State Authorities Superannuation Board v Commissioner of Taxation

Re: STATE AUTHORITIES SUPERANNUATION BOARD
And: COMMISSIONER OF TAXATION
No. NG1015 of 1988
FED No. 756
Taxation

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sweeney(1), Davies(2) and Burchett(3) JJ.

CATCHWORDS

Taxation - appeal from decision refusing a certificate of exemption under the Bank Account Debits Tax Administration Act - whether the State Authorities Superannuation Board was entitled to an exemption from bank account debit tax in relation to a bank account used for the payment of pensions - whether the Board's activities were in the nature of a business - whether the debits to the bank account were in connection with that activity - the nature of the exemption - the nature of a business.

Bank Account Debits Tax Administration Act 1982 (Cth) - ss 3, 11.

State Superannuation Board v. Trade Practices Commission (1982) 150 CLR 282.

In Re Incorporated Council of Law Reporting for England & Wales (1888) 22 QBD 279.

HEARING

SYDNEY

#DATE 21:12:1988

Counsel for the Appellant: Mr C.A. Porter Q.C.

Mr I.L. Johnston

Solicitors for the Appellant: Mr Stuart W. Spencer

Counsel for the Respondent: Mr A.R. Emmett Q.C.

Mrs P.A. Sharp

Solicitors for the Respondent: Australian Government

Solicitor

ORDER

The appeal be allowed.

The Order of the trial Judge be set aside and in lieu thereof it be ordered that the appeal to the court be allowed, that the matter be remitted to the respondent to grant the certificate of exemption sought under s.11 of the Bank Account Debits Tax Administration Act 1982, in respect of Bank Account No. 00-1546 held with Westpac Banking Corporation and that the respondent pay the costs of the proceedings.

The respondent pay the costs of the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from the judgment of a single judge of the Court given on 27 May 1988, by which it was held that the State Authorities Superannuation Board ("the appellant") was not entitled to a certificate of exemption under the Bank Account Debits Tax Administration Act, 1982 ("the Administration Act") in respect of a bank account operated by it.

The appellant seeks orders:

1) That the appeal be allowed with costs.

2) That the orders of 27 May 1988 be set aside, and in lieu thereof it be ordered that the appeal from the decision of the Commissioner be allowed with costs and that a certificate of exemption under section 11 of the Administration Act be issued to the appellant, operative from 1 April 1983, in relation to its bank account number 00-1546 with the Westpac Banking Corporation ("the pension account").

The constitution and operation of the appellant was considered in detail by the learned trial judge, from whose reasons for judgment the following outline of the facts and the issues is taken. On the hearing of the appeal, counsel for the appellant said that we could safely act upon the basis of his Honour's description of the appellant's activities.
There was formerly a body corporate constituted by s.70 of the Superannuation Act 1916 (NSW) under the name "State Superannuation Board (NSW). That Board was abolished on 1 April 1988; see s.36 and clause 2 of Schedule 3 of the Superannuation Administration Act 1987 (NSW). This Act constituted a new Board, the State Authorities Superannuation Board (s.4). Clause 3 of Schedule 3 operated to transfer to the new Board the assets and liabilities of a number of former Boards including the State Superannuation Board (NSW). Sub-clause (1)(h) of clause 3 of the Schedule provided that all liquidated and unliquidated claims for which a former Board would, but for its abolition, have been liable, should be liquidated and unliquidated claims for which the new Board should be liable. Sub-clause (1)(b) was a comparable provision dealing with money and liquidated and unliquidated claims payable to or recoverable by one of the former Boards.
The change which had come about was of no other relevance or consequence and his Honour proceeded as he would have if the old Board had remained in existence. He gave leave to amend the application so as to reflect the change of name.
On 19 May 1983 the appellant wrote to the Deputy Commissioner of Taxation requesting exemption from the bank account debits tax, operative from 1 April 1983, in relation to the pension account. The appellant claimed that the debits from this account fell within sub-para. (a)(vii) of the definition of "excluded debit" in sub-sec. 3(1) of the Administration Act.
On 1 July 1983, the Deputy Commissioner refused to issue a certificate of exemption and on 30 August 1983 the appellant lodged an objection pursuant to s.22 of the Administration Act. This was subsequently disallowed by the Deputy Commissioner.
The bank account debits tax is imposed by s.4 of the Bank Account Debits Tax Act 1982 (the "Debits Tax Act") on each taxable debit to a taxable account. Taxable account is defined in s.3 of the Administration Act, with which the Debits Tax Act is to be read as one, as an account other than an exempt account kept in Australia. "Exempt account" is defined as an account kept in Australia in respect of which a certificate of exemption is in force.
Section 11(1) of the Administration Act requires the Commissioner of Taxation ("the respondent"), on application by an account holder in respect of an account kept in Australia, to issue a certificate of exemption in relation to the account if he is satisfied, inter alia, that all debits made or to be made to the account are or are likely to be excluded debits. The relevant provisions of the definition of "excluded debit" in subsec. 3(1) of the Administration Act are as follows:-

"excluded debit" means a debit -

(a) made to an account kept with a bank in the name of

. . . . . . . . . . . . . . . . . . . . . . .

(vii) any of the following:

(A) a Department of the Government of the Commonwealth or of a State or Territory;

(B) an authority of the Commonwealth or of a State or Territory;

(C) a municipal corporation or other local governing body, other than such a Department, authority, corporation or body the sole or principal function of which is to carry on an activity in the nature of a business (whether or not for profit), not being a debit made in relation to a transaction or transactions entered into by or on behalf of the Department, authority, corporation or body in connection with the carrying on of an activity in the nature of a business (whether or not for profit); or . . . . . . . . . . . . . . . . . . . .

This definition was amended in 1984 by the Bank Account Debits Tax Administration Amendment Act 1984 which came into force on 10 October 1984. The words, "(other than an activity that forms a minor or insignificant part of the functions of the Department, authority, corporation or body)", were inserted after the word "activity" where it last occurs. It was accepted by counsel before his Honour that the amendment was not material to the outcome of the case.
The purpose of the Superannuation Act, according to its preamble, is to provide a State provident fund for persons employed by the State or by certain other bodies, which are listed in Schedule III to the Act, and families of such persons and to provide a system of voluntary saving by such persons. The appellant's predecessor was constituted by s.70 of that Act and was charged with the administration of the State Superannuation Fund established by s.4. Since the disallowance by the respondent of the appellant's objection, the Act has been amended on a number of occasions but his Honour was of the view that probably the form of the Act which it is relevant to consider is the form of it at the date when the notice of objection was lodged, that is, 30 August 1983. He regarded it as unnecessary to decide this question as the amendments made after that date made no material difference to the position which obtained on or before that date.
At the relevant time the appellant consisted of five members, three appointed by the Governor, who were to hold office for a term not exceeding seven years, and two elected by the Fund's contributors and pensioners who were to hold office for a term of three years (ss.70, 70A and 71). The appointed members had to include an actuary. As at 30 June 1983 the appellant had an administrative staff of about 200, who were employed under the Public Service Act 1979 (NSW). In addition it employed property managers who were responsible for managing the buildings in which the appellant had invested moneys. Their employment was not regulated by the Public Service Act (s.82A).
Section 4 of the Superannuation Act provided that the Fund should not be subject to taxation and that the appellant was exempt from the payment of stamp duty. Section 4A(3) provided that nothing in that section was to constitute the appellant as a trustee of the Fund nor imply that it was. The section was concerned to confer on the appellant more extensive powers of investment than those conferred by the Trustee Act 1925 (NSW). Section 10N required every employee of the Government of New South Wales and the bodies listed in Schedule III (subject to certain exceptions contained in the definition of "employee" (s.3)) to contribute to the Fund in accordance with the Act. As at 30 June 1983 there were over 118,000 contributors and over 24,000 pensioners. The appellant was entitled to require employees to undergo a medical examination (s.10B). If an employee failed to pass such an examination the appellant was obliged, subject to certain other provisions of the Act, to treat the employee as if he had not, for the period of his employment, been an employee (s.10C). Section 10N was subject to the provisions for exemption from contribution contained in s.10T. The most significant provisions were outlined by his Honour as follows:
(1) The appellant might, on application made in accordance with s.10U, exempt from contributing to the Fund - (a) any employee who satisfied it that he had made adequate provision for himself and his family; or (b) any person of or above the age of 40 years who became an employee.
(2) Where the wife of a contributor was also an employee, the appellant might, on application made by her in accordance with s.10U, exempt her from contributing to the Fund.
(3) The appellant might, on application made in accordance with s.10U, exempt from contributing to the Fund a woman employee who was eligible for a pension under ss.30 or 31.
The appellant administered the superannuation scheme established by the Superannuation Act. It received contributions from defined employees and employers, managed and invested the assets of the Fund, ascertained entitlements, paid benefits and provided information and services to all Fund members in relation to their membership of the scheme. The income of the Fund came from three sources: employer contributions, employee contributions and investment income. The total revenue received and the percentages of revenue from these three sources for the financial years 1982/83 and 1983/84 were found by his Honour to be as follows:

1982/83 1983/84 Employer Contributions 37.2% 34.9% Employee Contributions 26.6% 26.2% Investment Income 36.2% 38.9% Total Revenue $707.25m $772.51m

Employer contributions were paid into the Fund by the New South Wales Government from Consolidated Revenue except for contributions relating to employers under Schedule III of the Superannuation Act. These were paid directly by those employers, who included the State Bank of New South Wales, the Maritime Services Board, the Water Resources Commission, the Metropolitan Water Sewerage and Drainage Board, the Hunter District Water Board, the Board of the Fire Commissioners of New South Wales, the Western Lands Commissioner, Australian Museum Trust, the Electricity Commissioner of New South Wales, the Grain Handling Authority of New South Wales, the New South Wales Teachers Federation, the Public Service Association of New South Wales, the New South Wales Planning and Environment Commission (in respect of some employees), the Joint Coal Board, the United Dental Hospital of Sydney (in respect of some employees) and various universities and educational establishments. Employee contributions were deducted from the individual employees' salaries except for certain categories of employees, for example those on leave without pay who were responsible for payment of both employer and employee contributions directly to the appellant during the period of such leave.
Employee contributions and benefits were calculated on a units-based system, each employee being required to contribute an amount which was determined by the number of units he held. Unit entitlement was determined by the employee's salary level and increased with salary increases. Upon retirement, employees were entitled either to receive their full entitlement in the form of a pension adjusted in line with the Consumer Price Index or to take part of their entitlement in a lump sum. Lump sum commutation of pensions was first introduced in 1970 in response to the perceived needs of Fund members. The investment performance of the Fund did not directly affect the level of benefits which were fixed by the Superannuation Act and calculated according to the number of units held.
Sections 5 to 6 of the Superannuation Act authorised the appellant to invest in a variety of government and semi-government securities and loans to building societies (s.5), certain types of company shares, debt securities and corporate trusts (s.5A), land and mortgages over land (s.5B), certain other transactions involving securities of various kinds (s.5C), joint ventures in projects in which the applicant could invest on its own (s.5D) and deposits with the Treasury or a bank (s.6).
Section 6A(4) required the appellant, so far as practicable to ensure that the assets of the Fund included government and semi-government securities the cost of which was not less than 30% of the cost of all the assets of the Fund.
A list of the appellant's investments and their earnings performance for the years ended 30 June 1983 and 30 June 1984 appeared in its 1983/84 Annual Report. It was as follows:

"Investment Area Year Ended Year Ended 30th June 1984 30th June 1983 % p.a. Return % p.a. Return Short-Term Securities 11.29 14.64 Commonwealth Securities 14.09 12.94 Semi and Local

Government Loans 12.00 11.33 Co-operative Housing

Society Loans 12.22 13.00 Company Shares 10.46 11.88 Corporate Debt Securities 13.34 13.04 Mortgages 14.02 14.31 Land and Buildings

Freehold 13.91 11.97 Leasehold 10.96 11.49 Leveraged Leasing 14.56 14.36".

The evidence satisfied his Honour that in order to produce revenue for the Fund, the appellant invested in a wide spread of investments, the management of some of which required its active participation. It was a large landholder, investing in a variety of commercial, retail and industrial properties. One example given in the 1983/84 Annual Report was of a shopping complex at Bass Hill which was built and run as a going concern by the appellant. It also constructed a retirement village, "Peninsula Gardens", for members of the general public. It had a large portfolio of shares. It had representatives on the boards of some small joint venture companies. It entered into joint ventures with other institutions in relation to a number of projects including an amusement park, "Australia's Wonderland", and a coal mining operation at Ulan. Some of these projects were not complete at the time relevant to this appeal. Others were embarked upon afterwards.
The appellant provided a number of services to its members. It provided housing loans to them at a competitive rate of interest. It also operated the voluntary savings scheme provided for in Part V of the Superannuation Act. This was a mechanism whereby members might have certain amounts deducted from their salaries and paid into an account to be used by them at a later time. These funds were placed in the general pool of the Fund. The members received a rate of interest of 8 1/2% on their money. This money might be withdrawn at call. Section 69 made provision for the holding of accounts jointly with a non-member.
The appellant also operated an advisory service which provided information to contributors regarding their Fund entitlements although it specifically disclaimed providing financial advice. This service organized two-day retirement preparation seminars which covered the topics of superannuation, finance and investment, taxation, health, social aspects of retirement and estate planning. The advisory services of the appellant expanded over the years to take account of the perceived needs of members.
In administering the Fund the appellant operated three bank accounts with the Westpac Banking Corporation: an investment account (No.00-1562), a general account (No.00-1554) and the pension account (No.00-1546) the subject matter of this appeal. The Fund's investments and expenses associated with its investments were paid from the investment account. The general account was used to pay salaries and administrative expenses, voluntary saving account payments, refunds of contributions, costs of election of Board members, retirement seminar costs, publications and advertising regarding contributor services and benefits, Government Actuary's fees, Board member allowances, commuted lump sum payments and the initial pension entitlement if the pension commenced after the normal fortnightly payment day. Payments out of the pensions account were solely in respect of periodical entitlements to pensions. Lump sum payments were not made out of the pension account for administrative reasons, because payments were made from it only fortnightly in a computer run, whereas lump sum payments were made daily as required. The appellant's income was deposited into any of the three accounts according to the needs of each account from time to time.
His Honour regarded the hearing before him as being concerned only with the nature of the pension account and thus, he said, not raising the question whether some debits to the account fell within the final words of sub-section 3(1)(a)(vii), quoted above and so were not "excluded debits". Those words were:

"not being a debit made in relation to a transaction or transactions entered into by or on behalf of the Department, authority, corporation or body in connection with the carrying on of an activity in the nature of a business (whether or not for profit)".

This question was not debated before us.
It was agreed that the applicant was an authority of the State of New South Wales, so that the only question to be decided was whether the applicant was an authority the sole or principal function of which was to carry on an activity in the nature of a business (whether or not for profit).
His Honour pointed out that Mason J. (as he then was) noted in Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. (1982) 150 CLR 355 at pp 378-379, that words such as

". . . 'business', 'commercial' and 'trading' . . . have about them a chameleon-like hue, readily adapting themselves to their surroundings, different though they may be.".

His Honour said that the word "business" must always be read in context. Some help, he considered, was nonetheless to be derived from examining dictionary and judicial definitions of the term. The Shorter Oxford English Dictionary include the definitions: "Trade, commercial transactions or engagements" and "A commercial enterprise as a going concern." In Rolls v. Miller (1884) 27 Ch D 71 Cotton L.J. noted that "business" is a wider concept than "trade" and Lindley L.J. said (p 88):

"The word means almost anything which is an occupation, as distinguished from a pleasure - anything which is an occupation or duty which requires attention is a business . . .".

In Hyde v. Sullivan (1956) SR (NSW) 113 Street C.J., Roper C.J. in Eq. and Herron J. said (p 119):

"Speaking generally, the phrase 'to carry on a business' means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit, and implicit in this idea are the features of continuity and system.".

Profit-motive, although relevant, is not always necessary (Rolls v. Miller (supra)). In the present case the wording of the definition, by using the words, "whether or not for profit", expressly indicated to his Honour that it is not essential.

In the course of his reference to the investment activities of the appellant, which he described as significant, generating 38.9% of its total revenue in 1983-84 and involving its active participation in a number of commercial ventures, his Honour said:

"they were conducted in the course of the applicant's management of the Fund and thus as part of its administration of the superannuation scheme. The applicant's main activities: the receipt of contributions, payment of benefits, investment of the Fund and management of Fund assets all indicate that the sole or principal function of the applicant was the administration of a superannuation scheme for government employees. The investment activities were ancillary or incidental to this function. The applicant's advisory service falls into the same category. It was mainly designed to provide contributors with information regarding their Fund entitlements, although it might go somewhat beyond that, and as such was very much incidental to the applicant's function of administering the scheme.".

His Honour concluded by saying:

"In the end, as is usually the case in these matters, one has to take the evidence and go to the statute in question and endeavour to determine whether the particular activity falls within the Act or not. A starting point for that exercise is to bear in mind that Parliament did intend the tax to be payable by a wide range of government and semi-government authorities and bodies. The fact that a particular authority might be an instrument or agency of the Crown was not of relevance. This is made clear by the Act itself and confirmed, if confirmation were necessary, by what was said by the Minister in the second reading speech made to Parliament in relation to the 1984 amending Act. Then there are the two factors already mentioned, namely, the immateriality of profit making and the careful use of the words 'activity in the nature of a business'. To me the use of those words indicates an intention on the part of the draftsman to cast his net much more widely than would have been the case if he had limited the expression to the carrying on of a business. It would have been understandable if he had limited the language of the Act in this way because many Government instrumentalities, whether offshoots of the Crown or not, do carry on business in the ordinary sense of that expression. But the draftsman, in my opinion, had a wider purpose. All these considerations have led me, not without a deal of hesitation, to conclude that the sole or principal function of the applicant was to carry on an activity, namely, the provision of superannuation benefits to relevant employees, which was in the nature of a business. In my opinion the opposite conclusion would not make sufficient allowance for the language which has been used, the overall purpose and object of the Act and the fact that the provision of superannuation benefits by means of collection of contributions and the earning of income from a wide range of investment has many of the hallmarks of business activity.

In the result the appeal is dismissed with costs.".

I respectfully agree with his Honour's conclusion that the sole or principal function of the appellant was to carry on an activity, namely the provision of superannuation benefits to relevant employees, which was in the nature of a business (whether or not for profit).
The legislature cast its net widely indeed when it enacted sub-section 3(1) of the Administration Act. Elsewhere in the definition of "excluded debit" it used the words "activities that constitute the carrying on of a business by that person in Australia" (sub-paragraph (ii) of paragraph (a)) and the words "that carries on banking business in Australia" (paragraph (b)).
The language with which this case is concerned contrasts sharply with those references. It speaks of "an activity in the nature of a business (whether or not for profit)". A view to profit has been noted as an important element in the concept of a business, and by excluding it as a test the legislature showed a clear intention to go beyond what would otherwise be regarded as a business. Not content with this, it used the words "activity in the nature of a business". The activity of which the sub-section speaks need not therefore be a business (whether or not for profit) but will be caught if it is "in the nature of such a business". The appellant's activity, namely the provision of superannuation benefits to certain employees, in my opinion falls within the composite phrase in the sub-section.
In my opinion, the investment by the appellant of the funds under its control was an integral part of the provision of superannuation benefits. It has been rightly conceded by the appellant that such investment was in the nature of a business (whether or not for profit).
I would dismiss the appeal, with costs.

JUDGE2

This is an appeal from a judgment of a single judge of the Court dismissing an appeal from the refusal of the respondent, the Commissioner of Taxation, to grant to the State Superannuation Board (NSW), the predecessor of the appellant, a certificate of exemption under the, as then entitled, Bank Account Debits Tax Administration Act, 1982 (Cth)("the Administration Act").

The State Superannuation Board (NSW) ("the Board") was a body corporate constituted by s.70 of the Superannuation Act 1916 (NSW)("the Act"). It was abolished on 1 April 1988 and a new board, the State Authorities Superannuation Board, was constituted. The new Board took over the assets and liabilities of a number of former boards including those of the Board.
Section 11(1) of the Administration Act requires the respondent, the Commissioner of Taxation, on application by an account holder in respect of an account kept in Australia, to issue a certificate of exemption in relation to the account if he is satisfied, inter alia, that all debits made or to be made to the account are, or are likely to be, either excluded debits or exempt debits. An "excluded debit" is defined in s.3(1) of the Administration Act as follows:-

"excluded debit" means a debit -

(a) made to an account kept with a bank in the name of -

(i) the Governor-General or the Governor of a State;

(ii) a person who is entitled to exemption from the tax by virtue of any other law of the Commonwealth, being a debit made in relation to a transaction or transactions carried out by or on behalf of the person for purposes related wholly and exclusively to his private or domestic affairs, other than purposes related to activities that constitute the carrying on of a business by that person in Australia;

(iii) an organization that -

(A) is entitled to exemption from the tax by virtue of any other law of the Commonwealth; or

(B) is established by an agreement to which Australia is a party and which obliges Australia to grant that organization an exemption from the tax, being a debit made in relation to a transaction or transactions carried out by or on behalf of the organization wholly and exclusively in engaging in its official activities;

(iv) a person who holds an office in an organization established by an agreement to which Australia is a party and which obliges Australia to grant the holder of that office an exemption from the tax, being a debit made in relation to a transaction or transactions carried out by or on behalf of the person for purposes related wholly and exclusively to his private or domestic affairs, other than purposes related to activities that constitute the carrying on of a business by that person in Australia;

(v) a government of a country other than Australia;

(vi) any of the following:

(A) a public benevolent or a religious institution;

(B) a public hospital or a hospital that is carried on by an association or other body of persons otherwise than for purposes of profit or gain to the individual members of that association or other body;

(C) a school, college or university that is carried on by an association or other body of persons otherwise than for the purposes of profit or gain to the individual members of that association or other body, being a debit made in relation to a transaction or transactions carried out by or on behalf of the institution, hospital, association or body, as the case may be, wholly and exclusively in furtherance of its objects;

(vii) any of the following:

(A) a Department of the Government of the Commonwealth or of a State or Territory;

(B) an authority of the Commonwealth or of a State or Territory;

(C) a municipal corporation or other local governing body, other than such a Department, authority, corporation or body the sole or principal function of which is to carry on an activity in the nature of a business (whether or not for profit), not being a debit made in relation to a transaction or transactions entered into by or on behalf of the Department, authority, corporation or body in connection with the carrying on of an activity in the nature of a business (whether or not for profit); or

(viii) an authority of the Commonwealth or of a State or Territory that is prescribed for the purposes of this sub-paragraph;

(b) made to an account kept with a bank in the name of another bank, being another bank that carries on banking business in Australia;

(c) the tax in respect of which cannot be recovered from the account holder or account holders in accordance with section 10; or

(d) that is included in a kind or class of debits that are prescribed for the purposes of this paragraph;"

The provisions of exemption (a)(vii) of this definition are of particular relevance. I have set out the whole of the definition simply to show the context in which that exemption appears. The exemption was amended in 1984 by the Bank Account Debits Tax Administration Amendment Act 1984, No.102 of 1984, which came into force on 10 October 1984 by inserting the words "(other than an activity that forms a minor or insignificant part of the functions of the Department, authority, corporation or body)", after the word "activity" where it last occurs. The alteration has no effect in or in the circumstances of the present appeal.
On 19 May 1983, the Board sought exemption from the bank account debits tax, which was operative from 1 April 1983, in relation to a bank account No. 00-1546 which it maintained with Westpac Banking Corporation. It was claimed that the debits from this account fell within sub-para.(a)(vii) of the definition of "excluded debit" set out above.
On 1 July 1983, a Deputy Commissioner refused to issue a certificate of exemption. An objection to that decision was lodged and was disallowed. On 30 March 1984 the Board requested that the objection be treated as an appeal and forwarded to the Supreme Court of New South Wales pursuant to s.23 of the Administration Act and it was so forwarded. As a result of the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987 (Cth), the appeal was transferred from the Supreme Court to this Court.
The case that was put to the learned trial judge, and which was put in this appeal by Mr C.A. Porter Q.C., with whom Mr I.L. Johnston of counsel, appeared for the appellant, was that the Superannuation Board had at least two functions. One being a function conferred upon the Board by Part II of the Act, namely to invest and manage the State Superannuation Fund and the other, the function conferred upon the Board by other parts of the Act, namely to make determinations with respect to contributors and their rights and to pay pensions. Bank Account No. 00-1546 was maintained solely for the purpose of the payment of pensions. The case put for the appellant was that, although the investment activities of the Board might constitute an activity in the nature of a business, the principal function of the Board was not to carry on an activity in the nature of a business and the debits made to Bank Account 00-1546 were not made in connection with the carrying on of an activity in the nature of a business.
Mr A.R. Emmett Q.C., with whom Mrs P.A. Sharp of counsel appeared for the respondent, submitted that the activities of the Board should be looked at as a whole, and that they constituted a business or were in the nature of a business.
The trial judge described the three bank accounts as follows:-

"In administering the Fund the applicant operated three bank accounts with the Westpac Banking Corporation: an investment account (No. 00-1562), a general account (No. 00-1554) and the pension account (No. 00-1546) the subject matter of this appeal. The Fund's investments and expenses associated with its investments were paid from the investment account. The general account was used to pay salaries and administrative expenses, voluntary saving account payments, refunds of contributions, costs of election of Board members, retirement seminar costs, publications and advertising regarding contributor services and benefits, Government Actuary's fees, Board member allowances, commuted lump sum payments and the initial pension entitlement if the pension commenced after the normal fortnightly payment day. The pension account was used only for the payment of pensions. Lump sum payments were not made out of the pension account. This was for administrative reasons because payments were made from it only fortnightly in a computer run whereas lump sum payments were made daily. The applicant's income was deposited into any of the three accounts according to the needs of each account from time to time."

As only bank account No. 00-1546, which was used solely for the payment of pensions, was the subject of the claimed exemption, it was impliedly conceded that the investment activities of the Board did constitute a business or an activity in the nature of a business. Mr Porter did not put an argument to the contrary and, indeed, appeared content to accept that the principle enunciated in London Australia Investment Company Ltd v. Federal Commissioner of Taxation (1977) 138 CLR 106 applied to the investment activities of the Board. It is perhaps worth noting, nevertheless, that at the time with which we are concerned, the nature of the Board's investments was severely circumscribed by legislation and the investments consisted almost entirely of short-term deposits, Commonwealth securities, semi and local government loans, co-operative housing society loans, debentures, unsecured notes, loans secured by government or bank guarantee, mortgages and real estate. In the year ending 30 June 1983, income from invested funds totalled $255.83m, of which the greatest part was income in the nature of interest. $10.03m represented realised profits arising from the sale of investments. Of that sum, $9.74m related to shares, the balance being attributable to the sale of Commonwealth and corporate debt securities. The total income from shares was only $20.72m. There was a further $15.22m income from leveraged leasing and $42.72m from rent. The income from investments represented only 36% of total revenue for the year, $188.31m coming from employee contributions and $262.80m coming from employer contributions and subsidies. It seems questionable whether the principle enunciated in London Australia Investment Company Ltd v. Federal Commissioner of Taxation, cited above, applies to investment activities of such a kind or whether the facts do not fall more appropriately within the principle enunciated in Charles v. Commissioner of Taxation (1954) 90 CLR 598. The activities were certainly carried out on a large scale; but they were directed principally to the obtaining of income in the nature of interest, rents and dividends. Such an activity is not ordinarily described as a business.
However, as I have said, this aspect of the matter was not raised in argument, perhaps because the investment powers of the Board were radically extended after 30 June 1985 and, by the year ended 30 June 1987, shares constituted the major investments of the Board.
It is clear that the investment activities of the Board were not, in themselves, the sole or principal function of the Board. Nor can it be said that the investment functions of the Board dominated the total activities of the Board so as to give a business character to those total activities. It is therefore necessary to look more closely at the activities of the Board in the light of the provisions of the legislation.
Exemption (a)(vii) is concerned with the activities of a department of the Commonwealth or of a State or Territory, of an authority of the Commonwealth or of a State or Territory, and of a municipal corporation or other local governing body. The exemption is therefore not turning its attention to commercial activities which are carried on for profit for the benefit of the proprietors of a business. Mr Porter devoted much of his argument to the point that an ordinary element of a business is the making of a profit. He submitted that, as the Board was not carrying on its activities with a view to distributing profits to any person or even to the Government, it was not carrying on an activity in the nature of a business. But such an approach would be inconsistent with the overall terms of exemption (a)(vii) and particularly with the words "whether or not for profit" which specifically deal with this aspect of the matter.
The exemption has in mind the concept adumbrated, for example, in In Re Incorporated Council of Law Reporting for England & Wales (1888) 22 QBD 279, in which it was held that the Council of Law Reporting in the United Kingdom carried on a business, the business of publishing law reports, though it did not do so with a view to making or distributing profits.
It is clear from exemption (a)(vii) that the concept "activity in the nature of business" has in mind more than an organised activity carried on in a businesslike way. Many if not all departments and authorities of the Commonwealth and of the States carry on their activities in a businesslike way, efficiently, involve the use of valuable capital assets, engage many employees and use extensive consumables. Clearly, such activities are not within the ambit of the provision simply because they are businesslike.

It is further to be noted that, while exemptions (a)(ii) and (a)(iv) refer to the carrying on of a business, exemption (a)(vii) refers to the carrying on of an activity in the nature of a business. The trial judge said at p 26 of the judgment:-

"To me the use of those words indicates an intention on the part of the draftsman to cast his net much more widely than would have been the case if he had limited the expression to the carrying on of a business."

It is undoubtedly correct that the draftsman intended to cast his net wide, as this provision shows. Nevertheless, the words "in the nature of" mean "having the character or essence of". The Shorter Oxford Dictionary gives this relevant definition of "nature":

"1. The essential qualities of a thing; the inherent and inseparable combination of properties essential pertaining to anything and giving it its fundamental character."

Likewise, Roget's Thesaurus, in its index, lists "nature" under, inter alia, "essence", "character", "composition" and "sort". Other headings given such as "tendency" are too wide for the context with which we are concerned. An activity is not an activity in the nature of a business unless it has the essential or fundamental characteristics of a business.

A "business", as that term is used in the definition of "excluded debit", is a trade or commercial enterprise as a going concern. See the Shorter Oxford English Dictionary meanings 18 and 19. I cannot conceive of an activity in the nature of a business in the relevant sense in which the business transactions are not predominantly consensual or in which the business relationships are not predominantly contractual. An activity lacking this feature would not be in essence a trading or commercial activity.
A business must have organisation. It usually has capital, plant, employees and consumables. It must derive income and it must trade with or deal with another person or persons. In In Re Incorporated Council of Law Reporting, cited above, at pp 293-4, Lord Coleridge C.J. made these remarks as to a business:-

"But putting aside the question whether they carry on a trade, how can it be denied that the Council carry on a business? They are incorporated; they have a secretary; they employ editors, reporters, and printers; they print books; they sell those books; they do all that is ordinarily done in carrying on the business of a bookseller. It is said that though they make a profit, they cannot, by the terms of their memorandum of association, put that profit into their own pockets. Be it so; they are carrying on a business in which, by the terms of its constitution, they are prevented from making a profit to their own benefit. One can suppose the case of co-operative stores founded upon the principle that no profit shall be made by the members. They buy and sell, and if any profit is made, their articles of association compel them to dispose of it in this or that way, but prevent the members putting any money into their own pockets. They also would probably employ secretaries, and other persons engaged in their warehouses and in buying and selling goods all over the country. Could it possibly be denied that such an association of persons were not (sic) carrying on a business?"

Likewise, government railways carry on a business. They provide services and make those services available to persons willing to pay the tariff demanded. They may run at a loss but they have capital including plant, employees, consumables and an organisation and they provide services at a price which persons in the community can avail themselves of or not as they see fit. The revenue received is income within ordinary concepts.
On the other hand, a body such as the Australian Customs Service does not carry on a business though it demands and receives large sums of duty, it uses capital including plant, it engages employees, it uses consumables and it has organisation. The Australian Customs Service does not trade or deal with importers. It demands duty and is paid duty. That duty, although Commonwealth revenue, is not income within ordinary concepts.
It is, of course, fundamental to a business and to an activity in the nature of a business that there be a derivation of income of a revenue nature. It is therefore relevant that, in the year ended 30 June 1983, the Board's income from investments totalled $255.03m and, in the year ended 30 June 1987, the net income from investments was $939.07m.
There were a number of other factors in the Board's activities suggestive of a business. The Board's activities were extensive. Its organisation was a substantial one. It held assets in its own right amounting as at 30 June 1983 to $2366.71m. The assets were not held as part of Consolidated Revenue or by the Board as trustee for the contributors. See ss.4 and 4A of the Act. The Board's transactions were frequent and its activities were continuous.
Moreover, although involvement in the Scheme was principally statutory and therefore compulsory, contributors or potential contributors had some element of choice. An employee otherwise subject to the Act might, with the permission of the Board, elect not to contribute. See s.10T of the Act. Some employees might choose whether or not to remain in the Superannuation Scheme. See s.3(3) of the Act. All contributors were likely at some stage to have the right to take up some additional units. See s.10Q. Contributors whose remuneration was reduced could elect to contribute to excess units. See s.10W. The above are only a few examples of the choices or options given to contributors.
And, the Board provided some services of which contributors could avail themselves if they wished to do so. The Board offered home loans to contributors and advised on superannuation and retirement options which were available.
However, the employers who were encompassed by the Act were specified in the Act in s.3 and in Schedule III. Employers so named were bound to the Scheme not by contract but by statutory obligation. The sums required to be paid annually by employers were specified by s.10AK and Schedule VIII. In the event of a shortfall in funds at any time, the Board was empowered to make a call upon employers and the employers were statutorily bound to comply with that call. See s.9A. Every three years there was to be an audit of the Superannuation Funds and a report thereon. See s.10.
Likewise, contributors were bound to the Scheme by statutory obligation, not by consent. See Athanasiou v. State Superannuation Board (1985) 12 IR 204, at p 210. The discretions conferred to elect out of the Scheme with the permission of the Board, to take additional units or to retain an otherwise excess number of units were statutory discretions, not consensual or contractual discretions.
There were other powers conferred upon the Board which underlined the point that its relationship with contributors was that of a body which exercised statutory powers, not that of a body which had entered into a consensual relationship with its contributors. Section 10C provided that the Board should refuse to accept a contributor into the Scheme if his medical condition at the time of entry to the Scheme so indicated. Section 22 provided that the Board should determine, on the certificate of a Government medical officer, whether a contributor was an invalid or physically or mentally incapable of performing his duties. Section 41 provided that the Board might suspend payment of a pension to a former female employee while she was incarcerated in a prison. And s.88 provided that a pension under the Act and the entitlement thereto were not transferrable. Section 85, in 1983, provided that the Board was to determine disputes, provided that the contributor may appeal to the Minister, who would refer the matter for the opinion of the Supreme Court of New South Wales. See, eg, Re Brereton and the Superannuation Act (1975) 1 NSWLR 667. These are but examples of relevant provisions.
In the exercise of its functions and of its powers with respect to contributors, the Board did not have that general discretion which an insurance company may have to be more generous to contributors and to insured persons, when its investment activities had a favourable result and a less generous or more strict approach when the investment activities had a less favourable result. The powers conferred upon the Board were statutory and were required to be exercised having regard to relevant considerations, which did not include the state of the Fund's investments. The contributors were entitled to their full rights and to no more, having regard to the provisions of the legislation and to the facts of their case. If for any reason the Fund was inadequate, the Board was to call upon the employers.
I have therefore come to the view that, looked at as a whole, the Board's activities ought not to be regarded as being in the nature of a business. In the Board's dealing with employers and employees, there does not appear to me to be that element of commercial dealing with other parties such as customers or clients which is essential to the existence of a business.
As I have said, neither the investment activities of the Board nor its function in dealing with contributors' rights was more dominant than the other. The functions were different in nature but both were essential to the overall success of a Superannuation Scheme. No activity of business which was involved in the investment activities of the Board characterised the overall activities of the Board as activities in the nature of a business.
The trial Judge drew support from the following statement of Gibbs C.J. and Wilson J. in State Superannuation Board v. Trade Practices Commission (1982) 150 CLR 282 at p 297-8:-

"In our opinion, the governmental character of the Board's activities is not irrelevant to the determination whether it falls within the constitutional description. It seems to us to be appropriate and indeed necessary to start with the proposition that here is a statutory body which is formed to carry out a governmental function, namely, the provision of emoluments to the servants of the government and their dependants. Everything that the Board does - the receipt of contributions, the classification of contributors, the determination of benefits and the management of the Fund - derives its significance from that fundamental premise. There is no doubt that, in the course of managing the Fund, the Board may be said to carry on a business of dealing in finance but in our opinion its activities in that regard must be described as ancillary or incidental to the Board's primary activity of administering the scheme. No doubt those activities are substantial in a quantitative sense but they are not such as to determine the character of the corporation. The predominant and characteristic activity of the Board is not to be described in terms of its financial dealings but by reference to the service it provides to government in Victoria by way of a superannuation scheme."

His Honour said at p 16 of his decision:-

"The investment activities of the applicant were significant. They generated 38.9 per cent of its total revenue in 1983/84. They involved its active participation in a number of commercial ventures. However, they were conducted in the course of the applicant's management of the Fund and thus as part of its administration of the superannuation scheme. The applicant's main activities: the receipt of contributions, payment of benefits, investment of the Fund and management of Fund assets all indicate that the sole or principal function of the applicant was the administration of a superannuation scheme for government employees. The investment activities were ancillary or incidental to this function. The applicant's advisory service falls into the same category. It was mainly designed to provide contributors with information regarding their Fund entitlements, although it might go somewhat beyond that, and as such was very much incidental to the applicant's function of administering the scheme."

The question remained, his Honour said at p 18:-

". . . whether the administration of a superannuation scheme for government employees constitutes the carrying on of an activity in the nature of a business (whether or not for profit). Counsel for the respondent emphasized that it was not necessary to show that the applicant carried on a business. All that was necessary was to satisfy a lower standard, namely, that it carried on an activity in the nature of a business. The Shorter Oxford English Dictionary gives as its first definition of 'nature': 'The essential qualities of a thing; the inherent and inseparable combination of properties essentially pertaining to anything and giving it its fundamental character.'

His Honour concluded, at p 26:-

"In the end, as is usually the case in these matters, one has to take the evidence and go to the statute in question and endeavour to determine whether the particular activity falls within the Act or not. A starting point for that exercise is to bear in mind that Parliament did intend the tax to be payable by a wide range of government and semi-government authorities and bodies. The fact that a particular authority might be an instrument or agency of the Crown was not of relevance. This is made clear by the Act itself and confirmed, if confirmation were necessary, by what was said by the Minister in the second reading speech made to Parliament in relation to the 1984 amending Act. Then there are the two factors already mentioned, namely, the immateriality of profit making and the careful use of the words 'activity in the nature of a business'. To me the use of those words indicates an intention on the part of the draftsman to cast his net much more widely than would have been the case if he had limited the expression to the carrying on of a business. It would have been understandable if he had limited the language of the Act in this way because many Government instrumentalities, whether offshoots of the Crown or not, do carry on business in the ordinary sense of that expression. But the draftsman, in my opinion, had a wider purpose. All these considerations have led me, not without a deal of hesitation, to conclude that the sole or principal function of the applicant was to carry on an activity, namely, the provision of superannuation benefits to relevant employees, which was in the nature of a business. In my opinion the opposite conclusion would not make sufficient allowance for the language which has been used, the overall purpose and object of the Act and the fact that the provision of superannuation benefits by means of collection of contributions and the earning of income from a wide range of investment has many of the hallmarks of business activity."

His Honour's conclusions were inferences drawn from primary facts as to which there was no dispute. Moreover, his Honour's conclusions did not depend in any way upon the credit or veracity of witnesses who appeared before him. Therefore, an appellate court is in as good a position as the trial Judge to draw ultimate conclusions of fact on the evidence which is before the Court. See Warren v. Coombes (1979) 142 CLR 531.
I do not draw the ultimate conclusion drawn by his Honour. It seems to me that the Board was an authority exercising statutory functions. Its powers with respect to employers and contributors, which were equally as important as any other powers which it had, were purely statutory powers which did not form part of a business. Accordingly, in my view, it was not correct to find that the sole or principal function of the Board was to carry on an activity in the nature of a business.
This conclusion coincides with the view expressed by Gibbs C.J. and Wilson J., in State Superannuation Board v. Trade Practices Commission, cited above, that "the predominant and characteristic activity of the Board (the State Superannuation Board (Vic.)) is not to be described in terms of its financial dealings but by reference to the service it provides to government in Victoria by way of a superannuation scheme." The majority in that case, Mason, Murphy and Deane JJ., inferentially adopted that view for their conclusion that the State Superannuation Board (Vic.) was a "financial corporation" and was founded on the ground, stated at p 304, that the Court must look beyond the corporation's "predominant and characteristic activity". Their Honours concluded that the State Superannuation Board (Vic.) was a financial corporation as, at p 306:-

"Even if we confine our attention to such aspects of the appellant's investment activities as involve the making of commercial and housing loans, its business in this respect is very substantial and forms a significant part of its overall activities." (The emphasis is mine.)

That leaves the final question of whether the debits made or likely to be made to bank account 00-1546 were debits "in connection with the carrying on of an activity in the nature of a business (whether or not for profit)". Before the trial judge, as on the appeal, no submission was put on this point. His Honour said:-

"The appeal concerns only the pension account and thus does not raise the question whether certain debits are made in connection with the carrying on of an activity in the nature of a business."

However, in case I have misunderstood the course of the litigation, I should express my own view. The relevant debits were all made in payment of pensions and benefits to contributors and their dependants. The amounts paid by way of pension or benefit were paid by reference to statutory criteria. It follows, in my opinion, that any payment made to a pensioner was not made "in connection with the carrying on of an activity in the nature of a business (whether or not for profit)". The payment made to any pensioner was made totally without regard to the success or otherwise of any business involved in the investment activities. It had no relevant connection therewith. Investment was one thing, a contributor's entitlement, specified by statute, was a different matter.

In my opinion, therefore, the appellant was entitled to the orders which it sought, namely, an order allowing the appeal from the decision of the respondent that the State Superannuation Board (NSW) was not entitled to a certificate of exemption under the Bank Account Debits Tax Administration Act 1982 in respect of Bank Account No.00-1546, operated and known as the Pension Account, an order remitting the matter to the respondent to grant the certificate of exemption for which the appellant had appeared and an order that the respondent pay the costs of the proceedings.
I would allow the appeal and would set aside the order of the trial Judge and substitute therefor an order in the terms sought by the appellant. I would order that the respondent pay the costs of the appeal.

JUDGE3

In my opinion the appeal should be allowed for the reasons given by Davies J.

[1988] FCA 756

21 DECEMBER 1988