Union Trustee Company of Australia Ltd v Federal Commissioner of Taxation [1935] HCA 51; (1935) 53 CLR 263 (10 July 1935)

Union Trustee Company of Australia Limited Appellant; and The Federal Commissioner of Taxation Respondent.

This is a case stated under the provisions of the Income Tax Assessment Act 1922-1930. There are two questions asked:— (1) Should a deduction be made from the assessable income of William Robert Black for the year ended 30th June 1930 of the sum of £3,364, or any part thereof, pursuant to par. (a) of sec. 23, sub-sec. 1 of the Income Tax Assessment Act 1922-1930 or pursuant to par. (j) of sec. 23, sub-sec. 1 of the same Act? (2) Should a deduction of the sum of £1,067, or any part thereof be made pursuant to par. (h) (ii) of sec. 23, sub-sec. 1 of the same Act?

The sum of £3,364 was paid to Lecky on his retirement. Lecky had for a number of years been Black's general business manager, secretary and accountant. On 7th November 1929 Lecky, who was then of the age of seventy-one years, and had by reason of old age and ill health become incapacitated, was retiring, and Black said he would provide for him on that event. Black said that the retiring allowance would amount to £3,364, which was one year's salary and a further sum of £3,000. On 18th January 1930 Black paid Lecky that sum in the form of Commonwealth bonds amounting to £3,350, and the remainder by cheque drawn on the bank of Black. The bonds were as to the amount of £3,000 purchased by Black before 30th June 1929, and as to the amount of £350 during the year ended 30th June 1930.

A gallant effort was made by Mr. Grove to support the payment as an exemption under sec. 23, sub-sec. 1 (a) of the Income Tax Assessment Act 1922-1930. But it is not enough that the payment sought to be deducted was made as a superannuation or a retiring allowance for an employee serving in a business. It is not enough that it was made in the course of business. It must appear that it is an outgoing incurred for the production of assessable income. There must be a connection between the purpose of the payment and the further pursuit of gain, the production of income. There must be some facts which justify the inference that the outgoing was incurred to conduce to that end. But there is nothing in the facts appearing in the case stated to show or to support the payment as an exemption under that sub-section. The facts do not show that the payment was incurred in gaining or producing the assessable income. Then Mr. Grove contended that the payment was deductible under sub-sec. 1 (j) of sec. 23 of the Act. Here again the facts fail to show that the payment came out of assessable income and was a payment made to a fund to provide the assessable income. It was said that the decision of the majority of the Court, in Symon v. Federal Commissioner of Taxation[1] rendered it unnecessary to adduce such facts. Even assuming that that decision produces such a result, the deduction cannot be established. Sec. 23 (1) (j) does not relate to a simple payment to an individual. The payment in fact was made to an individual and not to a fund which would provide the retiring allowance. The same reasoning applies to the proviso to sub-sec. 1 (j) of sec. 23.

With regard to the second question I regret to say I am unable to hold that the payment comes under par. h (ii) of sub-sec. 1 of sec. 23 of the Act. The sum in question was the balance of purchase money of certain land and residential buildings in Twickenham Street, Graceville. A sum was paid as deposit on the land on 16th May 1929 and the balance was paid in the subsequent income tax year. The land and buildings were accepted from Black by the Presbyterian Church and used as a home for aged women, and were subsequently transferred to the corporation of the Presbyterian Church and handed to the then existing committee for control and management. It seems to me that the gift was a gift of land, and not money, and made in the income tax year preceding that under consideration. The Commissioner of Taxation was not satisfied that the donor Black had used any part of his assessable income for the acquisition of this gift. In my opinion both questions should be answered: No, and costs should be costs in the appeal.

In 1897 or 1898, Lecky became business manager for Black whose affairs were widespread. From time to time some shares were allotted to Lecky; but he received not a very large salary. In November 1929 Black decided to replace Lecky, who was then seventy-one years of age, by a younger man. Possibly it might be right to infer that he considered that the proper management of his affairs made this step necessary. On the retirement of Lecky, Black voluntarily gave him, by way of superannuation allowance, a lump sum of £3,364, being £3,000 together with a year's salary. There is nothing to establish that Black had, during the course of Lecky's service, promised him a superannuation allowance.

The first question arising is whether this payment by Black can be considered an outgoing actually incurred by Black in gaining the assessable income within sec. 23 (1) (a) of the Income Tax Assessment Act 1922-1930, and money wholly and exclusively laid out or expended for the production of assessable income within sec. 25 (e). The requirements which must be satisfied under these provisions have been explained in this Court in Maryborough Newspaper Co. v. Federal Commissioner of Taxation[2], Federal Commissioner of Taxation v. Gordon[3], Herald and Weekly Times Ltd. v. Federal Commissioner of Taxation[4] and Egerton-Warburton v. Deputy Federal Commissioner of Taxation[5]. Of these the first only relates to a retiring allowance, but the others discuss the meaning of the provision and the application of English cases. Subject to the cautions which these authorities contain English cases such as Smith v. Incorporated Council of Law Reporting for England and Wales[6] and Mitchell v. B. W. Noble Ltd.[7], suggest the test to be applied, a test which was formulated by Rich J. in the Maryborough Case[8]. Tried by that test, the claim to bring the payment within the deduction allowed as a result of secs. 23 (1) (a) and 25 (e) must fail. There is nothing to show that it was not a purely voluntary grant to Lecky made by Black out of proper feelings of gratitude for long service of a confidential nature. There is nothing to establish a connection between the payment and the production of income.

The next question is whether the payment can be brought within either the first or third limb of par. j of sec. 23 (1). The first limb makes it essential in order to found a claim for deduction under it that money should be paid to a fund, and that the fund should be devoted to the provision of individual personal benefits, pensions, or retiring allowances for employees, i.e. a class or description of employees. In this case there was no fund and only a single employee.

The third limb is restricted to moneys applied for the advantage of employees in any business or class of business. Again, it is not applicable to a lump sum payment to one individual on his retirement.

The second deduction claimed is for a sum of £1,067 10s. paid by the deceased taxpayer towards a home for aged women situated at Cliveden. In the previous year of income, he entered into a contract to buy land and buildings which he presented to the Presbyterian Church of Queensland for the purpose of a home for aged women. The premises were placed under the control of a committee administering such institutions, and the Home was thus established. In the first month of the year of income the sum in question was paid in order to complete the purchase, and the land was vested in the corporation of the Presbyterian Church of Queensland. It does not appear exactly when the Home was established. But upon the facts stated in the special case, the deceased taxpayer must be taken in the previous income year to have undertaken a personal obligation to the vendor to pay the purchase money. Whether he is treated as having declared himself a trustee of the contract and thereby given the property, or the gift was made when he procured a transfer to the corporation in the following year, it is, I think, clear that the gift was of the property and not of the money which the taxpayer paid to the vendor. That payment he was obliged to make. It did not constitute a gift of money to anybody.

The deduction is sought under par. h (ii) of sec. 23 (1). A number of objections is made by the Commissioner to the application of this paragraph to the facts of the case. One of these objections appears to me insuperable. There must be a gift within the definition contained in the paragraph. That definition is as follows: "Gift means a gift in the form of money or a gift in kind when the Commissioner is satisfied that the donor has used part of his assessable income of the year for the acquisition of the gift." In my opinion this cannot be treated as a gift in the form of money. But the Commissioner is not satisfied that the taxpayer used part of his assessable income for the year for the acquisition of the gift. Symon v. Federal Commissioner of Taxation[9] was relied upon to establish that the purchase money should be treated as found out of the assessable income. But the definition of "gift" does not use the same phrase as the operative part of par. ii. It employs the language "has used part of his assessable income." It is for the Commissioner to say, as a matter of fact, whether this language is satisfied in any given case. His decision can be reviewed by the Board of Review. But this Court cannot interfere unless it is made to appear that the Commissioner has misapplied or misunderstood his functions, either because he has misinterpreted the statute, or made some other mistake.

There is nothing in the special case which suggests that the Commissioner has done so. The claim for the deduction cannot in these circumstances be established.

Solicitors for the respondent, Chambers, McNab & Co. for W. H. Sharwood, Crown Solicitor for Commonwealth.

[1] [1932] HCA 31; (1932) 47 C.L.R. 538.

[2] [1929] HCA 16; (1929) 43 C.L.R. 450.

[3] [1929] HCA 48; (1930) 43 C.L.R. 456.

[4] [1932] HCA 56; (1932) 48 C.L.R. 113.

[5] [1934] HCA 40; (1934) 51 C.L.R. 568, at pp. 575-581.

[6] (1914) 3 K.B. 674.

[7] (1927) 1 K.B. 719, at p. 725.

[8] [1929] HCA 16; (1929) 43 C.L.R. 450.

[9] [1932] HCA 31; (1932) 47 C.L.R. 538.

High Court of Australia

Union Trustee Company of Australia Ltd v Federal Commissioner of Taxation [1935] HCA 51; (1935) 53 CLR 263 (10 July 1935)

HIGH COURT OF AUSTRALIA