable deduction, and procure a discharge from his debt to the moneylending company by the payment of a nominal sum. He did not learn how the moneylending company could afford to make an agreement whereby its debtor could procure his discharge from liability by payment of a nominal sum, but he did not think that the whole sum paid to the Order would remain with the Order.

Mr. Westlake commended the scheme to his client, the appellant, and referred him to the solicitor for information and advice. The appellant gave evidence that the solicitor advised him in relation to the "legalities" of the scheme. The solicitor also arranged for a loan of $8,500 from Sadar to the appellant and for the making of a payment of $10,000 by the appellant to the Order. The appellant had made hitherto only small donations to the Order but on 29 or 30 June 1977 he, having signed a loan agreement with Sadar and having received $8,500 from Sadar, paid $10,000 to the Order. The payment was made to the credit of the account of the Order which it had opened with the Commercial Bank of Australia Ltd., in Swanston Street, Melbourne, as earlier mentioned. The loan agreement permitted the appellant to collapse the loan for a nominal sum (some $17 during the first year of the loan), and the appellant said in evidence that he would probably not have made the payment to the Order if he had not obtained the loan on those terms. He had not been advised by Mr. Westlake of the details of the scheme. He said he could not recall details "because it was basically a tax relief situation and that was it".

When the appellant made the payment of $10,000 to the credit of the Order's account, the planned movement of funds occurred: $9,880, being 98.8% of the amount paid in, was transferred to the credit of the MTS account, and thence to the credit of the Sadar account in accordance with the arrangements earlier mentioned. The appellant claimed a deduction in respect of his payment of $10,000 to the Order. The claim being disallowed, he lodged an objection, but the objection was unsuccessful. He appealed against the decision on his objection to the Supreme Court of Western Australia, where Wickham J. dismissed the appeal with costs, and from that judgment the present appeal is brought.

It is submitted that the payment of $10,000 to the Order was by way of gift in that it was by way of "a transference of the beneficial interest in property by one person to another without any consideration from that other" (Collector of Imposts(Vict.) v. Peers (1921) 29 C.L.R.115 at p.121). Consonantly with this submission it was argued that the circumstances surrounding the payment by the appellant to the Order are irrelevant, and that the character of the payment is to be ascertained by looking solely to the relationship of the payer and payee. If "gift" in s.78(1)(a) connoted merely a mode of transferring the beneficial interest in property, the argument would be well-founded. But "gift" in that paragraph is not so used, for the list of recipients of gifts set out in s.78(1)(a) is not confined to persons who have the legal personality requisite to take and hold a beneficial interest in property. The paragraph encompasses payments made to "funds, authorities or institutions". In Federal Commissioner of Taxation v. McPhail (1968) 117 C.L.R.111 at p.116, Owen J. held that "gift" in that paragraph is used "in the sense in which it is understood in ordinary parlance."

It is, of course, no novelty to deny to the term "gift" in a revenue statute its primary technical meaning, for "gift" is a term which frequently has been tortured out of its technical meaning by its statutory context (see per Dixon J. in Collector of Imposts (Vict.) v. Cuming Campbell Investments Pty. Ltd. (1940) 63 C.L.R.619 at pp.641-644). But when the application of a statutory provision depends not upon the technical meaning of "gift" but upon the ordinary usage of the term, the ordinary usage must yet yield criteria for applying the provision. The ascertainment of criteria is no less imperative on that account, though the criteria may not be absolute and may involve matters of degree.

The ordinary notion of gift and "gift" in its technical meaning have common features: a transfer of a beneficial interest in property by way of benefaction, and an absence of a pecuniary or proprietary benefit passing to the transferor by way of return. But the relevant circumstances in which these indicia may be found are more narrowly confined when the enquiry is as to a gift in the technical sense than when the enquiry is as to a gift according to ordinary notions. The former enquiry is narrower in scope, for it is more confined in its purpose. Its purpose is to ascertain whether a beneficial interest in property has been transferred by a mode which falls within the classification of gift. The intention of the transferor and transferee as to the ownership of the beneficial interest and the form of its transfer exhaust the matters for investigation as to the divesting and investing of the interest, and the absence of consideration passing from the transferee to the transferor serves to distinguish a gift from other modes of transferring property.

But an enquiry into the making of a gift according to ordinary notions requires reference to wider circumstances. In the first place, it is relevant to enquire as to the return (if any) which a disponor seeks and receives by disposing of the relevant property. The ordinary notions of a gift do not pay much regard to the difference between a return to a disponor which he receives as consideration under a contract and a return which is furnished under some other arrangement or understanding; nor is it of great importance that the return does not come directly from a disponee, but indirectly. It will always be of significance that a disponor has received from a disponee, either directly or indirectly, the return sought for making the disposition.

Secondly, it is relevant to enquire whether the disponee is, to the knowledge of the disponor, free to enjoy without burden the property disposed of; or whether, to the knowledge of the disponor, the taking of that property under the disposition is the occasion and reason for incurring a liability. If the disponor is aware that the receipt of the property by the disponee will impose a liability upon the latter, the disposition may be seen not to be by way of benefaction. And as Dixon J. said in Cuming Campbell Investments (supra, at p.642), a transfer by way of benefaction is the "essential idea" of a gift. No doubt much depends upon a comparison between the property taken and the liability incurred. It is of lesser significance that the liability is incurred under an arrangement or understanding with someone other than the disponor, or that it is to be discharged out of assets other than the property received.

Thirdly, and most importantly, if the disponor is moved to dispose of his property, not to confer a benefaction on the disponee, but to acquire a pecuniary or proprietary benefit for himself, his disposition of that property with the object of effecting that result denies an essential characteristic of a gift according to ordinary notions; and this will be so notwithstanding that the disposition is made for the immediate purpose, and has the immediate effect, of vesting that property in the disponee. Of course, if the purposes of the disposition are to confer pecuniary and proprietary benefits upon both the disponor and the disponee, it would have to appear that the purpose of conferring such a benefit upon the disponee is dominant before a gift according to ordinary notions is established. It is in this enquiry that the first two considerations are useful, for in truth a return sought by the disponor and his knowledge of a liability incurred by the disponee speak to the purpose of the disposition: the return sought by a disponor, and his knowledge of the measure of the benefit to be taken by the disponee, are relevant in ascertaining whether benefaction is the purpose of the disposition. The feelings of the disponor towards the disponee are not in issue. Rather the enquiry relates to the pecuniary and proprietary benefits which in all the circumstances the disponor is moved to confer and confers on the disponee, and to the pecuniary and proprietary benefits which in all the circumstances the disponor seeks to obtain and obtains by the disposition. In the light of these enquiries, the question whether benefaction is the motive of the disponor and the purpose of the disposition falls to be determined - not according to an absolute standard but as a matter of degree. Once the technical meaning of gift is left behind, the classification of a disposition as a gift comes, as Dixon J. observed, to "depend upon matters of degree and perhaps to compel an inquiry into purpose" (Cuming Campbell Investments, supra, at p.642).

When the context in which the notion of gift is invoked as a legal criterion shows that the term "gift" is not used as connoting merely a mode of transferring property, the motive of a disponor and the purpose of the disposition are critical matters for consideration. So it was in Roman law, as Professor Sohm (Institutes of Roman Law, Ledlie Translation, 3rd edition, pp.211,212) noted:
"A gift (donatio) is a transaction whereby one person, from motives of liberality, i.e. with a view to enriching another person, makes over to that other person some property or benefit. . . . The special characteristic of a gift is the motive which underlies it, the 'animus donandi', or motive of liberality."
And in the United States (though in a statutory context quite different from s.78(1)(a)) the term "gift" in a tax Act has evoked a judicial enquiry into the disponor's intention. Thus, in Commissioner v. Duberstein 363 U.S.278 (1959) Brennan J. delivering the Opinion of the Supreme Court said at pp.285-286:
"A gift in the statutory sense, on the other hand, proceeds from a 'detached and disinterested generosity,' Commissioner v. LoBue, 351 U.S.243, 246; 'out of affection, respect, admiration, charity or like impulses.' Robertson v. United States, supra, at p.714. And in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's 'intention.' Bogardus v. Commissioner, 302 U.S.34, 43. 'What controls is the intention with which payment, however, voluntary, has been made.' Id., at 45 (dissenting opinion).

. . . . . . . .

It is suggested that the Bogardus criterion, would be more apt if rephrased in terms of 'motive' rather than 'intention.' We must confess to some skepticism as to whether such a verbal mutation would be of any practical consequence. We take it that the proper criterion, established by decision here, is one that inquires what the basic reason for his conduct was in fact - the dominant reason that explains his action in making the transfer. Further than that we do not think it profitable to go."

Frankfurter J. observed (at p.295):
"While at its core the tax conception of a gift no doubt reflected the non-legal, non-technical notion of a benefaction unentangled with any aspect of worldly requital, the divers blends of personal and pecuniary relationships in our industrial society inevitably presented niceties for adjudication which could not be put to rest by any kind of general formulation."

Of course, questions of degree and purpose turn upon the particular facts of each case; and in the present case the facts show the payment to fall well outside the category of gift. By making the payment of $10,000 to the Order, the appellant sought to obtain a tax benefit and the pecuniary benefit of the right to collapse the loan of $8,500. It was commercially possible to confer on him the right to collapse the loan because the Order channelled the money received from him, less 1.2%, to MTS, and MTS transferred it to the lender. Thus the Order indirectly furnished the appellant with the pecuniary benefit which he sought by making the payment. The appellant had no knowledge as to whether, under the scheme in which he was participating, the Order might be required to part with the sum (or part of the sum) which he had paid to it or whether it might use that sum for its own purposes. Mr. Westlake suspected that the Order would not retain all of the moneys paid to it, and in fact the Order was required to disgorge to MTS forthwith $9,880 of the sum received. The payment of $10,000 was simply not by way of benefaction: it was made to acquire benefits for the disponor, not to confer benefits upon the disponee. Even if it were conceded that the appellant was content that the Order should acquire some benefit from the payment, that was neither his dominant motive nor the dominant purpose of his disposition. There was no gift according to ordinary notions, and the appeal must be dismissed.

The evidence in this case suggests that the scheme was promoted by members of the legal and accounting professions, who assumed the mantle of entrepreneurs. But it does not appear that any of the entrepreneurs in the present case assumed the functions of professional adviser to a client, nor does it appear that any professional adviser assumed the role of an entrepreneur. It has not been material to consider whether it is possible for the role of a professional adviser and the role of an entrepreneur properly to coincide or overlap, but the appearance of solicitors performing these respective roles in the present case leads me to invite attention to significant differences between the two functions. These differences do not arise out of any judicial view as to the lawfulness or morality of tax avoidance: as to which see Federal Commissioner of Taxation v. Westraders Pty. Ltd. (1980) 11 A.T.R.24; Inland Revenue Commissioners v. Westminster (Duke) (1936) A.C.1; Latilla v. Inland Revenue Commissioners (1943) A.C.377 at p.381; In Estate of Vicars (1944) 45 S.R.(N.S.W.) 85 at p.93; In re Weston's Settlements (1968) 1 Ch.223 at p.245. They arise because the field of professional activity is co-extensive with a lawyer's professional duty. That duty is to give advice as to the meaning and operation of the law and to render proper professional assistance in furtherance of a client's interests within the terms of the client's retainer. It is a duty which is cast upon a lawyer, as a member of an independent profession, whether his services are sought with respect to the operation of taxing statutes, the provisions of a contract, charges under the criminal law or any other of the varied fields of professional concern. It is a duty which arises out of the relationship of lawyer and client.

But activities of an entrepreneur in the promotion of a scheme in which taxpayers will be encouraged to participate falls outside the field of professional activity; those activities are not pursued in discharge of some antecedent professional duty. Entrepreneurial activity does not attract the same privilege nor the same protection as professional activity; and the promotion of a scheme in which particular clients may be advised to participate is pregnant with the possibility of conflict of entrepreneurial interest with professional duty.

I agree with the order proposed by the Chief Judge.

JUDGE3

The Order of St. John in Australia ("the Order") is a public benevolent institution within s.78(1)(a)(ii) of the Income Tax Assessment Act, 1936 ("the Act"). Gifts of $2.00 or more made to it have, at all relevant times, been deductible in the assessment of taxable income. On 30 June, 1978, the appellant Brian Arthur Leary ("the taxpayer") paid $10,000 to the Order. The issue between the taxpayer and the respondent Commissioner of Taxation in this appeal is whether that payment constituted a "gift" for the purposes of s.78(1)(a) of the Act.

The payment which the taxpayer made to the Order was made in the course and for the purposes of a related series of transactions organized and orchestrated by a company called Metropolitan Taxation Service Pty. Limited ("MTS"). MTS had arranged with the Order that it would procure donations to the Order "allowable for income tax deductions" and the Order had agreed to pay to MTS or its nominee 98.8% of all donations procured by MTS. If the circumstances had been that MTS or its nominee had received 98.8% of donations which the persons whom MTS had persuaded to make them believed were being applied for the purposes of the Order, the overall arrangement would have involved a fraud on those persons. In fact, however, the donors must have realized that the Order would keep but a small part of what they paid to it for the reason that they were well aware that the payments were made pursuant to a scheme under which they would receive from a company associated with MTS, a loan of 85% of the amount of their planned payment to the Order which, by reason of that payment, they would be able to redeem for a comparatively nominal amount. Thus, treating MTS and its associated lender company as one, the transaction in the taxpayer's case involved MTS lending $8500 to the taxpayer, the taxpayer paying $10,000 to the Order, the Order paying $9880 to MTS and the taxpayer being entitled to redeem the loan for some $17. In the result, if the taxpayer immediately redeemed the loan, the Order would effectively retain only $120 while issuing a receipt, for income tax purposes, for the full $10,000, MTS would effectively retain $1397 and the taxpayer would hopefully become entitled to a deduction in the amount of $10,000 for an effective outlay of $1517. All involved would benefit financially. The only financial victim would be the national revenue.

The word "gift" is not used in s.78(1)(a) in a technical sense. It is intended to bear the meaning which it bears as a matter of ordinary language. It is used "in the sense in which it is used in ordinary parlance" (per Owen J., Federal Commissioner of Taxation v. McPhail (1968) 117 C.L.R. 111 at p. 116). It is a monosyllabic old English noun of norse derivation which designates a descriptive category of transfer of property. Once it is accepted that it is to be given the meaning which it bears as a matter of ordinary language, it is not to be assumed that its ambit can properly be defined, with a lawyer's or logician's precision, by reference to a number of unqualified propositions or tests or by identification with different polysyllabic words whose etymological origins provide greater scope for reasoning as to precise meaning.

In Collector of Imposts (Vic) v. Cumming Campbell Investments Pty. Limited ((1940) 63 C.L.R. 619 at p. 642), Dixon J. expressed the view that "the essential idea of gift is the transfer of property by way of benefaction . . .". As I understand the meaning of "benefaction", a distinction between that word and "gift" is that "benefaction" focuses upon the effect of the transaction upon the recipient whereas "gift" focuses more on the nature of the transaction itself. Benefaction does not necessarily involve an element of benevolence. It is not, however, a conveyancing term meaning no more than that the relevant property is transferred to the use of the transferee. It involves, in my view, the concept that the relevant transfer is by way of well doing in that the recipient will be advantaged, in a material sense and without any countervailing material detriment arising from the circumstances of the transfer, to the extent of the property transferred to him.

Collector of Imposts (Vic) v. Cumming Campbell Investments Pty. Limited (supra) was concerned with the effect of the extended meaning given to "Deed of Gift" in a schedule to the Stamps Act, 1928 (Vic). The case is not authority for the proposition that the concept of benefaction provides a universally definitive touchstone for determining whether a particular transfer should as a matter of ordinary language, properly be classified as a gift. It is a common attribute of a gift that the relevant transfer of property is by way of benefaction. It is not however, in my view, either necessary or desirable to say in advance that there could not be a case where one would, as a matter of ordinary language, properly describe a transfer of property as a gift notwithstanding the absence of benefaction or that there could not be a case where a transfer of property by way of benefaction would not properly be described as a gift.

In Collector of Imposts (Vic) v. Peers ((1921) 29 C.L.R. 115 at p. 121), Knox C.J., Gavan Duffy and Starke JJ. expressed the view that the word "gift", when used in its non-conveyancing sense, "usually means a transference of the beneficial interest in property by one person to another without any consideration from that other". The High Court, in that case, was concerned with the meaning to be given to the effect of statutory provisions enlarging the ordinary meaning of the phrase "deed of gift" and their Honours' comments cannot properly be treated as binding in relation to the meaning to be given to the word "gift" in s.78(1)(a) of the Act. In any event, a careful reading of the judgment leads to the conclusion that their Honours were not attempting to propound any universally applicable touchstone for determining whether a particular transaction should, as a matter of ordinary language or parlance, properly be described as a gift but were concerned to indicate a necessary negative attribute of a gift, namely, that recompense or consideration from the transferee not form the basis or foundation of the transaction (see, particularly, ibid, at p. 122 and note the references to Peers Case in Collector of Imposts (Vic) v. Cumming Campbell Investments Pty. Limited (1940) 63 C.L.R. 619 at pp. 632 and 644-5). So understood, I would respectfully agree with their Honours' comments. A transfer of property as a quid pro quo for consideration passing from the transferee to the transferor will not be a gift by the transferor (see Collector of Imposts (Vic) v. Cumming Campbell Investments Pty. Limited, supra, at pp. 629, 631, 632, 640, 644-5). That is not to say that a transfer of property made without consideration passing from the transferee to the transferor must, in all circumstances, be a gift (see per Dixon J., ibid, at p. 643).

In Commissioner of Taxation v. McPhail ((1968) 117 C.L.R. 111 at p. 116), Owen J., sitting as a single justice of the High Court in a case involving the meaning of the word "gift" in s.78(1)(a) of the Act, expressed the conclusion that a disposition of property would not constitute a gift unless it appeared "that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return". It is plain that his Honour was not purporting to lay down any criteria of inclusion in the sense that if a transaction satisfied them one would necessarily have a gift. His Honour was indicating criteria of exclusion which would preclude a transaction which did not satisfy them from properly being so classified. Even so understood, and notwithstanding their subsequent application beyond Australia (see Her Majesty v. Zandstra (1974) 74 D.T.C. 6416 at p. 6419), I would question the unqualified nature of his Honour's comments. Ordinarily, a gift will not be made in pursuance of a contractual obligation: the mere fact that a person has made a contractually binding promise to make a gift may not, however, necessarily deprive it of its character as such when it is made (see, e.g., the illustration of the father of the prospective bride given by Ridley J. in A-G. v. Holden (1903) 1 K.B. 832 at p. 837). Ordinarily, a gift will be without valuable material return: again, the mere fact that a donor receives, either from a stranger or the donee, a valuable return which he may or may not welcome may not prove conclusively that there was no gift (see, e.g., Collector of Imposts (Vic) v. Peers, supra, at pp. 121-2).

If a transfer of property is in return for valuable consideration received by the transferor from the transferee, it will not be a gift by the transferor. If the relevant property is not, for that reason, precluded from being properly regarded as a gift, the abovementioned considerations indicate usual attributes of a gift, namely, that a gift will ordinarily be by way of benefaction, that a gift will usually be not made in pursuance of a contractual obligation and that a gift will ordinarily be without any advantage of a material character being received in return. I would add, to those usual attributes of a gift, the attribute that a gift ordinarily "proceeds from a 'detached and disinterested generosity', Commissioner v. Lo Bue 351 U.S. 243, 246; 'out of affection, respect, admiration, charity or like impulses'. Robertson v. United States, 343 U.S. 711, 714" (Commissioner of Internal Revenue v. Duberstein et ux. (1960) 363 U.S. 278 at p.285. See also The Overseers Etc. of The Savoy v. The Art Union of London (1896) A.C. 296 at pp. 308 and 312; Collector of Imposts (Vic) v. Cumming Campbell Investments Pty. Limited, supra, at p. 641). In the clear case, one will be able to determine from overall impression of the circumstances whether the relevant transfer can properly be described as a gift. In a borderline case involving dispute as to whether a particular transaction constitutes a gift for the purposes of s.78(1)(a) of the Act, the presence or otherwise of these usual attributes of a gift will provide the reference point for answering the essential question. That essential question remains, however, the question which s.78(1)(a) itself poses, namely, whether the transfer in question can as a matter of ordinary language, properly be described as a gift.

To paraphrase what was said by the Privy Council in B.P. Australia Limited v. Federal Commissioner of Taxation ((1965) 112 C.L.R. 386 at p. 397) in relation to the question whether a particular outgoing was of income or capital according to ordinary concepts, the solution to the problem whether a transfer of property constitutes a gift for the purposes of s.78(1)(a) is not to be found by any rigid test or description but has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a common sense appreciation of all the guiding features which must provide the ultimate answer. In the obvious case that lies away from the boundary, it will be easy to decide whether or not a particular transfer is a gift. The line of distinction between what does and what does not constitute a gift may however prove difficult to draw in the borderline case and conflicting considerations may produce a situation where the answer turns on questions of emphasis and degree. A court required to resolve the question is entitled to look to the substance or reality of the whole of the relevant transaction (see In re The Finance Act, 1894, and Cochrane (1906) 2 I.R. 200 at p. 201; Comptroller of Stamps v. Joe White Maltings Pty. Limited (1956) V.L.R. 253 at p. 270; I.R.C. v. Church Commissioners for England (1977) A.C. 329 at pp. 347-8; A-G. v. Worrall (1895) 1 Q.B.D. 99 at p. 104). The question arises as to which of the related transactions between the Order, the taxpayer and MTS or its nominee, are properly to be treated as relevant to the ascertainment of the substance or reality of the payment which the taxpayer made in the present case.

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

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

Even if it were appropriate to determine the present case by detailed consideration of whether the payment exhibited what the authorities indicate to be usual attributes of a gift, the result would be the same. The absence of no less than three of those usual attributes of a gift make it clear that the payment did not constitute a gift of $10,000 to the Order.

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

Second, it does not "appear . . . that no advantage of a material character was received by the transferor by way of return" for the payment (Federal Commissioner of Taxation v. McPhail, supra, at p. 116). The taxpayer received an advantage of a material character by way of return for the payment. That advantage was the right to redeem for a nominal amount the loan of $8500 which had, on the previous day, been made to him and of which, but for the payment, the lender could have required repayment, with interest at a rate of 14% per annum, at any time.

Thirdly, the payment did not proceed from a "detached and disinterested generosity". It was the direct result of the pursuit of self-interested commercial and fiscal objectives. Its origins were untainted by trace of generosity, charity or other altruistic impulse.

The appeal should be dismissed with costs.