CATCHVWORDS Income Tax -— deductions -— gift to a public fund establ-.shed and maintained under an instrument of trust - meaning of Neift" — meaning of "public fund" - meaning of "estabiish and maintain exclusively for the purposes ... -— distinction between purpose and motive - relevance of intent of settlor and subsequent events. Income Tax Assessment Act 1956, s.78(1)(a). Peter William Bray v. The Commissioner of Taxation of the Commonwealth of Australia V.G. No. 36 of 1977 Coram: Bowen C.J., C.A. Sweeney and Deane JJ. Sydney. Iq, September, 1977. . tA oyef ' IN THE FEDFRAL COURT CF AUSTRALIA "oy . ) », VICTORIAN ow... DISTRICT REGISTRY ) Ho. Ve ...36. of 1977 . ) .. CRNBRAL oo... DIVISTOW ) ON APPEAL FROM THE SUPREME COURT OF VICTORIA BETWEEN: PETER .WILLTAM BRAY eee. vec ceeeaveueeeecs __ Appellant AND , THE COMMISSIONER OF TAXATION ~~ OF THE COMMONWEALTH OF AUSTRALIA / eee dae ece cease caaceen eee eceeees Respondent ORDER JUDGE(S) MAKING ORDFR : Bowen C.J., C.A. Swéeney and Deane JJ. DATE OF ORDER : 14th September, 1977 WHERE MADE : Sydney THE COURT ORDERS THAT: i. Appeal dismissed with costs. x x Pate Envusred: DISTRICT RGTSTRAN, Ses reaper ral ee merits, Ponte al oe ee oe ee IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY V.G. 36 of 1977 ee GENERAL DIVISION ON APPEAL FROM THE SUPREME COURT OF VICTORIA OSS—C—~C~S BETWEEN: PETER WILLIAM BRAY — Appellant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA - Respondent CORAM: BOWEN C.J., C.A. SWEENEY and DEANE JJ. 14th September, 1977 JUDGMENT BOWEN C.J.: This is an appeal from the Supreme Court of Victoria. Peter William Bray, the appellant, claimed a deduction amounting to $44,107 in his tax return for the income year ended 30th June 1974 under s.78(1)(a) of the Income Tax Assessment Act, 1936. This deduction was disallowed by the Commissioner of Taxation. Mr. Bray's appeal to the Supreme Court against the Commissioner's decision was dismissed with costs. Mr. Bray is a member of a Brisbane firm of solicitors. During the income year ended 30th June 1974, he was in receipt of a substantial professional income which, in the ordinary a Fe) course, would lead to a substantial liability for tax. He was a reluctant taxpayer. Between Christmas 1973 and Easter 1974, he decided to take steps to establish a charitable trust. The establishment of such a trust fitted, in his mind, into a larger series of transactions. As his intentions crystallized, that proposed series of transactions included, inter alia, the acquisition of the issued shares in a private company which had cash assets and no liabilities, a gift of all but one of those shares to the proposed charitable trust and the application of the cash assets in the subscription for shares in a company or companies over which he exercised or would exercise practical control. The anticipated result was that he would retain practical control of the ultimate application of the cash assets of the company whose shares he had acquired and given to the trust, while obtaining a deduction for income tax purposes of the value of the shares given. The appellant planned that the charitable trust would receive dividends on the shares which he gave it and that the moneys received by the trust would be applied in making gifts to funds, authorities and institutions and to purposes referred to in s.78(1)(a). He hoped that, ultimately, the trust would bear the name of, and constitute a "token of respect for", his parents. To produce the result that gifts to the proposed trust would be deductible, it was necessary that the proposed trust, when established, should be a public fund which satisfied the requirements of s.78(1)(a). The relevant portions of s.78(1)(a) provide: "The following shall ... be allowable deductions: (a) Gifts (not being testamentary gifts) of the value of Two dollars and upwards of money or of property other than money which was purchased by the taxpayer within twelve months immediately preceding the making of the gift, made by the taxpayer in the year of income to any of the following funds, authorities or institutions in Australia: (a variety of categories of funds, authorities institutions and purposes are specified in sub-clauses (i) and (xliv) inclusive) or to a public fund established and maintained under a will or instrument of trust exclusively for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to, and for the purposes (if any) referred to, in any of the sub- paragraphs of this paragraph, or for the establishment of such funds, authorities or institutions, being a public fund as to which the Commissioner is satisfied that the terms of the will or instrument of trust are such that any moneys (including income derived from investments and proceeds of the realization of investments) paid or accrued to the fund as a direct or indirect result of the particular gift and not applied for the purposes of the fund may not be invested by the trustee otherwise than in a manner in which trustees are permitted by an Act, a State Act or a law of a Territory of the Commonwealth to invest trust moneys without special authorization". At Mr. Bray*s request, an employed solicitor with his firm, one Andrew Brown, approached the Brisbane Office of the Commissioner for the purpose of ensuring that the provisions of the deed establishing the proposed trust would be accepted as satisfying the requirements of s.78(1)(a). What was described as a "model deed" was obtained from the Taxation Department. This was used as the basis for the trust deed which was ultimately executed on 12th June 1974. By April 1974, the draft deed had substantially reached the form of that ultimate trust deed. Mr. Bray numbered among his Brisbane friends, John Edward Gallagher, William Allan Gorry and Kerry Patrick Prior. In April, 1974, he approached each of them in turn. He informed each that he had in mind the establishment of a charitable foundation, showed each the draft deed and asked each to agree to act as a trustee. Mr. Bray indicated to each that he intended to make a gift in the form of shares to the proposed trust and gave an assurance that, so far as he was able, he would ensure that a reasonable dividend was paid on the shares. Mr. Gallagher was a barrister, Mr. Gorry was an accountant and Mr. Prior was a solicitor. The deed had been patently drawn to ensure that gifts to it were deductible. It is apparent that each of his friends would have been conscious of the fact that Mr. Bray's plans involved the receipt by him of an anticipated deduction, for income tax purposes, of the value of gifts made by him to the trust once it was established. Each of them agreed to act in an honorary capacity as a trustee. Mr. Bray did not inform them of his plans concerning the application of the cash assets of the company whose shares he proposed to give to the trust. In the course of communication between Mr. Brown and the Commissioner's Brisbane office, suggestions and requirements were made, on behalf of the Commissioner, as to alterations which were desirable to procure the Commissioner's approval. The Commissioner's suggestions and requirements were met. On 11th June 1974, the Commissioner wrote to Mr. Bray's firm a letter in which it was stated that donations of $2-00 and upwards to a fund constituted by and in accordance with a deed of trust in precisely the same form as the draft which had been prepared would qualify as income tax deductions in terms of the special provisions of s.78(1)(a). On 12th June 1974, Mr. Bray, Mr. Gallagher, Mr. Gorry and Mr. Prior executed a deed of trust. Its terms corresponded with the form of deed which had been approved. There has been no suggestion that this deed was executed as a sham. Each of the parties to the deed gave evidence. It was not suggested to any of them that the deed was intended to operate otherwise than in accordance with its terms. The trust deed recited that Mr. Bray wished to establish a public fund exclusively for the purposes of providing money, property or benefits to or for funds, authorities and institutions referred to, and for purposes referred to, in any of the sub-paragraphs of s.78(1)(a) of the Act and for the "establishment of any such funds, authorities and institutions" (Recital A). It also recited that Mr. Bray (referred to as "the founder") proposed that the fund would "solicit and accept donations from any person, company or organization of moneys and real and personal property and other benefits". It recited that he "has paid to the trustees One hundred dollars ($100-00) to be held by the trustees as the first contribution to be held by the trustees upon the trust hereof" and that he had formed "the intention to establish the fund in gratitude to and affection for his parents". The trustees appointed by the trust deed were the four persons who executed it. Clause 1 of the deed provided that, subject to context, the words "the Fund" when used in the deed meant, inter alia, the original sum of $100-00 previously mentioned and all sums of money and all other real or personal property at any time and from time to time paid or transferred to and accepted by the trustees for the purposes of the deed. I shall use the phrase "the Fund" as referring, in compendious fashion, to both the trusts constituted by the deed and the assets subject thereto. Clauses 2, 3 and 4 of the deed were in the following terms: "2, The founder hereby directs and declares and it is hereby agreed that the trustees shall stand possessed of the Fund upon the trusts and with and subject to the powers set forth in this Deed. 3. Any person or company or other organisation (whether corporate or not) may from time to time and at any time donate monies, real and personal property and other benefits to the trustees to be added to and form part of the fund. 4. (a) The trustees shall be bound by the following rules in the application and use of the fund: (i) The fund shall be applied and used ' exclusively for the purposes mentioned ! in Recital A of this Deed; : (ii) The fund shall only be applied and used for the benefit of funds, authorities and institutions within Queensland; (iii) The fund will be applied and used without discrimination as to colour race or creed; (iv) No charge will be made in respect of any use or application of the fund; and ' o. (v) The trustees will ensure that benefits from the fund do not flow to any one particular person, authority or institution. (b) No part of the fund as constituted at the date of any variations or alterations lawfully made to this Deed shall become freed from the limitations imposed by clause 4(a) of this Deed without the approval of the Commissioner of Taxation". Clause 5 of the deed dealt with the trustees* powers of investment. It limited investment to trustee investments but provided that the trustees might retain any property or benefit of any kind or nature in the same form in which it was originally received without being obliged to sell the same or convert it into money. It provided that the trustees! powers of investment should not be amended or deleted without the approval of the Commissioner and conferred upon the trustees a power to accumulate. Clause 6 of the deed provided as follows: "6, (i) The number of trustees shall be not less than three nor more than the maximum number permitted by law for the time being or, if there shall be no such maximum prescribed, seven. (ii) In the event of the death and/or retirement from office of any trustee then, subject to compliance with sub~clauses (iii) and (iv) of this clause 6 of this Deed, the power of appointing new trustees shall vest in the trustees for the time being holding office whether or not the number of trustees making such appointment shall then be less than the permitted minimum provided that a new trustee may be appointed only by the unanimous decision of the trustees for the time being holding office. (iii) The appointment of a new trustee in accordance with sub-clause (ii) of this clause 6 of this Deed shall be conditional upon the consent thereto of a Justice of the Supreme Court of Queensland who shall before granting such consent enquire into the suitability of the prospective trustee having regard to the public nature of the fund and to the requirements of sub-clause (iv) of this clause 6. (iv) The trustees for the time being shall be persons each of whom at the time of his first appointment shall be either - (a) A Justice of the Supreme Court or a Judge of the District Court of Queensland; (b) A Member of the Parliament of the Commonwealth of Australia or of the State of Queensland; (c) An Alderman of the Brisbane City Council or of any Local Authority in Queensland; (d) A member of the Senate or other governing body of any recognised University or other Educational Establishment; (e) A Barrister of the Supreme Court of Queensland; (f) A Solicitor of the Supreme Court of Queensland; (g) A Registered Public Accountant; (h) A graduate of any University in the Commonwealth of Australia;" Clause 7 contained general provisions relating to manner of exercise and discharge by the trustees of their rights and obligations under the deed and the powers and liabilities of the trustees in the performance of their functions. In particular, clause 7(i) provided: "(i) A trustee shall not be liable for any loss except one attributable to his own dishonesty or wilful default." Clause 8 related to the power of declaring further and other trusts and provided that such power "shall not permit any variation which would prejudice any concession allowed to the trust or to any donor to the trust or beneficiary of the trust umer the provisions of" the Act. Clause 9 provided that the trust was established under the law of Queensland. Clause 10 provided that "for the purposes of soliciting and making donations the fund established by the Trust Deed would "be called "THE SPORTSMEN AND BUSINESSMENS BENEVOLENT FOUNDATION" but envisaged that in certain circumstances (for the time being) and for all purposes (ultimately) the fund established by the Trust Deed would be known as "THE G.W. AND D.F. BRAY FOUNDATION". Clause 22 provided: "In the event of the winding-up of the trust for any reason whatsoever then the fund remaining after meeting all obligations of the trust will be transferred to any organisation institution or authority meeting the requirements of Section 78(1)(a) of the Income Tax Assessment Act of the Commonwealth of Australia". The first meeting of the trustees was held in Brisbane at Mr. Bray's office on the 19th June 1974, Minutes of this meeting are in evidence. Their accuracy has not been disputed and the ensuing summary of what occurred at the meeting is taken from them. All trustees were in attendance. Mr. Bray "was elected Chairman of the Trustees and President of the Foundation". The Chairman tabled the ve stamped executed trust deed, the letter of 11th June 1974 from the Commissioner and his personal cheque for $100-00 which was described as "the initial sum settled under the Trust Deed and the first donation to the fund", The minutes record a number of other matters relating to the establishment, purposes and administration of "the fund". Among them are the following items: "REASONS FOR ESTABLISHMENT: The Chairman indicated that he wished to record the following reasons for establishing the Foundation in addition to those mentioned in the Deed: 1. The Chairman desired to give financial assistance to organizations engaged in public charity, and 2. He wished to seek the advice of others in giving such assistance and for that reason asked the trustees to accept office as such, and 3. A general fund rather than a fund for one specific purpose was thought to be a useful means of assisting public charitable appeals which through their own efforts secured most but not quite all of the support required for their particular purposes." "DECISIONS OF TRUSTEES: It was resolved that except where specifically permitted by the decision of all trustees, any resolution of the trustees must be unanimously adopted by them to be binding." "PUBLIC NATURE OF FUND: It was resolved that the Foundation be conducted as a public fund and that the Foundation solicit as many and as large donations as possible from a wide range of persons, companies and institutions in Queensland. The Chairman reported that as a pre-requisite for soliciting donations from the public the Foundation must be registered under the State Collections Act of 1966. It was accordingly resolved that the Chairman be authorized to take all such steps as may be necessary to seek approval of the Foundation as a Sanctioned Fund under Section 12 of the Collections Act of 1966. It was further resolved that the Chairman be authorized to organize a programme of public advertisements to cover as wide a field as possible during the 1974-1975 financial year". "DONATIONS BY THE FOUNDATION: It was resolved as a matter of general policy that all donations by the Foundation would be devoted to public charitable purposes which themselves are approved for tax deductible donations under Section 78 of the Income Tax Assessment Act". The final item of business at this meeting related to the gift by Mr. Bray of shares in a Victorian company, M.B.J. Constructions Pty. Limited ("M.B.J. Constructions"). That transaction is at the heart of the present appeal. The shares in M.B.J. Constructions had been acquired by Mr. Bray some days previously, in circumstances to which it will subsequently be necessary to make detailed reference. As at 19th June 1974, there were 22,620 issued ordinary shares of which 22,619 were beneficially held by Mr. Bray. The other share was held by a company called Trumper Finance Pty. Limited which was controlled by Mr. Bray. On 19th June 1974, the only directors of M.B.J. Constructions were Mr. Bray and Trumper Finance Pty. Limited. Its only asset was a bank credit of $45,240-00. It had no liabilities. In other words, each share had a net asset backing of $2-00 represented by money in the bank. Under the articles of association of M.B.Jd. Constructions, each of the issued ordinary shares ranked as to dividend and return of capital, pari passu with the other issued ordinary shares. All of the issued ordinary shares had equal voting rights. The minutes of the trustees meeting record: "Girt OF SHARES: The Chairman indicated to the meeting that he wished to make a donation to the Foundation of 22,619 ordinary fully paid shares of $2-00 each in the capital of M.B.J. Constructions Pty. Ltd., a company incorporated in Victoria, these shares having been purchased by the Chairman on Thursday, 13th June 1974. The Chairman tabled a letter from Messrs. Wilson Bishop Bowes & Craig dated 18th June 1974 valuing the shares at $1.95 each so that the donation had a total value of $44,107. It was resolved that the trustees accept this donation and execute the transfer of shares tabled at the meeting in order that the same may be registered by the company". In accordance with the resolution, the transfer of shares tabled at the meeting was executed by the trustees. The 22,619 shares in M.B.J. Constructions were transferred to the trustees. The trustees were entered in the share register of that company as the holders of those shares. In that share register, the trustees were entered as joint holders in alphabetical order subject to the qualification that Mr. Bray's name appeared last instead of first. The result of the order of entry was that, in so far as the company was concerned, Mr. Gallagher was the trustee who was, prima facie, entitled to exercise the voting rights. Mr. Bray's right to claim a deduction in the sum of $44,107 turns upon whether the fund established by the deed was on the 19th June 1974 a fund which satisfied the requirements of s.78(1)(a). The subsequent actions of the trustees and certain other occurrences need to be mentioned. The learned trial Judge took these into consideration, at least to the extent that they threw light on the nature of the fund on that day. It is also necessary to determine the relevance to that question of the overall motivation of Mr. Bray and his actions both in the acquisition of the shares and in the administration of M.B.J. Constructions and of other companies over whose affairs he exercised practical control. In pursuance of the resolution of the meeting of trustees, application was made, either on or shortly after the 19th June, 1974, for the issue of a sanction, pursuant to the Collections Act 1966-1973 (Q*id.), in respect of the raising by the trustees, from the public, of moneys to be applied for the purpose of the trust deed. On the 2nd July 1974, the Minister for Justice and Attorney General for the State of Queensland issued such a sanction for the period 2nd July, 1974 to 30th June, 1975 (both inclusive). On 25th September 1975, the Minister issued a further such sanction which was, by its terms, unrestricted in point of time and operative until revoked under and in accordance with the provisions of the Collections Act. In November 1974, Mr. Bray took steps to procure the appearance in each of four Northern Queensland newspapers, the Cairns Post, the Mackay Daily Mercury, the Mt. Isa Northwest Star and the Townsville Daily Bulletin, of an advertisement in the following form: "DONATIONS INVITED FROM THE GENERAL PUBLIC to THE SPORTSMENS & BUSINESSMENS BENEVOLENT FOUNDATION P.O. Box 306, NORTH BRISBANE. 4000 (a managed charitable fund devoted to assisting other Queensland charities). Contributions of $2 and over are allowable deductions under existing income tax laws. Sanctioned under "The Collections Act of 1966". The advertisement appeared once in each of the four publications 1n the period between 16th November 1974 and 17th December 1974. He procured the reappearance of the advertisement once in each publication in the period between 31st May 1975 and 18th June 1975. The advertisements did not lead to any donations being received by the Fund. The learned trial Judge, after a consideration of the evidence relating to the advertisements, reached the conclusion that "the advertisements were inserted not really in the hope of evoking donations but with a view to endeavouring to have some evidence from which it might be contended that the fund was a public fund". His Honour's conclusion in this regard was, in my view, fully justified by the evidence and inferences which he was entitled to draw from the evidence. Once this assessment of the purpose of the advertisements is accepted, the overall conclusion from the evidence is that the trustees did not, at any time, take any steps, aimed at soliciting or obtaining gifts and did not, in the event, obtain any such gifts or donations, from any one other than Mr. Bray. The trustees were bound by the provisionsof the deed to accept donations from anyone who might wish to contribute. The publication of the advertisements really did no more than establish a communication, on behalf of the trustees, to a not insignificant part of the Queensland public that the fund was, in fact, prepared to accept such donations. On 24th July 1974, Mr. Bray acquired, in his own name, all but one of the issued ordinary shares in another company, Butler Furniture (Horsham) Pty. Limited ("Butler Furniture"), Butler Furniture was also a company which had no liabilities and whose assets consisted of cash in the bank. Having acquired these shares, he made a gift of them to the fund. During the income year ended 30th Jume 1976, Mr. Bray acquired and gave to the fund all but one of the issued ordinary shares in a third company with no liabilities and assets consisting of cash. On 25th June 1975, M.B.J. Constructions paid to the fund by way of dividend the amount of $1,400-00. On the same day Butler Furniture paid to the fund, by way of dividend, $2,250-00. On that day, the trustees paid $400-00 to each of four public charities, namely, the Salvation Army's Red Shield Appeal, the Brisbane Society Dunwich & St. Helena Mission (commonly known as the Brisbane City Mission), The South Queensland Adventists School building fund, and the Adult Deaf Society Incorporated. Each of these charities was among the categories specified in s.78(1)(a). On 30th April 1976, the fund received, by way of dividend, $1,800-00 from M.B.J. Constructions and {1,755-00 from Butler Furniture. On 24th June 1976, the trustees paid $300-00 to the Queensland Adult Deaf Society and $200-00 to each of The Children's Hospital Appeal, the Queensland Society for Crippled Children, The Tufnell Homes for Orphaned Children, Lifeline Brisbane, The Society of St. Vincent de Paul, Help Industries Limited and The South Queensland Adventist School building fund. Each of these nine charities was among the categories specified in s.78(1)(a). The discrepancy between the amounts received and the amounts distributed by the trustees is explained by the fact that, in the absence of an indication by the Commissioner that he accepted that the income of the fund was not liable to income tax, the trustees took the view that the prudent course was to retain sufficient funds to meet any assessment. Apart from the amounts which it was thought necessary to retain in respect of possible liability for income tax, all amounts received by the fund were distributed to the charities. Each of the trustees participated in the decision as to which charities were to receive gifts. Indeed, to some extent, the identity of the recipients of gifts was determined by past or present association between a particular trustee and a particular public charity. Mr. Prior was the Chairman of the Queensland Adult Deaf Society which was a recipient of a donation in each year. Mr. Gorry was interested in the South Queensland Adventist School whose building fund received a gift in each year. Mr. Bray had previously been a donor to the Brisbane Society Dunwich & St. Helena Mission which was the recipient of a gift in the first year. Mr. Bray and Mr. Gallagher had apparently had some past contact with the Red Shield Appeal which was the other recipient of a gift in the first year. Among the additional charities benefited in the second year, the St. Vincent de Paul Society was a charity with which Mr. Gallagher had been associated for some time and Mr. Bray had had previous familiarity with the sheltered workshop run by Brisbane Rotary under the name of "Help Industries", Apart from Mr. Bray, none of the trustees played any part in the affairs of any of the companies whose shares were given to the fund, nor in the affairs of any other company in which shares were purchased by those companies. The trustees saw, in due course, the annual accounts of the companies in which the fund held shares. Beyond that, the other trustees apparently made no inquiries. The trustees, as a body, received the gifts of shares which Mr. Bray made to the fund and the dividends which were paid on those shares. In so far as those dividends were not retained to meet liability for income tax, they were, as has been said, distributed to charities within the categories specified in s.78(1)(a). There is no suggestion that any moneys received by the trustees have been dealt with or applied in other than the strictest conformity with the pro- visions of the trust deed or for other than the purposes specified in the deed. On one approach to the matter, the above constitutes a summary of all the relevant facts. On the Commissioner's approach to the matter however, which found favour with the learned trial Judge, the above summary of the facts constitutes but a misleading facade. To appreciate the reality, it is, on the latter approach, necessary to examine, in some detail, the motivation of Mr. Bray leading to the establishment of the fund, the steps by which he acquired the shares, which he subsequently gave to the fund and the manner in which cash held by the companies in which shares were acquired by Mr. Bray was subsequently dealt with both by those companies and other companies. On 13th June 1974, the day after the deed was executed, Mr. Bray flew to Melbourne. The learned trial Judge found "that one of the prime purposes of that visit was the transaction" involving the acquisition of the shares in M.B.J. Constructions. Prior to 13th June 1974, as his Honour found, the appellant had discussed with one Peter Hutchins in Melbourne the possibility of purchasing from Hutchins or companies associated with Hutchins all the shares in what Mr. Bray called a "clean" company, that is a company which had cash assets but no liabilities. On 13th June 1974, Mr. Bray arranged for the purchase for $45,466-20 from Hutchins and a company called Levart (Vic.) Pty. Limited of the 22,620 issued shares of $2-00 each in M.B.J. Constructions. Of those shares, 22,220 were ordinary shares and 400 were "A" class shares. All but one of those shares were transferred to Mr. Bray. The other share was transferred to a company called Trumper Finance Pty. Limited ("Trumper Finance") in which all of the issued shares were beneficially owned by Mr. Bray. The shares in M.B.J. Constructions having been acquired, Mr. Bray and Trumper Finance were appointed directors of M.B.J. Constructions and the previous directors resigned. At an extraordinary general meeting of M.B.J. Constructions on 18th June 1974, it was resolved by special resolution that all the issued and unissued "A" class shares of the company be converted into ordinary shares ranking pari passu with existing ordinary shares and new articles of association were adopted. As a result all the shares had equal voting rights. At all relevant times until 22nd July 1974, M.B.J. Constructions's only asset was $45,240-00 cash in its bank account, I continue the account of the additional facts in the words of the learned trial Judge whose findings I accept: "The taxpayer and the company Trumper Finance controlled by him remained the only directors of M.B.d. Constructions at all relevant times thereafter. Before referring to the next steps taken it is convenient to refer to four companies and the control thereof at all relevant times. Trumper Pty. Ltd. (to which I shall refer as "Trumper") was a company in which all the ordinary shares were held beneficially for the taxpayer and of which he and Trumper Nominees Pty. Ltd. were the only directors. Its activities were investment in other companies and trading in shares in other companies. Trumper Finance, to which I have already referred, was a company in which all the shares were held beneficially for the taxpayer and of which the taxpayer and a company controlled by him were the directors. At all material times it has been an investment company and share trader. Trumper Mining Pty. Ltd. (to which I shall refer as "Trumper Mining") was a company in which the shareholders were two companies the capital in which was beneficially owned by the taxpayer and of which the taxpayer and a company controlled by him were the directors. Its activities at all relevant times have been borrowing money interest free and lending it interest free to the taxpayer. Trumper Nominees Pty. Ltd. was a company in which all the capital was held beneficially for the taxpayer. It fulfilled the role of director of some of the other Trumper companies and acted as a trustee of a superannuation fund. On 22 July 1974 M.B.J. Constructions invested $45,000 of the $45,240 which still remained in its bank account by subscribing for and having allotted to it at par 45,000 five per cent "A" non-cumulative preference shares in Trumper, which shares carried no voting rights and were redeemable, but only at the option of Trumper", (I would interpolate that his Honour's reference to the preference shares in Trumper Pty. Limited as "five per cent" non-cumulative preference is, perhaps, an unduly favourable description in that the articles of Trumper provided that the directors might declare a rate "of less than five per cent (5%) but not less than one per cent (1%)". If the shares are to be categorized by reference to minimum rights, it would possibly be more accurate to refer to them as "1% non-cumulative preference shares"). "Trumper used the $45,000, the consideration for the issue of the shares, to repay some of its creditors and it lent some of the money to Trumper Mining. Trumper Mining subsequently lent some at least of that money to the taxpayer and he used it to pay income tax for which he was assessed when the deduction in issue was disallowed by the Commissioner. The effect of all of the foregoing may be stated as follows. A significant part of the $45,240 in the bank account of M.B.J. Constructions has been indirectly made available to and used by Trumper, a company controlled by the taxpayer, to repay its creditors which facilitated its activities of lending money to Trumper Mining and investing and trading in shares. The money was so made available by subscribing in cash for the 5% redeemable preference shares. Another significant part of the $45,240 in the bank account of M.B.J. Constructions has been indirectly made available to the taxpayer interest free and used by him for personal purposes. This has been done through M.B.J. Constructions subscribing for the redeemable 5% preference shares in Trumper and Trumper lending part of the subscription money interest free to Trumper Mining which lent part at least of that money interest free to the taxpayer who used it to pay personal taxation". The learned trial Judge found - and the evidence justified the finding ~— that at the time he established the fund and transferred the shares in M.B.J. Constructions, Mr. Bray broadly had in mind that the cash which comprised that company's assets would be made available to companies which were controlled by him but that Mr. Bray's intentions in this regard were not communicated to either the Commissioner or any of the other trustees. It should be noted that there was no suggestion in the evidence that Mr. Bray had, at any time prior to May 1975, intended that any of the cash funds held by companies whose shares he acquired and gave to the fund should ultimately be lent to him personally or applied for his personal purposes. The need for such a loan arose when the income tax assessment disallowing the disputed deduction issued in that month. His Honour accepted the evidence of the three other trustees that the first they knew of any investment by M.B.J. Constructions in the 5% redeemable non— cumulative preference shares in Trumper was when they saw the financial statements of M.B.J. Constructions for the year ended 30th June 1975 which, as his Honour observed, must have been in the latter half of 1975. The first question which arises for determination is whether in the light of these facts there was a gift within the meaning of s.78(1)(a). It was argued for the Commissioner that although property was transferred to the trustees voluntarily and not as a result of any contractual obligation, an advantage of a material character was received by the transferror by way of return and, therefore there was not a gift. Reference was made to Federal Commissioner of Taxation v. McPhail (1968) 117 C.L.R. 111. It appears to me that Mr. Bray did make a gift to the trustees of the cheque for $100 and of the shares in M.B.J. Constructions. Although it may be said that he was later seen to be deriving an advantage because of the use which was made of the funds of ! that company, it would be wrong in my view to hold that any advantage, which he may have gained in this way, was in return for the gift. Any advantage Mr. Bray received was not the result of any arrangement or understanding with the trustees. His intention to use the funds as he did was part of his plan, which he did not disclose to his co-trustees. Any advantage which he obtained resulted from the form of the gift of shares in M.B.J. Constructions and the position of control in which he stood in relation to that company. It was not a quid pro quo for the transfer of the shares. Turning to the latter part of s.78(1)(a), it seems clear enough that the Commissioner was satisfied that the terms of the instrument of trust, of which he had approved, were such that any moneys paid or accrued to the fund as a result of the gift and not applied for the purposes of the fund, might not be invested by the trustees otherwise than in the manner specified in the section. The substantial question arising for determination is whether the gift was to a public fund, established and maintained under an instrument of trust exclusively for the specified purposes. The Commissioner contends and the learned trial Judge held that the fund in the present case was not a public fund and, in any event, was not established and maintained exclusively for the specified purposes. To some extent these questions overlap. A fund which otherwise might be considered to be a public fund, might be a held to fall outside that description, if it was seen to be established and maintained for the specified purposes and also for the purpose of supplying private profit or advantage. Leaving this consideration on one side, the question is whether the fund created by the trust deed answers the description of a "public fund". These words are a compound description to which a meaning has to be given. Some assistance may be derived from a consideration of each of the words used. The word "fund" is not confined to cash or money in the bank. L It is appropriate to refer to money or investments set aside and administered for any purpose (see Associated Provident Funds Pty. Limited v. Federal Commissioner of Taxation (1966) 14 A.T.D. 333 per Windeyer J. at p.351). The word "public" has been considered by the Courts in relation to a variety of compound descriptions, such as, public hospital, public school, public benevolent institution, public education purposes and the like. In Ratcliffe and McGrath with Hughes on The Law of Income Tax (1938), there is a discussion of "public benevolent institution". It is stated (at pp.446-447): *It seems that a "benevolent institution" should be regarded as "public" owing to the presence or absence of a number of different factors, none of which alone is decisive. It appears that each case must depend upon its own particular circumstances. The main factors to be considered are whether:- (1) its foundation was of a public nature; (2) its foundation was perpetual; (3) the source of its income is public; (4) its management and control are public; (5) any private person has any interest in it; (6) it has any object of profit; (7) it is the public who benefit, or who are entitled to the benefits from it.?* There follows a list of relevant cases. Since 1938 there have, of course, been other cases. Those which may usefully be referred to include: Little Company of Mar S.A. Incorporated v. Federal Commissioner of Taxation (1942) 66 C.L.R. 368; Maughan v. Federal Commissioner of Taxation (1943) 66 C.L.R. 388; Renmark Hotel Inc. v. Federal Commissioner of Taxation (1949) 79 C.L.R. 10; Lloyd v. Federal Commissioner of Taxation (1955) 93 C.L.R. 645; Thompson v. Federal Commissioner of Taxation (1959) 102 C.L.R. 315. The statement quoted appears to me to set forth the correct approach in determining the element of "publicness". It 1s also clear from the cases that the most important elements are the conferring of public benefit and the exclusion of private advantage or profit. Profit-making in itself is not foreign to the notion of a public fund, provided the profits are to be devoted to the public purposes of the fund. In the present case, the foundation of the fund was private, not public, the source of its income was property given by a private citizen and its control and management were in the hands of trustees, who were private persons. The trustees were obliged to accept donations from any person, corporation or organisation (cl. 3). They in fact advertised for donations in several provincial newspapers but without Rie we we success. The sanctions obtained under the Collections Act 1966- 1973 (Q*ld.), subjected the fund to a degree of public supervision and control under the terms of that Act, but its ' management and control was not essentially of a public character. On the other hand, it was a perpetual foundation, the trusts of which could only be valid if they were charitable in the legal sense. By its terms the trust deed laid down trusts in favour of the funds, authorities and institutions and the purposes specified in s.78(1)(a). Some of these are charitable in the legal sense; some are not. Section 104 of the Trustee Act, 1973 (Q*ld.) prevents the inclusion of non-—charitable purposes from invalidating trusts for charitable purposes. The non-charitable purposes may be disregarded (Stratton v. Simpson (1970) 125 C.L.R. 138). The trusts established by the trust deed are, therefore, those in favour of funds, authorities, institutions and purposes specified in s.78(1)(a) that are charitable. The fact that the trustees have a discretion to determine which shall benefit, does not alter or cut down the essentially public nature of the benefits. The fund may not, in terms of the deed, be applied for the private advantage or profit of any individual. Even if it be wound up, any part of the fund remaining has to be applied for like public purposes (Cl. 11 of the deed). Of course, at the end of the day what has to be determined is whether the fund falls within the compound description of "public fund". In the circumstances, it appears to me that it does, subject only to the qualification stated earlier that on a consideration of the circumstances relevant to its establishment and maintenance, it is not found to have been established or maintained partly for purposes of private advantage. I turn now to the question whether the fund was established and maintained exclusively for the purposes specified in s.78(1)(a). On the facts in the present case, it seems that one way in which Mr. Bray's case might have been presented, was to submit that the fund was established by the gift of $100 and was maintained, albeit for a brief period, exclusively for the purposes set forth in the deed, so that when the gift of shares was made, it was to a fund which answered the description in s.78(1)(a). However, the case for Mr. Bray was not in fact put on this basis either before this Court or, so far as the material presented on this appeal shows, before the learned trial Judge. There were, no doubt, sound reasons for this. As appears from the minutes of the first meeting of trustees on 19th June 1974, the deed was incorrect in referring on the 12th June 1974 to the $100 as having been paid. What in fact happened was that Mr. Bray's personal cheque for $100 was tabled at the meeting of trustees on 19th June 1974. The meeting lasted less than an hour. Perhaps it might be suggested, since the cheque was tabled before the transfer of shares at the meeting of 19th June 1974, there was a brief period during the meeting, after the cheque was tabled, when the trust was maintained exclusively for the purposes specified by s.78(1)(a). However, the trust was set up on 12th June 1974 by the deed and was constituted by the transfer of property to the trustees on the 19th June 1974. Due to the way in which the case for Mr. Bray was put, there was no evidence as to how the cheque was handled at the meeting or as to when the cheque was cleared. Perhaps one should infer at least that the property in the cheque itself passed to the trustees before the property in the transfer of shares. Is this sufficient to lead one to the conclusion that, when the transfer of shares was handed over there was already a fully constituted trust? I think not. It does not appear to me to be correct to draw a distinction between the handing over at the one meeting of the cheque and the transfer of shares. In my opinion, the correct conclusion is that at the meeting of 19th June 1974, the trust was constituted by the handing over of both the cheque and the transfer of shares. The arguments put for Mr. Bray appeared to me to accept that this was the position. In considering whether a particular gift falls within s.78(1)(a), the relevant date must be the date of the gift. In the case of a gift to a public fund, the fund must answer the statutory description at that date. If the gift 1s to a fund which is constituted by the very gift itself, while the question whether the fund is established exclusively for the specified purposes is a reasonably straightforward a one, the question whether the fund is maintained exclusively for those purposes presents some difficulty. Presumably in using the two words "established" and "maintained" the legislature intended to convey two separate meanings (Maynard v. Williams (1955) 1 W.L.R. 54 at p.60). But the fund has no history against which one may judge whether it is maintained as required in the section. The notion that the corresponding words in s,8(5) of the Estate Duty Assessment Act 1914-1940 did not apply where the gift established the fund, was rejected in Lemm v. Federal Commissioner of Taxation (1942) 66 C.L.R. 399. Williams J. in his judgment with which Rich J. and McTiernan J. agreed, said (at p.410):- 'It is the character and not the pre-existence of the institution or fund, just as it is the quality of the purpose, which is important. The trusts in the will are intended to establish an institution and a fund the beneficial interests in which are not to be vested in any private person but are to belong inalienably to the public (Dilworth v. Commissioner of Stamps of Stamps (1899) A.C. at p.109; Girls? Public Sr Public Day School School Trust Ltd. v. Ereaut (1931) A.C. 12, at p.35). In my opinion it is no objection that the public hospital, public benevolent institution or fund is established by the will itself, or that the trustees of the will are authorized to apply the fund to assist unnamed institutions, so long as their discretion does not allow them to apply it otherwise than for one or more of the purposes mentioned in the sub-section. * The position under the Estate Duty Assessment Act was clarified by Act No. 18 of 1942 s.4(d) by inserting the words "as or" before the words "to a fund" (see Union Trustee Company of Australia Limited v. Federal Commissioner of Taxation (1962) 108 C.L.R. 451 at p.456). The words "as or" have not been inserted before the words "to a public fund" an s.78(1){a) of the Income Tax Assessment Act notwithstanding it has frequently been amended in recent years. Nevertheless, I believe it is correct to adopt in relation to s.78(1)(a) the same approach as was adopted in Lemm v. Federal Commissioner of Taxation before those words were added to s.8(5) of the Estate Duty Assessment Act. Accepting this position, the question is whether the Court should pay regard only to the terms of the deed and the transfer of the property to the fund in determining whether it was established and maintained exclusively for the specified purposes. If so, in the present case, I would be of opinion the fund met the requirements of s.78(1)(a). But Counsel for the Commissioner argues that the Court may pay regard to all the circumstances including the intention of the settlor, the facts leading up to the constitution of the fund and the subsequent facts relating to its management and the adminis-— tration of its assets. I agree that the Court is not confined to a consideration of the deed and the transfer of the property. I am of opinion that the circumstances leading up to the constitution of the fund are proper matters to be considered. The intention of the settlor and the subsequent management and administration present more difficulty. So far as intention is concerned, it appears to me the question before the Court has to be determined in accordance with objective considerations and that the subjective intention or the motives of the taxpayer are, in general, irrelevant. Again, what occurs after the date of gift will, in general, be irrelevant. It would be strange if an innocent donor to a public fund might lose the deduction to which he was entitled under s.78(1)(a) because the fund was subsequently misapplied. However, the facts of the present case raise these questions in a special form. At the risk of seeming repetitious, I refer to the facts which appear to me to be material. The deed was executed on 12th June 1974. On 19th June 1974 a cheque for $100 and a transfer of 22,619 ordinary shares of $2-00 each in M.B.J. Constructions executed by Mr. Bray were handed over to the trustees. The fund was then constituted. Mr. Bray was one trustee, the other three trustees were friends of his whom he had selected. Prior to the corsbitution of the fund and at the first meeting of trustees held on 19th June 1974, he informed them that he would see to the best of his ability that reasonable dividends would be forthcoming from the shares as income to the foundation for distribution to charitable bodies. At the same meeting on 19th June 1974, a resolution was passed that except where specifically permitted by the decision of all trustees, any resolution of the trustees must be unanimously adopted by them to be binding. It was apparently sought by this means to overcome the ordinary rule that trustees of a public or charitable trust may act by majority (In re Whiteley (1910) 1 Ch. 600). Both before and after the constitution of the trust, Mr. Bray had the additional intention, not communicated to the other trustees, that the sum of $45,240-00 held by M.B.J. Constructions in its bank account, would, after the shares in the capital of that company were given to the fund, be available for use by other companies under his control. In the light of this intention, and in the light of the way in which the funds were later in fact used, the significance of the structure of the trust and the nature of the gift of shares becomes apparent. The structure was so arranged that Mr. Bray, having transferred the shares in M.B.J. Constructions to the fund, retained the power to extract some or all of the value of those shares in order to benefit other companies which he controlled. This is, in fact, what occurred. He was one trustee who at all times had a full knowledge of the facts. As a trustee, his duty was to administer the assets of the fund to the best advantage. As a director of M.B.J. Constructions, his duty was to act for the benefit of the company, or, in real terms, to act for the benefit of its corporators, which virtually meant the trustees of the fund. Trumper received $45,000 from M.B.J. Constructions for the issue of 45,000 five per cent "A" non-cumulative redeemable preference shares. This was a lower form of security than an unsecured loan at 5% interest would have been. If either a dividend or interest at the rate of 5% was sure to be paid, ' there would be some advantage in M.B.J. Constructions receiving rebatable dividends rather than taxable interest. But M.B.J. Constructions had little assurance regarding the payment of dividends beyond reliance upon Mr. Bray's goodwill. The articles of Trumper were such that the dividend might be reduced to 1%; that the company might pay dividends only out of profits (at the 30th June 1975, Trumper had a nett ' deficiency of assets apparently representing accumulated losses amounting to $10,000); that the dividend was non- cumulative; that the shares might be redeemed only at the option of Trumper; and, that the shares carried no voting .. rights. On a winding up of Trumper, any payment to shareholders would, of course, be postponed until unsecured creditors were paid. As a director of Trumper, Mr. Bray owed a duty to that company, or in real terms, to its corporators, which virtually meant himself, since he beneficially owned all the ordinary shares. A conflict of duty situation and a conflict of duty and interest situation arose in relation to the transaction between M.B.J. Constructions and Trumper. But this was beyond the reach of the trustees, unless they took steps to assert their powers as shareholders of M.B.J. Constructions, by winding up or otherwise, with a view to ensuring the proper management of its assets. Under the deed they had power to retain the share investment. A power to retain an investment involves trustees 1n considering from time to time whether it is prudent to exercise the power. Under the deed, the trustees were not to be liable for any loss due to lack of prudence or even negligence on their part; they were , to be liable only for loss attributable to dishonesty or wilful default. It was not conceded by Counsel for the Commissioner that there had been no breach of trust but neither was it contended there had been a breach. In the circumstances it appears unlikely that the trustees, other than Mr. Bray, would seek to act against him or against the companies he controlled. Indeed, it was argued by Counsel for the taxpayer, in effect, that the trustees' attitude of standing by was a proper one for them to adopt, since they expected further gifts from Mr. Bray and would be wise not to , take steps which might defeat those expectations. At one stage, it was suggested in argument that one way of regarding the matter was to treat the trustees as having received the shares in M.B.J. Constructions subject to a stipulation that they would not interfere with Mr. Bray's direction of that company. If this view were accepted, it would presumably lead to the result that the valuation of the gift should be made upon the basis it was a gift of shares shorn of ' the right to interfere. However, although that may have been the expectation of Mr. Bray, it appears to me that there was no definite stipulation of this character. Mr. Bray kept this ' part of his intentions to himself. In the circumstances, I consider the gift was a gift of the shares without any such restriction as would be given effect to by a Court. The special feature of this case, as it appears to me, is that a structure was established by the terms of the deed and the nature of the gift of shares, which provided a potential for the value of the fund to be applied virtually without effective remedy to purposes other than those specified in s.78(1)(a). In some cases this potential may be regarded as of no significance. In the present case, the proved intentions of Mr. Bray and the subsequent events show it to be of such a character that the Court is precluded from regarding it as of no significance. Treating it as significant, I think the conclusion is inevitable that the fund is not shown to have been established and maintained under the instrument of trust exclusively for the purposes specified in s.78(1)(a). It is umecessary to express a view whether the fund, in all the circumstances, should be regarded as a public fund. I do not consider this general approach to be inconsistent with that adopted by the High Court in dealing with the different but somewhat related problem arising under the former s.23(j) of the Act (See Mahoney v. Federal Commissioner of Taxation (1965) 39 A.L.J.R. 62 affirmed 41 A.L.J.R. 232; Compton v. Federal Commissioner of Taxation (1966) 116 C.L.R. 2333 and, Scott v. Federal Commissioner of Taxation (No. 2) (1966) 40 A.L.J.R. 265). I propose that the appeal be dismissed with costs. IN THE FEDERAL' COURT OF AUSTRALIA V.G,36 of 1977 VICTORIAN DISTRICT REGISTRY GENERAL DIVISION ON APPEAL FROM THE SUPREME COURT OF VICTORIA BETWEEN : PETER WILLIAM BRAY ~ Appellant - and - THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA - Respondent. CORAM: BOWEN, C.J., C.A.SWEENEY, J., AND DEANE J. REASONS FOR JUDGMENT C. A. SWEENEY, J. This appeal is brought from a judgment of the Supreme Court of Victoria, dismissing an appeal by Peter William Bray (whom I shall call 'the taxpayer') against an assessment of income tax in respect of the year ended 30 June 1974, The appeal relates to the disallowance by the Commissioner of the taxpayer's claim for a deduction amounting to $44,107, pursuant to s.78(1) (a) of the Income Tax Assessment Act 1936-1976, the relevant provisions of which are as follows: 'The following shall be allowable deductions: (a) Gifts (not being testamentary gifts) of the value of Two Dollars and upwards of money or of property other than money which was purchased by the taxpayer within twelve months immediately preceding the making of the gift, made by the taxpayer in the year of income to any of the following funds, authorities or institutions in Australia:-' (i) to xliv) (in which there are specified various public funds, authorities or institutions in Australia) ../2 ' 2. 'or to a public fund established and maintained under a will or instrument of trust exclusively for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to, and for the purposes (if any) referred to, in any of the sub-paragraphs of this paragraph, or for the establishment of such funds, authorities or institutions, being a public fund as to which the Commissioner is satisfied that the terms of the will or instrument of trust are such that any moneys (including income derived from investments and proceeds of the realization of investments) paid or accrued to the fund as a direct or indirect result of the particular gift and not applied for the purposes of the fund may not be invested by the trustee otherwise than in a manner in which trustees are permitted by an Act, a State Act or a law of a Territory of the Commonwealth to invest trust moneys without special authorization.' The first ground on which the learned trial judge held that the deduction was properly disallowed by the Commissioner was that the fund, to the trustees of which the taxpayer had transferred certain shares, the subject of the claimed deduction, was not a fund established and maintained exclusively (his Honour's emphasis) for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to and for the purposes referred to in sub-paragraphs (i) to (xLiv) of s.78(1) (a). The taxpayer gave evidence that, between Christmas 1973 and Easter 1974 he became interested 1n establishing some type of charitable fund or foundation. He was then 33 years old and had been a solicitor for ten years. He was engaged in the company law and estate planning section of the firm, in which he was one of ten partners. After he conceived the idea of establishing a trust or foundation, he had one of the firm's employee solicitors, named Brown, enquire at the Commonwealth Taxation Office in Brisbane whether it was likely that the Commissioner would approve such a deed and if so, what his requirements for it would be. Brown began these enquiries early in April 1974 and they continued until some time between 7 and 11 June 1974 when he was told by the Taxation Department that a deed in the form which was ultimately executed would be acceptable. --/3 The taxpayer stated that by the time of Brown's first enquiry in April, the idea of setting up the fund had been formulated fairly clearly in his mind. On April 22, 1974, he approached three friends of his, John Edward Gallagher, a Brisbane barrister, William Allan Gorry, a Brisbane public accountant and Barry Patrick Prior, a Brisbane solicitor, and invited them to become trustees, together with himself, of the proposed fund. He said that none of them was really familiar with the idea of such a foundation or how it worked, except in the most general terms. Each of them accepted his invitation. In April 1974 the taxpayer had formed the broad intention to purchase the shares in a company or companies which had no liabilities but had money in the bank, to transfer these shares, or practically all of them, to the trustees of the fund and to take the necessary steps to achieve the object that the money in the bank would, as counsel for the Commissioner phrased it, be 'percolated through' to the other companies owned and controlled by him, and would be available to be used by those companies. The taxpayer did not tell Brown or his fellow trustees of this object, but he told the trustees that he would, to the best of his ability, make sure that a dividend upon these shares was paid year by year to the trustees. Prior, one of the trustees, gave evidence that he was asked by the taxpayer in April 1974 to be a trustee of a charitable foundation which he proposed to set up. The taxpayer told him that he intended to make a gift to the foundation in the form of shares and that he would maintain as far as he was able a reasonable dividend flow. Prior agreed that it was implicit in that first conversation that the trustees would not be giving away the capital, but would be making distributions from the dividends. The taxpayer stated that he did not discuss with the trustees the way in which the company, in which they were to receive shares, would invest its funds. 21/4 . 4. A trust deed dated 12 June 1974 was made between the | taxpayer, referred to as the founder, of the one part and the taxpayer and Gallagher, Gorry and Prior (thereinafter called . 'the trustees') of the other part. The relevant terms of the deed are set out in the reasons for judgment of the Chief Judge. On or about 11 June, 1974, the taxpayer had telephoned the office of a Melbourne client of his firm, named Hutchins, stating that he was interested in acquiring all the issued capital of a company with cash assets and no liabilities, and was told that the office had several such companies for sale. He had known beforehand that Hutchins would have at least one such company for sale. To follow the steps taken by the taxpayer, it is necessary to set out some particulars of a number of proprietary companies, incorporated in Queensland, the shares in which were owned or controlled by him and the boards of which were under his control. Trumper Pty. Ltd. was incorporated in 1967 and its activities were investment and trading in the shares of other companies. Trumper Finance Pty. Ltd. carried on the same activities from 1971 onwards. Trumper Nominees Pty. Ltd. fulfilled the role of director of some of the other Trumper companies and acted as trustee of a superannuation fund. Trumper Mining Pty. Ltd. was incorporated about 1970, originally for the purpose of investing in new issues of shares in mining exploration companies, but it ceased to do so some years before the period with which we are concerned. After that time its only activity was the borrowing and lending of money on an interest free basis. The taxpayer gave evidence that 'for some years now, I think, Trumper Mining has continually borrowed money, interest free, and lent it to me and at both ends I think the loans have been in the nature of a running account.' He said that in all cases the loans were free of interest and repayable on demand. On June 13, 1974, the taxpayer flew to Melbourne and arranged ' the purchase of the whole of the issued shares in one of thecompanies ¢ which Hutchins had for sale, M.B.J. Constructions Pty. Ltd. There were 22,000 ordinary shares and 400 'A' class shares. All of the shares, save one, were transferred to the taxpayer, the other share being --/5 5. transferred to Trumper Finance Pty. Ltd. At the time of the transfer of the shares, the assets of M.B.J. Constructions Pty. Ltd. consisted of a bank credit of $45,240 and it had no liabilities. The shares having been so transferred, the taxpayer and Trumper Finance Pty. Ltd. were appointed directors of M.B.J. Constructions Pty. Ltd. and the previous directors then resigned. At an extraordinary general meeting of M. B. J. Constructions Pty. Ltd. held on 18 June 1974 it was resolved by special resolution that all the issued and unissued 'A' class shares of the company be converted into ordinary shares ranking pari passu with the existing shares and new articles of association were adopted. As a result all the shares had equal voting rights. On 19 June 1974, the first meeting of the trustees of the foundation was held, all trustees being present. The taxpayer was appointed Chairman of the Trustees and President of the Foundation. He tabled his personal cheque for $100, the original sum settled under the trust deed. He personally recorded certain reasons for establishing the foundation in addition to those mentioned in the deed. One of them was his desire to give financial assistance to organisations engaged in public charity. Another was that a general fund rather than a fund for one specific purpose was thought to be a useful means of assisting public charitable appeals. - It was resolved that except where specifically permitted by the decision of all trustees, any resolution of the trustees must be unanimously adopted by them to be binding. The last item of business of the meeting was the expression of a wish by the taxpayer to make a donation to the foundation of the 22,619 ordinary $2 shares in M. B. J. Constructions Pty. Ltd. held by him and a resolution by the trustees to accept that donation and to execute the transfer of those shares tabled at the meeting. At the meeting a valuation of the shares by a firm of accountants at $1.95 each was tabled, the total value being $44,107. This is the amount of the claimed deduction which has been disallowed. The trustees became registered as the shareholders of the 22,619 shares in M. B. J. Constructions Pty. Ltd., being registered in the alphabetical order of their names, save that the name of the taxpayer appeared last. - -/6 6. At the first meeting the taxpayer again said that he would see to the best of his ability that reasonable dividends would be forthcoming from the shares as income to the foundation for distribution to charitable bodies. The taxpayer and Trumper Finance Pty. Ltd. remained the only directors of M. B. J. Constructions Pty. Ltd. at all relevant times thereafter. The taxpayer did not invite any of his co- trustees to become a director nor did any of them express any wish to become a director. The learned trial judge found that on 22 July 1974 M.B.J. Constructions Pty. Ltd. invested $45,000 of the $45,240 which still remained in its bank account by subscribing for and having allotted to it at par 45,000 'A' non cumulative preference shares in Trumper Pty. Ltd. The preference shares, which M. B. J. Constructions Pty. Ltd. obtained in Trumper Pty. Ltd., were redeemable, but only at the option of Trumper Pty. Ltd. The articles of association of the latter company attached to what were referred to in them as 'the "A" 5 per cent (5%) redeemable preference shares' the right to receive a fixed non cumulative preferential dividend at the rate of 5% in each financial year out of the profits of such year available for dividend, or a rate less than 5% but not less than %, if the directors so declare, or a rate in excess of 5% 1f the directors so declare, but not, in any event, to exceed the rate payable in the same financial year in respect of any "B" five per cent (5%) redeemable preference shares, for which the articles prescribed a maximum permissible dividend of 10%. It will be remembered that the directors who had these powers, and the power to redeem the preference shares, were the taxpayer and Trumper Nominees Pty. Ltd. Trumper Pty. Ltd. used part of the sum of $45,000 which it received from M. B. J. Constructions Pty. Ltd. to repay some of its creditors. It lent some of the money to Trumper Mining Pty. Ltd. oe/7 7. Part of the money which Trumper Mining Pty. Ltd. lent to the taxpayer on the running account was used by him to pay income tax, when the deduction in issue in the present case was disallowed by the Commissioner. The taxpayer said that the necessity to make these payments of tax had not been in his contemplation at the time of the purchase of the shares and that they distorted the picture of the running account in a way which he did not originally intend. This change in circumstances did not alter the fact that the money which Trumper Pty. Ltd. received from M. B. J. Constructions Pty. Ltd. and lent to Trumper Mining Pty. Ltd. was available for the use of the taxpayer and was used by him. It simply altered the use he made of the money and took it out of circulation between him and his companies. Having reviewed the evidence, some of which has been set out above, the learned trial judge found that a significant part of the $45,240 in the bank account of M. B. J. Constructions Pty. Ltd. had been indirectly made available to and used by Trumper Pty. Ltd. to repay its creditors, which facilitated its activities of lending money to Trumper Mining Pty. Ltd. and investing and trading in shares. He also found that another significant part of the $45,240 had been indirectly made available to the taxpayer interest free and used by him for personal purposes.' His Honour found on the evidence of the taxpayer and of the trustees that the taxpayer did not reveal to the trustees that his money to be used to purchase the shares to be given to the foundation would be ultimately indirectly used in the way the taxpayer contemplated it would be used and it was in fact used. The taxpayer could not recall any enquiry by his fellow trustees as to the use to which the funds held by M. B. Jd. Constructions Pty. Ltd. were being put. They received a copy of the annual accounts of that company, for the year ending 1975, in the latter half of 1975, but the taxpayer doubted that these accounts showed that the shares in Trumper Pty. Ltd. which had been purchased were 'five per cent' non-cumulative preference shares, redeemable at the option of Trumper Pty. Ltd. --/8 8, The next finding was that this 'ignorance of the trustees negates I think the significance of the recital in the deed and clause 4(a) (i) of the deed that the taxpayer wishes to establish a public fund exclusively for the purposes of providing money, property or benefits to or for the purposes referred to in any of the sub-paragraphs of s.78(1) (a) of the Income Tax Assessment Act and that the fund shall be applied and used exclusively for that purpose.' His Honour went on to find that the taxpayer, in his own phrase, 'repeated the exercise' in relation to the shares in Butler Furniture (Horsham) Pty. Ltd., which he purchased on 25 July 1974, and again during the year ended 30 June 1974 with a third company. He also found that - ' On 25 June 1975 and 30 April 1976 Trumper Pty. Ltd. paid cheques for $1,400 and $1,800 respectively to M.B.J. Constructions Pty. Ltd. and on those same dates Trumper Pty. Ltd. paid cheques for $2,250 and $1,120 respectively to Butler Furniture. These cheques were said to be by way of dividends on the shares held in Trumper Pty. Ltd. by M. B. J. Constructions Pty. Ltd. and Butler Furniture. There is no evidence that Trumper Pty. Ltd. made any profits out of which to pay dividends and the evidence all points strongly to the conclusion that it did not, because the taxpayer acknowledged that as at 30 June 1975 Trumper Pty. Ltd. had accumulated losses of about $107,000 and the taxpayer asserted and reiterated his belief that Trumper Pty. Ltd. could pay dividends out of borrowed moneys, so long as the dividends were not paid out of capital. The articles of association of Trumper Pty. Ltd. in fact, however, contained an article in the common form that dividends shall be paid only out of profits.' 8.376 of the Companies Act of the State of Queensland, where Trumper Pty. Ltd. was incorporated, provided that no dividend . shall be payable to the shareholders of any company, except out of \ profits or pursuant to s.60, which referred to the payment of dividends out of the share premium account, if such dividends are satisfied by the issue of shares. It will also be recalled that the article dealing with the non-cumulative 'A' preference shares in Trumper Pty. Ltd. provided that dividends on those shares should be payable in each financial year out of the profits of such year available for dividend. It had been put to the taxpayer in cross-~ examination that Trumper Pty. Ltd. at June 30, 1975, had a nett asset deficiency of about $10,000 and he answered 'That does not ' surprise me.' He did not regard the making of a profit by Trumper |; 7/9 9. Pty. Ltd. as essential, to enable it to pay dividends to M.B.J. Constructions Pty. Ltd. On 25 June 1975 M. B. J. Constructions Pty. Ltd. paid to the foundation $1,400 and on the same date Butler Furniture paid to the foundation $2,250. On 30 April 1976 M. B. J. Constructions Pty. Ltd. paid to the foundation $1,800 and on the same date Butler Furniture paid to the foundation $1,755 (it having received an additional dividend of $600 from another investment). These payments were intended to represent dividends on the preference shares held by the trustees in these companies. On 25 June 1975 the trustees of the foundation paid $400 to each of four public charities which were among the categories of the funds, authorities or institutions specified in sub-paragraphs (i) to (xliv) of s.78(1) (a) of the Income Tax Assessment Act and on 24 June 1976 the trustees of the foundation paid to eight such public charities $200 each and to a ninth $300. His Honour, having made his findings of fact, then set out the conclusion which he had reached in respect of the first ground, as follows :- ' In my opinion the fund was not established and maintained exclusively for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to and for the purposes referred to in sub-paragraphs (i) to (xliv) of s.78(1) (a). The evidence establishes, I think, that one of the purposes for which the fund was established and maintained was for the providing of money, property or benefits to or for such funds, authorities or institutions and for the purposes referred to in sub-paragraphs (i) to (xliv). However, in my opinion, the fund was not established exclusively for that purpose. The facts to which I have referred establish in my view that the purposes for which the fund was established and maintained included making the money used by the taxpayer to purchase shares given by him to the foundation, and thereby the money assets which the shares so given commanded, ultimately available to the taxpayer personally for his own use free of interest and also available to a company or companies controlled by him for the use of such company or companies, including the satisfaction of its or their liabilities, thereby enabling, inter alia, other moneys subsequently made ultimately available to such company or companies by the taxpayer to be lent to the taxpayer personally for his own use free of interest. That these were purposes follows I ../10 10. think from the fact that, as the taxpayer acknowledged, this was what the taxpayer broadly had in mind when Mr. Brown first contacted the Commissioner's office in April 1974, although Mr. Brown was not made aware of the fact and could not and did not reveal it to the Commissioner's office. That these were purposes is strongly reinforced by what the taxpayer and companies controlled by him ultimately achieved with the equivalent of the moneys he used to purchase the shares in M. B. J. Constructions Pty. Ltd., to which I have referred. It is also reinforced by what he and companies controlled by him ultimately achieved with the equivalent of the moneys he used to purchase the shares in Butler Furniture, to which I also referred, and by the fact that he 'repeated the exercise' during the year ended 30 June 1976 with a third company. These matters in themselves without more, in my view, establish these other purposes. That these were other purposes is, I think, reinforced by the consideration that whether or not there was any income for the foundation to distribute to charities was in fact in the discretion of the taxpayer both because Trumper Pty. Ltd. did not, certainly for the year ended 30 June 1975, make any profits out of which to pay dividends and because the assurance by the taxpayer as to dividends was not legally enforceable. It was not submitted on behalf of the taxpayer that it was not permissible to look at events outside the taxation year in order to ascertain the purpose, nor could this in my view be successfully maintained, having regard to the requirement that the fund must be not merely established but must be maintained exclusively for the purpose specified. Indeed, the taxpayer relied upon events subsequent to the tax year ended on 30 June 1974 in support of the submissions both that the purpose for which the fund was established and maintained was the purpose specified in s.78(1) (a) and also that the fund was a public fund. For the reasons I have given, in my opinion the deduction was properly disallowed by the Commissioner because the fund was not established or maintained exclusively for the requisite purpose specified in s.78(1) (a).' The appellant has failed to show any reason why this court should not accept the findings of fact made by the learned trial judge, which, in my opinion, were fully justified by the evidence. The plan, which the taxpayer conceived and carried out, involved the following steps :- 1. that he would purchase the whole of the shares in a company or companies with no liabilities, but with Money in the bank; refill il. 2. that he and a company controlled by him would become and remain the directors of any such company; 3. that he would transfer these shares, or practically all of them, to the trustees of the fund, of which he would be the founder, and a trustee; 4. that the other trustees would not be invited to become directors of any such company; 5. that the control and management of any such company would remain in his hands; 6. that the other trustees would take no part in the investment and management of the funds of any such company; 7. that he would see to the best of his ability that reasonable dividends would be forthcoming from the shares transferred to the trustees, as income to the fund for distribution by the trustees to bodies of their choice within the ambit of s.78; 8. that the money in the bank account of any such company would be used for the purchase of preference shares in another company owned and controlled by him, which would be redeemable at the option of that other company; 9. that the money so received by that other company would be available for its use, and for use by other companies owned and controlled by him, and for use by him; 10. that he would claim as a deduction the whole amount of the value of the shares transferred by him to the trustees, as at the date of the transfer. The taxpayer did not disclose to his fellow trustees his intention to take the steps numbered 8 and 9, which he described as a matter of mechanics. What he made plain to them, and what they fully accepted, when he first invited them to become trustees and again at the first meeting, was that he did not intend to part with the control and management of any such company. The very terms of .-./12 12, his repeated indication to them that he would see to the best of his ability that reasonable dividends would be forthcoming from the shares made this clear. Control of the board of any such company and of the investment of its moneys was a valuable power, as the evidence in this case illustrates. When the shares were transferred to the trustees, they acquired the right to exercise this power, but it was the common understanding of the taxpayer and his fellow trustees that the latter were not to seek to exercise this power, an understanding which, the evidence reveals, was faithfully observed. This common understanding was arrived at before the trustees held their first meeting and before the deed was executed. I agree with the conclusion of the Chief Judge that at the meeting of trustees of 19 June, 1974, the trust was constituted by the handing over of both the cheque and the transfer of shares, and that, in considering whether a particular gift falls within s.78(1) (a), the relevant date must be the date of the gift, and with his reasons for those conclusions. It is clear from his reasons for judgment that the learned trial judge did not approach the construction of the sub- section upon the basis that a taxpayer was entitled to a deduction in respect of a gift to a public fund merely upon showing that the terms of the instrument of trust under consideration complied with the requirements of the sub-section and that there had been no breach of trust by the trustees named in it. His Honour's construction involved, rather, the view that, while it was necessary that the fund be established and maintained under an instrument of trust, the words 'exclusively for the purpose of providing money, property or benefits to or for' the specified objects and purposes governed the words 'established and maintained'. With this construction of the sub-section I respectfully agree. Later in the sub-section is found the requirement that the public fund must be one 'as to which the Commissioner is satisfied that the terms of the will or instrument of trust are such that any moneys (including income derived from investments and proceeds of the realization of unvestments) paid or accrued to the fund as a direct or indirect result of the particular gift and not applied for the purposes of the fund may not be invested 22/13 13, otherwise than in a manner in which trustees are permitted by an Act, a State Act or a law of a Territory of the Commonwealth to invest trust moneys without special authorization." Had the legislature intended to provide that, if the terms of the constituent instrument met the requirements of the sub-section, and if there were no breach of trust, a gift to the fund should be an allowable deduction, it would have been easy to express its intention, as is illustrated by the later words of the sub-section. The policy of the sub-section seems to me to be to encourage gifts to funds established and maintained exclusively for the specified purpose, so that the benefit to the fund will equal the deduction allowed to the taxpayer. The ordinary dictionary meaning of 'purpose' is the 'object which one has in view'. Again, it has been said that 'the word "purpose" means not motive, but the effect which it is sought to achieve - the end in view' (see Newton v. Federal Commissioner of Taxation (1958) 98 C.L.R. 2 at p.8). The taxpayer had more than one end in view in setting up the fund. When looking at the ends which he had in view, it is to be remembered that he was the founder of the fund, chairman of its trustees and president of the foundation. He clearly had the end in view of retaining control of M. B. J. Constructions Pty. Ltd. and the investment and management of its moneys. This had been made plain at all times to his fellow trustees and was accepted by them. He intended to exercise this control by putting its moneys into circulation through his private companies in such a way that they should be available for use by those companies, or by him, as long as he wished, subject to his indication to his co-trustees in relation to the provision of reasonable dividends to the fund. His fellow trustees were at all times content to leave the control and management of the companies, in which they held shares, to the taxpayer, without enquiring of him as to the use which he intended to make, was making, or had made of the -+/14 14, funds of the companies. The investment of the funds of M.B.J. Constructions Ply. Ltd., which the taxpayer executed as planned, had a dramatic effect upon the asset backing of its shares. Before its purchase of shares in Trumper Pty. Ltd., the shares of M. B. J. Constructions were backed by $45,240 in cash. After the purchase, they were backed by 45,000 '5 per cent' non- cumulative preference shares of $1 each in a proprietary company, with a substantial nett asset deficiency and no evidence of profitable operation. To complete the transformation of the fortunes of the two companies, the shares were redeemable only at the option of Trumper Pty. Ltd. The taxpayer has, in my opinion, failed to show any sufficient reason for disturbing the finding that the fund was not established and maintained exclusively for the purpose of providing money, property or benefits to or for funds authorities or institutions referred to and for the purposes referred to in sub-paragraphs (i) to (xliv) of s.78(1) (a). I would dismiss the appeal, with costs. In these circumstances, it is not necessary to consider the second ground upon which the judgment of the Supreme Court was based, namely, that it had not been shown that the fund was a 'public fund' wathin the meaning of the sub-section. The question of how those words should be construed is one of some complexity, best left, I think, for consideration in a case where it is essential to the decision. I express no opinion on the valuation of the shares, in respect of which there was a conflict of evidence, which the learned trial judge did not find it necessary to resolve. Similarly, there is no need to consider the question whether the transfer of the shares, in the circumstances of the present case, amounted to a gift within the meaning of the sub-section (see Federal Commissioner of Taxation v. McPhail (1968) 117 C.L.R. 111 at p. 117). IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY V.G. 36 of 1977 GENERAL DIVISION ON APPEAL FROM THE SUPREME COURT OF VICTORIA BETWEEN ¢ PETER WILLIAM BRAY Appellant -and= THE COMMISSIONER OF TAXATION OF fH COMMONWEALTH OF AUSTRALIA Respondent CORAM: BOWEN, C.d., C.A. SWEENEY, J. AND DEANE J. REASONS FOR JUDGMENT = DEANE, J. By transfer delivered and accepted on 19th June, 1974, the appellant transferred to the trustees under a deed of trust bearing date 12th June, 1974, ("the trust deed"), 22,619 ordinary fully paid 50¢ shares in the capital of M.B.d. Constructions Pty. Limited ("the shares"). 'The appellant claimed in his income tax return in respect of the year ended 30th June, 1974, to be entitled, pursuant to the provisions of s.78(1)(a) of the Income Tax Assessment Act 1936 ("the Act"), to the benefit of a deduction of 644,107.00 being the claimed value of the shares so transferred. The basis of the claim to a deduction was - in the words used 1. in s.78(1)(a) - that the transfer of the shares constituted a gift of a value in excess of $2.00 "of property other than money which was purchased by the taxpayer within twelve months immediately preceding the making of the gift, made by taxpayer in the year of income ... to a public fund establish- ed and maintained under ... (an) instrument of trust exclusively for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to, and for the purposes (if any) referred to, in any of the sub-paragraphs of ... (s.78(1)(a)) ... or for the establish- ment of such funds, authorities or institutions", The respondent Commissioner refused to allow the appellant the benefit of any deduction in respect of the transfer of the shares and issued an assessment on that basis. An appeal by the appellant to the Supreme Court of Victoria against that assessment was dismissed. The appellant appeals from that decision to this Court. The primary facts and circumstances in the context of which this Appeal falls to be decided are set out in the judgment of Bowen C.J. which I have had the benefit of read- ing. I agree with the Chief Judge's statement of those facts and circumstances and his acceptance, subject to one qualification, of the findings of the learned trial Judge in those limited areas in which any real dispute as to primary fact existed between the parties. The qualification is that I am of the view that there was no real basis in the evidence for any finding that, at the time of the transfer of the shares, the appellant intended that any part of the cash assets of M.B.J. Constructions Pty. Limited would be made available to him personally. I also agree, for the reasons which he has given, with the conclusion of Bowen C.J. that the transfer by the appellant of the shares constituted "a gift" of them for the purposes of s.78(1)(a). It is common ground that the shares were purchased by the appellant within twelve months immediately preceding the making of the gift. I+ is clear that the respondent Commissioner was satisfied that the terms of the trust deed, of which he had approved, were such that any money paid or acerned to the trust as a direct or indirect result of the gift of the shares and not applied for the purposes of the trust, might not be invested by the trustees otherwise than in the manner specified in s.78(1)(a). It follows that the appellant is entitled to the benefit of a deduction of the appropriate amount representing the value of the sres if the gift of the shares was, in the words used in s.78(1)(a), to "a public fund established and maintained under ... (an) instrument of trust exclusively for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to, and for the purposes (if any) referred to, in any of the sub-paragraphs of (s.78(1)(a)) or for the establishment of such funds authorities or institut- ions". I shall, on occasion, refer to these purposes for which any relevant fund must, if the appellant is to be entitled to a deduction, be exclusively established and maintained under an instrument of trust as "the requisite purposes", The trust deed of 12th June, 1974 recited that the appellant (described as "the founder") had already paid to the trustees to be held upon the trusts thereof the sum of $100.00. The appellant's personal cheque for that amount De was tabled by the appellant at an early stage of the first meeting of trustees which was held on 19th June, 1974. It would seem probable that the cheque had been drawn by the appellant either on or before the 12th June, 1974 and had been held by him, as a trustee, pending the first meet— ing of trustees and the decision to open a bank account for the trust which was made at that meeting. In any event, it is clear that the gift of the cheque for $100.00 was made prior to the gift of the shares which was effected, by delivery and acceptance of transfer, as the last item of business of that first meeting of trustees. The question of the appellant's entitlement to the benefit of a deduction in respect of the initial gift of the cheque for $100.00 is not involved in this appeal. It is therefore wnnecessary to consider whether, for the purposes of s.78(1)(a), a fund can be said to be establish- ed at the time of execution of an instrument of trust making provision for the establishment, raising and administrat- ion of the fund, or can only be said to be established when property is first held upon the trusts set out in the instrument (see Compton v. Federal Commissioner of Taxation, (1967) 116 C.L.R. 233 at p. 246). It is also unnecessary to determine whether, in the event that a fund cannot be said to be established until property is first held upon the trusts set out in the relevant instrument of trust or to be maintained while no property is actually held upon those trusts, the first gift to the trustees of property to be held upon such trusts can properly be regarded as a gift to a fund "established and maintained" under the instrument of trust (see Union Trustee Co. of Australia Limited v. Federal Commissioner of Taxation (1962) 108 4. C.L.R. 451 at pp.456-7). Whether the relevant property is regarded as being the $100.00 referred to in the recitals in the trust deed which was the amount of the appellant's cheque which was duly met or, more accurately, is regarded as being the physical property in the cheque itself and the mandate to the bank which it contained and which was duly obeyed, the trustees, prior to the delivery and acceptance of the transfer of the shares, already held property under and subject to the trusts of the trust deed, That property constituted the "fund" which had been established under the trust deed. That fund would include, in accordance with the provisions of Clause 2 of the trust deed, "any personal property ...- from time to time paid or transferred to and accepted by the Trustees" for the pur- pose of the trust deed. Senior Counsel who appeared for the respondent Commissioner expressly disclaimed any suggest- ion that the trust deed was a sham in the sense that it was not intended to operate in accordance with its terms or that property vested in the trustees was not held by them upon the trusts of the trust deed. The gift of the shares was, for the purposes of s.78(1)(a), a gift to a fund established under an instrument of trust. The question whether the fund was, for the purposes of s.78(1)(a), a public fund established and maintained under an instrument of trust exclusively for the requisite purposes falls, in my view, to be answered as at the time of the gift. If a fund answers the necessary description as at the time of the gift, the fact that it subsequently ceases to answer it will not alter the character of the gift as a gift to a fund of the requisite type. The policy underlying the relevant provisions of s.78(1)(a) be obviously includes the encouragement of gifts of the designated character. The relevant provisions of the sub- section are concerned with the entitlement to a deduction of the donor to the fund: they are not concerned with the liability to tax of the fund itself. If, at the time of the gift, the fund is a fund of the prescribed type, the donor's entitlement to a deduction will not be dependent upon his ability to identify, in the hands of the trustees of the fund, the precise proceeds of his gift so as to show that it was in fact applied for the requisite purposes (see Gobb & Go. Ltd, v. Commissioner of Taxation (1959) 101 G.L.R. 333 at p. 336). Nor will the benefit of the deduction in respect of the gift be lost by reason of the fact that, at some subsequent date, the fund no longer satisfies the necessary description or, for that matter, has gone out of existence as a consequence of fulfilment of its purposes or for any other reason. As has been said, the gift of the shares was to the fund established under the trust deed of 12th June, 1974, Glause 4(a)(i) of that deed provided that the fund must be applied and used exclusively for the purposes mentioned in Recital A of the deed, namely, "the purposes of providing money, property or benefits to or for funds, authorities and institutions referred to in any of the sub=paragraphs of Section 78(1)(a) of the Income Tax Assessment Act of the Commonwealth of Australia and for the establishment of any such funds, authorities and institut- ions". These purposes must be restricted, in accordance with the provisions of s.104 of the Queensland Trustee Act 1973, by disregarding any purposes which are not charitable in the legal sense. With or without such restriction, 6. t they are clearly and exclusively, as was conceded on behalf of the respondent Commissioner, purposes of the requisite character. The trust deed was intended to operate in accordance with its terms. The property held by the trustees at and immediately after the gift of the shares was held by them upon the trusts of the trust deed. The fund to which the shares were given was a fund establish=- ed under an instrument of trust which was vested in the trustees appointed under the instrument and held by them upon trust for the requisite, and no other, purposes. The purposes for which a fund is established under an instrument of trust are the direct and immediate purposes for which the property comprising the fund is to \ be devoted, Were the trust is established under an instru- ment of trust which is not a sham, those purposes are the direct and immediate purposes contained in the instrument of trust itself (Mahoney ve. Federal Commissioner of Taxation (1965) 39 A.L.dR. 62 at p. 633 Compton v. Federal Commissioner of Taxation (supra) at pp. 238-9, p. 250; Kayemeth v. Inland Revenue Commissioners L.R. 1932 A.C. 650 at pp. 657, 661; Roman Catholic Archbishop of Melbourne ve Lawlor (1934) 51 C.L.R. 1 at p. 32). In such a case, neither the source of the property nor the person of the trustee is relevant to the determination of the purposes for which the fund is established under the instrument of trust (Robinson v. Stuart (1891) L.R. (N.S.W.) Eq. 47 at ppe49-50 and re The Trusts of the Arthur McDougall Fund, Thompson v. Fitzgerald (1957) 1 W.L.R. 81 at p. 90). The motivation of the founder of the trust in establishing the trust for those purposes is likewise irrelevant (Hoare v. Osborne (1866) L.R. 1 Eq. 585 at p. 587). It is the legal : Te consequences of what is done, not the motives of those doing it, which areSignificant (Scott v. Commissioner of faxation (No. 2) (1966) 40 A.L.dJ.R. 265 at p. 278). The founder or a trustee of a trust or fund established under an instrument of trust for particular defined purposes may be motivated by altruistic humanitar- ian or religious sentiments or by a less altruistic desire for spiritual reward, social recognition or material advance- ment or by any number of other objectives or considerations. Such motivation of founder or trustee is irrelevant to the definition of the purpose or purposes for which the trust or fund is established under the instrument of trust. Thus, for example, in the present case, the fact that the appellant was, to some extent, motivated by a desire to pay tribute to his parents does not mean that, in the relevant sense, that was a purpose for which the fund was established under the instrument of trust (see Hoare v. Osborne, supra; In re Kerr, Kerr v. Bradley L.R. (1923) 1 Ch. 243). Again, for example, a fund constituted under a trust deed for the single purpose of improving a particular public bridge as_a bridge will be a fund established under the instrument of trust exclusively for that purpose not- withstanding the fact that the founder was motivated by the selfish desire to have an improved bridge over which he, with other members of the public, might lawfully pass or from which he might unlawfully fish. It is only when the instrument of trust under which a fund is established is, at least in part, a sham that it can be said that the fund is established under the instrument for purposes other than or additional to the purposes to which the instrument itself restricts it. 8. As has been said, any suggestion that the trust deed was executed as a sham was expressly disclaimed on pehalf of the respondent Commissioner. The fund to which the appellant gave the shares was a fund which had been established under the trust deed for the purposes specified in that deed. It was, at the time of the gift of shares, a fund established under an instrument of trust exclusively for the requisite purposes, It is therefore necessary to consider whether, at the time of the gift, the fund was, for the purposes of 8.78(1)(a), "maintained" under that instrument of trust exclusively for those purposes. The words used in s.78(1)(a) in relation to the purposes for which a fund is maintained, do not, as a matter of ordinary language, invite or warrant a general investigation, by reference to undefined and subjective criteria, of the direct or indirect motivation, object- ives, purposes or intentions of those associated with the fund. <A need for any such general investigation would tend to frustrate the policy underlying s.78(1)(a) of encouraging gifts of the designated character for the reason that a prospective donor to a fund would ordinarily be in no position to ascertain or to assess the material relevant to it. The relevant questions, under s. 78{1)(a), are whether the fund is maintained, as well as established, under an instrument of trust and, if so, whether it is maintained under that instrument of trust exclusively for the requisite purposes. At the time of the gift of the shares, the only asset of the fund to which the gift was made was the cheque for $100.00. That cheque, and, subsequently, the proceeds Qo thereof, were held by the trustees exclusively upon the trusts and for the purposes set out in the trust deed subject to any modification resulting from the provisions of s.104 of the Trustee Act (Qid.) 1973, The shares were received by the trustees and held by them as part of the fund upon the trusts of the trust deed. The fund was maintained by the trustees "under" the trust deed at the time of the gift in that it was held by them, in their capacity as trustees, as the fund established under the trust deed, exclusively for purposes specified in the trust deed. Since the modified purposes for which the trustees held the fund were charitable in the legal sense, the obligation to maintain the fund under the trust deed exclusively for those purposes was subject to both the general jurisdiction of the Queensland Supreme Court and to the special supervisory control of the Queensland Attorney-General representing the Crown, There is no suggestion that, at the time of the gift of shares, the trustees had been guilty of any breach of trust or, indeed, of even the slightest irregularity in the administration of the fund. In accepting the gift of the cheque and the gift of the shares to be held upon the trusts of the trust deed, they had acted strictly in accordance with their duties as trustees. There is no suggestion that, at any time, the trustees themselves ever paid or distributed any money or other property which came to their hands as trustees otherwise than in accord ance with the provisions of the trust deed. Even if it be assumed that the trustees accepted the gift of shares on the understanding that the appellant alone of their number would concern himself with the internal management of M.B.J. Constructions Pty. pimited, it has never been suggested by the Commissioner or put in cross examination, on his behalf, that there was any arrangement or understand- ing between the trustees or any of them that the appellant would act or would be permitted to act with the slightest impropriety in the administration of the company in which the shares were given or that he would conduct himself 1n relation to the affairs of that company otherwise than in strict con- formity with his fiduciary duty as a director of it. Even if it be assumed that the trustees were guilty of breach of trust in failing, after the cash funds of M.B.J. Constructions Pty. Limited had been invested in the manner in which the appellant procured their investment, to take steps to have the appellant and Trumper Finance Pty. Limited removed as directors and the investment set aside, that investment did not even occur until after the time of gift and, indeed, until after the end of the tax year. In my view, the fund was, at the time of the gift of shares, a fund maintained under the trust deed. What then were the purposes for which, at that time, the fund was so maintained? When a fund is established and maintained under an instrument of trust, the purposes for which the fund is maintained under that instrument of trust will, at least where no breach of trust or fiduciary duty has occurred in the administration of the fund, be the direct and immediate purposes for which the fund is held and maintained under the provisions of that instrument. The subjective motives of founder or trustee are not purposes for which the fund is maintained under the instrument of trust unless and to the extent to which such motives find expression in the instrument of trust as purposes of the trust. The fact that the fund is established and maintained under an il. instrument of trust as part of a wider plan or scheme of the founder or a trustee does not, at least in the absence of breach of trust or fiduciary duty, mean that the purposes of the wider plan or scheme become purposes for which the fund is established and maintained under the instrument of trust which governs its application and administration (note, in this regard, the comments of Gibbs J. in Xco Pty. Limited v. Federal Commissioner of Taxation (1971) 124 C.L.R. 343 at pp. 350-51). As has been said, it was not suggested, on behalf of the respondent Commissioner, that, at the time of the gift of shares, there had been any breach of trust or of fiduciary duty in the administration of the trusts under the trust deed. It is common ground that the deed of trust was not a sham and that property constituting the fund established under it was impressed with the trusts of the trust deed which required that such property be held upon trust exclusively for the requisite purposes. It is not suggested that, either at the time of the gift or at any time thereafter, one cent of such money or any part of such property was paid or distributed by the trustees other than exclusively for the requisite purposes. The submission made on behalf of the respondent Commissioner was, in effect, that, at the time of the gift, the fund could not be said to be established and maintained exclusively for the requisite purposes for the reason that it was established and maintained, in accordance with the overall designs of the appellant, for the purpose of enabling the appellant to make gifts to it of shares in private companies with cash assets in a context where the 12. appellant would obtain a deduction for income tax purposes of the value of the shares at the time of gift and would, subsequent to the gift, be permitted by the trustees to remain in effective control of the management of the com- panies and, by use or abuse of such powers of management, cause the cash assets of the companies to be made available to other companies controlled by him by way of subscription for non-voting non-cumulative preference shares in such companies. Even if it were permissible to construct a purpose for which the fund was maintained under the instru- ment of trust by reference to the overall plans and object~ ives of the appellant, it would, in my view, be artificial in the extreme to attribute as a purpose for which the fund was maintained under the instrument of trust a purpose derived from overall objectives of the appellant of which, at the time of the relevant gift, the other trustees were, as the learned trial Judge found, unaware and to ignore the one essential ingredient of those objectives of which the other trustees were aware. It was an essential element of the appellant's overall plans and objectives that the fund be, at the time of the gift, a fund established and maintained under an instrument of trust exclusively for the requisite purposes if the appellant were to obtain the benefit of the deductions which, as the other trustees must have known, constituted a vital element of the appellant's expectations in the establishment of, and the appellant's gifts to, the fund. In so far as the overall plans and objectives of the appellant were knovwm to the other three trustees, they constituted a collateral reason for the proper performance of their duty, as trustees, to ensure that the fund be and remain a fund established and maintained under the trust deed exclusively for the purposes 13. for which they held it, More important, however, the submission made on behalf of the respondent Commissioner confuses the motivat~ ion of the appellant in establishing and procuring the maintenance of the fund and the purposes for which the fund was established and maintained under the instrument of trust which established it. Even if one were to reach the conclusion that, at the time of the gift, the appellant had, in selecting the trustees and procuring the passage of the resolution that the trustees should act unanimously, already taken the first steps on the path of a planned course of subverting the administration of the trust, the plain fact remains that, at the time of the gift, the trustees had done nothing at all in the administration of the trust which was inconsistent with the provisions of the trust deed that the fund must be held and administered, under the deed, for the purposes set out therein. The only effect of the appellant's plans was that they perhaps raised a doubt as to whether the fund would, in the future, continue to be maintained under the trust deed for the purposes therein specified. In my view, at the time of the gift of the shares, the fund was established and maintained under the trust deed for the purposes specified in the trust deed. It was, at that time, a fund established and maintained under an instrument of trust for the requisite purposes. It remains to consider whether the fund was a "public fund" for the purposes of s.78(1)(a). The adjective "public" is one which is used in many collocations with a meaning which varies according to the noun with which and the context within which it is used (The Little Company of Mary (S.A. ) incorporated v. The Commonwealth (1942) 66 C.L.R. 368 at p.378; In re Income Tax Acts (No. 1) (1930) V.L.R. 211 at p. 221). In some phrases, such as "public charity", used in a context similar to the provisions of s.78(1)(a), the word will do little to qualify the meaning of the noun with which it appears (Joyce v. Ashfield Municipal Council (1959) 4 LeGeR.A. 195 at pp. 212-3 and, on appeal, (1976) 3 W.L.R. 617 at p. 629). In other phrases, such as "public institution", used in a similar context, the vord will direct attention primarily to the purpose for which the institution is established and maintained rather than the source of the funds to sustain it or the manner in which it is controlled (see Dilworth v. Commissioner of Stamps (1899) A.C. 99 at pp. 108-9; Lemm v. Federal Commissioner of Taxation (1942) 66 C.L.R. 399 at p. 410). There is much to be said for the view that any fund which is charitable in the legal sense and, therefore, inalienably dedicated to purposes which the law regards as public and subject to the supervision of the Attorney- General must be a public fund for the purposes of s.78(1)(a). On balance however, I have come to the conclusion that, in determining whether a fund is a public fund for the purposes of s.78(1)(a) in the context where permissible purposes are specifically designated, it is necessary to pay regard to a number of factors none of which will, in the ordinary case, be decisive. These factors include the source, Management and control, the duration, and the purposes, objects or beneficiaries of the fund. When the fund is established under an instrument of trust, the relevant factors will be determined both by reference to 15. the terms of the instrument and surrounding facts and circumstances, In the present case the appellant was the source of the only assets constituting the fund and the overall evidence indicates that there never was any real intention, among the trustees who were actually appointed, to solicit funds from the public even though the Recitals of the deed establishing the fund expressly contemplated such solicit- ation. More important, the primary responsibility for the management and control of the fund was vested in four trustees, of whom one was the private founder (the appellant) and the other three, whatever their public standing might be, were appointed as trustees primarily because of thear personal friendship with the appellant. On the other hand, the fund was expressly stated, by the deed which established it, to be a public fund. It was established and inalienably dedicated for purposes which, when modified in pursuance of the provisions of s.104 of the Trustee Act (Qid.) 1973, were charitable in the legal sense. The fund was subject to the special super- visory control of the Queensland AttorneysGeneral who, as representative of the Crown which is the protector of all property subject to charitable trusts, might atv any time approach the Supreme Court: for injunctive relief to restrain a threatened breach of trust, for remedial orders in respect of a breach which had occurred or for general orders for the enforcement of the trusts subject to which it was held. It was of wnlimited duration. By its terms, it was a fund to which any member of the public was entitled to contribute. Even accepting to the full the learned 16. trial Judge's findings as to the motivation underlying the insertion of the advertisements in four Queensland news- papers, the advertisements unquestionably constituted a public notification of the fact that donations to the fund would be accepted from the public in the event that they were forthcoming. The terms of the trust deed had been finally settled in consultation with officers of the Australian Taxation Department to ensure that the fund was a public fund for the purposes of s.78(1)(a) and its contents had been approved by that Department as approp- riate to a deed providing for the establishment and main- tenance of such a public fund. As a result ot such con- sultation, the terms of the trust deed had been altered to provide that the appointment of any new trustees should be conditional upon the consent thereto of a Justice of the Queensland Supreme Court. At the time of the gift of shares, the trustees had resolved to seek sanction under the provisions of the Collections Act 1966-1973 (Qld.) which subjected the fund to a degree of public supervision and control over and above that applicable to charitable trusts generally. In all the circumstances, I have reached the con— clusion that the fund was, at the time of the gift, a "public fund". It follows that the fund was at the time of the gift a public fund established and maintained under an instrument of trust exclusively for the requisite purposes and that the appellant was entitled to a deduction pursuant to s.78(1)(a) of the Act in respect of the gift of the shares, There remains for consideration the amount of the deduction to which the appellant was so entitled. 17. Section 78(2) of the Act provides that, for the purposes of s.78(1), the value of a gift of property other than money shall be deemed to be the value of the property at the time of the making of the gift or the amount paid by the taxpayer for the property whichever is the less. At the time of gift of the shares, the shares represented 22,619 shares of a total of 22,620 ordinary issued shares in the capital of M.B.J. Constructions Pty. Limited. There were no other shares issued in the capital of that company and all of the issued shares, at the time of the gift, carried identical rights. At the time of the transfer of the shares the assets of M.B.J. Constructions Pty. Limited consisted of a bank credit of $45,240.00 and it had no liabilities. This represented a cash asset backing of $2.00 per share. The total purchase price paid by the taxpayer in respect of the 22,620 issued shares was $45,466.20. This represented a purchase price of $2.01 per share. 'The premium of one cent is explained by the fact that the purchaser of the shares acquired the benefit of the moneys expended in the establishment of the company. It seems to me that, in these circumstances, the best guide to the value of the shares at the time of the gift is to be found either in the purchase price which the appellant paid for them or, since the shares were shares in the capital of a "clean company" whose only asset was cash, the net cash asset backing per share. Neither approach was, however, adopted on behalf of the appellant. 'The appellant limited his claim to a deduction to an amount of $1.95 per share being the value attributed to each share by an experienced valuer who was called to give evidence on his behalf. This valve, which represents the value of 18. the shares to someone who regarded the corporate structure as a disadvantage and is, therefore, a minimum value, was not really disputed by Senior Counsel who appeared for the respondent Commissioner. In all the circumstances it should be accepted as the appropriate value of the shares at the time of the gift. I therefore conclude that the appellant was entitled to a deduction in the amount of $44,107.00. My conclusion that the appellant is entitled to a deduction in respect of the relevant gift of shares does not necessarily mean that the appellant is entitled to a deduction in relation to any subsequent transfers of shares to which reference was made in the evidence or that the value to be attributed to any subsequent gift is the full value of the shares transferred. Any entitlement of the appellant to a deduction in respect of any such subsequent transfer will fall to be determined by reference to the cireumstances existing at the time of such transfer. The appeal should be upheld. The assessment should be remitted to the respondent Commissioner to be amended by allowing a deduction in the amount of $44,107.00. The respondent Commissioner should be ordered to pay the appellant's costs both of this appeal and in the Supreme Court of Victoria. 19.