Cameron Brae Pty Limited v Commissioner of Taxation [2007] FCAFC 135 (21 August 2007)

Last Updated: 21 August 2007

FEDERAL COURT OF AUSTRALIA

Cameron Brae Pty Limited v Commissioner of Taxation [2007] FCAFC 135

INCOME TAX – superannuation – payment to non-complying fund by way of discretionary trust – no fringe benefits tax payable – no deduction under s 82AAE Income Tax Assessment Act 1936 (Cth)

INCOME TAX – payment to superannuation fund capital not revenue expense

WORDS AND PHRASES – "superannuation fund", "for the purpose of making provision for superannuation benefits for an eligible employee", "fully secured", "fringe benefit", "indefinite"

Acts Interpretation Act 1901 (Cth) s 15AA
Fringe Benefits Tax Assessment Act 1986 (Cth) s 136
Income Tax and Social Services Contribution Assessment Act (No 3) 1952 (Cth) s 11
Income Tax and Social Services Contribution Assessment Act 1961 (Cth) s 11
Income Tax and Social Services Contribution Assessment Act (No 3) 1964 (Cth) ss 6, 18
Income Tax Assessment Act 1915 (Cth) ss 11, 18
Income Tax Assessment Act 1922 (Cth) ss 14, 23
Income Tax Assessment Act 1936 (Cth) ss 6, 23, 23F, 23FC, 66, 78, 79, 82AAA, 82AAC, 82AAD, 82AAE, 82AAM, 82AAT, 121B, 226K, 267
Income Tax Assessment Act 1941 (Cth) ss 12, 13
Income Tax Assessment Act 1944 (Cth) s 7
Income Tax Assessment Act 1965 (Cth)
Income Tax Assessment Act 1997 (Cth) s 8-1
Occupational Superannuation Standards Act 1987 (Cth) s 3
Occupational Superannuation (Reasonable Benefit Limits) Amendment Act 1990 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth) s 10
Taxation Laws Amendment Act (No 4) 1987 (Cth)
Taxation Laws Amendment Act (No 2) 1989 (Cth)
Taxation Laws Amendment Act (No 2) 1992 (Cth)
Taxation Laws Amendment Act (No 4) 1994 (Cth)
Taxation Laws Amendment (Superannuation) Act 1992 (Cth)

BP Australia Limited v Commissioner of Taxation [1965] HCA 35; (1965) 112 CLR 386
Braverus Maritime Inc v Port Kembla Coal Terminal Ltd [2005] FCAFC 256; (2005) 148 FCR 68 referred to
British Insulated and Helsby Cables Limited v Atherton [1926] AC 205 applied
CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384 applied
Commissioner of Taxation v Citylink Melbourne Ltd [2006] HCA 35; (2006) 228 ALR 301 referred to
Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Limited (2007) 158 FCR 325 discussed
Compton v The Commissioner of Taxation [1966] HCA 1; (1966) 116 CLR 233 referred to
Driclad Pty Limited v Commissioner of Taxation [1966] HCA 59; (1968) 121 CLR 45 referred to
Essenbourne Pty Limited v Commissioner of Taxation [2002] FCA 1577; (2002) 51 ATR 629 discussed
Federal Commissioner of Taxation v The Northern Timber and Hardware Company Proprietary Limited [1960] HCA 93; (1960) 103 CLR 650 referred to
GP International Pipecoaters Proprietary Limited v Commissioner of Taxation [1990] HCA 25; (1990) 170 CLR 124 applied
Hallstroms Proprietary Limited v Federal Commissioner of Taxation [1946] HCA 34; (1946) 72 CLR 634 applied
Harris v Commissioner of Taxation [2002] ATC 4659; (2002) 125 FCR 46 discussed
Hart v Commissioner of Taxation of the Commonwealth of Australia [2002] FCAFC 222; (2002) 121 FCR 206 referred to
HP Mercantile Pty Limited v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553 referred to
Jeffrey James Prebble Pty Limited v Commissioner of Taxation [2003] FCAFC 165; (2003) 131 FCR 130 discussed
Magna Alloys and Research Pty Limited v Commissioner of Taxation [1980] FCA 150; (1980) 33 ALR 213 followed
Mahony v Commissioner of Taxation (1965) 39 ALJR 62 referred to
Mahony v Commissioner of Taxation (1968) 41 ALJR 232 referred to
Metropolitan Gas Company v Federal Commissioner of Taxation [1932] HCA 58; (1932) 47 CLR 621 referred to
Mount Isa Mines Limited v Commissioner of Taxation [1992] HCA 62; (1992) 176 CLR 141 referred to
Network Ten Pty Ltd v TCN Channel Nine Pty Limited [2004] HCA 14; (2004) 218 CLR 273 applied
Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 applied
Pridecraft Pty Limited v Commissioner of Taxation [2004] FCAFC 339; (2004) 213 ALR 450 followed
Raymor Contractors Pty Limited v Commissioner of Taxation (1991) 21 ATR 1410 discussed
Scott v Commissioner of Taxation (1966) 40 ALJR 265 referred to
Sun Newspapers v The Federal Commissioner of Taxation [1938] HCA 72; (1938) 61 CLR 337 applied
Walstern Pty Limited v Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1 discussed
Winchombe Carson Ltd v Commissioner of Taxation (NSW) (1938) 5 ATD 69 referred to






CAMERON BRAE PTY LIMITED v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 892 OF 2006

STONE, ALLSOP AND JESSUP JJ
21 AUGUST 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 892 OF 2006

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	CAMERON BRAE PTY LIMITED Appellant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGES:	STONE, ALLSOP AND JESSUP JJ
DATE OF ORDER:	21 AUGUST 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. Within seven days of the publication of the reasons of the Court, the respondent file and serve draft short minutes of orders giving effect to those reasons.
2. Within seven days of the respondent filing and serving short minutes of order in accordance with order 1, the parties file submissions as to costs and as to any dispute concerning the orders proposed by the respondent.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 892 OF 2006

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	CAMERON BRAE PTY LIMITED Appellant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGES:	STONE, ALLSOP AND JESSUP JJ
DATE:	21 AUGUST 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

STONE AND ALLSOP JJ

1 We have had the advantage of reading in draft the reasons for judgment of Jessup J. His Honour’s reasons relieve us of the burden of describing the factual background and context of the resolution of the issues and permit us to express our views assuming the background that he has identified. Though we are in agreement with parts of his Honour’s reasons, we are unable to agree with his conclusion that the appeal should be allowed.

The issues for consideration

2 Taking the appeal and the notice of contention together, there are four broad issues for resolution:

(a) whether the IS & PL Superannuation fund (the "Fund") is a superannuation fund for the purpose of s 82AAE of the Income Tax Assessment Act 1936 (Cth) (to which we will refer as the "Tax Act" when referring to its consolidated form, from time to time);
(b) whether the $500,000 paid by the appellant to the Fund was "for the purpose of making provision for superannuation benefits for an eligible employee" of the appellant;
(c) whether, if no deduction is allowable under s 82AAE of the Tax Act, the payment was deductible under s 8–1 of the Income Tax Assessment Act 1997 (Cth) (the "1997 Act"); and
(d) whether the appellant was properly liable to penalty tax under s 226K of the Tax Act.

The approach to interpretation

3 The resolution of issues (a) and (b) rests on the proper interpretation of the phrases "superannuation fund" and "for the purpose of making provision for superannuation benefits for an eligible employee" in s 82AAE. The task of interpreting these provision is to be carried out by reference to the history and context of the legislation: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR at 408; Newcastle City Council v GIO General Ltd (1997) 191 CLR at 112; Network Ten Pty Ltd v TCN Channel Nine Pty Limited [2004] HCA 14; (2004) 218 CLR 273 at [10]- [11] and the cases otherwise cited in Braverus Maritime Inc v Port Kembla Coal Terminal Ltd (2005) 148 FCR at [36]. In the context of revenue statutes (not implying any different approach), see Jeffrey James Prebble Pty Limited v Commissioner of Taxation (2003) 131 FCR at [24]-[35] and HP Mercantile Pty Limited v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553. The context here includes the statutory history of the provisions in question, as well as any other statute that can be viewed as part of that context. Of course, at the heart of the task is the giving of close attention to the text and structure of the relevant provisions as the words used by Parliament.

Summary

4 We agree with Jessup J that the Fund was a superannuation fund for the purposes of
s 82AAE of the Tax Act. That agreement involves a rejection of the respondent Commissioner’s submissions that the ordinary meaning of the phrase "superannuation fund" excludes a fund set up solely for superannuation purposes, but in which a trustee has the power to choose which members of the fund receive superannuation benefits and in what amount. We disagree with Jessup J about the purpose of the payment here. That disagreement is founded upon what we see as the content of the phrase "of making provision for superannuation benefits for an eligible employee" in s 82AAE. We see that phrase as requiring the payment to make provision for, in the sense of provide, individual personal benefits, for an existing employee or employees. Where the decision to provide such benefits is at the discretion of the trustee, both in relation to making a payment and in deciding who is to be the beneficiary of such payment, merely augmenting the funds under the control of the trustee is not sufficient to provide individual personal benefits for an existing employee or employees.

5 Given that our view is that there is no deduction available under s 82AAE, it is necessary to deal with s 8–1 of the 1997 Act. (There was no debate about the availability of s 8–1 as a basis for deductibility in these circumstances.) In our view, there is also no deduction available under s 8–1. Although we are prepared to accept that the payment was an outgoing satisfying s 8–1(1), we consider that the payment was an outgoing of capital for the purposes of s 8–1(2).

The relevant provisions

6 Section 82AAE was in the following terms (having since been repealed):

A deduction is allowable under this Subdivision in respect of an amount paid by a taxpayer as a contribution to a non-complying superannuation fund (as defined by subsection 267(1)) for the purpose of making provision for superannuation benefits for an eligible employee other than such an employee who is an exempt visitor to Australia for the purposes of section 517 in relation to the year of income in which the amount is paid.

7 Section 8–1 of the 1997 Act is in the following terms:

(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your * exempt income; or
(d)  a provision of this Act prevents you from deducting it.

(3) A loss or outgoing that you can deduct under this section is called a general deduction.

The history and context of s 82AAE

8 The resolution of both issues (a) and (b) is assisted by an understanding of the background and context of s 82AAE. In Harris v Commissioner of Taxation (2002) 125 FCR at [24] - [67], the Full Court, in dealing with a different issue of construction, discussed the statutory context and legislative history of ss 82AAE and 82AAA of the Tax Act. The same issue and the same history were discussed in Prebble 131 FCR at [30]-[53]. The issue in Harris and Prebble was whether the same person could be both the contributing taxpayer (seeking the tax deduction) and also the eligible employee. The Full Court in Harris answered that question in the negative, finding that there was required to be a relationship between two parties (the employer or a party in its stead) and the employee. The Full Court in Prebble applied Harris (Hill and Hely JJ on the basis that Harris was not clearly wrong and Spender J on the basis that it was correct). Special leave in Prebble was refused on the basis that there was insufficient prospects of success in demonstrating error in Harris or in how Prebble treated Harris.

9 The parties, in particular the respondent, provided a comprehensive body of earlier statutory provisions and secondary materials. We have had careful regard to that material and, in particular, the Income Tax Assessment Act 1915 (Cth), (the "1915 Act"), ss 11 and 18; the Income Tax Assessment Act 1922 (Cth) the "1922 Act", ss 14 and 23(1)(j); the Income Tax Assessment Act 1936 (Cth) (to which we will refer as the "1936 Act" when referring to the Act passed in that year), ss 23(j), 66 and 78(1)(b); the Income Tax Assessment Act 1941 (Cth) (the "1941 Act"), ss 12 and 13 which amended ss 66 and 78(1) of the Tax Act; the Income Tax Assessment Act 1944 (Cth) (the "1944 Act"), s 7 which inserted a new s 66 into the Tax Act; the Income Tax and Social Services Contribution Assessment Act (No 3) 1952 (Cth) (the "1952 Act"), s 11 which amended s 66 and inserted s 23(ja) of the Tax Act; the Income Tax and Social Services Contribution Assessment Act 1961 (Cth) (the "1961 Act") , s 11 which inserted the first definition of "superannuation fund" into the Commonwealth tax legislation by inserting s 121B into the Tax Act; the Report of the Commonwealth Committee on Taxation (the "Ligertwood Committee"), in particular chapter 22 concerning superannuation funds; the Income Tax and Social Services Contribution Assessment Act (No 3) 1964 (Cth) (the "1964 Act"), s 6 which inserted which inserted s 23F and amended s 23 of the Act and s 18 which inserted Subdivision AA containing ss 82AAA to 82AAR, replacing ss 66 and 79 of the Tax Act, and thereby giving statutory form to many of the recommendations of the Ligertwood Committee; the Income Tax Assessment Act 1965 (Cth) (the "1965 Act"), which introduced into s 6(1) of the Tax Act a definition of the phrase "superannuation benefits"; the Taxation Laws Amendment Act (No 4) 1987 (Cth) (the "1987 Act"), which repealed s 23F, introduced s 23FC and introduced an inclusive definition of "superannuation fund" into s 6(1) of the Tax Act; the Taxation Laws Amendment Act (No 2) 1989 (Cth) (the "1989 Act"), which introduced Part IX into the Tax Act, entitled "Taxation of Superannuation Business and Related Business", and Schedule 1 which, amongst other things, amended s 82AAA, repealed ss 82AAB to 82AAP and replaced them with a new s 82AAC; the Occupational Superannuation (Reasonable Benefit Limits) Amendment Act 1990 (Cth) (the "1990 Act"); the Taxation Laws Amendment Act (No 2) 1992 (Cth) (the "First 1992 Act"); the Taxation Laws Amendment (Superannuation) Act 1992 (Cth) (the "Second 1992 Act"); and the Taxation Laws Amendment Act (No 4) 1994 (the "1994 Act"), which amended s 82AAC and introduced s 82AAE.

10 A minute, provision by provision, analysis of that history would be unhelpful and opaque in an attempt to explain our reasons. Thus, we propose to extract what we see as the general propositions relevant to understanding and interpreting s 82AAE as it appeared in the Tax Act in the year of income.

11 First, the provisions covering deductions were concerned with the existing employees of an employer. This was so even if the payment was for the benefit of the general body of employees: see especially the 1944 Act and s 66 discussed in Harris 125 FCR at [23]-[27]. The identified individual person who is an employee can also be seen in the 1990 Act, the First 1992 Act and the Second 1992 Act. The definitions of "eligible employee" and "employee" in s 82AAA also make that clear:

"eligible employee", in relation to a taxpayer means -

(a) in the case of a taxpayer whether a company or a person other than a company -
(i) an employee of the taxpayer;
(ii) an employee of a company in which the taxpayer has a controlling interest; or
(iii) an employee of a company in which the taxpayer is the beneficial owner of shares but in which the taxpayer does not have a controlling interest (not being an employee who is associated with the taxpayer or who, or a relative of whom, has set apart or paid, or entered into a contract, agreement or arrangement under which he is, or will or may be, required to set apart or pay, amounts as or to a fund for the purpose of providing superannuation benefits for, or for a relative of, the taxpayer); and
(b) in the case of a taxpayer being a company -
(i) an employee of a person that has a controlling interest in the taxpayer; or
(ii) an employee of a company in which a controlling interest is held by a person who also has a controlling interest in the taxpayer;

"employee" means a person who is employed by a taxpayer and -

(a) is engaged in producing assessable income of the taxpayer; or
(b) is a resident of Australia and is engaged in the business of the taxpayer.

12 Secondly, the contributions that were deductible provided for "individual personal benefits, pensions or retiring allowances" to such employees. This notion of individual personal benefits to existing people reinforces the notion of present and real benefits, as opposed to possible or expected benefits.

13 Thirdly, the contributions that were deductible provided such individual personal benefits to such existing employees. Various phrases were used: "to provide" (see the 1915 Act, s 18(j); the 1922 Act, s 23(1)(j); the 1936 Act and the Tax Act, ss 66 and 78(1)(b)); "the provision of" (see the 1941 Act, as it amended the Tax Act, ss 66 and 78(1); and the 1944 Act, in particular the form of s 66(2) of the Tax Act introduced thereby); and "make provision for" (see the 1952 Act and the form of s 66(1) introduced thereby; the 1964 Act and the form of ss 82AAC, 82AAD, 82AAE, 82AAM introduced thereby; the 1989 Act and s 82AAC introduced thereby; and the 1994 Act and s 82AAE introduced thereby). All the relevant deduction provisions can be seen as involving an element of purpose. In the earlier provisions, the purposes can be seen as immanent within the infinitive "to provide". For example, "sums set aside or paid by an employer of labour as or to a fund to provide individual personal benefits etc": the 1915 Act, s 18 (j); "So much of any sum set apart or paid by the taxpayer ... as or to a fund to provide individual personal benefits etc": the 1936 Act, s 66. In 1964, the phrase "for the purpose of making provision for superannuation benefits" was introduced: the 1964 Act, ss 82 AAC, 82AAD, 82AAE and 82AAM. This constant element of purpose was accompanied by the element that the payment, or setting aside, of sums would itself create the right to receive the superannuation benefits, which, of course, were defined as "individual personal benefits, pensions or retiring allowances". It is in the nature of superannuation that the physical receipt of funds by the employee would be in the future. Thus, the word "benefits" incorporates or involves the notion of the right to the benefit which will mature in due course. However, implicit in all the provisions is that the payment or setting aside that was deductible provided, that is "furnished or supplied" (see The Macquarie Dictionary Revised Ed 1985 p 1367) rights to receive the superannuation benefits, which benefits were always described or defined as "individual personal benefits, pensions or retiring allowances". Although the phrase "make provision for" might be seen as having a somewhat wider meaning of "making arrangements for supplying" (see also The Macquarie Dictionary Revised Ed 1985 p1367) we would not read the phrase so widely here. As we read the provisions to which we have referred, the references "provide" or "provision" in all the relevant provisions carried with them the notion of supplying or furnishing the right to superannuation benefits by the payment.

14 Fourthly, these propositions, especially the second and third, can be seen to be confirmed and underpinned by the express requirement, until the 1989 Act removed it, that the rights to receive the benefits be "fully secured": see the 1915 Act, s 18(j); the 1922 Act, s 23(1)(j); the 1936 Act and the Tax Act, ss 66 and 78(1); the 1964 Act, s 82AAC. In relation to the notion of "fully secured" being referable to the right to receive the benefits, see Federal Commissioner of Taxation v The Northern Timber and Hardware Company Proprietary Limited (1960) 103 CLR at 657.

15 The notion of provision of benefit to existing employees was recognised in the judgments in the Full Court in Raymor Contractors Pty Limited v Federal Commissioner of Taxation (1991) 21 ATR 1410, a case dealing with years of income from 1974 to 1977. Davies J (with whom Wilcox J agreed) said, at 1412 and 1413:

In s 82AAC(1), the word "purpose" required that the sum set apart or paid in the year of income effected a contribution towards superannuation benefits for or for a dependant of an eligible employee. The term did not look primarily to the subjective factors actuating the setting aside or payment of the sum claimed. Thus, in the ordinary case, it was sufficient to found a deduction that a superannuation fund had been established solely for the provision of superannuation benefits for employees and their dependants, that the fund had been maintained for that purpose, that a sum appropriate, having regard to the provisions of s 82AAE and 82AAM, had been set aside or paid into the fund for the fund’s purposes and that the rights of the employees and dependants to receive benefits from the fund were fully secured. If such were the case, it was not pertinent that the sum was set apart and paid into the fund not out of beneficence but out of a duty imposed by law or by an industrial award and not of consequence that the employer had taken into account in establishing and maintaining the fund that incidental benefits such as taxation benefits or the borrowing of sums from the fund at a low rate of interest could be obtained.
[emphasis added]

...

Subdiv AA of Div 3 was very much concerned with the relationship between the sum set apart or paid and an individual employee or employees. Section 82AAC(1) uses the expressions "an eligible employee’ and "the employee". Section 82AAE specifies the amounts allowable in respect of the amount set aside or paid "for the purpose of making provision for superannuation benefits for, or for dependants of, any one employee". These provisions, which reflect the concept in s 66 of the former, namely "individual personal benefits", are concerned to ensure that moneys are set aside or paid for the purpose of providing benefits for individual employees who have rights in the fund and that those rights are fully secured. It is not necessary that an employer should turn his attention to the particular circumstances of each employee when making a contribution for it is sufficient that the contribution is made for the purpose of benefiting all or identifiable members of the fund. If no allocation has been made, the Commissioner may determine a sum deemed to be "the part of the amount set apart or paid in respect of a particular employee" It is not, however, sufficient that the employer has in mind that the moneys in the superannuation fund will ultimately go to the benefit, not of the general members of the fund, but of a remaining employee or employees such as a managing director/principal shareholder. Funds which are managed for such an ultimate end are not funds maintained for the benefit of the employees in respect of whom the contributions have, in the formal sense, been set apart or paid into the fund.
[emphasis added]

16 Hill J in the same case, agreeing in the result, said the following at 1425:

Second, to the extent that Spender J may be thought to have suggested that a payment by way of contribution to a superannuation fund was not deductible unless in the year of income that payment was allocated by the contributor amongst the relevant employees, so wide a proposition could not be accepted. Many fund deeds require the employer contributor to pay an amount, actuarially calculated to be sufficient to fund the totality of benefits payable by the fund. In such case no particular amount may be paid in respect of a particular employee although it would be possible on an actuarial basis to calculate how much of the total payment was referable to a particular employee.

There is no reason why the words "an eligible employee’ in s 82AAC might not be read in the plural as well as in the singular. So read, it would be sufficient if a taxpayer, for the purpose of making provision for superannuation benefits for eligible employees, paid an amount in the year of income. If the amount were undifferentiated, in that sense, as the Act stood in 1977, s 82AAM would operate to enable the Commissioner to determine the allocation. The terms of that section reinforce the view that s 82AAC is capable of operation when an amount is paid without allocation to a fund in which benefits are to be provided for more than one employee. Section 82AAM provides as follows:

"Where a taxpayer sets apart or pays an amount as or to a fund for the purpose of making provision for superannuation benefits for, or for dependants of, more than one employee but does not specify the part of the amount set apart or paid in respect of a particular employee, that part shall, for the purposes of this Subdivision, be deemed to be such amount as the Commissioner determines."

17 The fact that, as Hill J discussed, s 82AAM at the relevant time provided for the Commissioner to determine an allocation for the purposes of the section by deeming an amount to have been set apart or paid in respect of a particular employee does not undermine the need for the payment to create present and real, as opposed to possible or expected benefits. Rather, this fact and the fact that an amount might be paid to a fund but not allocated at the time of payment or the time of the consideration of deductibility reinforce this need. As Hill J said in the first of the paragraphs quoted above, the addition of funds to a pool to fund the defined benefits of the employees was deductible. Deductibility was not limited to contributions to funds in which employees had accounts and was not denied to contributions to defined benefits funds. These propositions do not mean however, that a payment to a fund which effects no existing benefit to an employee is deductible. We will return to this issue in dealing with issue 2 below.

18 In addition to appreciating these propositions, it is important to understand the structure of the relevant changes made by, and after, the 1989 Act, including, in particular, the 1994 Act.

19 The 1989 Act introduced Part IX into the Tax Act – "Taxation of Superannuation Business and Related Business". Part IX introduced the distinction between a complying and a non-complying superannuation fund. As was said in Harris 125 FCR at [58]:

The 1989 Act introduced a new Pt IX, "Taxation of Superannuation Business and Related Business". Within Pt IX, s 267 introduced a distinction between a "complying superannuation fund" (being a fund the subject of a notice under either ss 12 or 13 of the Occupational Superannuation Standards Act 1987 (Cth)) and a "non-complying superannuation fund" (being a fund that was a superannuation fund, but not a complying superannuation fund). Complying superannuation funds were taxed at a concessional 15 per cent rate (and had various other tax advantages). A non-complying fund was taxed at the top marginal rate of tax. Contributions to superannuation funds were liable to tax in the hands of the fund trustee. Pursuant to s 274(1)(a)(i), taxable contributions to an "eligible entity" (which included both a complying and non-complying superannuation fund (s 267(1)) included "an amount in respect of which a deduction is allowable ... under section 82AAC to the person making the payment" and, pursuant to s 274(1)(a)(ii), "a contribution made by a person (in this section called the `contributor') to obtain superannuation benefits for the contributor or, in the event of the death of the contributor, for dependants of the contributor". Section 274(2) made particular provision for contributions to which s 274(1)(a)(ii) applied. (There were further amendments to s 274 in 1989, by virtue of which s 274(1)(a)(ii) became s 274(1)(b): see Taxation Laws Amendment (Superannuation) Act 1989 (Cth), s 48. An effect of this change was that only amounts paid to a complying superannuation fund to obtain superannuation benefits for the contributor or his or her dependants were taxable contributions. Section 274(1)(b) subsequently became s 274(1)(b)(i): see s 3 of the Superannuation Guarantee (Consequential Amendments) Act 1992 (Cth) and the Schedule to that Act. Like s 274(1)(b), that section was limited in its application to complying superannuation funds.) As the Commissioner observed, broadly speaking, the effect of the 1989 amendments was to render all superannuation funds liable to income tax in the hands of their trustees. The liability extended to all contributions that were deductible to the contributor under ss 82AAC and 82AAT.

(Section 82AAT was in Subdivision AB of Division 3 of Part III dealing with contribution to superannuation funds by (non-employer) eligible persons for himself or herself (and his or her dependants.)

20 The 1989 Act, which for the first time provided for the taxation of superannuation funds, removed the deductibility for merely setting apart of funds by the taxpayer. For deductibility, the payment was required to be made to a superannuation fund. As part of these changes, the requirement for the benefits to be fully secured was removed. This requirement can be seen as unnecessary if contributions were required to be made to a superannuation fund of the kind defined in s 6(1) of the Tax Act after the amendments in the 1987 Act and in the 1990 Act. The Explanatory Memorandum stated that the denial of deductibility for superannuation contributions merely set aside, but not paid to a superannuation fund was tied to removing limits on the deductibility of contributions and assessing super funds on contributions. It stated that "only amounts paid into funds, and thus subject to contributions tax, will be deductible". The 1989 Act also removed the limits on deductibility of superannuation contribution made by the employers on behalf of employees.

21 The 1990 Act introduced reasonable benefit limits and s 82AAC was amended by adding subsections (2) and (3) which limited any deduction under subsection (1) to two funds in respect of one employee. This was raised to three funds in 1992 by the First 1992 Act if one of the funds was a government fund established before 1 July 1990. Later in 1992, s 82AAC was amended by Second 1992 Act to introduce age-based limits on deductions for contributions to superannuation funds, rather than restriction on the number of funds. Sections 82AAC (2) and (2A) were omitted and replaced by s 82AAC(2) to 82AAC(2H). The continued focus upon the relationship of the contribution to existing employees (and implicitly the furnishing or supplying of relevant benefits to them by the relevant payment) can be seen in the terms of s 82AAC(2) when read with s 82AAC(1). Section 82AAC(2) was in the following terms after the Second 1992 Act:

Subject to subsection (2D) (which deals with elective deduction limits), the total of the deductions allowable under subsection (1) for contributions made by a taxpayer, or by a taxpayer and one or more associates of the taxpayer, in a year of income in respect of a particular employee must not exceed the employee’s deduction limit for the year of income (worked out under subsection (2A)).

22 The 1994 Act provided for deductions to complying superannuation funds (by replacing "eligible" with "complying" in s 82AAC(1)(b)). Section 82AAE was inserted in the terms set out above, being its form in the relevant years of income here.

23 The 1994 Act not only introduced s 82AAE, but it also made amendments to the definition of fringe benefit in the Fringe Benefits Tax Assessment Act 1986 (Cth) (the "FBT Act"), s 136(1)(j). Before these amendments by the 1994 Act, fringe benefits did not include any benefit under paragraphs (f) to (p) of the definition of "fringe benefit" in the FBT Act, s 136(1). Paragraph (j) of s 136(1) was in the following terms:

"a benefit constituted by –

(i) the making of a payment of money to; or
(ii) the setting apart of money as,

a superannuation fund;"

The phrase "superannuation fund" was defined in s 136(1) as:

"(a) an eligible superannuation fund within the meaning of Part IX of the [Tax Act], or
(b) a scheme for the payment of benefits upon retirement or death, being a scheme constituted by or under a law of the Commonwealth or of a State or Territory."

24 The 1994 Act replaced this form of paragraph (j) with the following:

"(j) a benefit constituted by:
(i) the making of a payment of money to a superannuation fund (as defined by subsection 6(1) of the Income Tax Assessment Act 1936) that the person making the payment had reasonable grounds for believing was a complying superannuation fund (as defined by subsection 267(1) of the Income Tax Assessment Act 1936); or
(ii) the making of a payment of money to a non-resident superannuation fund (within the meaning of section 6E of the Income Tax Assessment Act 1936) in respect of a person who is an exempt visitor to Australia for the purposes of section 517 of that Act in relation to the year of income in which the payment is made;"

25 It is important to understand the intended symmetrical operation of the FBT Act and "fringe benefit", on the one hand, with s 82AAE of the Tax Act, on the other. This symmetry was a consequence of changes made to both the Tax Act and the FBT Act by the 1994 Act. These changes introduced ss 82AAD and 82AAE into the Tax Act and amended the definition of "fringe benefit" in s 136(1)(j) of the FBT Act. This symmetry was explained in [7.99]-[7.101] of the Explanatory Memorandum to the Taxation Laws Amendment Bill (No 4) 1994, as follows:

What changes will be made to employer contributions?

7.99 Employers will continue to be entitled to deductions for superannuation contributions only under Subdivision AA of Division 3 of Part III of the ITAA [item 40]. However, the deduction limits in section 82AAC will be restricted to contributions paid to a complying superannuation fund [item 38] or to a non-complying superannuation fund provided that the taxpayer making the contribution had reasonable grounds for believing that the fund was a complying fund [item 39 – new subsection 82AAD].

7.100 Any contributions paid by an employer to a non-resident superannuation fund in relation to an eligible employee who is an exempt visitor for the purposes of section 517 of the ITAA will not be allowable as a deduction [item 39 – new subsection 82AAE]. Such contributions will not be fringe benefits and therefore will not be subject to tax under the FBTAA [item 2 – new subparagraph (j)(ii) of the definition of fringe benefit in subsection 136(1) of the FBTAA].

7.101 Any other contributions paid by an employer for eligible employees to a non-complying superannuation fund will be deductible. The amount of the deduction will not be limited to the amounts specified in section 82AAC [item 39 – new subsection 82AAE]. However, these contributions will be fringe benefits and subject to tax under the FBTAA [item 2].

[emphasis in original]

26 The intended symmetry was that if a deduction was available, fringe benefits tax was payable; if a deduction was not available, fringe benefits tax was not payable. No such express link about the operation of each Act was stated. But the intended symmetrical operation can, however, be seen as part of the context in which s 82AAE is construed and interpreted (cf Prebble 131 FCR at 143 [54]).

27 The background leading up to the changes made in the 1994 Act, and these changes themselves, in particular the relationship between the intended operation of s 82AAE and the FBT Act reveal (as Davies J said in Raymor Contractors 21 ATR at 1412 and 1413 in relation to the then s 82AAC) that for the payment to be deductible there was a requirement of a relationship between an employer and existing (and identifiable) employee and the purpose of the provision of funds was to be the effecting of the rights to the relevant kind of benefits to such employee or employees. These matters go to informing the content of the relevant purpose of the payment (or setting aside in earlier provisions) which has always been present, whether by express use of the word "purpose" or by the immanent content of the infinitive "to provide".

Issue 1: Was the Fund a "superannuation fund" for the purposes of s 82AAE?

28 Subject to the qualifications and comments expressed below, we agree with Jessup J, that the Fund was a "superannuation fund".

29 The first definition of the phrase "superannuation fund" in the tax legislation appeared in the 1961 Act by the insertion of s 121B into the Tax Act. It was variously amended in the 1964 Act (see s 23F introduced into the Tax Act thereby), the 1987 Act (see s 23FC introduced into the Tax Act thereby), the Occupational Superannuation Standards Act 1987 (Cth) (the "OSS Act"), s 3(1), the 1989 Act (see the definitions in ss 6(1) and 267(1) of the Tax Act introduced thereby) and the 1994 Act (see the new definition in s 6(1) of the Tax Act).

30 The relevant definition here is in s 6(1) of the Tax Act, as follows:

"superannuation fund" means

(a) a scheme for the payment of superannuation benefits upon retirement or death; or
(b) a superannuation fund within the definition of ‘superannuation fund’ in section 10 of the Superannuation Industry (Supervision) Act 1993;

31 The relevant definition of "superannuation fund" in s 10 of the Superannuation Industry (Supervision) Act 1993 (Cth) (the "SIS Act") is as follows:

"superannuation fund" means

(a) a fund that:
(i) is an indefinitely continuing fund; and
(ii) is a provident, benefit, superannuation or retirement fund; or
(b) a public sector superannuation scheme;

32 It is sufficient for present purposes to conclude that the Fund satisfied paragraph (a) of the definition of the phrase in s 6(1) of the Tax Act. No argument took place on the meaning of the phrase "indefinitely continuing fund" for paragraph (a)(i) in the definition in the SIS Act, s 10. In these circumstances, we would reserve consideration of the meaning of that phrase, save to say that the ordinary meaning of the word "indefinite" is "without distinct limitation of being or character; indeterminate, vague, undefined; of indetermined extent, amount or number": The Shorter Oxford English Dictionary on Historical Principles (Oxford 1973) vol 1 p 1053. One can readily understand the argument that a trust such as the present satisfied such a definition.

33 The argument of the respondent that there was required to be in the fund a fixed or secured body of benefits (in effect vested in interest), not subject to the discretionary power of a trustee for their grant, finds no foundation in either the ordinary meaning of the phrase "superannuation fund" or in the cases. There is no reason why a fund set up by an employer into which contributions were placed to benefit its employees and their dependants by providing at the discretion of a trustee superannuation benefits to the most needy of the employees would not meet the general notion of a fund for retirement benefits or the contents of paragraph (a) of the definition in s 6(1) of the Tax Act. If the terms of such a trust were that no other purpose could be effected but the payment of superannuation benefits to such of the class of employees as the trustee decided, we see no reason why the trust would not answer the description of a superannuation fund. The only difference here is there is no express criterion of need. But the essential point is the same: the terms of the trust were limited to providing superannuation benefits: cf Mahony v Commissioner of Taxation (1965) 39 ALJR 62 of 63 (per Owen J at first instance).

34 None of the cases supports the proposition that the ordinary meaning of the phrase "superannuation fund" excludes a fund governed by the terms of a trust under which the trustee has a discretion as to the identity of the recipient of the benefits. The cases referred to in argument, Scott v Commissioner of Taxation (1966) 40 ALJR 265; Mahony v Commissioner of Taxation (1968) 41 ALJR 232; Compton v Commissioner of Taxation [1966] HCA 1; (1966) 116 CLR 233; Driclad Pty Limited v Commissioner of Taxation [1966] HCA 59; (1968) 121 CLR 45; Walstern Pty Limited v Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1; and Winchombe Carson Ltd v Commissioner of Taxation (NSW) (1938) 5 ATD 69, permit the confident conclusion that a trust is only a superannuation fund if its sole purpose is for the payment of superannuation benefits. The circumstances in which it was held that that was not so and where benefits might be seen to be illusory and not real were cases where the deed permitted persons to benefit other than by way of superannuation or where the conduct of the affairs in connection with the fund made it apparent that purposes other than superannuation were engaged. These cases do not deny the possibility of the trustees of a "superannuation fund" having the kind of discretion held by the trustee here. Indeed, the comments of Owen J in Mahony 39 ALJR at 63 contemplate that very thing.

35 The answer to this question does not, however, answer the next question about the purpose for which the payment is made by the taxpayer as a contribution. The fact that the phrase "superannuation fund" is wide enough to encompass a discretionary arrangement such as is present here does not conclude the issue that a payment by way of contribution to it satisfies the balance of s 82AAE.

Issue 2: Was the payment of $500,000 to the Fund a contribution for the purpose of making provision for superannuation benefits for an eligible employee?

36 It seems to us plain from the material before the primary judge that the purpose of Mr Hazlett senior and Mr Currie was that the payment was to enable the trustee of the fund at some future time to provide or make provision for superannuation benefits in accordance with the trust deed to one or other of Mr Hazlett or his son, Andrew.

37 The primary judge stated the following at [56]:

In these circumstances, I find that the purpose of Cameron Brae in making the contribution of $500,000 to the IS & PL Fund was to enable David Hazlett, and, if David Hazlett chose, Andrew Hazlett, to take money out of the company as what would be called superannuation benefits, it being recognised that David Hazlett’s benefits under the existing CBP Fund could not be increased in a tax effective way. It follows that the contribution was not made for the sole purpose of providing superannuation benefits for eligible employees within the meaning of s 82AAE

38 This is to be understood by reference to what the primary judge said at [54], as follows:

I am reinforced in this conclusion by several further circumstances. In the first place, there is no evidence that the directors of Cameron Brae gave any consideration, before making the contribution, to what would be an appropriate benefit to be provided to either David or Andrew Hazlett by way of superannuation, if and when he qualified for it. It has to be borne in mind that, in 1998, David Hazlett was already aged 52 years and had, as Mr Currie has deposed, an existing entitlement on retirement to approximately $1 million from the CBP Fund. I accept that a permissible motive for making contributions to a superannuation fund may be the attraction and retention of suitable employees. It was therefore legitimate for the directors to structure a generous superannuation benefit for Andrew Hazlett in the event that he was "up to the task" of succeeding his father as managing director of Cameron Brae. However, for the reasons explained above, by nominating Andrew solely as a Discretionary Class member, the directors did not assure him of any superannuation benefit even if the succession plan were implemented as hoped. Nor was any attempt made to apportion the contribution to reward successful or improved performance or effort or fidelity by either David or Andrew Hazlett as contemplated by par 1(c) of the directors’ resolution reproduced at [4] above.

39 The conclusion of the primary judge in [56] is to a degree inconsistent with what we think was plain as to purpose from the material, that is that the payment was to enable the trustee, some time in the future, to provide or make provision for superannuation benefits. Nevertheless, we conclude, for somewhat different reasons to the primary judge, that there was no relevant purpose.

40 The central questions are the meaning of s 82AAE, and whether what might be said to have been the superannuation-related purpose of those involved was a purpose contemplated by s 82AAE.

41 The arguments of the respondent Commissioner in this respect were put most clearly in the written submissions filed, with leave, after the completion of the hearing. In these submissions, attention was focused upon the requirement, for deductibility, of the provision (in the sense of furnishing or supplying) of superannuation benefits (in the sense we have discussed) to individual existing employees as an attribute of this part of s 82AAE, rather than as an attribute of a "superannuation fund" as defined.

42 The history of the provisions to which we have referred makes clear that deductions for payments in respect of employee superannuation have been available in a variety of statutory contexts, but always in circumstances where individual personal benefits, pensions or retiring allowances were provided to, that is furnished or supplied to, existing employees of the taxpayer employer with rights to such benefits by the payment. This can be seen from the earliest provisions dealing with the requirement of benefits being secured: Metropolitan Gas Company v Federal Commissioner of Taxation (1932) 47 CLR at 631. The need for the employees to be existing was always present. The payment was from an employer for the benefit of an existing employee. The right to receive the benefit was to be secured.

43 The purpose of the taxpayer cannot satisfy s 82AAE if the result of the payment is not such as "makes provision for superannuation benefits for an eligible employee". In our view, the payment here did not do so. The requirement of s 82AAE was that the purpose of the payment be to make provision for, that is to furnish or supply, personal benefits, pensions or retiring allowances for an existing employee or employees. The payment by Cameron Brae to the trustee of the Fund did not do so. No superannuation benefit (involving the necessary notion of the right to a benefit) was provided by the payment. As Discretionary Members of the Fund, each of Mr David and Mr Andrew Hazlett had an entitlement to have his position considered by the trustee for the payment of benefits upon the occurrence of a qualifying event. The payment to the Fund, however, provided no benefit to either, apart, of course, from the creation of a fund from which value may flow, if the trustee, in the future, exercised its discretion. Mr Hazlett and Mr Currie no doubt had the expectation (indeed, no doubt, a confident expectation) that there would be an exercise of discretion for either Mr David or Mr Andrew Hazlett. But the right to the exercise of any such discretion to one or the other was not in the trust deed; and the right of either to receive superannuation benefits was not in the trust deed.

44 The history of the legislation and the terms of s 82AAE require that a purpose of the payment be to make provision for individual personal benefits for existing people. There is thus required to be a relationship between the payment and the effecting or furnishing or supplying of the relevant benefit. Putting a trustee in funds to make it possible for a wide discretion to be exercised in favour of one or other of existing employees is not the same as a contribution that makes provision for superannuation benefits (involving the right to receive such benefits) for the existing employees. It is making provision for the possibility in the future of superannuation benefits being provided to someone whom one cannot identify and who, on the terms of the trust deed and given the width of the class, may not presently be an employee of the taxpayer.

45 Even if the surrounding facts and the deed allowed one to assume that one or other of Mr David Hazlett and Mr Andrew Hazlett would obtain a benefit when the trustee exercised the discretion, the payment did not, itself, make provision for a superannuation benefit in the relevant sense. So, absent an argument based on some misunderstanding of the effect of the trust deed (of which there was no suggestion), the purpose of the payment was not for the making provision for relevant benefits. This approach is not only consistent with the historical development of the legislation it is also consistent with the terms and operation of cognate legislation, the FBT Act, amended by the 1994 Act which inserted s 82AAE.

46 If the purpose of the payment in s 82AAE is to make provision for, that is provide for, individual personal benefits for existing and identifiable employees, a harmony and symmetry in operation is brought about between s 82AAE and the FBT Act. It is plain from the Explanatory Memorandum that some symmetry was intended. It can be easily appreciated that what was not intended was that a deduction would be available, but no fringe benefits tax be payable. Hill J in Walstern 138 FCR at [4] and Hill J and Hely J in Prebble 131 FCR at [54] referred to this symmetry.

47 The intention of Parliament as construed by this Court was that the FBT Act applied only when a benefit is provided to an identified employee: see Essenbourne Pty Limited v Commissioner of Taxation (2002) 51 ATR at [54]; Walstern at [87]; and Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Limited (2007) 158 FCR at [35]–[39]. The primary judge concluded, following Essenbourne and Walstern, that no benefit had been provided here to an identifiable employee. The appeal by the Commissioner against that conclusion was abandoned in the light of the Full Court’s opinion in Indooroopilly.

48 It is an elementary canon of statutory interpretation that a Court will give meaning to a statutory provision in accordance with, rather than contrary to, the revealed purpose of the provision: see the Acts Interpretation Act 1901 (Cth), s 15AA. Here, the statutory history, the terms and structure of the 1994 Act and the Explanatory Memorandum to the Bill which led to the 1994 Act, make it apparent that s 82AAE was concerned with a purpose (as was the FBT Act, using different words) of making provision for, that is providing, by the payment, individual personal benefits (involving the notion of rights to those benefits) to existing employees. The payment, as a contribution, did not do so here. The purpose was limited and controlled accordingly. No FBT was payable; no deduction was available.

49 The primary judge was correct to conclude, therefore, that the purpose of the taxpayer was not one found in s 82AAE.

50 The conclusion that we have reached is not inconsistent with Walstern [2003] FCA 1428; 138 FCR 1. In Walstern 138 FCR at [69] Hill J, said the following:

There is another problem for Walstern under s 82AAE. At the time Walstern made the contribution there was no person who was a member of the fund. In law the trustee of the fund held the contribution upon resulting trust for Walstern pending nomination of an employee as member and ultimate acceptance of the person as member after payment of the qualifying contribution. It is true that a deduction would be allowable for a contribution to a fund where there were members of the fund, notwithstanding that at the time the contribution was made there had been no allocation among the members. That was decided in Raymor. But the present case goes beyond the issue of allocation which arose in Raymor. The fact is that unless and until any person became a member (and this did not happen until the later year of income) it simply was not correct to say that Walstern had made a contribution to a fund for the benefit of a person who was an eligible employee. It remained within the power of Walstern to have the contribution repaid to itself as owner in equity of the money, unless it took the further step of nominating a person as a member.

51 Hill J’s comment about Raymor was directed to his reference in that case that there had been no allocation amongst existing employees. But as the passage in Hill J’s judgment in Raymor reveals (see [16] above) the lack of allocation was discussed in the context of s 82AAM (a provision present in the Tax Act prior to its repeal in 1989) in the following terms:

Where a taxpayer sets apart or pays an amount as or to a fund for the purpose of making provision for superannuation benefits for, or for dependants of, more than one employee but does not specify the part of the amount set apart or paid in respect of a particular employee, that part shall, for the purposes of this Subdivision, be deemed to be such amount as the Commissioner determines.

52 The premise of s 82AAM and of the first paragraph of the extract from the judgment of Hill J in Raymor, 21 ATR at 1425 quoted at [16] above was that the payment did furnish or supply, and so was for the purpose of furnishing or supplying, a superannuation benefit even if allocation or actuarial calculation was required to determine what was referable to a particular employee.

53 Although here, unlike the facts in Walstern, the payment was made to the Fund after the employees became members, nevertheless, since the payment provided or furnished no benefit to either of them, the same comment can be made as Hill J made in [69] of his reasons in Walstern 138 FCR at 19, "it simply was not correct to say that [Cameron Brae] had made a contribution to a fund for the benefit [in the sense of provision of a superannuation benefit] of a person who was an eligible employee." In Walstern , at the time the payment was made, there was no relevant employee member of the fund and Walstern could retrieve the money as the owner of it in equity. Here, although the relevant persons were members of the discretionary class at the time the funds left the taxpayer, Cameron Brae, the payment made no provision for a relevant benefit, in the sense that we have discussed, to either of the two Hazletts.

54 It is unnecessary to seek to be exhaustive in the description of the irreducible minimum of the relevant benefit provided, or for which provision is made, by any particular payment under s 82AAE. It is sufficient for present purposes to appreciate that, on the terms of the Fund, the payment by Cameron Brae provided, or made provision for, no benefit to any existing eligible employee of Cameron Brae.

Issue 3: Was the payment deductible under s 8-1 of the 1997 Act?

55 The first question that arises in the satisfaction of s 8–1(1) of the 1997 Act is whether the payment was an outgoing to the extent that it was incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. The primary judge answered this in the negative.

56 There was no dispute on appeal that the primary judge correctly applied the test set out in the joint judgment of Deane and Fisher JJ in Magna Alloys and Research Pty Limited v Commissioner of Taxation [1980] FCA 150; (1980) 33 ALR 213, as discussed by Hill J in Walstern 138 FCR at 19-20. Regard should also be had to the reasons of Hill J in Hart v Commissioner of Taxation of the Commonwealth of Australia (2002) 121 FCR at [26]-[34].

57 The primary judge concluded that he was unable to impute to the appellant taxpayer objectively, or its directors subjectively, the view that the contribution was desirable or appropriate in the pursuit of the business ends of the appellant enterprise.

58 The primary judge’s reasoning in this respect was as follows at [60]-[61]:

In the present case, the purpose of Cameron Brae in making the payment to the IS & PL Fund, which has been identified as serving its business ends, was to attract Andrew Hazlett to become a full-time employee of the company and remain in its employ until he should succeed his father as managing director. It is therefore necessary to determine whether the contribution made in 1998 could, objectively, be reasonably seen at that time as desirable or appropriate in pursuit of that end. I have not been persuaded that the contribution in the form and amount in which it was made could reasonably be regarded, looking at the matter objectively, as likely to advance the business interests of Cameron Brae. Andrew Hazlett, at the time when the payment was made, was only 26 years of age and working as a part-time mechanic. He had apparently not revealed by then any conspicuous commercial or administrative acumen so that his father saw him as succeeding to the position of managing director only "if he was up to the task". Moreover, as David Hazlett frankly conceded in the passage from his affidavit reproduced at [47] above, he and Mr Allen conceived that the contribution would be made in such a way that the so-called superannuation benefit would accrue to David Hazlett "if things didn’t work out with Andrew". Nor could it seriously be suggested that, in 1998, a provision of a further superannuation benefit was appropriate or desirable to preserve David Hazlett’s continuing involvement in Cameron Brae’s business.

A related consideration tends to the same conclusion, even if, contrary to my clear impression, the attraction and retention of Andrew Hazlett as a full-time employee were objectively capable of advancing Cameron Brae’s business interests. That is the fact that, because the benefit under the IS & PL Fund was only available to him contingently on the exercise of an unfettered discretion, the contribution to the Fund, when viewed objectively, was not calculated to achieve the desired end. As already indicated at [53] above, as a Discretionary Member, Andrew Hazlett could be totally deprived of any payment out of the Fund by an adverse exercise of the Trustee’s discretion even if Cameron Brae’s avowed purpose of attracting and retaining his services were achieved by his succeeding his father as managing director.

59 If we may respectfully say, there is force in the approach of the primary judge. In the light, however, of the family context of the business, it might be that the payment, when understood in the light of the evidence, could be objectively viewed as an incentive for Mr Andrew Hazlett to stay on in the business. Although a father’s wishes for his son intruded, there was a business, as well as a family. The wisdom, or otherwise, of that aim was one for the directors to assess. It is, however, unnecessary to express a final view on s 8–1(1), since, in our view, the payment was an outgoing of a capital nature. Thus s 8–1(2)(a) was not satisfied.

60 Central to the distinction between expenditure on capital account and expenditure on revenue account is the character of the advantage sought by the expenditure: Hallstroms Proprietary Limited v Federal Commissioner of Taxation (1946) 72 CLR at 647; Sun Newspapers v Federal Commissioner of Taxation (1938) 61 CLR at 359. In Sun Newspapers at 363, Dixon J identified three matters to be considered in drawing this distinction, namely,

(a) the character of the advantage sought, ... (b) the manner in which it is to be used, relied upon or enjoyed ... and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment.

Dixon J’s approach to the distinction was approved by the Privy Council in BP Australia Limited v Commissioner of Taxation (1965) 112 CLR at 394; and by the High Court in GP International Pipecoaters Proprietary Limited v Commissioner of Taxation (1990) 170 CLR at 137; Mount Isa Mines Limited v Commissioner of Taxation (1992) 176 CLR at 147-149; and Commissioner of Taxation v Citylink Melbourne Ltd (2006) 228 ALR at [1], [3], [76], [77] and [148].

61 In GP International, at 137, the High Court commented that the character of the advantage sought is the "chief, if not the critical, factor in determining the character of what is paid". Further, as Dixon J said in Hallstroms Case 72 CLR at 648, the character of the outgoing:

depends on what the expenditure is calculated to effect from a practical and business point of view, rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process.

62 The appellant submitted that the payment was in the nature of remuneration. We cannot agree. The payment was not a recurring matter dealing with personnel. It was a one-off payment which was intended to act, in part, as an incentive for Mr Andrew Hazlett. It did so, however, in the way reflected in the board minute pursuant to which the payment was made, which stated as follows:

The Chairman tabled and the Directors considered actuarial calculations (a copy of which is attached to these Minutes) prepared by Gosling Chapman on behalf of the Company in respect of the amount which should be contributed by the Company to The IS & PL Superannuation Fund ("the Fund") so as to provide a reasonable level of funds for superannuation benefits for Employees of the Company who are Discretionary Class Members of the Fund and the operation of the Fund. The Director UNANIMOUSLY RESOLVED to pay the sum of $500,000 to the Fund as a contribution by the Company pursuant to the terms and provisions of the trust deed of the Fund.
[emphasis added]

63 There was no suggestion in the evidence that this was one of a recurrent body of payments. The payment character of the advantage was in our view squarely within the words of Viscount Cave LC in British Insulated and Helsby Cables Limited v Atherton [1926] AC 213-214:

...when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is a very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. For this view there is already considerable authority. ...

64 From the terms of the minute, the payment established the capacity to provide superannuation benefits under the terms of the trust deed of the Fund. In that sense, it created the capital of a trust fund. It was a one-off payment, based on actuarial calculations as the base or capital fund on which the trustee’s discretion could work and in respect of which the trustee’s discretion could be engaged.

65 Thus, in our view, no deduction was available under s 8–1.

Issue 4: Was penalty tax payable?

66 The respondent imposed a penalty under s 226K of the Tax Act. Section 226K was relevantly in the following terms:
Subject to this Part, if

(a) a taxpayer has a tax shortfall for a year; and
(b) the shortfall or part of it was caused by the taxpayer, in a taxation statement, treating an income tax law as applying in relation to a matter or identical matters in a particular way; and
(c) the shortfall or part, as the case may be, so caused exceeded whichever is the higher of:
(i) $10,000; or
(ii) 1% of the taxpayer’s return tax for that year; and
(d) when the statement was made, it was not reasonably arguable that the way in which the application of the law was treated was correct;

the taxpayer is liable to pay, by way of penalty, additional tax equal to 25% of the amount of the shortfall or part.

67 In Walstern at 25-28 [102]-[114] Hill J dealt with the proper approach to s 226K in a way that was adopted by the Full Court in Pridecraft Pty Limited v Commissioner of Taxation (2004) 213 ALR at [108].

68 The primary judge’s views that the taxpayer’s position was not reasonably arguable depended upon his Honour’s factual conclusions about purpose for s 82AAE and as to the outgoings nature for the purpose of s 8–1(1).

69 Our reasons depart somewhat from those of the primary judge as to why the purpose of the appellant did not conform to the requirements of s 82AAE. We share Jessup J’s views that the primary judge’s assessment of the purpose of the appellant was flawed when his Honour ascribed a "non-superannuation purpose" to the appellant. The purpose of the appellant was to provide $500,000 to the Fund and for such moneys to be dealt with according to the terms of the trust deed of the Fund. The purpose of the appellant was expressed in the board minute as one related to the subject of superannuation. Nevertheless, for the reasons we have given, the terms of the trust deed were not sufficient to convert that superannuation-related purpose into one satisfying s 82AAE.

70 In our view, the question of construction and interpretation of s 82AAE was reasonably open and arguable. No authority squarely covered it. The proper interpretation depended upon the construction of s 82AAE informed by a full appreciation of the statutory history. The argument about the applicability or satisfaction of s 82AAE was arguable. That question can be seen as subsuming s 8–1, if it were answered one way. If it be necessary to decide, we are also prepared to conclude that the issue as to the characterisation of the outgoing as capital or revenue was arguable. Whilst in our view it is clear that it was a payment of a capital nature, the question is open to debate in the sense of being arguable.

71 In these circumstances, we would allow the appeal on the question of penalty tax only. The orders that we would make are that within seven days the respondent file draft short minutes giving effect to these reasons and that within seven days thereafter the parties file submissions on costs and on any dispute as to the orders proposed by the respondent.

I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Stone and Allsop .

Associate:

Dated: 21 August 2007

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 892 OF 2006

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	CAMERON BRAE PTY LIMITED Appellant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	STONE, ALLSOP AND JESSUP JJ
DATE:	21 AUGUST 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

JESSUP J

72 This is an appeal from a judgment of the court given on 21 July 2006 by which the appellant’s appeal against the disallowance by the respondent Commissioner of its objection to an amended assessment of income tax dated 7 February 2003 was dismissed. The question which arose before the trial Judge was whether the appellant was entitled to a deduction for a contribution of $500,000 which it made to a trust fund called the IS & PL Superannuation Fund ("the fund"), of which a company incorporated in New Zealand, International Superannuation and Pensions Limited ("the trustee") was trustee, with respect to the tax year ended 30 June 1998. The appellant contended that it was entitled to a deduction pursuant to s 82AAE of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act"), alternatively pursuant to s 8-1 of the Income Tax Assessment Act 1997 (Cth) ("the 1997 Act"). His Honour resolved both questions adversely to the appellant.

73 The appellant was incorporated in New South Wales, and carried on a variety of businesses including the leasing of real estate properties, investment management and providing management services to its subsidiaries. The appellant’s Managing Director was Mr David Hazlett. His son, Andrew Hazlett, was working part-time as a mechanic for Berowra Waters Mariner Pty Ltd, a wholly-owned subsidiary of the appellant. In that employment, Andrew Hazlett was paid a salary of $24,300.

THE FUND AND THE DEED

74 By a deed made on 11 June 1993 ("the deed"), the fund was established by the "principal employer" referred to in the deed, Brumby International Limited, of Hong Kong. The other party to the deed was the trustee. The deed was introduced by the following recitals:

A. It is the desire of the Principal Employer to establish and maintain a superannuation fund for the purpose of providing retiring allowances and other benefits for such of the present and future employees of the Principal Employer (and of any Participating Employer) as shall be eligible to and shall elect to become members of the Fund and obtain the benefits of membership for themselves or in certain circumstances, for their Dependants.
B. The Trustee has agreed to act as Trustee of the Fund in accordance with the provisions of this Deed.
C. The Fund is established and maintained solely for the purpose of providing superannuation benefits for Members in the event of their retirement or in certain circumstances, for the Dependants of Members.

By the deed, the principal employer and the trustee exchanged the following covenants:

The Principal Employer covenants with the Trustee, and the Trustee for itself, its successors and assigns covenants with the Principal Employer, mutually to perform and observe the covenants, trusts, and conditions of this Deed so far as the same are or ought to be observed by each of them respectively.

75 As contemplated by the first of the recitals set out above, the fund had the purpose of providing benefits to employees of "participating employers" as well as to those of the principal employer. A participating employer was an employer admitted to participation in the fund in accordance with cl 37 of the deed, which provided, relevantly, as follows:

In the event that any Corporation ... makes application to the Trustee to be admitted in its capacity as an Employer to make Contributions to the Fund as a participating Employer for the purpose of making provision for Benefits for Members employed by the Employer or Employees who wish to become Members and who are employed by the Employer and who are nominated by the Employer for Membership of the Fund; and ... the Trustee consents to the admission of the Participating Employer; and ... any Corporation making such application executes this Deed ... then such Corporation shall become a Participating Employer subject to the terms, conditions and provisions of this Deed ....

Employees of a participating employer became members of the fund upon nomination by the employer. Nominees were required to complete an application for membership in the form set out in a schedule to the deed. The application served also as the nominees’ acceptance of the employer’s nomination of them, pursuant to the following part of cl 45(ba) of the deed:

Any Employee who any Employer nominates pursuant to Clause 8(a) as a Discretionary Class Member shall become a Discretionary Class Member of the Fund subject to the Employee’s acceptance of the nomination and the Trustee approving the Employer’s nomination, upon and with effect from the date on which the Trustee gives such approval.

76 The deed provided for different classes of membership, the relevant one for present purposes being the "discretionary class". By cl 12A(a) of the deed,

The Trustee shall establish and maintain a separate Account for each Discretionary Class in which shall be entered and recorded all Contributions by the Employer for the purpose of making provision for Benefits for Members of the relevant Discretionary Class, all other income of the Fund earned on or reasonably attributable to the investment or re-investment of any amounts, proceeds or assets forming part of the available assets of the relevant Discretionary Class and additions or accretions to the Fund for the relevant Discretionary Class or the investment or re-investment of such contributions, income, additions or accretions and any surplus transferred to the Account pursuant to Clause 12A(e) which shall be credited to the said Account and all costs, charges, losses, outgoings, deficiencies, taxes and expenses of the Fund which the Trustee determines should properly be debited to the Account.

Unlike the situation in the case of other members of the fund, a member of the discretionary class did not have his or her own "account" within the fund. The effect of the provision set out above was that, for all discretionary class members in the employ of the employer in question, there was a single account within the fund. Subsequent provisions of cl 12A required that there be credited to that account –

... any Contributions by the Employer for the purpose of making provision for Benefits for Members of the relevant Discretionary Class ...

the income earned by or attributable to that account, relevant additions and accretions and other relevant receipts as set out in detail in the clause. Contributions to be credited to the account of a discretionary class could be made by the employer, but not by a member of the class: the trustee was precluded, by cl 22(a)(ii) of the deed, from accepting a contribution from a discretionary class member in his or her capacity as such. As to employer contributions, pars (ii)-(iv) of cl 22(b) of the deed provided as follows:

(ii) An Employer may make Contributions to the Fund for the purposes of making provision for Benefits for Members of the relevant Discretionary Class.
(iii) Contributions to the Fund for the purposes of making provision for Benefits for Discretionary Class Members shall only be made by the Employer of such Discretionary Class Members.
(iv) An Employer may only make Contributions to the Fund for the purpose of the Trustee providing Benefits to a Member or Members of the Fund who are Employees or former Employees of the Employer pursuant and subject to and in accordance with the powers conferred by this Deed and the terms, conditions and provisions of this Deed.

77 Once nominated (and approved) as a discretionary class member, the person concerned would remain a member of that class, notwithstanding the termination of his or her employment with the relevant employer, until his or her membership of the fund ceased pursuant to cl 8(f) of the deed. That subclause provided that –

[a] person shall cease to be a Member of the Fund upon the earliest to occur of the following:

i) the date upon which payment of all the Member’s Benefits is made to the Member, including all Benefits which the Trustee has determined to pay to a Discretionary Class Member;

ii) the death of the Member;
...

iv) the date when Benefits payable to or on behalf of a Member, including Benefits which the Trustee has determined to pay to a Discretionary Class Member, ceases to be payable; or

v) such date as the trustee shall reasonably determine;

vi) the date upon which the Trustee discontinues the Membership of the Fund of the Member pursuant to Clause 8(d); or
vii) the date upon which the Trustee discontinues the Membership of the Fund of the Member pursuant to Clause 8(da),

PROVIDED THAT where a Policy providing disablement benefits has been effected in respect of the Member that Member shall remain a Member shall remain a Member for such period following resignation, dismissal or retirement from Gainful Employment as the Trustee shall determine.

Of the provisions set out above, it is hard to see how (i) could have any application in the case of a discretionary class member, so long as the class remained in existence and had "available assets". Clause 8(d) gave the trustee the right (in its absolute discretion) to discontinue the membership of a member in certain circumstances where the member had given the trustee incorrect or misleading information, or had withheld information. Clause 8(da) was as follows:

A Discretionary Class Member shall inform the Trustee as soon as practicable after the Member ceases employment with their Employer. Within ninety (90) days of receiving such information from the Discretionary Class Member or from any other source, the Trustee shall, except where the Trustee determines to pay any Benefit to the Member pursuant to Clause 53 or where the Member ceases employment with their employer by virtue of an event described in Clause 39(a), discontinue the Membership of the Fund of such Member.

Clause 39(a) of the deed provided that an employer would cease to be "an employer for the purposes of the fund" in the event of the appointment of a receiver, in the event of its liquidation, or in the event that it permanently terminated its contributions to the fund by notice in writing to the trustee.

78 The circumstances in which payments might have been made out of a discretionary class were the subject of cl 12A(c) of the deed, as follows:

The following amounts and proceeds shall be debited to the Account of a Discretionary Class:

A. any Benefit payments made to or for the benefit of or in respect of any Discretionary Class Member or Members;
B. any amounts or proceeds allocated to any Discretionary Class Member;
C. the whole or such proportion of any amount payable by way of Taxation in respect of any Contributions to the Fund as the Trustee may reasonably determine or consider equitable;
D. the whole or such proportion of costs, charges, losses, outgoings, deficiencies, Taxes and expenses of the Fund which the Trustee reasonably determines should properly be debited to the Account.

Putting aside the rather obscure terms of B, it appears from this provision that the only circumstances in which payments might have been made out of a discretionary class account were, first, the requirement to pay, or to contribute to a share of, taxes, costs, charges, expenses etc, and, secondly, the need to make a benefit payment to a member of the class.

79 The provision of the deed which governed the payment of benefits to discretionary class members was cl 53, subcll (a)-(c) thereof were in the following terms:

(a) Distributions

Benefits will be paid to Discretionary Class Members by the Trustee making distributions from the available assets of the Fund to the Discretionary Class Members as determined by the Trustee in accordance with paragraph (b) hereof and subject to the provisions of this Deed.

  (b) Determination of Benefits

(i) While the Fund continues, the Trustee may at any time and from time to time in its absolute discretion and subject to such conditions as the Trustee may reasonably impose, determine to make a distribution out of the available assets of the fund by paying a Benefit to or for the benefit of any of the Discretionary Class Members of the relevant Discretionary Class in respect of whom a Benefit Payment Event has occurred.
(ii) Without limiting the generality of sub-paragraph (i) hereof, the Trustee shall determine in its absolute discretion:
(A) if a Benefit will be paid to or for the benefit of or in respect of a particular Discretionary Class Member;
(B) when any Benefit will be paid to or for the benefit of or in respect of any Discretionary Class Member in respect of whom a Benefit Payment Event has occurred;
(C) the amount, proportion or value of any Benefit and the manner, method, timing terms and conditions of payment of any Benefit which the Trustee has determined in its absolute discretion to pay.

(iii) In making a determination pursuant to sub-paragraphs (i) and (ii) hereof, the Trustee shall be entitled to request and take into account any recommendations made by the Employer of the relevant Discretionary Class in regard to any such matter.
(iv) Benefits may be paid by the Trustee in accordance with the provisions of this Deed to or for the benefit of or in respect of any one or more of the Discretionary Class Members of the relevant Discretionary Class to the exclusion of the other or others of the Discretionary Class Members of the relevant Discretionary Class.

(c) Benefit Payment Events

(i) The following are Benefit Payment Events:

(A) when a Discretionary Class Member retires from Gainful Employment with the Employer at or after Normal Retirement Age;
(B) when a Discretionary Class Member retires from the workforce;
(C) when a Discretionary Class Member becomes in the opinion of the Trustee, Totally and Permanently Disabled.

(ii) The Employer of a Discretionary Class Member shall advise the Trustee in writing of a Benefit Payment Event in respect of such Discretionary Class Member as soon as practicable after the Employer becomes aware of such Benefit Payment Event.

The concept of "available assets" referred to in subcl (a) was given context by cl 53(g) of the deed, as follows:

(iv) Benefits may only be paid to or for the benefit of or in respect of a Discretionary Class Member of a particular Discretionary Class out of the assets of the Fund which have been, or to the extent of the value of the assets of the Fund which has been, separately allocated and/or identified in the accounts of the Fund as available for payment of Benefits to or for the benefit of or in respect of a Discretionary Class Member or Discretionary Class Members of such Discretionary Class ("available assets").
(v) Notwithstanding anything contained in this Deed, Contributions by an Employer and any accretions or additions to the Fund for a Discretionary Class and any income, gains or profits earned on or reasonably attributable to such Contributions, accretions or additions:
(A) may not be used to fund the payment of Benefits to or in respect of any Discretionary Class Member who does not belong to the relevant Discretionary Class;
(B) to the extent that they are used to fund Benefits, may only be used to fund payment of Benefits to or for the benefit of or in respect of a Discretionary Class Member who belongs to the relevant Discretionary Class.

The term "benefit" was defined in the deed as follows:

"Benefit" means any amount (whether in the form of money or any other kind of form whatsoever):-

(i) paid or payable or which may become payable by the Trustee out of the Fund under this Deed to or in respect of a Member or Beneficiary; or
(ii) to which a Member or Beneficiary is or may become entitled, subject to the provisions of this Deed;

and accumulations and accretions thereto PROVIDED THAT in the case of a Discretionary Class Member who is or becomes entitled to a Benefit in their capacity as such, a Benefit must be provided in one of the forms described in Clause 53(d) AND PROVIDED FURTHER THAT "Benefit" excludes an expectancy of payment of an amount, or a right to an amount which is contingent on fulfilment of all the conditions by which a Member becomes absolutely entitled to such an amount, or by which there is indefeasibly vested in the Member an undivided interest or participation in the Fund.

The concept of total and permanent disability was defined in the deed, primarily by picking up the corresponding definition in any insurance policy effected by the trustee in respect of the member or, in default of such a policy, as being –

... physical or mental incapacity of such a degree that two registered medical practitioners have certified that in their opinion the member is incapable of engaging in any employment for which the member is reasonably qualified by education, training or experience ....

80 Necessarily, there were many circumstances in which a member of the relevant discretionary class might never receive a benefit from the fund. Perhaps the most obvious was that, notwithstanding the occurrence of a benefit payment event within the meaning of cl 53(c) of the deed, the trustee, in its absolute discretion, might not make a determination under cl 53(b). Given that the trustee was entitled to take into account the recommendations of the employer, there could be no criticism of the trustee if it acted in accordance with a recommendation made by the employer that benefits be paid only to certain members of the class, and not to others.

81 By cl 25 of the deed, the rights of members were inalienable. Those rights were the subject of cll 24-24C of the deed, as follows:

24. No Member nor Beneficiary nor any Relative of a Member or Beneficiary nor any person claiming through any of them shall have any claim right or interest in respect of Benefits from the Fund or any entitlement to any Benefit from the Fund except under and in accordance with this Deed.
24A. Benefits payable to or for the benefit of or in respect of a Member or Beneficiary are personal to that Member or Beneficiary (as the case may be).
24B. Upon the Trustee determining in accordance with the provisions of this Deed to make a distribution out of the assets of the fund by paying a Benefit to, for the benefit of or in respect of a Discretionary Class Member, the right and entitlement to and benefit of such Benefit, subject always to the terms and conditions of payment and the provisions of this Deed (all hereinafter referred to as "Conditions"), shall immediately arise and accrue to the Discretionary Class Member concerned who shall, if no Conditions attach to the payment, have a present, vested, indefeasible and absolute entitlement to receive and obtain payment and the full benefit of such Benefit and such right, entitlement and benefit and any obligation, or liability of the Trustee in respect thereof shall forever and fully be satisfied, extinguished and discharged upon payment of the said Benefit.
24C. Any right, entitlement or benefit arising pursuant to Clause 24 B shall not confer or give rise to any interest in the Fund or in all or any part of or any assets comprising or forming part of the Fund.

By cl 26 of the deed, it was provided that, if any member attempted or purported to assign, charge, etc any present or future benefit, the benefit would be immediately forfeited and the trustee was then to hold the benefit to or for the benefit of the member (or a dependant beneficiary, relative or other person). Given the terms of cl 24 of the deed, the benefit could not, in my view, then be disbursed or paid other than in accordance with those other provisions of the deed that would be applicable in the circumstances.

82 Benefits could also be forfeited under cl 28 of the deed. Subclause (a) thereof provided as follows:

Any Member, former Member or Beneficiary or after the death of a Member, any of the Dependants of the Member or the legal personal representative of the Member:

i) who assigns or charges or attempts to assign or charge any interest of the Member of the Fund;
ii) whose interest in the Fund whether by the Member’s or Beneficiary’s own act, operation of law, an order of any Court or otherwise become payable to or vested in any other person, company, government or other public authority;
iii) who is insolvent or who commits or has committed an act of bankruptcy;
iv) who for any reason is unable personally to receive or enjoy the whole or any portion of the interest of the Member in the Fund or, in the opinion of the Trustee, the Member is incapable of managing his affairs;
v) who is a former Member who cannot be located and whose Dependants cannot be located by the Trustee during a period of 2 years and after the Trustee has made all reasonable enquiries within that time as to the whereabouts of the Member or the Dependants of the Member; or
vi) who in the opinion of the Trustee commits any fraud or is guilty of dishonesty, defalcation or serious misconduct,

shall at that time forfeit all of the Benefits which may become payable to him or any of his Dependants, or to which he or any of his Dependants may become entitled.

Later provisions of cl 28 provided for the establishment of a forfeiture account into which amounts forfeited would be transferred. The application of funds in the forfeiture account was governed by subcl (D), as follows:

The Trustee shall subject to Clause 27 hold upon a separate trust and pay or apply any amounts which have been forfeited and are held in the Forfeiture Account in any one or more of the following ways; in such sums, shares or proportions; on such terms and conditions; and in such manner, as the Trustee may in its absolute discretion determine without being bound to give or assign any reason therefore; and to or for the benefit of or for all or any one or combination of the following, as the Trustee in its absolute discretion sees fit and without being bound to see to the application thereof:

i) to the Member, former Member or Beneficiary (as the case requires) or to the Dependants of the Member or former Member or any one or more of them in such propositions between them and on such terms as the Trustee may from time to time in its absolute discretion determine;
ii) to the trustee of the estate of the deceased former Member;
iii) to the Member, former Member or beneficiary (as the case requires) or to the Dependants of the Member or former Member to assist in the event of financial hardship, sickness, accident or other misfortune causing hardship;
iv) to other Members or their Dependants who have rights to receive Benefits from the Fund;
v) for the provision to other Members of the Fund or their Dependants of additional Benefits on a basis that the Trustee is satisfied is reasonable having regard to all the circumstances;
vi) payment to such of the Employers as the Trustee in its absolute discretion considers appropriate;
vii) for any Other Fund;

provided that where a Member remains in the employment of an Employer any payments made to that Member shall be limited to the relief of hardship of the Member or of the Dependants of the Member.

Given the definition of "benefit" in the deed (see par 79 above), it is difficult to see how cl 28 could have any operation in the case of a discretionary class member other than in circumstances where a benefit payment event had occurred.

83 The deed also dealt with the situation of a member of the fund also being a member of "any other superannuation fund" (cl 23). On the request of a member –

... the Trustee, with the approval of the Employer, may pay to the trustee of the Other Fund an amount or transfer investments of the Fund of equivalent value to such amount as determined by the Trustee which amount reflects the whole or such part of the entitlement of the particular Member in the Fund at the time of the request for the transfer as the Trustee has determined be transferred.

It is not entirely clear how the trustee would determine "the ... entitlement of the particular Member in the Fund" in the case of a member of a discretionary class, but if it did, the important point for present purposes is that it could only have been to another superannuation fund that such a transfer might have been made.

84 The deed also dealt with circumstances which called for the abolition of a discretionary class. Subclauses (a) and (aa) of cl 43A of the deed provided as follows:

Election to Dissolve
The Trustee may elect to dissolve a Discretionary Class at a certain date ("the Dissolution Date") in the following circumstances:

(i) where any of the circumstances set out in sub-clause 39(a) above occur in relation to the Employer of the Member or Members of such Discretionary Class; or
(ii) if there are no further Members remaining in such Discretionary Class; or
(iii) the Trustee otherwise reasonably determines that such Discretionary Class should be dissolved.

Requirement to Dissolve
Without limiting the circumstances in which the Trustee may elect to dissolve a Discretionary Class pursuant to Clause 43A(a), the Trustee shall dissolve a Discretionary Class if there are no Members or less that two (2) Members of the relevant Discretionary Class for a continuous period of more than 120 days, and such dissolution shall be effected as soon as practicable after the expiration of such period of time PROVIDED HOWEVER that the Trustee may suspend or cease the dissolution process if arrangements are being made or will be made by the Employer to increase the number of Members of the relevant Discretionary Class to two (2) or more.

Upon dissolution of the class, and subject to the payment of the costs of administering and dissolving the class and to the payment of taxation and similar obligations, cl 43A(c) of the deed required the assets of the class to be applied, in order, as follows:

(A) Benefits which the Trustee has determined to pay from the available assets and to which Discretionary Class Members are entitled but which have not been paid immediately prior to the Termination Date shall be paid to such Discretionary Class Members;
(B) Benefits may be paid from the available assets to such Members of the relevant Discretionary Class in such proportions, in such manner and on such basis and for one or more of the Members of the relevant Discretionary Class to the exclusion of the other or others of them as the Trustee decides or has previously decided in its absolute discretion;
(C) In default of appointment of any residue of the available assets pursuant to sub-paragraphs (A) and (B) above, the said residue shall be transferred to the trustee of another superannuation fund or funds provided that only one or more of the Members of the relevant Discretionary Class must be capable of benefiting from the available assets forming the whole or part of such superannuation fund or funds, including resulting from the exercise of a discretion or power of appointment.

85 As I read cl 43A(c), an application under (A) required that there have been a determination pursuant to cl 53(a) and, therefore, that a benefit payment event have occurred in relation to the member to whom the assets were to be allocated. Likewise, I do not read (B) as constituting a free-standing power for the trustee to make payments to any discretionary class member as it saw fit: rather, it contemplated a situation in which, at the time when the question arose, there may not be sufficient assets remaining in the account to make full benefit payments to all members who had a claim upon them (in the trustee’s discretion). It was, I consider, still necessary for payments to be processed, as it were, through cl 53 of the deed. This construction is supported by the limitation of (B) to the payment of benefits, and by the default position dealt with in (C), which together exclude the possibility of a payment being made directly to a member other than by way of a benefit under cl 53.

86 The fund could be wound up by the trustee if all of the employers, or the remaining employer, were put into receivership or liquidation, or permanently terminated their or its contributions to the fund by notice in writing, or there were no further members of the fund, or if –

... [t]he Trustee otherwise determined for any reason that the Fund should be wound up.

On a winding up, cl 43(c)(ii) of the deed required the assets held for the benefit of discretionary class members to be applied in the same way as in the case of the dissolution of the class under cl 43A(c), set out above.

87 The trustee had wide powers of investment under cl 15 of the deed, including the power to make a loan to a participating employer from the pool of moneys not immediately required for the payment of benefits, or other amounts authorised by the deed. However, subject to certain exceptions, the fund could not be invested in any "Australian assets, including Australian real estate or loans to any company which has its registered office in Australia". Of the exceptions, the only one which might be relevant to the present case was that set out in cl 15(d)(iii) of the deed:

The Fund may also invest in other Australian assets if:

(a) it can be established to the reasonable satisfaction of the Trustee or any delegate of the Trustee or any trustee of any subsidiary trust or fund who is or will or would be responsible for administering or managing such other assets of the Fund that such an investment will produce a return (exclusive of any taxation advantages or concessions available in Australia) which is or will be or is reasonably expected to be greater than returns available from any investments described in sub-paragraph (ii) hereof; and
(b) such investment is prudent and complies with the duties and obligations of the Trustee under this Deed and pursuant to any applicable law.

Subparagraph (ii) referred to Australian currency or deposits with non-Australian banks or financial institutions denominated in Australian currency; shares, options, debentures or bonds issued by any public company listed on an Australian stock exchange; and bonds issued by any government or any governmental, semi-governmental or public authority.

88 Although complex in a number of respects, the provisions of the deed referred to above operated in a way which, for presently relevant purposes, justified two generalisations. First, there was no guarantee that a member of a discretionary class would ever receive a benefit from the fund. Although the deed manifestly provided for a system in which the receipt of benefits by members on the occurrence of "benefit payment events" was contemplated, nonetheless the dispensation of such benefits was in the absolute discretion of the trustee; and the exercise of such discretion might properly be influenced by the views of the relevant employer. Secondly, a payment could not be made out of the account for a particular discretionary class (payments of administration costs, taxes etc to one side) save upon the occurrence of a benefit payment event or, when the class was dissolved or the fund wound up, by way of transfer to another superannuation fund. Contributions could not be returned to the participating employer, and payments could not be made to any member or members save upon the occurrence of a benefit payment event.

THE APPELLANT’S PARTICIPATION IN, AND CONTRIBUTION TO, THE FUND

89 On 7 May 1998, a number of relevant transactions took place. First, at a meeting of the directors of the appellant, the following resolutions were passed:

IS & PL SUPERANNUATION FUND:	The Chairman tabled an Information Circular from International Superannuation & Pensions Ltd, a copy of which is annexed hereto and marked with the letter "A" ("the Circular"), in relation to IS & PL Superannuation Fund ("the Fund"). The Directors considered the Circular and UNANIMOUSLY RESOLVED as follows:
FIRST RESOLUTION:	1. It is in the commercial and business interests of the Company to become a Participating Employer of the Fund and to make contributions to the Fund for the purpose of the Trustee providing superannuation benefits as it thinks fit by way of distributions to Discretionary Class Members who are employees of the Company who have retired or become totally and permanently disabled pursuant to the terms of the Trust Deed of the Fund for the following reasons: (a) the Discretionary Class Members to whom superannuation benefits may be paid from the Fund will be limited to selected employees of the Company who are invited by the Company to become Discretionary Class Members of the Fund: (b) contributions by the Company will fund distributions which are only authorised to be made so as to provide for superannuation benefits to Discretionary Class Members who are employees of the Company who have retired or become totally and permanently disabled: (c) it is apprehended that employees will only be invited by the Company to become Discretionary Class Members of the Fund and that contributions will only be made by the Company to the Fund when it is considered appropriate so as to fulfil one or more of the following objectives: (i) reward successful personal performance and effort in the employment of the Company; (ii) encourage and promote successful and/or improved personal performance and effort in the employment of the Company; (iii) reward fidelity of employees of the Company; (iv) encourage and promote greater fidelity of employees to the Company, including so as to encourage employees to remain in the employment of the Company. (d) by virtue of Discretionary Class Members who become recipients of superannuation benefits and payment of superannuation benefits to any Discretionary Class Members remaining within the absolute discretion of the Trustee, the Fund is sufficiently flexible to suit: (i) the circumstances, needs and individual performance of employees who are Discretionary Class Members, who can be paid different amounts and types of benefits or paid no benefits depending on such matters as the Trustee considers appropriate, including their respective financial needs and circumstances on retirement and their personal contribution towards the growth, performance and profitability of the Company's business; (ii) the circumstances of the Company, since the provision of superannuation benefits from the Fund is not restricted to persons who are employees at the time a contribution is made but may include future employees and the general cessation of membership of the Fund on termination of employment takes into account departures from the Company's workforce. (e) since the Fund is located and invests overseas and is managed by experienced overseas fund managers, it offers lower risk as a result of greater investment diversification through investment of superannuation benefits in international markets rather than investment of such benefits being restricted to Australia and therefore subject to the vagaries of the relatively small Australian market.
SECOND RESOLUTION.:	2. That the Company apply to become a Participating Employer of the Fund and complete such documents as may be necessary in this regard and DAVID HAZLETT shall be authorised to sign any such documents for and on behalf of the Company.
THIRD RESOLUTION:	3. That the Company nominate selected employees as Discretionary Class Members of the Fund and make contributions so as to promote and foster the objectives set out in the First Resolution.

Secondly, by deed made on that day between the trustee and the appellant, the trustee admitted the appellant as a participating employer of the fund, with effect from that day. One of the recitals to that deed was as follows:

The Employer wishes to be admitted as a Participating Employer to the Fund in order to be able to make contributions to the Fund for the purpose of making provision for superannuation benefits for employees of the Employer who became Discretionary Class Members of the Fund upon the terms and conditions set out in this Deed and the Trust Deed.

By that deed, the trustee and the appellant exchanged covenants as follows:

In consideration of the admission of the Employer as a Participating Employer of the Fund the Employer hereby covenants with the Trustee to observe and perform such of the terms, conditions and requirements of the Trust Deed of the Fund as are required to be observed and performed by the Employer.

The Trustee hereby covenants with the Employer that the Trustee will apply contributions to the Fund by the Employer for the purpose of providing superannuation benefits to Discretionary Class Members of the Fund who are employees of the Employer in accordance with and subject to the terms, conditions and requirements of the Trust Deed and the Employer states and the Trustee acknowledges that the Employer has entered into this Deed and will make contributions to the Fund in reliance upon this covenant and representations by the Trustee to the Employer to the same effect as this covenant prior to execution of this Deed by the Employer.

Thus the appellant became a participating employer of the fund, and the terms of the deed of 11 June 1993 applied to it and to such of its employees as became members of the fund. Thirdly, at a separate meeting of the directors of the appellant, the following resolutions (as recorded in the minutes) were passed:

The Directors UNANIMOUSLY RESOLVED to nominate the person(s) named below ("the Prospective Member(s)") to become (a) Discretionary Class Member(s) of IS & PL Superannuation Fund ("the Fund") on the basis that they are (an) Employee(s) and fulfil the necessary criteria for nomination for membership to the Fund as set out in the Company’s standard Invitation to Become a Discretionary Class Member of the Fund and that they be requested to complete (an) Application(s) for Membership of the Fund:

Name of Prospective Member	Address of Prospective Member
David Cameron Hazlett	Lot 8 Silverwater Estate Berowra Creek, NSW 2081
Andrew Cameron Hazlett	975 The Northern Road Bringelly, NSW 2171

The Directors FURTHER UNANIMOUSLY RESOLVED that each person named above be sent a signed Invitation to Become a Member of the Fund together with an Information Circular and also an Application for Membership Form to be completed by the Prospective Member and returned to the Company.

Fourthly, David and Andrew Hazlett both applied to become discretionary class members of the fund.

90 On 11 May 1998, a further transaction occurred at a meeting of the directors of the appellant, recorded in the minutes as follows:

The Chairman tabled and the Directors considered actuarial calculations (a copy of which is attached to these Minutes) prepared by Gosling Chapman on behalf of the Company in respect of the amount which should be contributed by the Company to The IS & PL Superannuation Fund ("the Fund") so as to provide a reasonable level of funds for superannuation benefits for Employees of the Company who are Discretionary Class Members of the Fund and the operation of the Fund. The Directors UNANIMOUSLY RESOLVED to pay the sum of $500,000 to the Fund as a contribution by the Company pursuant to the terms and provisions of the trust deed of the Fund.

On the following day, 12 May 1998, the appellant made a cash contribution of $500,000 to the fund. After deducting the trustee’s fee of $25,000, the balance ($475,000) was paid to the credit of an account with Goldman Sachs & Co Bank in the name of Cameron Brae Pty Ltd (IS & PL sub-account 77).

THE PROCEEDING BEFORE THE TRIAL JUDGE

91 As mentioned at the outset of these reasons, the first question which arose before the trial Judge was whether the appellant’s contribution of $500,000 made on 12 May 1998 attracted a deduction under s 82AAE of the 1936 Act. At relevant times, that section provided:

A deduction is allowable under this Subdivision in respect of an amount paid by a taxpayer as a contribution to a non-complying superannuation fund (as defined by subsection 267(1)) for the purpose of making provision for superannuation benefits for an eligible employee other than such an employee who is an exempt visitor to Australia for the purposes of section 517 in relation to the year of income in which the amount is paid.

The application of s 82AAE gave rise to two questions: first, whether the fund was a "non-complying superannuation fund", and secondly, whether the appellant’s contribution in May 1998 was "for the purpose of making provision for superannuation benefits for an eligible employee".

92 The 1936 Act defined a "non-complying superannuation fund", as –

... a fund that, at all times during the year of income when the fund is in existence, is a provident, benefit, superannuation or retirement fund, but does not include a fund that is a complying superannuation fund in relation to the year of income

The 1936 Act contained no definition of a "provident, benefit, superannuation or retirement fund". However, that Act defined "superannuation fund" as follows:

(a) a scheme for the payment of superannuation benefits upon retirement or death; or
(b) a superannuation fund within the definition of "superannuation fund in section 10 of the Superannuation Industry (Supervision) Act 1993.

Section 10 of the Superannuation Industry (Supervision) Act 1993 (Cth) ("the SIS Act"), defined a "superannuation fund" as follows:

(a) a fund that:

(i) is an indefinitely continuing fund; and
(ii) is a provident, benefit, superannuation or retirement fund; or

(b) a public sector superannuation scheme.

The 1936 Act defined "superannuation benefits" as follows:

... individual personal benefits, pensions, or retiring allowances.

93 It was and is common ground that, if the fund was a superannuation fund, it was not a complying superannuation fund in relation to the 1998 year of income. As I read the reasons of the trial Judge dated 21 July 2006, his Honour noted, but did not decide, the question whether the fund was a superannuation fund.

94 The second question which arose under s 82AAE of the 1936 Act was whether the contribution of $500,000 was made for the purpose of making provision for superannuation benefits for an eligible employee (or eligible employees). It was accepted by the respondent that David and Andrew Hazlett were both eligible employees within the terms of s 82AAE, and that the exclusion contained in the concluding words of the provision had no application in the circumstances. However, the respondent submitted, and his Honour found, that the contribution was not made for the purpose of making provision for superannuation benefits to those employees.

95 His Honour’s finding as to the appellant’s purpose was based both upon the inferred intentions of the directors of the appellant, principally, David Hazlett, who, his Honour inferred, was the "sole directing or controlling mind" of the appellant, and also upon objective considerations based in the terms of the deed, and the consequent operation of the fund. As to the intentions of the directors, his Honour referred to an affidavit by David Hazlett which explained that another superannuation fund of which he had been a member for some time was "over-funded", with the result, Mr Hazlett believed, that the appellant could not make any further significant employer contributions to that fund in a tax-effective way. His Honour referred also to another provision of that affidavit, whereby David Hazlett explained that he had been working on a "succession plan" for the group of which the appellant was a member, which would have Andrew Hazlett succeeding him upon his retirement or death "if he was up to the task". By making a contribution to the fund in circumstances where David and Andrew Hazlett were discretionary class members, the appellant would have the tax advantages of superannuation contributions, while at the same time not being "locked into paying Andrew any particular amount or level of benefits" in the event, for example, that things did not work out as proposed in relation to Andrew Hazlett succeeding his father.

96 As to the objective circumstances based in the terms of the deed, his Honour pointed out that discretionary class members did not have a vested or secured entitlement to a payment out of the fund under any circumstances, and that the amount which each of David and Andrew Hazlett might receive, if anything at all, "was entirely at the discretion of the trustee". His Honour continued:

Those circumstances strongly suggest that Cameron Brae’s sole, or even its principal, purpose in making the contribution was not to make provision for either David or Andrew Hazlett or his dependants to enable him or them to cope with the exigencies of death, disablement or retirement from employment by Cameron Brae.

His Honour pointed out that, had the making of a provision for the benefit of either David or Andrew Hazlett been the purpose of the appellant, it would have been more appropriate for them to have been nominated as members of the "original class" of the fund, which would have secured to each of them, in defined circumstances, payment of the amount standing to the credit of his "accumulation account". His Honour doubted whether a contribution to a fund "administered with a view ultimately to providing benefits to a few of a wider class of employees" had been made for the purpose stipulated in s 82AAE (in which respect his Honour referred to Raymor Contractors Pty Ltd v Commissioner of Taxation (1991) 21 ATR 1410).

97 Having adverted to these considerations, his Honour expressed the core of his conclusion as follows:

I am prepared, for the purposes of the argument, to give effect to the presumption erected by s 23 of the Acts Interpretation Act 1901 (Cth) that the words "for an eligible employee" in s 82AAE import the plural and do not require each contribution to be made for the benefit of a single, identified, or specific employee.  Nevertheless, if, in the present case, the contribution be regarded as having been made for the benefit of the two employees, David and Andrew Hazlett, it cannot, for the reasons already explained, be said to have been made solely for the purpose of making provision for superannuation benefits for them as a class.  That is principally because one Discretionary Member could be totally deprived by an adverse exercise of the Trustee’s discretion of any payment out of the Fund despite having satisfied one or other of the requirements on which superannuation benefits are normally conditioned.

His Honour referred to two other circumstances which confirmed him in that conclusion. The first was the substantial superannuation entitlement which David Hazlett already had under the other fund in combination with the fact that by nominating Andrew Hazlett as a discretionary class member, the directors of the appellant did not assure him of any superannuation benefit at all, even if his father’s succession plan were implemented. The second circumstance was that, although the appellant had a taxable income (after claiming the disputed deduction) which fell in the range $376,700-$1,577,000 over the years 1997-2001, David Hazlett, as its Managing Director and "sole directing or controlling mind", drew a salary of about $70,000 p.a only. His Honour described this as "a very modest remuneration for the Managing Director of a company claiming to work 60 hours a week" in circumstances where the taxable income of the appellant was as stated. His Honour found that the appellant’s purpose –

... in making the contribution of $500,000 to the IS & PL Fund was to enable David Hazlett, and, if David Hazlett chose, Andrew Hazlett, to take money out of the company as what would be called superannuation benefits, it being recognised that David Hazlett’s benefits under the existing CBP Fund could not be increased in a tax effective way. It follows that the contribution was not made for the sole purpose of providing superannuation benefits for eligible employees within the meaning of s 82AAE.

THE APPEAL

98 By Notice of Appeal dated 10 August 2006, the appellant contended that his Honour had been in error in a number of respects. First, it said that his Honour was in error in holding that the appellant’s sole or principal purpose was not to make provision for superannuation benefits for an eligible employee within the meaning of s 82AAE. Secondly, it attacked the way his Honour had made use of a number of circumstances surrounding the appellant’s contribution of $500,000 to the fund as points of inconsistency with the proposition that the appellant made the contribution for the purpose of making provision for superannuation benefits for an eligible employee. Thirdly, it pointed to a number of circumstances which, it was contended, ought to have justified the conclusion that the appellant did have that purpose in making the contribution. Fourthly, it contended that there was no evidence to support the finding, referred to in the second quoted extract in par 97 above, that the purpose of the contribution was to enable David Hazlett and, if he chose, Andrew Hazlett, to take money out of the appellant "as what would be called superannuation benefits ...". Fifthly, it contended that his Honour erred in not finding that the fund was a superannuation fund as defined in the 1936 Act.

99 By Notice of Contention dated 25 August 2006, the respondent contended that the trial Judge should have held that the fund was not a superannuation fund as defined in the 1936 Act.

WAS THE FUND A "SUPERANNUATION FUND"?

100 Of the two ways in which a fund might be a "superannuation fund" as defined in s 6(1) of the 1936 Act, the first was that the fund was "a scheme for the payment of superannuation benefits upon retirement or death". Such benefits were defined as "individual personal benefits, pensions, or retiring allowances". That is to say, a superannuation fund was a scheme for the payment of individual personal benefits, pensions or retiring allowances upon retirement or death. Under the deed, a member of a discretionary class was not entitled to any payment on his or her death. However, a benefit payment event would arise when a discretionary class member retired from gainful employment with the employer in question at or after normal retirement age; retired from the work-force altogether; or was, in the opinion of the trustee, totally and permanently disabled. Of these circumstances, manifestly the first two involved the retirement of the member. Although we were not addressed on the definition of "total and permanent disability" in the deed, I think it appropriate to assume that any member who became totally and permanently disabled within the meaning of cl 53(c)(i)(C) would have experienced "retirement" within the definition of "superannuation fund" in the 1936 Act. Subject to the particular objections raised by the respondent, to which I shall refer presently, I consider that the fund could fairly be described as a scheme for the payment of individual personal benefits, pensions or retiring allowances upon retirement.

101 Alternatively, the fund might also have been a "superannuation fund" if it were within the definition of that term in s 10 of the SIS Act. Relevantly to the present case (which did not involve the public sector), this required that the fund was both "indefinitely continuing" and "a provident, benefit, superannuation or retirement fund". I shall leave a consideration of the first of these requirements until after I have dealt with the second.

102 The SIS Act did not contain a definition of "provident, benefit, superannuation or retirement fund", or of "superannuation fund". For the purposes of that Act (and, therefore, for the purposes of par (b) of the definition of "superannuation fund" in s 6(1) of the 1936 Act), therefore, it is necessary to look to the ordinary meaning of the words, and, in particular, of the expression "superannuation fund". The trial Judge recognised as much, and referred to the relevant authorities as follows:

Although that expression is not defined in the Act, Hill J in Walstern v Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1 at 15 considered that assistance in understanding its meaning can be derived from this observation of Windeyer J in Scott v Commissioner of Taxation (No.2) (1966) 40 ALJR 265, at 278:

‘There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage, the attributes of a thing thus denominated being those which things ordinarily so described have...the connotation of the phrase in the Act must be determined by one’s general knowledge of the extent of the denotation of the phrase in common parlance...I have come to the conclusion that there is no single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age.’

Hill J in Walstern also noted that a similar view of the meaning of the expression "provident, benefit or superannuation fund" had been taken by Kitto J in Mahony v Commissioner of Taxation (1967) 41 ALJR 232 where his Honour said, at 232:

‘There was no definition in the Act of ‘a provident, benefit or superannuation fund’, and the meaning of the several expressions must therefore be arrived at in light of ordinary usage and with only one piece of assistance to be gathered from the immediate context. Since a fund, if its income was to be exempt under the provision, was separately required to be one established for the benefit of employees, each of the three descriptive words ‘provident’, ‘benefit’ and ‘superannuation’ must be taken to have connoted a purpose narrower than the purpose of conferring benefit, in a completely general sense, upon employees. Precise definition may be difficult, and in any case is unnecessary for present purposes. All that need be recognised is that just as ‘provident’ and ‘superannuation’ both referred to the provision of a particular kind of benefit’ – in the one case a provision against contemplated contingencies, and in the other case a provision, to arise on an employee’s retirement or death or other cessation of employment, of a subvention for him or his estate or persons towards whom he may have stood in some kind of relation commonly giving rise to a legal or moral responsibility – so ‘benefit’ must have meant a benefit, not in a general sense, but characterized by some specific future purpose. A funeral benefit is a familiar example.’

Neither party suggested that the ordinary meaning of the term "superannuation fund" was not as identified by Windeyer J and Kitto J, or that the trial Judge ought not to have been guided by their Honours’ statements. Thus, as a matter of common understanding, it would seem that a superannuation fund is a fund which has as its sole purpose the provision of benefits to participating employees upon their reaching a prescribed age (per Windeyer J) or upon their retirement, death or other cessation of employment (per Kitto J). The circumstances in which discretionary class members of the fund might have received benefits were somewhat narrower than the full range referred to by their Honours. It could not be said, however, that those circumstances extended beyond the ordinary meaning of "superannuation" as so elucidated. The respondent did not submit otherwise.

103 Rather, the respondent submitted that the fund was not a superannuation fund because the right of discretionary class members to receive benefits was not secured. As I understand it, the point was said to apply as much in the case of par (a), as of par (b), of the definition of "superannuation fund" in s 6(1) of the 1936 Act. Counsel for the respondent submitted that a "superannuation fund" was required to have three characteristics: first, that it make provision for the payment of individual personal benefits upon the employee’s retirement, death or other cessation of employment; secondly, that the employee’s right –

... to be paid such benefits must be real, not illusory – that is, the right to be paid benefits must be secured ...

and thirdly, that the provision of such benefits be the exclusive purpose of the fund. In the present case, I did not understand counsel for the respondent to submit that the fund did not have the first and third of these characteristics. Rather, counsel submitted that, under the deed, the right of a discretionary class member to the payment of a benefit, when a benefit payment event occurred in relation to him or her, was not secured. In point of fact, counsel were correct in that submission. Whether a discretionary class member received any benefit upon the occurrence of a benefit payment event depended wholly upon the discretion of the trustee. However, were counsel correct to insist that such a circumstance disqualified the fund from being a "superannuation fund" as commonly understood?

104 The authority from which counsel for the respondent appear to have extracted their second proposition was the judgment of Owen J in Winchombe Carson Limited v Commissioner of Taxation (NSW) (1938) 5 ATD 69. That case concerned a question arising under state income tax legislation, namely, the Income Tax (Management) Act 1936 (NSW). Owen J referred to s 76 of that Act, which provided as follows:

So much of any sum set apart or paid by the taxpayer in the year of income as or to a fund to provide individual personal benefits, pensions, or retiring allowances for his employees as is proportionate to the extent to which those employees are engaged in producing assessable income of the taxpayer, shall be an allowable deduction where--

(a) the taxpayer is under a legal obligation to set apart or pay that sum; and
(b) the rights of the employees to receive the benefits, pensions or retiring allowances are fully secured.

His Honour said (5 ATD at 74):

The Legislature has, very properly, made the allowance of a deduction dependant on whether an employee’s rights to benefit are fully secured, but it has given no indication at all of what safeguards it thought necessary to provide that security.
...
It seems to me that the proper method of approach is to ask

(1) does the arrangement in question provide the employee with benefits of the type mentioned in the section?
(2) If so, what provision is made to ensure that the employee will obtain them?

...
All these, and doubtless many others, are questions material to be considered in determining whether or not a scheme provides real and not illusory benefits and whether the rights of the employee to the benefits conferred, whatever they may be, are fully secured.

It will be seen that the judgment of Owen J was given under legislation which required that the right of the employee to receive benefits of the kind under consideration should have been "fully secured", and that his Honour relied specifically upon the terms of that legislation in formulating the principle upon which the respondent relies in the present case. I do not think that Owen J’s judgment constitutes authority on the construction of s 82AAE of the 1936 Act, which in 1998 contained no requirement that the benefits be fully secured.

105 We were likewise referred to a number of judgments which had been given under earlier forms of the legislation which in 1998 found expression in s 82AAE. In the 1936 Act as enacted, the provision was s 66, and that remained the case until that section was repealed in 1964. It was replaced, in that year, by s 82AAC. Both s 66 in all its forms over the years, and s 82AAC from 1964, contained an explicit requirement that the benefits to which they referred should be "fully secured". However, in 1989, s 82AAC was repealed and replaced with a new s 82AAC dealing with the same subject matter, but without any requirement that the benefits to which it referred be "fully secured". Neither did s 82AAE as applicable to the year of income with which we are presently concerned. We were not referred to any authority for the proposition that, under the form of s 82AAC introduced in 1989, or under the 1998 form of s 82AAE, a fund which otherwise fell within the ordinary understanding of a "superannuation fund" could not be so characterised unless its members’ entitlements were "fully secured".

106 In answering the question whether the fund was a "superannuation fund" as the term is ordinarily understood, it is, in my view, critical that payments could not have been made out of the fund (other than by way of administration expenses, taxation, etc) save to members of the relevant discretionary class, and save in circumstances which fell within the ordinary understanding of superannuation. A proper characterisation of the fund should, in my view, depend upon the purposes for which the assets and moneys of the fund might have been used rather than upon the quality of the rights of individual members of the fund. If the fund could have been used only to achieve what might be described as a superannuation purpose, I would describe the fund as a "superannuation fund". That a particular member of a discretionary class might not, ultimately, have received any payment, was not, in my view, disqualifying.

107 I am confirmed in this view by a consideration of the consequences of taking the view for which the respondent contends. The expression "fully secured" appears neither in s 82AAE of the 1936 Act nor in any of the components of the definition of "superannuation fund" in that Act. If the court were, by a decision in this case, implicitly to introduce a requirement that the benefits in question be "fully secured", the question would then arise as to what that term meant. Would the benefits have to be secured in the case of an employee who, without awaiting the occurrence of a superannuation event as ordinarily understood, left the employ of the employer in question? Would the benefits have to be secured in the case of an employee who was found to have engaged in serious misconduct? Would the implicit inclusion of such a requirement mean that a fund could not be a "superannuation fund" unless its constituting document made it possible to identify how much of the fund notionally related to a particular member at any one time? That these and other questions would have to be answered by those responsible to administer the fund, and possibly by a court, and without the assistance of any relevant legislative regime, makes it, in my view, quite unlikely that the legislature intended either that s 82AAE itself, or that some otherwise unidentified component of the definition of "superannuation fund", should be qualified in the way proposed by the respondent.

108 I return to the question whether the fund was an "indefinitely continuing fund" within the meaning of subpar (i) of par (a) of the definition of "superannuation fund" in s 10 of the SIS Act. For reasons which are not clear, we were not addressed on this important question. The term is not defined in the SIS Act, and has not been the subject of judicial exposition. Some light may be thrown on what was intended by s 14 of the SIS Act, which provided that the existence in the rules of a fund of a provision to avoid "a breach of a rule of law relating to perpetuities" would not prevent the fund in question from being an "indefinitely continuing" one. That tends to suggest that the legislature otherwise had something rather lengthy in mind. On the other hand, I doubt that "indefinitely" could be given a meaning effectively equivalent to "forever", since the rules of every fund would have to contain, one would have thought, reasonable and practical provisions for the fund to be wound up where it had to be.

109 In order to make good its ground of appeal that the trial Judge was in error in not finding that the fund was a superannuation fund, and to do so on the basis that the fund was such a fund within the terms of the definition in s 10 of the SIS Act, the appellant was under an obligation to persuade us that the fund was "an indefinitely continuing fund". This it made no attempt to do. I do not regard the proposition as self-evidently correct. Indeed, I am disposed to think that the facility for the fund to be wound up at any time by the trustee "for any reason" was inconsistent with the proposition. It may be that the relevant statutory meaning of "indefinitely" is "undefined" rather than "unlimited", but, in the absence of argument on the subject, I am not disposed to extend to the appellant the favour of adopting that meaning.

110 In the result, because of the problem with the requirement that the fund be "indefinitely continuing", I would hold that the fund was not a "superannuation fund" within the terms of s 10 of the SIS Act. However, for reasons stated earlier, I would hold that the fund was a "superannuation fund" under par (a) of the definition of that term in s 6(1) of the 1936 Act.

111 I have reached my conclusions in this part of my reasons upon the terms of the deed as they stood in May 1998, when the question of the deductability of the appellant’s contribution under s 82AAE arose. I note that, on 19 December 2003, a new benefit payment event was introduced into cl 53(c) of the deed. That event was the retirement of a discretionary class member from gainful employment with his/her employer, subject to two provisos. As so amended, there is an argument that the deed thereafter operated in a way which permitted the trustee to make a payment out of the fund in circumstances which would not come within the ordinary concept of "superannuation" as referred to in the cases. If that argument were correct, it might further be argued that, after that amendment, the fund could not be regarded as a "superannuation fund". Although that amendment operated retrospectively from 29 May 1997, it did not exist either in May 1998 when the contribution was made in the present case, or at the end of that fiscal year. Possibly for that reason, the amendment was not mentioned by either party in the appeal. It played no part in the reasons set out above, and is mentioned here for the sake of completeness only.

THE APPELLANT’S PURPOSE

112 By the operation of the definition of "superannuation benefits" in the 1936 Act, the second question which arises on the appeal is whether the appellant’s contribution of $500,000 to the fund in May 1998 was for the purpose of making provision for individual personal benefits, pensions or retiring allowances, and whether the trial Judge was in error not to have held that it was. As I read his Honour’s reasons, and as I understand the respondent’s position, certain things are uncontroversial, namely –

• that, if moneys were ever to be paid out of the account in the fund established for the relevant discretionary class, those payments could be made only to members of the class (relevantly at the time, David or Andrew Hazlett, or both); and
• that, if moneys were to be paid from that account, such payments could be made only upon the happening of a benefit payment event.

Considered objectively in the light of those circumstances, it is not obvious how a contribution to the fund, for allocation to the account of the relevant discretionary class, could be other than for the purpose of making provision for individual personal benefits, pensions or retiring allowances. It is true that one or other of David or Andrew Hazlett might never receive any such benefits etc, but the moneys in the fund could not be used otherwise than to make payments to at least one of them of the kind described.

113 The trial Judge inferred, however, that the purpose of the contribution of May 1998 was not such as s 82AAE of the 1936 Act required. His Honour’s finding turned very substantially upon the circumstances of David Hazlett, who his Honour found to be the directing and controlling mind of the appellant and, therefore, effectively to be making his own purpose the appellant’s. Mr Hazlett was well-provided for in the matter of superannuation, a circumstance which, I gather, inclined his Honour, at least somewhat, to infer that an improvement on his own superannuation position may not have been his purpose. Correspondingly, Mr Hazlett drew a very modest salary, a circumstance which seems to have inclined his Honour to think that his approach may have been to seek tax-advantageous opportunities to extract funds from the appellant in other (ie non-salary) forms. On the other hand, the appellant’s stated purpose of making the prospect of a career in its employ more attractive to Andrew Hazlett was undermined somewhat by the fact that the structure of the fund, and the appellant’s choice of placing David and Andrew Hazlett into a discretionary class, provided the latter with no assurance that he would ever be paid anything. In this respect his Honour contrasted the position which would have obtained if Andrew Hazlett had been made a member of the "original class" in the fund, where he would have had his own accumulation account, with a much greater degree of assurance that he would ultimately receive something.

114 Counsel for the appellant submitted that his Honour was wrong to place so much emphasis on the appellant’s motives – effectively, on David Hazlett’s motives – in the matter of the contribution of May 1998. They submitted that the question was to be answered objectively. I agree that an objective approach is required to a question of this kind. In Raymor Contractors Pty Ltd v Federal Commissioner of Taxation (1991) 91 ATC 4259, 4260-4261, Davies J said (with the assent of Wilcox J):

In s 82AAC(1), the word "purpose" required that the sum set apart or paid in the year of income effected a contribution towards superannuation benefits for or for a dependant of an eligible employee. The term did not look primarily to the subjective factors actuating the setting aside or payment of the sum claimed. Thus, in the ordinary case, it was sufficient to found a deduction that a superannuation fund had been established solely for the provision of superannuation benefits for employees and their dependants, that the fund had been maintained for that purpose, that a sum appropriate, having regard to the provisions of ss 82AAE and 82AAM, had been set aside or paid into the fund for the fund’s purposes and that the rights of the employees and dependants to receive benefits from the fund were fully secured. If such were the case, it was not pertinent that the sum was set apart and paid into the fund not out of beneficence but out of a duty imposed by law or by an industrial award and not of consequence that the employer had taken into account in establishing and maintaining the fund that incidental benefits such as taxation benefits or the borrowing of sums from the fund at a low rate of interest could be obtained.

Davies J was, of course, speaking of an earlier version of the relevant provision under which it was necessary for the right to benefits to be fully secured. But his Honour’s elucidation of the correct approach to the determination of "purpose" was as applicable in 1998 under s 82AAE as it was in 1991 under s 82AAC. While that approach should be objective rather than subjective, it does not follow that only the dry words of the constituent documents may be considered. Indeed, in Raymor itself, it was a pattern of transactions carried out in relation to the assets of a superannuation fund which led to the conclusion that the taxpayer’s purpose was not such as was then required by s 82AAC of the 1936 Act. In the context of the present case, the trial Judge was much influenced by the structure of the fund and the provisions of the deed in his consideration of the matter of purpose. His approach was an objective one, notwithstanding that he took into account a range of circumstances standing outside the terms of the deed. It was, I consider with respect, proper for him to have done so in identifying what was the appellant’s purpose in making the contribution of May 1998.

115 The question remains, however, was his Honour correct in the conclusion which he reached on the matter of purpose? In my view, the starting point for a consideration of the appellant’s purpose is the trusts upon which its contribution of May 1998 was made. By recital C to the deed, the sole purpose of the fund was to provide superannuation benefits for members in the event of their retirement or, in certain circumstances, for their dependants. Under the appellant’s deed of participation made on 7 May 1998, it was recited that the appellant wished to be admitted in order to be able to make contributions to the fund for the purpose of making provision for superannuation benefits for its employees who became discretionary class members. The trustee covenanted that it would apply the appellant’s contributions for the purpose of providing superannuation benefits to discretionary class members in the employ of the appellant. These provisions governed the relationship between the trustee and the appellant. They defined the trusts upon which the appellant’s contribution was accepted by the trustee. Subject to the detailed provisions of the deed, to which I shall turn presently, for the trustee to have applied any part of that contribution other than to provide superannuation benefits for discretionary class members in the employ of the appellant would have amounted to a breach of trust.

116 The next circumstance which bears on the matter of purpose is the one which so bears most directly: the resolution by the board of the appellant on 11 May 1998. The board resolved to make the contribution "so as to provide a reasonable level of funds for superannuation benefits" for discretionary class members in the employ of the appellant. As noted, the resolution was based upon an actuarial calculation (which was not in evidence). When considering the purpose for which a company carries out a particular transaction, clearly weight should be given to a formal statement of purpose by the company’s board. Indeed, I would go so far as to say that, in the absence of evidence justifying a finding that the company’s purpose was otherwise, such a statement should generally be regarded as conclusive.

117 The matters to which I referred in the two previous paragraphs are not, of course, binding on the respondent. It was and is open to the respondent to demonstrate that things were not what they appeared (from the formal documents) to be. It is also probably correct to say that, in relation to questions of tax, the court should be alert to the risk that the ostensible documentary foundation of a particular transaction may be nothing more than a self-serving edifice designed to achieve a fiscal purpose, while obscuring the real purpose. However, subject to a consideration of the matters relied upon by the trial Judge, to which I shall turn, the present does seem to be a case in this category. The deed was executed years before the fund came to the attention of the appellant. The trustee and the appellant were at arms-length. The deed of participation has the appearance of a conventional arrangement under which both parties would secure real commercial benefits by way of exchange. It may be assumed that obtaining a tax deduction for its contribution was a significant ingredient in the appellant’s decision to make its contribution, but the same could be said of any business expenditure, be it by way of superannuation or otherwise. My point is that the constituent documents to which I have referred should be recognised as a legitimate starting point from which to approach the question of the appellant’s purpose.

118 Returning to the reasons of the trial Judge, I am prepared to accept that the appellant made the contribution because it was a tax effective way of enabling David or Andrew Hazlett, or both, to withdraw funds from the business. But, with respect to his Honour, if the form in which such a withdrawal was, or was to be, effected was by way of superannuation benefits as defined, such a finding begged the question at issue. I would also accept that the fund was chosen because it gave the appellant (to the extent that it could influence the trustee) a degree of flexibility in this regard. However, the fact remains that no funds could have been withdrawn by either Hazlett save on the happening of a benefit payment event. Or, put differently, it seems inescapable that, if funds were ever withdrawn, it could only have been by way of individual personal benefits or retiring allowances within the meaning of the relevant statutory formula. It is true that, because of the discretionary nature of such payments, it could not be said that the appellant’s purpose was to make provision for the payment of such benefits etc either to David Hazlett specifically or to Andrew Hazlett specifically. But, in my view, the legislation did not require that. It was sufficient that provision was made for the payment of such benefits etc to one or more eligible employees. The terms of the deed, it seems to me, necessarily produced the result that a contribution of the kind made in May 1998 would make such provision. I consider that it was the appellant’s then purpose to do so.

119 Another way to express the same conclusions is to refer to that part of the trial Judge’s reasons where his Honour held that the appellant’s purpose was to enable David or Andrew Hazlett to take money out of the appellant "as what would be called superannuation benefits". Implicitly, his Honour was saying that it was the appellant’s purpose that they should be able to take money out of the appellant other than by way of superannuation benefits. The flaw with this proposition, I consider with respect, is that it was not based upon the identification of any provision of the deed which permitted payments to be made to David or Andrew Hazlett other than by way of what would ordinarily be called superannuation benefits, or, in the lexicon of s 82AAE, by way of individual personal benefits, pensions or allowances. In the appeal before us, counsel for the respondent did not identify any such provision. In the absence of such a provision, it must be concluded that neither David nor Andrew Hazlett could have achieved what his Honour implicitly identified as the appellant’s purpose.

120 For the reasons set out above, I do not agree that the terms of the deed were such as to make it likely that the appellant’s purpose was that to which s 82AAE referred. Indeed, I consider the contrary to be the case. As I have attempted to explain, the relevant constituent documents pointed only to the appellant’s purpose being the statutory one. That leaves the non-documentary circumstances surrounding the contribution of May 1998, principally David Hazlett’s modest salary and the appellant’s inability to make tax-advantageous superannuation contributions to the fund of which he was already a member. Those circumstances bespoke a need for the appellant to find some alternative destination for superannuation contributions which it desired to make in his interests. That need was satisfied by the fund. Far from the circumstances of David Hazlett contradicting the proposition that the appellant’s purpose in May 1998 was to make provision for superannuation benefits for David Hazlett, I consider that they supplied a sensible and obvious reason why the appellant would have had such a purpose.

121 There are two further observations which I should make in conclusion, lest the extent of the foregoing reasons be misunderstood. First, the fund was not established by, or (save that the appellant was a participating employer) associated with, the appellant. The appellant and the fund were at arms length. Nothing set out above should be taken as necessarily applying to a fact situation which is otherwise. Secondly, save for the circumstances surrounding the making of the contribution in May 1998 to which the trial Judge referred, there was nothing in the facts of the case from which some purpose, on the part of the appellant, other than that associated with the derivation of superannuation-like benefits by David and/or Andrew Hazlett might be inferred. Particularly, it might be noted that the facts of this case had nothing in common with those which came before the Full Court in Raymor, where the principal activity of the fund in question appeared to be the making of low-interest loans to the employer which made the relevant contributions. Given the terms of the deed to which I have referred in par 87 above, it is, I consider, quite improbable that a back-lending activity of this kind would have been open to the trustee even if it had been minded so to proceed.

DISPOSITION OF THE APPEAL

122 For the reasons set out above, I would allow the appeal, order that the appellant’s objection to the amended assessment of income tax dated 7 February 2003 be allowed, and declare that the contribution to the fund made by the appellant on 12 May 1998 is an allowable deduction for the year ended 30 June 1998 pursuant to s 82AAE of the 1936 Act.

123 In the circumstances, I would find it unnecessary to consider whether the contribution of May 1998 would have been deductible pursuant to s 8-1 of the 1997 Act.

I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.

Associate:

Dated: 21 August 2007

Counsel for the Appellant:	JW de Wijn QC with MT Flynn
Solicitor for the Appellant:	Halperin & Co Pty Ltd
Counsel for the Respondent:	GT Pagone QC with J Davies SC and J Jaques
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	8 May 2007
Date of Judgment:	21 August 2007