State Superannuation Board (N.S.W.) v Commissioner of Taxation
[1988] FCA 259
•27 May 1988
Taxation - bank account debits tax - State superannuation Board (N.S.W.) constituted to provide superannuatlon benefits for New
South Wales Government employees - whether sole or prlnclpal
functron of Board was the carrying on by i t of an actlvlty in the nature of a business. Bank Accounts Debits Tax Act 1982, S. 4 Bank Account Debits Tax Admlnistration Act 1982, ss. 3 and 11
Superannuation Act 1916 (N.S.W.) (now repealed - see
Superannuation Administration Act 1987 (N.S.W.)), ss. 3, 4, 4A.
5, 5A, 5B, 5C, 5D, 6, 10N, 10T. IOU, 70, 70A, 71, 74, 76 and 77. STATE SUPERANNUATION BOARD (N.S.W.) v. COMMISSIONER OF TAXATION
No. NG2638 of 1987
SHEPPARD J.
SYDNEY
27 MAY 1988
. _ .
IN THE FEDERAL COURT OF AUSTRALIA ) 1 N.S.W. DISTRICT REGISTRY
) No. NG2638 of 1987 1 GENERAL DIVISION ) BETWEEN: STATE SUPERANNUATION BOARD
1N.S.W.)
Applicant
AND : - COMMISSIONER OF TAXATION
Respondent
MINUTES OF ORDER
JUDGE MAKING ORDER: SHEPPARD J. DATE OF ORDER: 21 MAY 1988 WHERE W E : SYDNEY THE COURT ORDERS THAT:- 1. The appeal be dismissed.
2.
The applicant pay to the respondent his costs of the appeal. 3. There be liberty to apply.
NOTE : Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) N.S.W. DISTRICT REGISTRY
1 No. NG2638 of 1987 1 GENERAL DIVISION ) BETWEEN: STATE SUPERANNUATION BOARD
1N.S.W.)
Applicant
AND : - COMMISSIONER OF TAXATION
Respondent
CORAM: SHEPPARD J. DATE : 27 MAY 1988
REASONS FOR JUDGMENT
HIS HONOUR: This appeal raises the question whether the applicant, the State Superannuation Board of New South Wales, was
entitled to a certificate of exemption under the Bank Account Debits Tax Administration Act 1982 ("the Adminlstration Act") In
respect of a bank account operated by it and known as a penslon account.
The applicant was formerly a body corporate constrtuted by S.
70 of the Superannuation Act 1916 (N.S.W.) ("the Act"). It was abolished on 1 April 1988; see S. 36 and clause 2 of Schedule 3
of the Superannuation Administration Act 1987 (N.S.W.). This Act constituted a new Board, the State Authorities Superannuatlon
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 applicant in this appeal. Sub-clause (l)(h) of clause 3 of the Schedule provided that all llquldated and unliquidated claims for which a former Board would, but for its abolition, have been liable, shall be liquidated and unliquidated claims for which the new Board shall be liable. Sub-clause (l)(b) is a comparable provision dealing with money and
liquidated and unliquidated claims payable to or recoverable by one of the former Boards.
It would seem to me that, before the order in this matter 1s
taken out, the title of the proceedings should be amended to substitute for the name of the present applicant, the name of the new Board. I give any necessary leave for this purpose. I have
reserved llberty to apply in case what I have said glves rise to any problem.
The change which has come about is of no other relevance or
consequence and I propose to proceed as if the old Board were still in existence. On 19 Hay 1983 the applicant wrote to the Deputy Commissioner of Taxation requesting exemption from the
bank account debits tax, operative from 1 April 1983, in relation to its bank account numbered 00-1546 with the Westpac Banking Corporation ("the pension account"), the sub~ect of this appeal. The applicant claimed that the debits from this account fell within sub-para. (a)(vii) of the definition of "excluded debit" in subsec. 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 applicant lodged an objection pursuant
to S . 22 of the Administration Act. This was subsequently disallowed by the Deputy Commissioner and on 30 March 1984 the
applicant requested that it be treated as an appeal and forwarded
to the Supreme Court of New South Wales pursuant to S . 23 of the
Administration Act. As a result of the Jurisdictlon of Courts (Miscellaneous Amendments) Act 1987 the appeal was transferred
from the Supreme Court to this Court.
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
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 Terrrtory; (C) a munlcipal
corporation or other local governing body,
other than such a Department,
authority, corporatron 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 carrylng 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 that
the amendment did not materially affect the outcome of this appeal.
The central question which the appeal raises for decision is
whether the applicant is an authority whose sole or principal
function is to carry on an activity in the nature of a business.
I . .
5.
The purpose of the Superannuatlon Act, accordlng to its
preamble, 1s to provide a State provident fund for persons employed by the State or by certain other bodles, whlch are
listed In Schedule I11 to the Act, and thelr families, and to
provide a system of voluntary saving by such persons. The applicant is constituted by S. 70 of the Act and is charged wlth the administration of the State Superannuation Fund established
by S. 4 of the Act. The Act was amended on a number of occasions after the disallowance by the respondent of the appllcant's
objection. Probably the form of the Act which it is relevant to
consider is the form of it at the date when the notlce of
objection was lodged, that is, 30 August 1983. I say "probably" because it is unnecessary to decide the question, the amendments
made subsequent to that date not making any materlal difference
to the position as it was on 30 August 1983 or before.
At the relevant time the applicant Board consisted of flve
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 applicant had an administrative staff of about 200, who were employed under the
Public Service Act 1979 ( N . S . W . ) In addition it employed property managers who were responsible for managing the bulldings
in which the applicant had invested moneys. Their employment was
not regulated by the Public Service Act ( S . 82A).
Section 4 of the Act provided that the Fund should not be
. . 1
6.
subject to taxation and that the appllcant was exempt from the payment of stamp duty. Sectlon 4 A ( 3 ) provided that nothing ln
that sectlon was to constitute the Board as a trustee of the Fund
nor imply that it was. The sectlon was concerned to confer on the applicant more extensive powers of investment than those
conferred by the Trustee Act 1925 (N.S.W.). Section 10N required every employee of the Government of New South Wales and the
bodies listed in Schedule 111 (subject to certain exceptions
contained in the definition of "employee" (S. 3)) to contribute to the Fund in accordance with the Act. A s at 3 0 June 1983 there were over 118,000 contributors and over 24,000 pensioners. The
Board was entitled to require employees to undergo a medical
examination ( S . 108). If an employee failed to pass such an examination the Board was obliged, sublect 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. 1OC). Section 10N was subject to the provisions for exemption from
contribution contained in S . 10T. The most srgnlficant
provisions were as follows:- (1) The Board might, on application made in accordance with
S . lOU, exempt from contributing to the Fund- (a) any employee who satisfied the Board that he had made adequate provision for himself and his family;
or
(b) any person of or above the age of 4 0 years who became an employee.
( 2 ) Where the wife of a contributor was also an employee, the Board might, on application made by her in accordance with S. 10U. exempt her from contributing to the Fund.
. .
l .
(3) The Board might, on application made in accordance with
S. lOU, exempt from contributing to the Fund a woman
employee who was eligible for a pension under ss. 30 or
It would appear that these provisions were very infrequently availed of. Although the evidence is not clear, it would seem that only about 100 applications for exemption were made each
year. There is no indication in the evidence of how many of these applications were successful.
The applicant administered the superannuation scheme
established by the 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 r ceived and the percentages of revenue from these three sources for the flnanclal
years 1982/83 and 1983/84 were as follows:-
1983/84 1982/83
Contributions Employer 37.2% 34.9% Contributions Employee 26.2% 26.6% Income Investment 36.2% 38.9%
$101.25m Revenue Total $112.51m
Employer contributions were paid into the Fund by the New
South Wales Government from Consolrdated Revenue except for
contributions relating to employers under Schedule I11 of the Act. These were paid directly by those employers. Employee
contributlons were deducted from the individual employees' salaries except for certain exceptional categories of employees,
eg. those on leave without pay who were responsible for payment
of both employer and employee contributions directly to theapplicant during the period of their 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 wereentitled 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 commutation of pensions was first introduced in
entitlement
in
a lump sum. Lump
sum
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 Act and calculated according to
the number of units held.
Sections 5 to 6 of the Act authorised the applicant to invest
in a variety of government and semi-government securities and loans to building societies ( S . 5 1 , certain types of company
shares, debt securities and corporate trusts (S. SA), 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
. . .
9.
deposits with the Treasury or a bank ( S . 6). Although It 1s not strictly relevant, I mentron that these sectlons were repealed in
1985 by the Superannuation (Amendment) Act 1985 (N.S.W.) and replaced by a new S. 6A which In subsec. (2) provided:-
"Subject to this section, the Board may, in such manner as It thlnks fit, apply the Fund
for the purpose of produclng income and forrelated purposes lncluding enterlng into such
arrangements, undertaking a d such obligations, as the Board thlnks fit."
Section 6A(4) required the applicant, so far as 1s practlcable,
to ensure that the assets of the Fund included government and
semi-government securities the cost of which was not less than 30per cent of the cost of all the assets of the Fund.
A list of the applicant's investments and their earnings
performance for the years ended 30 June 1983 and 30 June 1984
appeared in the applicant's 1983/84 Annual Report. It was asfollows:-
"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 Commonwedth Securities 14.09 12.94 Semi and Local Government Loans 12.00 11.33 Co-operative Hosing 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 evldence showed that in order to produce revenue for the
Fund, the applicant invested in a wide spread of Investments, the management of some of which required its active participatlon.
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 applicant. I t also constructed a retirement village, "Peninsula Gardens", for members of the general public. It had a large shareholding. ~t
had representatives on the boards of some small loint venture
companies. The applicant entered into ~ o i n t ventures with other institutions in relation to a number of prolects 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. I mention them only to give an indication of the broad range of investment activities undertaken by the applicant
The applicant 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 Act. This was a mechanism whereby membersmight have certain amounts deducted from their salaries and paid
into an account to be used by them at a later time. These funds
. _
11.
were placed
received a rate of interest on their money whlch was consldered
by the appllcant's representatives not to be a competltive ratein the general pool of the Fund. The members
of interest. This money might be withdrawn at call. Section 69
made provision for the holding of accounts jolntly wlth a non-member.
The applicant also operated an advisory service whlch
provided information to contrlbutors regarding thelr Fund
entitlements although it speciflcally disclamed provlding
financial advice. This service organlzed two-day retrrement preparation seminars which covered the topics of superannuatlon,
finance and retirement and estate planning. The advisory services
investment,
taxation,
health,
social
aspects
of
of the
applicant expanded over the years to take account of the perceived needs of members.
In administering the Fund the appllcant operated three bank
accounts with the Westpac Banking Corporation: an Investment
account (No. 0 0 - 1 5 6 2 ) , 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 wlth 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 servlces and
benefits, Government Actuary's fees, Board member allowances, commuted lump sum payments and the initial pension entltlement if
. .
12.
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.
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. It was agreed that the applicant was an authority of the State of New South Wales so that the only question to be decided is whether the applicant is an authority the sole or principal function of which is to carry on an activity in the nature of a business whether or not for profit. The starting
point is to determine the applicant's sole or principal function. The Hacquarie Dictionary defines "function" as "the kind of
action or activity proper to a person, thing, or institution".The Shorter Oxford English Dictionary gives as a definition: "The
by which it fulfils its purpose". This latter definition in special kind of activity proper to anything; the mode of action particular draws attention to the fact that "function" is more akin to "activity" and is to be distinguished from "purpose". In this connection it is relevant to mention that the applicant's 1983/84 Annual Report contained the following paragraphs:-
. .
13.
“Board Ob~ectives.
In line with the provisions of the Superannuation Act
1916,
* to provide superannuation benefits for salaried
employees of the New South Wales Public Service,
Teaching Service and of various tatutory authorities of the State;
* to provide such ancillary services as wlll enable Fund members to obtain the optimum benefit
from their Fund membership;
* to ensure that the Fund 1 s effectlvely managed
’ in regard both to general administration and in investment.
Main Functions
Provision of information and services to all Fund
members in relation to their membership of the scheme. Receipt of contributions.
Payment of benefits.Investment of the Fund.
Management of Fund assets.“
These statements are not determinative of the applicant’s
sole or principal function, but, in an exercise which involves
the ascertainment of that function, as distinct from its purposes or objects, they provide guidance as to what that function 1s.
There are some similarities between the test in the present case and the test for
a financlal corporatlon propounded
in State
Superannuation Board v. Trade Practices Commission (1982) 150
C.L.R. 282. That case involved the Vlctorian State Superannuation Board, a body very like the present applicant. The only significant difference between the two would seem to
have been that the present applicant operated a voluntary savings scheme for its members whereas the Victorian Board apparently dld
not. The Issue before the Hlgh Court was whether the Victorian
Board was a flnanclal corporation within S. 51( x x ) of the Constitution. Thus, the issue was dlfferent from whether the
Board's functron was an activity in the nature of a buslness. Nonetheless, in order to ChaKaCteKlZe the Victorian Board, both the majority and the minority looked to its actrvlties. The
majority (Mason J. (as he then was) and Murphy and Deane JJ.)
approved and applied the test laid down in Reg. v . Federal Court
- of Australia; Ex parte W.A. National Football League (1979) 143 C.L.R. 190 ("Adamson") in relation to tradlng corporatlons, which
they said (p. 304) involved the Court looking beyond its [the
corporation~sl "predomlnant and characteristlc activity" wlth the
"conclusion being open that it is a trading corporation once it is found that 'trading is a substantial and not merely peripheral activity'." The majority concluded (p. 306):-
"The facts as we have r cited them
demonstrate beyond any question that the appellant engaged in financial activities on
a very substantial scale. Even if we confine
our attention to such aspects of the appellant's investment activities as involve the making of commercial and houslng loans,
its business in this respect is very substantial and forms a significant part of
its overall activities. No doubt hese activities are all entered into for the end
purpose of providing superannuation benefits
to contributors, but, as we have seen, this
circumstance constitutes no obstacle to the
conclusion that the appellant is a flnancialcorporation."
But this conclusion is not decisive of the present case
because it is the "sole O K principal function" of the appllcant
. _
15.
which must be ascertalned. The minority in the - State Superannuation Board case (Gibbs C.J. and Wilson J.) (at p. 294) regarded Adamson as authority for no more than the proposltlon that a corporation, whose principal activity was trading was a trading corporation within S . 51(xx) and that a malority of the Judges who decided it "expressly or ... lmplicitly Indorsed the predominant and characteristic activity test." As a result they concluded that he Victorian Board was not a financial
corporation. Their Honours said (pp. 2 9 7 - 2 9 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 he Board oes - the receipt of
contributions, classification the of contributors, the determination of beneflts
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 sald 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
the to 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 ln terms of
its financial dealings but by reference to
the service it provides to government inVictoria by way of a superannuation scheme."
Although this dictum appears in a dissenting ludgment, I find
it of assistance in the resolution of the present problem. The
.
16.
point of the minority's departure from the reasoning of the majority was not in relation to a question similar to that being decided here. The two ~udgments reflect a fundamental difference of opinion in the approach to the determination of what 1s a financial (or trading) corporation. Once the minority took the view whlch they did, what they sald in the dictum lust quoted followed as a logical consequence. Nothing is said by the majority which would indicate that they had a different view In relation to that part of the minority's judgment.
I consider this passage helpful in the present case because
it focuses attention on the prrmary, predominant or
characterlstlc activity of the Board, a concept similar to principal function, and requires one to distinguish it from other ancillary, albeit substantial, activities. The Adminlstratlon Act makes it clear that a similar exercise must be undertaken when considering the definition of "excluded debit". One is searching for the sole or principal function of the authority in question. It is not sufficient that the authority can be said to have as one of its functions the carrying on of an activity In the nature of a business if this is not its sole OK principal
function.
The investment activitles of the applicant were significant.
They generated 38.9 per cent of its total revenue in 1983/84.
They involved its active participation i 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 applrcant's
.
17.
main activitles: 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 adminrstration of a superannuation scheme for government
employees. The investment activlties were anclllary or incidental to this function. The applicant's advisory servlce
falls into the same category. It was mainly designed to provlde
contributors with information regarding their Fund entrtlements,
although it might go somewhat beyond that, and as such was very
much incidental to the applicant's function of adminlstering thescheme.
The voluntary savings scheme is in a somewhat dlfferent
category. It was referred to in the preamble to the Act as being
one of the purposes of the statute. It therefore assumes a greater importance in the legislative framework. It provided
contributors with a savings facility similar to a bank or building society account and was thus In direct competitlon wlth
other institutions for contributors' savings. Accordlng to theevidence the interest rate was not competitive and Its popularity
was attributed to its convenience. The funds received formed part of the general Fund pool. However, in the applicant's
balance sheet as at 3 0 June 1984 voluntary savings amounted to a
liability of $6,579,000 out of a total llability of $43,602,000. This is to be compared with total assets of $2,793,055,000.
Accordingly, although it was a function of the applicant to provide a voluntary savings scheme, this does not alter the fact
that its principal function was to administer the superannuation
scheme. The savings scheme was incidental to this function. The
provision of housing loans at competitive interest rates, which
was a form of investment for the Fund, was a service to members and should be treated in the same way.
The questlon remains whether the administration of a
superannuatlon scheme for government employees constitutes the
carrylng on of an activity in the nature of a business (whetheror 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 glves as ~ t s first definition of nature:-
"The essential qualities of a thing; the
inherent and inseparable combination of properties essentiallypertainingto anything
and giving it its fundamental character."
In a sense there is little difference to be perceived between
the carrying on of an activity which has the nature (the
essential qualities or properties) of a business and the carrying on of a business. But I think that in the context in whlch the words are found there are Indications that the draftsman intended the words to have a wider reach than would have been the case i f
the expression used had been the carrying on of a business.
These words are in fact used elsewhere in paras. (a) and (b) of
the definition of "excluded debit" in subsec. 3(1) of the
Administration Act. Thus sub-para. ( i i ) of para. (a) uses the
words, ". . . the carrying on of a business by that person in
Australia", and sub-para. (iv) the words, ".. . other than
, .
. . .
19.
purposes related to activities that constltute the carrylng on of a business by that person in Australla". Paragraph (h) refers to
the carrying on of banking business in Australra.
It 1s to be observed that each of these instances refers
either to the carrying on of a business by a natural person or a company or indiscriminately to the carrying on of a buslness by a government or private bank. But when one comes to the provision
under consideration, the business activity is, ex hypothesl, the
activity of
an "activity in the nature of business", seems to me to have been
authority
of
government.
The
xpresslon,
u8ed deliberately to distinguish situations falling wlthin sub-para. (a)(vii) of the definition from cases falling within
other parts of it. The purpose of the distinction is I think
clear. ~t was to ensure that the many activities of government which might be likened to business activity, but which fell short
of it because they were so directly concerned with the day to day administration of government, would nevertheless be caught.
That conclusion, however, provides no more than a startrng
point f o r the consideration of the problem. One still needs to have a clear idea of what is involved in the carrying on of a business. It will only be as a result of a proper understanding of what that entails that one will be able to come to a conclusion on the ultimate question to be decided.
As Mason J. (as he then was) noted in Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. (1982) 150 C.L.R.
355 at
pp. 370-379, words such as
.
. _ . 20.
". .. 'business', 'commercial' and 'tradlng'
... have about them a chameleon-like hue,
readily adapting themselves their to surroundings, different though they may be."
The word "business" must always be read in context. Some help 1s nonetheless to be derived from examining dictionary and ludiclal definitions of the term. The Shorter Oxford English Dictionary
includes 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 ,I
which requires attention is a business ...
In Ryde v. Sullivan [l9561 S.R. ( N . S . W . ) 113 Street C.J., Roper
C.J. in Eq. and Herron J. (as he then was) 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 indicates that it is not essential.
e .
. . . 21.
On the other hand, Barwlck C.J., in Hungler v. Grace (1972)
127 C.L.R. 210, in commenting on the statement in Edgelow v.
MacElwee [l9181 1 K.B. 205 at p. 206 that "the word 'business'
imports the notion of system, repetitlon, and contlnulty" sard
(p. 217):-"Whilst no doubt system and regularity are involved in the carrying on of a business, it does not necessarily follow that one who has
transactions of the same kind systematically
or regularly is carrying on a business in those transactions. One may systematlcally
make regular deposits to a bank account butnot be carrying on a business of doing so.
In other words, system and regularity of
making transactions are not in themselves definitive in this field. Their absence may
well deny that a business 1s being carried on
but their presence does not necessarlly establish that it is."
To these references may be added a reference to the ~udgment of
Gibbs J. (as he then was) in Smith v. Capewell (1979) 149 C.L.R. 509 at pp. 517 - 519.
In the course of the hearing of the present case considerable
discussion centred on the questions whether membership of the
Fund was compulsory and whether it was In competition with other
private superannuation decision of the Administrative Appeals Tribunal (Mr.
schemes.
This
was
as
a result
of a
P.H Roach)
in Re Australian Broadcasting Corporation a d Federal
Commissioner of Taxation (1988) 88 A.T.C. 2019 where the A.B.C. was held not to be an authority whose sole or principal function
was to carry on an activity in the nature of a business because it did not compete with its rivals for thelr principal source of
L L .
revenue, namely advertising revenue. The Tribunal based its conclusion on a statement contalned in the second reading speech
in which the Bank Account Debits Tax Administration Amendment
Bill 1984 (Hansard, H. of R., 5 September 1984, p. 651) was explained to the House of Representatives. The Minister said:-
"This policy taxing of all business
activitles of government bodies ensures equality of tax treatment with any private
sector competitors but has meant that local
councils that carry on business activitles
such as operating swimming pools, child care
centres and caravan parks are subject to thetax in respect of those activities even where
they represent an insignificant part of a council's functions and are not commercial In
a real sense."
Whilst competition is an aspect of business and a relevant consideration in the present context,
1s certainly
it cannot be decisive of whether an authority's principal function 1s the
carrying on of an activity in the nature of a business. The bracketed phrase "whether or not for profit" expressly provides
otherwise.
Section 10N of the Superannuation Act provlded that, subject
to that or any other Act, every employee should contribute to the Fund in accordance with the Act. The exceptions to thls were for those who did not pass the required medical examination and those
who were granted exemptions from contribution under S . 10T. From
a practical point of view, I think that the evidence establlshes that the Fund is in effect one which the employees of the New
South Wales Government and the other employer bodies to which the
Act refers were required to join. The numbers of appllcatlons for exemption were comparatively insignificant and the inference
which should be drawn is that for all practlcal purposes membership of the Fund was required of all employees except In
the special circumstances which have been earlier mentioned.
This view of matters is in line with the opinion expressed by the members of the Court of Appeal of New South Wales in Athanaslou v. State Superannuatlon Board (1985) 12 I.R. 204 at pp. 211-2, 213 and 218.
The question to be decided is 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). Although the applicant was apparently not a rustee ( S . 4A of the Act), the evidence establrshes that in substance its sole or principal function was to act as the admlnistrator of a substantial trust, the objects or beneficiaries of which were the
employees of the New South Wales Government and the other
statutory or semi-Government bodies who were members of the Fund.
In order to discharge its function the applicant was obliged tocollect and receive contributions from both the employers and the
employees. These were invested by it in a variety of ways which have been earlier described. The income of the applicant and thus the trust consisted of the contributions and the investment
income which it received from time to time. Out of this income
were paid the entitlements to superannuation of the employees
determined in accordance with the provlsions of the Act. All
this activity plainly involved the applicant engaging in a regular and systematic course of conduct. What was, however,
absent from its activities was the conduct of a commercial
- *
D
. . l
24.
enterprise in the sense in which that expression 1s understood In ordinary language. The applicant was an organ of Government.
Although it invested moneys and received interest and dividends
and also surpluses on the sale of investments, it was not intended to make a profit. Nor, so it seems to me, was lt intended ordinarily to be competitive although, no doubt, those responsible for its administration kept an eye on the amount of
superannuation benefits being received by employees of other governments or in the private sector. But for there to be any
substantial increase of beneflts, an amendment to the Act would
have been necessary so that the appllcant was perforce obliged to act within the confines of its Act.
However large a trust may be, it does not necessarlly follow
that the trustee administering it is carrying on a business. In most cases he will not be unless there are amongst the assets of
the trust, specific assets which themselves may be described as businesses. If the question were whether the applicant were
carrying on a business, using that expression In the sense indicated by the dictionaries and authorities to which reference
has been made, I would have reached the conclusion that the question should be answered in the negative. But one needs to bring into account the omlssion of profit as a determining or
necessary factor and, more importantly, the fact that the
question is whether the authority has as its sole or principal function the carrying on of an activity in the nature of a business.
In the course of the argument an attempt was made to draw an
- 0 D
. .
25.
analogy between the actlvlties of the applicant and those of the
large life insurance companies which provzde superannuatlon benefits to a wide range of employees In the community by a variety of superannuation schemes. I have found it difflcult to gain assistance from such an exerclse principally because my own
understanding of how these schemes are constltuted IS only a broad and general one and may, for that reason, not be entirely
accurate. In any event I do not regard knowledge of the way in which other organizations provide superannuation benefits as
being in the category of knowledge which 1s sufficiently
notorious for it to be alluded to hy a court without the
production of evidence. One knows, of course, that many employers have superannuation schemes for their employees, some constituted independently of any support from or connection wlth
a life insurance company and some not. And I suppose one could ask oneself the question whether the carrying on of such an activity by a non-government trading organization was itself a business as distinct from being part of the general business activity of the organization. But I do not think that these considerations are of assistance in the context of the present
problem.
I have looked, as I have indicated, at the Victorian State
Superannuation Board case, butthe questions which confronted the
Court in that case were different from those which are raised by this appeal. As earlier said, some of what the minority there
said is helpful, but it cannot be decisive of what the outcome of
this case should be.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 activlty falls
within the Act or not. A starting point for that exercise 1s 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, lf confirmation werenecessary, 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 mentloned, 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 i f 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 instrumentalitles,
whether offshoots of the Crown or not, do carry on business inthe 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 provlslonof 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 contrlbutions and the earning of Income from a wlde
range of investment has many of the hallmarks of business activity.
In the result the appeal IS dismissed with costs.
1 certify that thls and the dLb precealng
p q are a true copy of the reasons for ~ judgment herein of The Honourable
Counsel for the Applicant: Mr. I.L. Johnston Solicitor for the Applicant: Mr. S.W. Spencer,
15th Floor,
No. 1 Margaret Street,
SydneyCounsel for the Respondent: Ms. M. Beazley,
Solicitor for the Respondent: Australian Government Solicitor,
111 Elizabeth Street,Sydney .
Dates of hearing: 7 and 8 March 1988
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0