CATCHWORDS Gift Duty - Four party scheme - Grant of options over new motor vehicles - Sales "subject to option" - Options declined - Onus - Order of transactions ~ Whether options were "contingencies" - Whether options have a nil value - Whether optionee received gift by optionor declining option - consideration of meaning of "commercial benefit". Gift Duty Assessment Act 1941 ss.4(1), 14(1)(f), 18(1)(a), 23. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v KELLY FORD PTY. LIMITED, KELLY WHOLESALE PTY. LIMITED, BANE FINANCE PTY. LIMITED, DATIVAL MERCHANDISING PTY. LIMITED G 141 of 1982 CORAM: Bowen C.J., McGregor and Sheppard Jd. 4 April 1984 Sydney. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G141 of 1982 t ) ) GENERAL DIVISION ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES BETWEEN : THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appeilant AND: KELLY FORD PTY. LIMITED, KELLY WHOLESALE PTY. LIMITED, BANE FINANCE PTY. LIMITED, DATIVAL MERCHANDISING PTY. LIMITED Respondents ORDER JUDGES MAKING ORDER: Bowen C.J., McGregor and Sheppard JJ. WHERE MADE: Sydney DATE: 4 April 1984 THE COURT ORDERS THAT: The appeals be dismissed. The Commissioner of Taxation of the Commonwealth of Australia pay to Kelly Ford Pty. Limited, Kelly Wholesale Pty. Limited, Bane Finance Pty. Limited and Datival Merchandising Pty. Limited their costs of the appeals. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. Gi41 of 1982 ) GENERAL DIVISION ) ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES BETWEEN : THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND: KELLY FORD PTY. LIMITED, KELLY WHOLESALE PTY. LIMITED, BANE FINANCE PTY. LIMITED, DATIVAL MERCHANDISING PTY. LIMITED Respondents Bowen C.J., McGregor and Sheppard Jv. \w) E a 4 April 1984, REASONS FOR JUDGMENT BOWEN C.J. The Commissioner of Taxation (the "Commissioner" ) appeals against a decision of the New South Wales Supreme Court upholding appeals against gift duty assessments by Kelly Ford Pty. Limited ("Kelly Ford"), Kelly Wholesale Pty. Limited ("Kelly Wholesale"), Bane Finance Pty. Limited ("Bane") and Datival Merchandising Pty. Limited ("Datival"). These appeals were heard together both before the trial Judge and before this Court. The facts and the relevant legislation are set out in the judgments of McGregor J. and Sheppard J. A preliminary submission put by Counsel for the Commissioner was that a proper construction of 5.23 of the Gift Duty Assessment Act 1941 (the "Act") places the onus of proof in all gift duty cases on the taxpayer. It was argued that, once an assessment is made, there is a liability on the donor and donee to pay the assessed amount, except for such amount as they can demonstrate is excessive. We were referred to Trautwein v Federal Commissioner of Taxation (1936) 56 C.L.R. 63 at p.89, although it was conceded that the legislative provision there considered (s.36 of the Income Tax Assessment Act 1922-1934) was distinguishable on its wording. Counsel were not abie to refer the Court to any reported decisions regarding the onus of proof in the legislation under consideration. It is true that the effect of s.23 of the Act is to place the onus of proof on the taxpayer concerning the question whether the amount of an assessment 1s excessive. However, the Commissioner's submission goes further than this in claiming that the onus also lies on the taxpayer concerning the question whether there is a gift at all. In my view, such a submission is contrary to the express words of the section, which speaks of "donor" and "donee". These terms are defined in sub-s.4(1) of the Act: "4(1). In this Act, unless the contrary intention appears - »"denee" means any person who acquires any interest in property under a gift, and, where a 3. gift is made toa trustee for the benefit of another person, includes both the trustee and beneficiary; "donor" means any person who makes a gift;.... It is thus necessary that before a person can be classed as a "donor" or a "donee" that there be a "gift". If there is no gift, there is no "donor" or "donee" and s.23 has no application. Therefore, before the trial Judge, the onus of proof lay on the Commissioner to establish that a gift or gifts had been made. I turn to the question of the order of the transactions, Counsel for the Commissioner put several alternative submissions, arguing that liability for gift duty accrued whether or not the transactions took place in the order contended for by the respondents. In part, his submissions were made on the footing that the respondents had performed various steps out of the sequence claimed. For example, it was argued that the respondents intended at the time of the transactions that the option be declined before step 3, that is, before the vehicle was sold "subject to option" by Kelly Wholesale to Datival. The trial Judge held that a four party agreement existed between the respondents which came into effect at least by the time the scheme was put into operation. The evidence suggests that a physical settlement took place at which each transaction was concluded: the documents were prepared in advance and handed over in a bundle. I accept the respondents' submission that the actual order of handing documents over at a physical settlement, and the signing of documents prior to a settlement, cannot be a conclusive determination of the order of transactions. In Inland Revenue Commissioners v Plummer (19791 1 Ch. 63 at p.77, Buckley L.d., in ascertaining the nature of certain payments, stated: "If the transaction involves a series of preconceived steps, the performance of each of which is dependent on the others being carried out in accordance with a common intention of the parties, the nature and effect of the whole scheme may have to be taken into consideration in determining the nature of the annual payments: see Ransom v Higgs [1974] 1 W.L.R. 1594, per Lord Wilberforce at p. 1612." In my view, the same considerations are presently applicable. It would be adopting a far too narrow and technical view of the law to hold that the time of the creation and extinguishment of rights at a settlement is governed solely by the order in which a party, or an uninstructed clerk, happens to hand over a document. Further, where there is an integrated scheme, the effect of considering the intention of the parties and "the nature and effect of the whole scheme" does not lead, as Counsel for the Commissioner submitted at one point, to the conciusion that parties need just assert that they intended to get the transaction right and what they actually did is idrrelevant. The Court will not attempt to "construct" a series of transactions into a particular order so as to give effect to the participants' motivation to avoid taxation or indeed any % other motivation. It will, in a situation such as the present, examine the relevant transactions and, by considering various factors including the parties' intention as to the order of the transactions, determine when rights were created or extinguished. Counsel for the Commissioner further submitted that, regardless of the order of the handing over of the documents, the evidence indicated that Bane agreed not to exercise the option (step 5) before steps 3 and 4 took place. Thus, it was submitted, the vehicle was sold in steps 3 and 4 for only 20% of its true value, resulting in a gift of 80% of its value. He drew the Court's attention to clause 2 of the option agreements which read: "2. The undersigned warrants itself to be the true owner of the said goods and has not entered into any agreement which if put into effect, wouid prevent the sale of the said goods taking place and the undersigned agrees that during the period of this option, it will not enter into any such agreement without your written consent and will not do any act that would prejudice your rights under this option." Counsel for the Commissioner submitted that this clause prevented property in the car from passing to Datival until the option was declined, as any such saie would be in breach of the option agreement. Even if such a breach were established it is difficult to see that it would prevent property in the car from passing. Bane would merely possess a remedy in damages. However, I am not ' persuaded that there was any such breach - the sales in steps 3 and 4 were made "subject to option". These transactions all took place as part of a four party agreement. It cannot be argued that Bane or Datival were ignorant of the option's existence. Thus, it cannot be said that property in the car could not pass while the option was in force, that the passing of property was somehow suspended until the option was declined. Counsel for the Commissioner further submitted that even if it were possible that property in the car could pass at that time, the parties' intention was that the option was to be declined before step 3. On many of the documents by which Bane declined the option were the words "provided you sell the goods for....", thus suggesting that the option was declined before steps 3 and 4. However, the evidence suggested that these words were typed by an unknown person into the documents after their execution, although the trial Judge apparently accepted the submission that they accorded with Bane's understanding of the arrangement. I am not persuaded that there was any agreement between the parties or any grouping of them relinquishing the option pefore the property in the car passed in steps 3 and 4. The trial Judge found that the events occurred in the chronological order contended for by the respondents. From a consideration of the evidence, the relevant documents and the trial Judge's findings as to the parties' intentions and the existence of a four party agreement, I conclude that he did not fall into error in so deciding. Counsel for the Commissioner submitted that even if the agreement not to exercise the option occurred last, and the transactions were seen to take place in the chronological order referred to by the respondents, there was still liability for gift duty in some or all of the four instances covered in the notices of appeal. He first contended that para. 18(1)(a) of the Act requires that the option be given anil value as it 15a "contingency", and thus property in the car passed for inadequate consideration. However, in my view, this submission involves a misinterpretation of the word "contingency". A "contingency" is "an event conceived of as a possible occurrence in the future" {Federal Commissioner of Taxation v St. Helens Farm (A.C.T.} Pty. Limited (1981) 146 C.L.R. 336 at p.385 per Mason J.) The vehicle here is sold at a lower monetary value because it is sold "subject to option". In other words, the car is sold by Kelly Wholesale to Datival in step 3 for 20% of its true wholesale market value plus an obligation (promise) to Kelly Wholesale to gell it to Bane at a certain price if it is required to do so. The promise is not a "contingency" but a legal right, to which 1s to be ascribed a value. The promise may be required to be performed or it may not. The contingency may be said to depend upon whether the option is exercised or not. If one had to estimate the likelihood of the option being exercised, it could well be regarded as negligible. This would suggest the promise might be of little value. However, if contingencies are to be disregarded, the promise would appear to stand at face value. Counsel for the Commissioner conceded that if the option was held to have some value, it would not be contended that its value should be assessed at something less than 80% of the value of the car. However, Counsel for the Commissioner further argued that, even if para. 18(1)(a) did not require that no allowance be made for the option, the true value of the option was still nil because Bane was either legally obliged or at least certain in practice not to exercise the option. As stated above, I accept the trial Judge's finding that there was a four party agreement that governed the series of transactions. This agreement must be considered as a whole to determine the rights and liabilities of the parties; since there 1s such an agreement, it would he wrong merely to examine each particlar transaction separately and to ignore the overall group of transactions. The respondents acknowledge that the document declining to exercise the option was handed over virtually at the same time, and certainly at the same settlement, as the document granting the option. It was certain that the option would be declined. However, it must be remembered that Counsel for the Commissioner expressly disavowed any contention that the total arrangement (or any particular transaction) was a sham. This was despite the fact that the option agreement was never intended to and did not in fact operate for more than an instant. I offer no opinion as to the correctness of the Commissioner's concession which was no doubt prompted because the transactions were assessed for gift duty and not sales tax. For similar reasons, Counsel for the Commissioner did not invite the Court to disregard any steps in the series of transactions on the basis that they had no business purpose apart from the avoidance of a liability to taxation: W.T. Ramsay Limited v Inland Revenue Commissioners (£19821 A.C. 300; Furniss v Dawson (House of Lords, delivered 9% February 1984, see The Times of 14 February 1984). Once the transactions are treated as genuine it is clear that it is only certain in practice that the option will be declined because it is equally certain that Bane will be paid to decline it. The option is granted, the car is sold subject to the option, a payment is made to Bane and then Bane declines to exercise the option. Once each step is seen as genuine and in this order it is clear that, in the transactions in steps 3 and 4, consideration is given which includes 20% of the wholesale 10, price and the obligation assumed by accepting the condition "subject to option". The option 1S valuable and a payment is required before it is declined. There is no legal requirement that, 1f Bane 15 not paid, the option will not be exercised. Thus, when the transactions are so understood, it is Clear that there is no gift occurring in either step 3 or step 4 or between Kelly Ford and Bane in step 5. Even on such a basis, Counsel for the Commissioner further submitted, there was nevertheless a gift made from Bane to Kelly Wholesale in declining the option. This was said to be because Bane's declining of the right to buy the vehicle from Kelly Wholesale for 20% of its value conferred a benefit on Kelly Wholesale who had made no payment for this. I also reject this submission. It is true that Kelly Wholesale is under a legal obligation to sell the vehicle to Bane at a price of 20% of its value if Bane exercises its option. However, having sold to Datival "subject to option", Kelly Wholesale aiso has an enforceable legal right that Datival must sell the vehicle to Bane if Bane exercises the option. If Datival breaks this agreement, Kelly Wholesale would have a remedy in damages. Thus if it is assumed that Bane's declining of the option is effectiverKelly Wholesale does not gain an advantage. It loses its legal obligation to sell the car to Bane but also loses its legal right to compel Datival to sell the car if the option is exercised. ll. Because I have found that no gifts were made in any of the transactions, it is unnecessary to consider the respondents' ~ alternative submission that they are protected from liability for gift duty by para. 14(1)(f) of the Act. I note in passing, however, that it may be there 1s a distinction to be drawn in certain circumstances between "commercial benefit" and "fiscai advantage" (cf. Federal Commissioner of Taxation v Patcorp Investments Ltd. (1972) 140 C.L.R. 247 at p. 290). I would dismiss the appeals with costs. hat this and the tea Cte) c tre con - of the es v Huaour ee s —~ ver sn CEIOY prcimey Y IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY = fa) a na iB a i.e) Th - wo oo ta GENERAL DIVISTON ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF NEW SOUTH WALES BETWEEN THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND KELLY FORD PTY. LIMITED KELLY WHOLESALE PTY, LIMITED BANE FINANCE PTY. LIMITED DATIVAL MERCHANDISING PTY. LIMITED Respondents REASONS FOR JUDGMENT CORAM: Bowen C.7d., McGregor, Sheppard Jd. Date : 4 April 1984 McGregor J. THE COMMISSTONER OF TAXATION (the Commissioner) appeals against decisions on 23 July 1982 by a judge of the Supreme Court of New South Wales in respect of appeals by each of KELLY FORD PTY. LIMITED (Kelly Ford) KELLY WHOLESALE PTV. = LIMITED (Kelly Wittesale) BANE FINANCE PTY. LIMITED (Bane) and DATIVAL MERCHANDISING PTY. LIMITED (Datival) (who may be collectively referred to as the respondents) in respect of gift duty which they had contended had been wrongly assessed against ee lhe Lat LN I ee eo eee reer them, The matters, by agreement. were heard togetner. The respondents were successful. Against those decisions. the Commissioner has appealed to this Court. Before the learned primary Judge, affidavit and viva voce evidence was given. It seems there 1s little dispute about the primary facts giving rise to the appeals though some about the order of events. Those facts were described by learned primary Judge as arising out of procedures devised and put into operation to reduce the burden of sales tax otherwise payable by respondents (on the sale of new Ford motor vehicles). A further object - the learned trial judge used the word "fundamental" - achieved by the various documents used in the transactions which will be mentioned below was to give the retail purchasers of the Ford motor vehicles direct access to the Ford Sales company in relation to the warranty given with any vehicle. His Honour noted and it is not disputed that Kelly Ford and Kelly Wholesale were related to each other by way of common directors and shareholders; Bain and Datival were similarly related: but each group is independent of the other. His Honour referred to conversations supnorting a four party agreement between the parties. a — wenese "wey ee oy = nee -+ Mr. Rodney Joseph Joyce, the principal operator and executive Bane and Datival said in evidence that those two companies did not have any business prior to the transactions the subject of the appeal; nor any business subsequently to those transactions; that then they basically "just ceased trading". Though the Kelly companies had changed their names (Kelly Ford to Legquna Investments Pty. Limited and Kelly Wholesale to Willagee Investments Pty. Limited), 1t will he convenient here to refer to the respondents, as did his Honour, by their original names, except where the other names appear in quotation. Mr. Brian Roy Kelly, a director of the five Kelly companies referred to what passed at a meeting between Messrs Stanfield and Butler, the Manager and Accountant of the Kelly Companies and Mr. Joyce a Director of Datival and Bane, Mr. Kelly quoted what he said was suggested by Mr. Joyce - "A course of dealing can be established by the Companies to each of their benefits and by which the sales tax presently payabie bv (Willagee Investments Pty. Limited) might be reduced. The steps which would be involved are: Leguna Investments Pty. Limited would notify Willagee Investments Pty. Limited of the details of the Ford motor vehicles which Leguna Investments Pty. Limited required for retail sale; Willagee Investments Pty. Limited would order from Ford Motor Company of Australia Limited the requisite motor vehicles to meet the orders of Lequna Investments Pty. Limited; Willagee Investments Pty. Limited would grant to Bane Finance Pty. Limited an option to purchase each of these motor vehicles; Lequna Investments Pty. Limited would then pay to Bane Finance Pty. Limited amounts to relinquish its rights under each option provided that Bane Finance Pty. Limited would ensure that each relevant motor vehicle would be sold by Willagee Investments Pty. Limited to Datival Merchandising Pty. Limited which in turn would sell to Leguna Investments Pty. Limited. Is this acceptable to you? I replied to the said Rodney Joyce, "Yes that is acceptable." I gay that both Leguna Investments Pty. Limited and Willagee Investments Pty. Limited participated in the arrangement in the course of the carrying on of their respective businesses and both Companies derived a profit or other commercial benefit therefrom." ee le te ne a a ew An example of the option and the words declining was - "TO BANE FINANCE PTY. LTD. OPTION NO. 003 IN CONSIDERATION of the sum of $6361.45 paid to the undersigned by you (the receipt whereof 1s hereby acknowledged) the undersigned grants to you or your nominee an option to purchase the below described goods for the sum of: $1710.77 which included sales tax in the sum of $368.77 upon the following terms and conditions: 1. This option may be exercised by you or your nominee by notice in writing handed to the undersigned at or before noon on 17 AUG 1978 2. The undersigned warrants itself to be the true owner of the said goods and has not entered into any agreement which if put into effect, would prevent the sale of the said goods taking place and the undersigned agrees that during the period of this option, it will not enter into any such agreement without your written consent and will not do any act that would prejudice your rights under this option. 3. SPECIAL CONDITIONS DESCRIPTION OF GOODS Ford Fairmont GXL Sedan Engine JG 32UJ 36338 DATED this 17th day of July 1978 SIGNED for and on behalf of) Brian Kelly N.R. Stanfield Witness KELLY WHOLESALE PTY.LTD. ereeer CY KELLY WHOLESALE PTY.LTD. OPTION No. 003 17.7.1978 We hereby acknowledge the grant of the option to purchase the goods identified in the abovementioned option. The option is hereby declined * - exercised * * delete one. Bane Finance Pty. Ltd. R. Joyce." ana cele ae ante a ee ee -- eee te ~ ae te one nee . He noted the evidence by Mr. Joyce as to conversations with Mr. Brian Roy Kelly, and Mr. Kym Butler, external auditor to the Kelly group of companies. Mr. Kelly asked what was to stop Bane Finance from exercising its option after Kelly Ford had purchased the vehicle; Mr. Joyce replied - "That can't happen because it is a condition of Kelly Ford''s purchase that the option will be relinquished by my company (meaning Bane Finance)". He also referred to the evidence by Mr. Kelly who was asked what there was to stop Datival from refusing to sell the car to Kelly Ford, then selling it to someone else. Mr. Joyce replied - "Nothing except for the fact that the car would still be subject to the option and the arrangement is that Kelly Ford will only pay for the option to be relinquished if the car 1s sold by my company to it." A diagram setting out the steps between the companies was produced in conversations between respondents' representatives. Mr. Kelly in an affidavit referred to what was said by Mr. Butler. Referring to that, there was a conversation between Mr. Kelly and Mr. Butler thus - "Do you realise that at this stage one of the independant companies owns the car and another owns an option over the car." I replied. "Yes I do." Mr. Butler then replied: "You will have to rely upon Mr. Joyce's honesty and our agreement that the arrangement will be carried out in the proper manner. " I replied: "TI understand that." Mr. Butler then said: "The transactions will all happen on_the same day anyway and it will be impractical a ne rn ee ee ee ee ee wanes for someone to take off with the money as all parties will be making use of the same Bank and will be depositing their cheques at the same time." I then said to Mr. Butler and to Mr. Joyce, "That appears to be acceptable. I am prepared to go ahead subject to satisfactory Q.C.'s advice."" The scheme devised by respondents as found by out in his judgment thus - (1) Each motor vehicle was purchased from the Ford Sales Company of Australia Limited by Kelly Wholesale,.... (2) Kelly Wholesale then granted to Bane Finance an option to purchase the vehicle. The price vaid by Bane Finance for the grant of the option was 80% of the wholesale market value. The exercise price was 20% of that value. (3) Kelly Wholesale next sold the vehicle (but subject to the option) to Datival for the same amount as the exercise price of the option (that is, 20% of the wholesale market value). Datival possessed a sales tax certificate which enabled it to purchase the vehicle withot any obligation to pay sales tax. (4) Datival then sold the vehicle (again subject to the option) to Kelly Ford for the price 1t paid plus $1, together with the sales tax which became payable at that stage, it being the last wholesale transaction. Such sales tax is payable upon the "sale value" of the goods which, in the ordinary case, is "the price for which the goods are sold". Provided that there is no relevant relationship by way of shareholding or control between the vendor and the purchaser, the fact that the qoods are sold for an amount less than their fair and reasonable wholesale value is irrelevant to the amount of sales tax payable. In these cases, the sales tax was therefore assessed upon approximately 20% of the true wholesale market value, a considerable saving for Kelly Ford. (5) Finally, to enable it to sell the vehicle to the retail customer clear of the option granted by Kelly Wholesale to Bane Finance, ar ee the learned trial Judge and the order of the various steps are set A nee A ne ce alee aban pa a aterm ena - ee Kelly Ford obtained from Bane Finance its agreement that ait would not exercise that option (referred to. perhaps misleadingly, as a relinguishment of the option). The amount paid to obtain that agreement was the price which Bane Finance had paid to Kelly Wholesale for the original grant of the option less $l, together with 25% of the savings in the amount of sales tax payable by Datival and reimbursed by Kelly Ford." Words underlined were to emphasise the chronological order his Honour found. In part of his submissions senior counsel for the Commissioner questioned that this was indeed the order in which the transaction was carried out. His Honour was further satisfied that sale of the motor vehicles by the Ford Motor company to Keliv Wholesale was a proper description of the transaction. This has not been the subject of appeal or disputation before us. The steps by which any particular operation of the scheme was implemented was stated by his Honour as follows - "When a vehicle was ordered by Kelly Wholesale the Ford Sales Company raised an tunvoice addressed to both Kelly Wholesale and Kelly Ford and sent 1t to Esanda for payment on behalf of Kelly Wholesale. to whom it was then forwarded by Esanda. (At times the motor vehicle preceded the arrival of the invoice from Esanda). When the motor vehicle was sold to the retail customer, the latter signed an order form which was addressed to the Ford Sales Company by which he offered to purchase the vehicle from that company through the agency of Kelly Ford; Kelly Ford then raised a retail sales invoice by which it stated that the vehicle was sold by it on behalf of the Ford Sales Company. The fundamental objects of these documents was clearly both to give the retail customer direct access to the Ford Sales Company in relation to the warranty which that i rene any Nett em - wee ee amit themadinte Meal einai Re ee a ean ee ee ee wee eo ees company gives upon its vehicles and to limit that company's obligations under that warranty without any enthusiastic additions thereto made by the dealers. Just how such a relationship existed in the context of the sale by the Ford Sales Company to Kelly Wholesale which had already taken place is not clear to me, but it is unnecessary for me to unravel that mystery in this case, if indeed 1t is possible to do so, for it was realistically conceded by the Commissioner that these particular documents may not have reflected the intentions of the parties. All that I need to say is that I am satisfied that, in relation to this first step of the scheme, property passed directly from the Ford Sales Copmpany to Kelly Wholesale." Relying on s.23 of the Gift Duty Assessment Act 1941 (the Act) the Commissioner assessed gift duty payable pursuant to s.ll. of the Act. Its definition section (s.4), ascribed meanings for words or phrases, unless a contrary intention appears; the following should be noted - "disposition of property" means any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property and, without Limiting the generality of the foregoing, includes:- (a) 4... (Db)... {c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, partnership or interest in property; (d) the release,discharge, surrender, forfeiture or abandonment, at law or in equity, of any debt, contract or chose in action, or of anv interest in property; (e) etn Stag ge Am a el = Sra nt ent ae a ee ee = ee ete ee ee ee | ' 10, (f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person:" "gift" means any disposition of property which 1s made otherwise than by will (whether with or without an instrument in writing), without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not, or, in the opinion of the Commissioner. is not, fully adequate;" "person" includes all bodies or associations, whether corporate or unincorporate; "property" includes real property and personal property and every interest 1n real property or personal property;" Other sections referred to include - 14.(1) Notwithstanding anything contained in this Act, gift duty shall not be payable in respect of - (f) any gift which is made in the course of carrying ona business, for the purpose of obtaining any commercial benefit...., by - (ii) an incorporated company the shares or stock of which are not or is not quoted in the official list of any Stock Exchange, if the Commissioner 1s satisfied that the donee is not a director of the company or is not connected by ties of blood or marriage with any director of the company... 18.(1) For the purpose of computing the value of a gift - (a) allowance shall be made in respect of any contingency affecting the interests of the donees or any of them; (Bb) (ec) ...." / ee ee a oe " il. 20, Any person, whether a donor or donee or not, shall, if required by the Commissioner, furnish such returns or fuller or other returns for the purposes of this Act as the Commissioner requires. 21.- From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the gift duty ayable in respect of any gift. 23. If any donor or donee makes default ir furnishing any return, document or information, or the Commissioner 18 not satisfied with any return, document or information furnished, he may cause an assessment to be made of the amount on which, in his judgment, gift duty ought to be levied, and the donor and donee shall be liable to pay gift dutv thereon, except so far as the amount is, on appeal, shown to be excessive." The duty was assessed on each respondent in relation to each of the steps 3 to 5 above upon the basis that there had been a disposition of property without consideration; or adequate consideration, Notice of objection against assessment of duty was given expressing the same grounds by each of the respondents. The objections were disallowed. By letter dated 9 October 1979 Kelly Ford advised the Commissioner that 1t was dissatisfied with that decision and requested the objection to be treated as an appeal and forwarded to the Supreme Court of New South Wales. There followed, on 25 February 1980, the transmission of the objection. A Similar pattern was followed by the other respondents. With the consent of the parties all objections were heard together. Re ee en reer een ape ae en eet cree = ce eee - anne tanm den aA Rea ena get te NL te he Sn A I A A -_ oe -- +e a 12. His Honour accepted the arquments presented by the respondents that there was in each transaction no element of bounty; no party made any profit at the expense of others: and each followed a commonly intended course of dealing in order to reduce the burden of the sales tax payable. He agreed with submissions made on behalf of the (then) appellants that none of. the transactions amounted to a gift. His reason for so doing is set out in his judgment thus - "I do so on the basis that there did exist a four-party agreement which came into effect at least by the time when the scheme was put into operation. The existence of such an agreement was indeed one of the principal arguments put forward by the Commissioner. I accept that it is necessary to look at the whole scheme and course of dealing in order to ascertain the true character of each transaction. When looked at in that way, it is obvious that at the time of each transaction in question the value of the qualification "subject to option" was a real one and, because of that background, could not be dismissed as valueless in the way for which the Commissioner contends. The Commissioner's argument fails, in my view. because he has iqnored the effect to be given to each individual transaction by the overall agreement. Basic to his argument, as I understand it, is the proposition that property in the vehicle did not pass under each transaction until the qualification "subject to option" was disposed of. Yet it is clear from the scheme and the course of dealing as a whole, in my view, that the common intention of the parties was that such property would pass at the time of each transaction." He also accepted the respondents' submission on s.14(1)(f) of the Act that if any part of the transaction constituted a gift it was one made in the course of carrying on a business for the purpose of obtaining commercial benefit. He upheld the respondents' appeals. EY A I oR A A eedaetenstaihil AR attain AGRA ee re ne en re 13. The Commissioner has appealed against similar ground viz. - each decision on "1. His Honour was in error in holding that the transactions entered into between involving the purchase and sale "subject to option" did not give the respondents of motor vehicles rise to gifts within the meaning of Section 4 of the Gift Duty Assessment Act, 1941 ("the Act"). 2. His Honour should have held that the sales of the motor vehicles "subject to option" by Kelly Wholesale Pty. Ltd. to Datival Merchandising Pty. Ltd. constituted gifts within Section 4 of the Act. meaning of 3. His Honour should have held that the sales of the vehicles "Subject to option" by Datival Merchandising Pty. Ltd. to Kelly Ford Pty. Ltd. constituted qifts within the meaning of the Act. 4. His Honour should have agreements obtained by Kelly Ford Pty. of Section 4 held that the Ltd. from Bane Finance Pty. Ltd. not to exercise the options constituted gifts within the meaning of the Act from Kelly Ford Pty. Finance Pty. Ltd. of Section 4 Ltd. to Bane 5. His Honour should have held that the agreements obtained by Kelly Ford Pty. Ltd. from Bane Finance Pty. Ltd. not to exercise the options also constituted gifts within the meaning of Section 4 of the Act from Bane Finance Pty. Ltd. to Kelly Wholesale Pty. Ltd. 6. His Honour was in error in holding that at least by the time when the scheme was put in operation there did exist a four-party agreement. 7. His Honour was in error, if such a four-party agreement did exist, in not determining what were the precise terms of the four-party agreement andthe rights and obligations of the parties thererunder. 8. His Honour was in error in holding that at the time of each-transaction in question the value of the qualification "subject to option", wasa real one, and, because of that background, could not be dismissed as valueless. rr nn TE ne Cn re - 9. His Honour was in error in holding that the common intention of the parties was that property in the vehicle would pass at the time of each transaction. 10. His Honour should have held that property in the vehicle did not pass under each transaction until the qualification "subject to option" was disposed of. ll. His Honour was in error in holding that the transactions in question were entered into in the course of carrying on a business for the purpose of obtaining a commercial benefit and were exempt from gift duty pursuant to Section 14(1)(f) of the Act. 12. His Honour should have held that the transactions were entered into to obtain a fiscal advantage and that in the particular circumstances of the case the transactions were not for the purpose of obtaining a commercial benefit within the meaning of Section 14(1)(f) of the Act." Two further grounds were added with the leave of the court, related to the respondents mentioned - "RE: KELLY WHOLESALE PTY. LIMITED 13. In computing the value of the gift from Kelly Wholesale Pty. Ltd. to Datival Merchandising Pty. Ltd. his Honour was in error in making an allowance in respect of a contingency affecting the interests of the donee in respect of each of the motor vehicles, namely, the contingency that Bane Finance Pty. Ltd. might exercise its option to purchase each of the said motor vehicles, such allowance being a reduction in the full wholesale value of each vehicle of 80% thereof. RE: DATIVAL MERCHANDSISING PTY. LTD. 13. In computing the value of the gift from Datival Merchandising to Kelly Ford Pty. Ltd. his Honour was inerror in making an allowance in respect D&a contingency affecting the interests of the donee in Yespect of each of the motor vehicles, namely, the contingency that Bane Finance Pty. Ltd. might exercise its option to purchase each of the said motor vehicles, such allowance being a reduction in the full wholesale value of each vehicle of 80% thereof." 15. The Commissioner asks for orders that the judgment of the Supreme Court be set aside and the assessments by the Commissioner be confirmed. For convenience of reference I annex a copy of a diagram used when making submissions by senior counsel for the Commissioner. One of the questions discussed before us was whether his Honour was in error as to the order of events he attributed to the transactions. It is common ground that the entire settlement took place on the one day and even at the one time in a matter of minutes. I am not satisfied that any reason has been shown as to why one should differ from his Honour's analysis in this regard. Furthermore, I am not persuaded that any reason has been advanced why one should disagree with the finding of the learned trial judge that the "common intention of the parties" was that (the) property would pass at the time of each transactions. That the transactions should be considered, if considered separately at all, in the order found by his Honour and with the common intention to which I have referred, seems to be consistent with the documentation and the purpose of the parties. Further, I note that no suggestion had been made that the transactions separate or together were a sham. 16. The various transactions were within the meaning of the definition each a "disposition of property" which, inter alia, means "settlement", The question remains whether the transactions, or any of them, singled out in argument could be said to have constituted a "gift" within the meaning of that expression. It is convenient now to refer to the arguments in respect of the five stages of the scheme devised by the respondents as analysed by the learned trial judge and set out above. The first stage is merely introductory. It shows how Kelly Wholesale became, by transfer from the Ford Motor Company Australia Limited the owner of each vehicle part of the scheme. At the second stage, Kelly Wholesale granted to Bane an option to purchase. The price therefor paid by Bane was - "80% of the wholesale market value" No gift duty has been assesed in respect of this stage. The third stage, as so numbered in the analysis above and onthe plan submitted in argument, 1s the subject of an assessment. At this stage, Kelly Wholesale "sold" the vehicle to Datival for the exercise price of the option, i.e. 20% of the wholesale market value of 1t. That Datival possessed s Sales Tax certificate is irrelevant to a discussion of the consideration which passed. Senior counsel for the Commissioner argued that Datival received an unencumbered title and" a vehicle worth 100%" but paid only 20%; so there was, he said, inadequacy of consideration to a total of 80% of the value of the vehicle; that was the value of the gift by Kelly Wholesale to Datival. L7. In the fourth stage as quoted from the analysis and so numbered on the plan, Datival sold the vehicle to Kelly Ford for 20% of its market value plus one dollar plus the amount of sales tax which became payable at that stage. In the same way and for the same reason, Counsel submitted, gift duty was payable by Datival, the value of the gift being the inadequacy of the consideration. The fifth stage in the analysis and on the plan was one whereby it was agreed between Kelly Ford and Bane that in consideration of Bane undertaking that it would not exercise its option to purchase, Kelly Ford would pay the price which Bane had paid to Kelly Wholesale for the grant of the option less one dollar, i.e. 80% of the wholesale market value of the vehicle, together with 25% of an amount worked out as sales tax. Counsel for the Commissioner submitted that the transaction involved a gift by Kelly Ford to Bane because Kelly Ford got no benefit from the transaction; anda gift by Bane to Kelly Wholesale in that, there being no consideration moving from Kelly Wholesale, Bane agreed not to exercise its option thus releasing Kelly Wholesale from its obligation under the option to sell the vehicle to Bane. It was said that the performance of that obligation if it had existed by Kelly Wholesale would have produced a detriment to it in that it would have lost 80% of the value of the vehicle in the transaction; so the release from this obligation released Kelly Wholesale from the possibility of such a detriment. Thus. it was ' ee nn ne ae nn Se on neg nen en - -- ne oy a wee 18. said, it obtained a benefit from the agreement for which no consideration had passed being a gift inthe hands of Kelly Wholesale. Counsel submitted that where the only benefit in the transaction was a tax advantage the expression "commercial benefit" in s.14(1)(f) of the Act did not apply. The section did not mean that duty would not be payable in respect of a gift made for the purpose of avoiding gift duty. A tax advantage could not be described as a commercial benefit, 1.e. within the meaning of the section; nor was a profit made out of or by way of avoidance of sales tax or out of savings because Sales Tax was not payable, properly described as a commercial benefit within the meaning of the section. He referred to Gorton v. The Commissioner of Taxation of the Commonwealth of Australia (1964) 113 C.L.R. 604: Bray v. The Commissioner of Taxation of the Commonwealth of Australia (1971) 123 C.L.R. 348 (Bray) at p.347: Federal Commissioner of Taxation v. Patcorp Investments Ltd. (1973) 140 C.L.R. 247 per Gibbs J.(as he then was) at p.289,290: Thomson (Inspector of Taxes) v. Gurneville Securities Ltd. (1972) A.C. 661: F.A. & A.B. Ltd. v. Lupton (Inspector of Taxes) (1972) A.C. 634. He submitted that Bane. as part of the transaction of relinquishing the ovtion in return for a payment, undertook to ensure that Kelly Wholesale would sell to Datival, and Datival to Kelly Ford; that the only inference was that the relinquishing of the option took place before step 3, 121.e. Kelly Wholesale's sale to Datival, and thus also before step 4, 19. Counsel submitted that 5.23 of the Act placed the onus of proof on the respondent disputing the assessment to show that it was insupportable. He referred to Trautwein v. Federal Commissioner of Taxation (1936) 56 C.L.R. 196 (Trautwein);: further, referring to s.18(1)(a) of the Act that the existence of an option 1f held to exist, is to be iaqnored as a "contingency" within the meaning of that section; that there was nothing in Bray which led to the conclusion that the rights of Bane under the option, if any, were not a contingency. He referred to Federal Commissioner of Taxation v. St Helens Farm (ACT) Pty Ltd 1980-1981 146 C.L.R. 336 (St. Helens Farm) per Mason J. at p.385. Senior counsel for the respondents, supporting the primary Judge's decisions, said the options were not relinquished at the time contended by Counsel for the Commissioner. They were executed to be operative when the settlement took effect even if for convenience and on the evidence, they were signed when the notice of relingquishment had been already executed; in fact all the documents were prepared in advance. The real transaction, he said, was simply a contract under which Kelly Wholesale transferred a title in a vehicle in return for a cash payment and a promise that the transferee would transfer it to satisfy the terms of the option if exercised; where if 1t did not do that possibly with a consequence 1 would have to pay damages for the difference in value. The promise was one being of value equal to the difference between cash and market value; since the 20. definition of "gift" required that the transaction has to bea disposition of property at less than fully adequate consideration that criterion was not met; there was at all times a fully adequate consideration consisting of the cash and the promise. He referred to the decision of the English Court of Appeal in Inland Revenue Commissioner v. Plummer (1979) Ch.63 per Buckley L.J. at pp.76-77. He submitted that having regard to the overall arrangements between the parties, the learned trial Judge reached the correct conclusion. Referring to Trautwein he submitted that the question of onus did not depend upon a comparison merely of s.36 of the Income Tax Assessment Act 1922-1934 these being considered with s.23 of the Act; though if it did s.36 contained significant words implying an onus which were not present in s. 23. Section 39 of the Income Tax Assessment Act, he said, also had an effect related to onus which was not reflected in the Act. Furthermore, he said, the opening words in s.23 of the Act had to be given some value, i.e. "if any donor or donee makes default in furnishing any return..." He referred to the various stages of the transaction and the evidence of Mr. Kelly as to the diagram produced in evidence. This set out an order of events. It was not the subject of cross examination. He submitted there was a fully adequate~ —_ consideration at each stage. He referred to the effect of the option and its effect thus - "But, once identified as meaning the option which I have granted to Bane Finance to buy at the price I have stipulated for, namely, 20 per cent, there can ee 2 oeoee wee a me een - --- al. only be one meaning the parties attributed to those words, namely, that you, Datival, promise me, Wholesale, that if Bane exercises the option, you will transfer the car to Bane upon the terms of the option; or, put another way, you will at my direction transfer to Bane and you will receive 20 per cent, be it the Bane consideration for the transfer or be 1t a refund by me also of the price I got from you." Taking the word "promise" as a reference to Datival's acceptance of the obligation to be bound by the option to Bane, he referred to the stages thus - "And, if one seeks to evaluate that, one can, by reference to what happened in either of the two alternatives which could have occurred; if Kelly Ford buys from Dativail for 20 percent plus' the promise and Bane Finance then, as intended, pays Kelly Ford 20 per cent - if step IV takes place and Kelly Ford buys from Datival for 20 per cent plus the subject to option promise and if Kelly Ford pays Bane Finance 80 per cent in return for Bane's promise not to exercise the option, Kelly Ford thereby gets rid of the obligation which had fallen upon it encompassed by the words, subject to option; in other words, it discharges by a payment of 80 per cent the obligation encompassed by the words, subject to option." He submitted that the scheme intended to relieve Kelly Wholesale from the obligation of paying Sales tax in respect of the last wholesale sale; and because Kelly Wholesale was related to Kelly Ford there was a necessity to exclude the relationship for Sales tax and gift duty purposes. Thus one of the commercial benefits to Kelly Wholesale was to relieve it from Sales tax. He submitted there was no evidence whatever to support the submission that Bane Finance was legally bound not to exercise the option; that it was inconsistent with the entire scheme and that, in effect, the evidence at the hearing indicated that the 22. parties set store by the option. The arrangement between the parties, he submitted, contemplated a "contemporaneous completion". Bane he said, was legally entitled to exercise the option; though morally certain not to do so. One could expect nothing else to happen so long as Kelly Ford continued to be willing to pay to Bane the sum equivalent to 80% and Datival sold the vehicle to Kelly Ford for 20%. He referred to stage 5 and that part of it was a release by Bane of the option given it by Kelly Wholesale. There was no disposition of property thereby in favour of Kelly Wholesale; Bane did not purport to release any chose in action in favour of Kelly Wholesale; what it said, in terms, was that the option was declined; He submitted that in respect of the release of the option Kelly Wholesale was the beneficiary but received no interest in property nor any rights. He referred to the arqument on behalf of the Commissioner that Kelly Ford had paid Bane yet yeceived nothing; he submitted that Kelly Ford, in fact, received a document that was intended to bind Bane Finance in favour of Kelly Ford not to exercise the option; thus Kelly Ford could then deal with the vehicle freely - free of its own "subject to option condition". He submitted this was a "fully adequate B0%." He referred to s.18(1)(a) of the Act and the words "no allowance shall be made in respect of any contingency" 1.e. for the purpose of computing the value of a gift. He submitted that the only way one could say the option is a contingency or would give rise to one, was if 1t created some property interest ee eer ee ee —. — papers een + ele cnet oe ee tle te cee es - ee ~ -- e x 23. in the transferred vehicle; but if the option should be regarded as merely part of the consideration, there was no basis upon which the section could be applied. He referred to s.14(1)(f£) of the Act. He submitted that authorities unanimously treat a fiscal advantage obtained for the purpose of gain as a commercial advantage or benefit. (144-145). He referred to The Commissioner of Taxation of The Commonwealth of Australia v. Westraders Proprietary Limited (1979) 144 C.L.R. 55 per Mason J. at pp.70-71. It emerged. he said, from this that his Honour was saying, in effect, that a commercial advantage encompassed an expected taxation benefit. T note that at page 80, Aickin J. agreed with the reasons of Mason J. He submitted, that Sales tax was in practice recorded in profit and loss accounts as an operating expense, its recoupment goes into the proceeds of sale anda saving on it was no different than a saving in respect of any other business outgoing. Finally, he submitted, there was nothing in s.14(1)(f\) which indicated that its breadth should be read down. He referred also to Investment and Merchant Finance Corporation Limited v. The Commissioner of Taxation of the Commonwealth of Australia (1971) 125 C.L.R. 249. He referred to what appeared in Viscount Simond's speech in Griffiths (Inspector of Taxes) v. J.P. Harrison (Watford) Ltd. (1963) A.C. 1 at p.12: Bulmer v. Inland Revenue Commissioners (1967) 1 Ch. 145 at p.166: Inland Revenue Commissioners v. Brebner (1967) 2 A.C. 18 at p.30: Inland Revenue Commissioners vy. Plummer (1979) 1 Ch.1 63. He submitted that what Buckley L.J. salem eemeenettatgue emeeatennenemneneete aaheealiinctocetaeetemeteneeadtiien tain tal ad Sa a a - ao eer ee —_ 24. had said in the last cited case was accepted by Lord Wilberforce in the House of Lords ((1960) A.C. at pp.901-911 in the appeal in that case. He submitted the words "commercial benefit" were unqualified. In summary he submitted that Kelly Ford's vurpose in entering into the transaction was to gain a commercial profit out of the sale of motor vehicles in consequence of having had a sales tax or fiscal advantage; saving the business outgoing of Sales tax was no different from saving any other business outgoing. Bane's point of view was different being to gaina commercial profit quantified by reference to the tax saving or fiscal advantage obtained by Kelly Ford and paid to it; thus it was not afiscal advantage to Bane to achieve a commercial advantage or profit. Datival made $1 per transaction free of administration costs, paid by Bane. Kelly Wholesale was relieved of the liability to pay Sales tax and of having to fund the payment of Sales tax ultimately sold by Kelly Ford. He referred to the evidence as to the way in which Bane and Datival made their profits. Evidence quoted showed that Bane provided the management facilities for Datival and charged no fee for that service. He submitted that the expression "fully adequate" (see definition of "Gift") did not imply a requirement to enguire into value in money terms of a promise creating a legal right or legal obligation; it was sufficient if it appeared to be bona fide and the party obtained that for which it bargained. Applying that principle to the third stage there was a sufficient equivalent to 80% of the value of the vehicle he submitted by the fact there was no element of bounty in the transactions and by the fact that Salinas oenie eerie a atesaieienammeetaaeeaeanet eee me re ose - 25. Datival on-sold the vehicle for what it had paid for it wlus a dollar. If Datival, he said, had not at that stage been subject to the burden of the option, maybe it would not have been willing to sell at anything less than the market value. In reply, Senior Counsel for the Commissioner referred again to the relevant document recording the declining of the options; he submitted that upon a perusal of the document it was a declining to Kelly Wholesale which had been the grantor of the option; this was confirmed when one considered to whom was 1t appropriate that such words should be addressed. Having regard to the intention of the parties, he submitted, 1t was necessary for the decision to be communicated to the grantor. He submitted that the declining of the option and the communicating of that decision to Kelly Wholesale produced a benefit to support a gift which was a disposition of property; there was a gift involved in declining option in advance of the termination date. Independent of whether there was a gift or not he submitted that it should be inferred that the option was declined orior to or contemporaneously with Kelly Wholesale "selling" to Datival. I have not attempted to set out in full the arguments offered by counsel on each side. It is convenient to refer first to the submission as to onus of proof, i.e. the Commissioner contends that once an assessment is issued the onus of disproving it lies upon the oan ee _ — re ne ene eh ne oe - a ee ee 26. applicants. Senior counsel relied upon Trautwein for this submission. However, there is a siqnificant difference between the wording of s.23 of the Act. Section 36 of the Income Tax Assessment Act 1922-1934 includes - ",,.and the person assessed shall be liable to income tax thereon excepting so far as he establishes on objection that the assessment is excessive..." Section 23 did not have words equivalent to these. Of section 39 of the same Act 1t was said by Latham C.J. that a construction placed upon that section interpreted in Moreau's case imposed too heavy a burden upon the taxpaver; in that case Isaacs J. had said that s.39 - "throws the burden on the appellant to establish a right to the benefit he claims." But 1t is clear, I suggest, that s.36 and s.39 could support the argument that there was an onus on the person assessed. Those sections have no equivalent in the Act. [In my epinion s.23 assumes there is a donor and one liable to gift duty. It is concerned only to place an onus on a taxpayer donor to show, if he seeks to do so, that an assessment is excessive; but it does not impose ona person assessed the obligation of proving that there was no gift. In argument this matter was treated as a "all or nothing situation" wherein no question of quantum arose because no gift, so 1t was argued, had been shown to exist. The argument in my view for the Commassioner on this aspect of the case fails. The onus remained on the Commissioner to prove there had been gifts at the stages of the transaction which he selected. en - ee a ee a - 27. There was considerable argument concerning the individual stages in an endeavour to pinpoint where there was to be discerned inadequacy of consideration. However much advantage there is in such a dissection to assist elucidation, one should look at the scheme as a whole - see e.g. per Lord Wilberforce in inland Revenue Commissioners v. Plummer (1980) A.C. 896 at p.907; and at pp.324 and 325 in Inland Revenue Commissioners v. W.P. Ramsay (1982) A.C. 300 (Ramsay). What was said by Buckley L.J. in Inland Revenue Commissioners v. Plummer (1979) 1 Ch. 63 at 79 is consistent with the speeches in Ramsay. That decision of the English Court of Appeal was upheld in the House of Lords. I am satisfied that the order of steps in the transaction as found by the learned trial Judge was correct; it is consistent with the intention of the parties as discerned from their words and the documentation. It follows that I accept His Honour was correct in finding the declining of the option was at the end of the transaction, and not as contended by counsel for the Commissioner. It is clear from the evidence that the scheme was Sz devised with the knowfedag and approval of each of its stages by all four parties; infact, two of the participants had no other function than to take part in it. It is possible to consider the transaction first by reference to the various stages of its implementation. nn Te. SO a ee — ~ ee nee tee ee a -~—- 28. Sale by Kelly Wholesale to Datival This was said to be at undervalue - 20%; thus there was inadequate consideration and to that extent a gift. But Datival did not receive simply a vehicle whose market value was 100%. The consideration it paid took account of the existence of an option subject to which the vehicle was sold. Looking at the Matter prospectively, it was not possible on the evidence to estimate or measure the burden of the option as it affected Datival. The value of the vehicle was not simply market value. So the consideration was not shown to be inadequate. If the option had been exercised, presumably the 20% option exercise orice would have been payable direct to Datival, or in some way via Kelly Wholesale. In either situation Datival would have received what it paid for the vehicle or what it could look forward to receiving if the option was exercised. Thus it would not have been at a loss; nor did it receive a gift. Sale of Datival to Kelly Ford This was again subject to option. The price was again 20% of market value. It is said this was a gift to Kelly Ford because of the inadequacy of consideration. However. the vehicle was still subject to option. The consideration had to take account of this circumstance; thus the value of the transaction to Kelly Ford was not market value of the vehicle but something less than 100%. No evidence enables the possibility to be valued: so no inadequacy has been demonstrated. For the option to have been validly exercised, the sum of 20% of the value would have been i i ee ww eee a eee ele mn i at et a re a a At A mre ene em ene ee ee ee 29. payable to Kelly Ford. It would thus have received back a sum equal to what it paid; and so to that extent. not been out of pocket. Kelly Ford to Bane Finance Kelly Ford paid 80% of value to Bane which agreed not to exercise the option. This was said to involve a gift by Kelly Ford to Bane because Kelly Ford got no benefit from the transaction. So far as this submission relied on the option no longer then being in existence because Bane had already declined, I have already indicated that I do not accept the submission. The transaction itself evidenced the parties' prior agreement and understanding that the option was still on foot and held by Bane. By procuring Bane's agreement not to exercise the option. Kelly Ford was advantaged by being able to sell the vehicle to a customer free of any outstanding option. If Kelly Ford did sell toa customer and the option was exercised, Kelly Ford then being unable to comply with it by selling to Bane, would have been liable in damages to Bane. The value of that option to the option holder, Bane, was not the subject of evidence. Being, therefore, not quantified it is impossible to say what would have been the likely award of damages to Bane and thus what was the worth in money terms to Kelly Ford. So 1t is not possible to say inadequacy was demonstrated: or that Kelly Ford made a gift to Bane. we ee en en ee oe — —- a 3 oe eee Se - - + 30. Bane to Kelly Wholesale It was said that with no consideration moving from Kelly Wholesale, Bane, in giving up the right it had acquired against Kelly Wholesale had made a gift to Kelly Wholesale. It 1s at least doubtful that there was a disposition of property within the meaning of para.(a) of s.4(1) of the Act by Bane. However, the submission ignores, I suggest, that Kelly Wholesale's original sale to Datival was made in anticipation and on the understanding that Bane promised, assuming the early steps 3 and 4 had been taken, it would relinquish the option on receipt of the payment by Kelly Ford of 80%. After it had sold "subject to option" any liability Kelly Wholesale accepted in respect of the option could have been recovered by requiring Datival to comply with the option; or indemnify Kelly Wholesale for any loss it incurred at the hands of Bane. Summary Finally, it 1s necessary to look at the end result of the whole operation as, I suggest, the authorities require. I omit the Datival dollar and division of Sales tax savings. Kelly Wholesale sold a vehicle for 80% + 20% of its value. Datival bought for 20% and sold for 20%. Kelly Ford bought a vehicle for 20% and perfected or safeguarded its title for a further 80%. Bane Ford paid 80% and received 80%. ee re ee NR ll eR te Pett ee ee -o=- 31. All of this was achieved by the consideration for any one party's action being the promise by the other three which, in the events, were all carried out. These transactions seem to be within the description by Lord Wilberforce in Ramsay at p.326 - 1 " "The capital gains tax was created to operate in the real world, not that of make-belief. As I said in Aberdeen Constructions Group Ltd. v. Inland Revenue Commissioners (1978) A.C. 885, it is a tax on gains (or I might have added gains less losses), it is not a tax on arithmetical differences, To say that a loss (or gain) which appears to arise at one stage in an indivisible process, and which is intended to be and is cancelled out by a later Stage, so that at the end of what was brought as, and planned as, a single continuous operation, there is not such a loss (or gain) as the legislation is dealing with, is in my opinion well and indeed essentially within the qudicial function." I accept that on analysis there is no inadequacy of consideration in any of the stages at which there is said to have been a gift; though authority to which we have been referred indicates that it would not be correct to look separately at the fragments of the transaction without recoqnizing them as part of the whole. Furthermore, if disposition, auncluding "settlement" implies a bounty, it is clear that none of the four parties retained any "bounty" from the completion of the transaction. From a consideration of the authorities which are referred to above, I incline to the view that "any commercial benefit" as mentioned in s.14(1)(a) may include as part of a > rr te ee ee me ee 32. commercial transaction obtaining a tax advantage; mverhaps this is easier to accept where the tax advantage 1s other than one solely aimed at the avoidance of sales tax. Thus, to recapture an argument by senior Counsel for the Commissioner s.14(1)(f) did not intend that a gift made for the purpose of the commercial benefit of avoiding sales tax 1s not subject to duty. However, since, in my opinion, there were no gifts, it is unnecessary to reach any conclusion on this matter. I would dismiss these appeals with costs. T certify that thie and pre 31 Preceding pages a-e a true copy of the Reasons for Judgemat herein of his Honour Mr. Justice McGregor A Unne Coat, Associate "ated: 4 April lYSy rr a rt te ee | #4 aD Se DIAGRAM REFERRED TO ON P.15 ' ey 00 fr ySE YF (g FPO YOZ * erry vend? OU WII %e Y YOU yuouPsrby © GINS "FONUNY INU? LOC - dy asns19%9 gdas ¥, OF > uoudC s9F BIIy 4QWOIsSN) 2 e4y Gyo A773¥ "KEE SIPS + coy + ZO? 47 Sas o Fas Sypn0 4 Fe/°8) °%, or "Bolly 'erondQ Of forlyag Pos BIY2A = Oty 'woudo Of pr2lQns ples TOA LN_THL PSDeunal COURT Os AuervraltaA 3 NEW SOUTH WALES MLSTRIOT FSG Ie ERY 3) Ho. G@ 14. of GENERAL _CIVIS LUN ) BETWEEN THE COmi oo TONES OF Ta xaAT Tun _ OF THE_ COMMONWEALTH OF AUSTFALL/, Apos. tant AO RELLY Foe Pr. LSM ITE! KELLY WHOLESALE PTY. 1 Im tte RANE EINANDS PTY. LIMITEU ww ™ ie UATIVAL MEFCHANELIING PT. LOMnteu Respondents CORAM? HKowen C.J. and McGregor amd Sheppard Is. DATES 4 April 1984 REASUNS Ee JNUOMCENT OREPCARD J.¢ Tnese are apoeals orougnat ty the Commissioner of Taxation from the allowance by tne Supreme Court of New South Wales (llumt J.) of sopeals brought to tne Suorewe Vourl by the respondents pursuant to ¢. 34 of the Gilt uty Assessment Act L94l ("Lhe Ack". Tne recporndenis. pursuant tao zg, 31 of Lhe Aut, had objyecles to ateeesmancvs of gift duty made oy the Commissioner. The sujections oad been 'igztloved and othe apnpeale to the Sunreme Cuurth were iqarisl that disallowance. The Ack applies oul aie respsct ar gqitte made berare 1 July 1909, ses sue-sec. 404) of Une 'ufl uray fet 194) ay ee a ee a a a amended by the Girkh tuly Amendment Act 19795 Act 36 amended wv the Osft 1978. The transactions gaid of the Act ain the present = The transachions La oe Moty Atsessmer bt Ameandmersc Ach qarfts urenin tae Me anlLasg all oeeurred prior to 1 July which ar@ oir queslicn are comeier, Tney were' steps in a scheme For tne sate of mew Fora movor ' venicles devised ain order to reduce the ancidence of tals¢e tas payable by 3 Ford distributing sgency. Toe parhictepancs im the scheme were the respondents. Two, Kelly Ford Pty, Limited end Kelly Wnolesale Pty. lLaimiled, were comoanie_ engaged ain the carrying on of the distribuLtorship and are related to each other by way of common directors and shareholders. The remaining two, Kane Finance Pty. Lamiteci and Watuval Merchandising each other, bub there was no conpanies anid the Bane and Lransactione im question. 165 mame to Leguna Wholesale to Willagee 1S more and Kelly Wholesale, The Baue and toerm taat of carrying out more than wae suPfaecrent so Bane made profits suv of doubt these fare Pin went bo ewe ew ere ee re oe ee ew ee ee Pty. Latival Kelly Ford Pty. Investments Investments Py, convenient Lo refer ta tnen Datival companies had the partatipating whoever Limited, were also relationship belween tie companies. Lamibed mas chanae} Ply. Limited and Kelly Limited. However, aL by the "ames Kelly ford MnO Cweiness @ghoner scheme. Usatwval received na nest adminieterabtive envencas., a in tome sconeme. RU WAS Who nad ne a a a te ee ae oe ee care ee it. The scneme 1s ma loneer one whieh could have oP reducing (Lhe sneidence of sales tax. toe ke! legislalion nas been amended to overcome anv eflect scheme mignt have. His Honoue summarised the schene as follows numbering 1s addedst "1. Euch metor venicle was oueensased Fron toe Ford Sates Company of SAustraiir Limite by Relly Wholesala. (Both counsel agreed that tLnis snuuwlda rave been 3 frererence to tne Ford Motor Companv), Kelly Wholesale then granied to Bane Finance an option to purchate Lhe vehicle, The price paid by Sane Finance For the grant of the option was 80% of the wholesale market value. The WxNErCLSe price was 20% of Lhoat value. Kelly Wholesale net sold bag vanitele (but sutjgect ta tne dovigon?d Lo Natival for the same smount 36 the- exercise price of the option (Lnat 3s, 20% of the wholes3le market values, Datuval possessed x sales Lan certificate which enabled it to purchase Lne vehicle without any obligation Lo pay sales tar, Takival then sold tha vehicle \vaasin subject to the option) to Kelly Ford for Lhe price 1t pald plus #1, together vith tne sales tax which became payable at that stage, it being the last wholesale transaction. Such 843165 tax t= payabie upon the "sale value" af the goods wnaed, in Loe ordinary cage. 15 "the price for which the gocds are sold.' Provided ULhal anere 15 mo relevant relationship by way of shareholding or control berween bne vercdor ahd Lives Purchaser. tne fact thal the gods are sqld for an amount less tran their Baar and reatonable wholesale value 1= irrelevant ~to the amount of sales tay 3B 2 sucn 4 (the gayalile. In these o2:e8 v WHS therefore 32505 aporonrmateady 20% at toe tru market valus, 3 Conside oh felly Ford. S. Finally, blo smable rb to seit the venicle to the revarl customer clear of the option granted by Kally Wholiessls to Rane Finance, Kelly Ford obtained from Hane Finance its agreement that at would nob exereise bnat option (referred ta, perhaps Misleadinaly, as a relingwishment of the option). Tne amounL paid to oflaim thal agreement wa: Lne price which Bane Finance had paid Lo Kelly Wholesale for the original gram OP Lhe option less $1. together wikn 204 of tne savings im tne amount of sales tax payable by Datival and reimbursed by <elly Ford.' The last sentence of whab his Honour nas sald ain paragraph 3 reguires some amplification amd correction. No sales tax was payable by UDataval; 26 held 2 sales tar certificale. The sales tay was payable by Kelly Ford which was the purchaser an the last wholessle transaction. By reason of Lhe operation of the scheme tne amount of sales tay t Selly Ford would nave paid was approximately 90 per cen oe lese Loan would have been the case if it had acquired the vehicies direct from Kelly Wholesale. The reasons for that ere mot important for Une resolution of Lhese canes but are to do with the fact tnat the two Kelly companies are related. In such circumstances the Commissioner would anvestigate the Question of whether the considerstion paid by Kelly Ford was adequate, The reason why the amount oaad by Kelly Ford to Bare Pinanece :ucluded 25 per cent of the savings in tne samourk of uy sale havo owt ut w 4ivak tnose responetbie Por davai ard implementing the scheme were antitled to receive Wl ner cert of tne sales tax saved, that 1= 25 ofr cant of the 29 per cent which would, out for the scneme, nave been paid iv halty Ford. During the argument counsel orovided us wibn 3 userul diagram showing tne various steps or btrangacsions which wenme to marke up the scheme. A copy of the diaarsm 15 appended ta the judgment of McGregor J. The Commissioner claims qift duty im coespect o rh tne bLeansaction between Kelly Wholesale and Lataval (para. 2 and step 3 32 shown in the diagram); an the transaction bevween Patival and felly Ford (para. 4 and step 4 of Lne diagram); and twice im respect of the transaction between Bane Finance and Kelly Ford (para. 5 and step 3 of tne diagrams. Before stating pracisely now the Commissianer's cage i u put oom relation to each af these Lransactions. L 1s cr necessary to refer ta cerbatnm of the provistaons ef tne Act and to some of Lhe detail of tne avidence. Section Ll of the Act provides that, subject to the AclL, gifb duty st rate aw declared ty the Parliament shall tbe Jlevied and paid in respect of every gift made on or afler the date of the commencement of bone Act and before Ll July Lb " "Gifb"™ as defined im sub-sec. 441) of the Act. The relevant meaning for the purposes of ULhese cises 15, "any Utespositionm of Property which 15 made otherwise than by wall wavy witnout consideration ain momey ar monev's worth parsing from Lae ee enepeernn ets ap ene ten ee " - - a ee an a ee en em ee 6. disoomee to the digpomor., or with such comeideraticzn Mt uw passing 1f the considesalion as mot ... fully sdequstc." sub-sec., 4¢1)} to mean any convevence, trausfer,. ass Tne sxoression '"drepoertson of properly! 18 defined in LANMMenty setrlement, delivery, payment or otner aligiastion of property. Without limiting vhe generality of Line evpressions so used, it includes: Ce} Lhe graml or crestion of anv lease, mortgage, chargé, servilude, licences, power, parkmersnio or smberestu iis property; (J) othe relesse, discharge, gurrerndar. forfeiture or abandonment, at law or in equity, of any debt, contract or cneee 1m action, or of any aunmberest oan property; er ee ee ee ae (f) any transaction emtered unto by any person wilh intent thereby to diminisn, diurectiy or aundirectly, the value of nis own property and to ancrease the Value of +tnhe property of any other persan;" "Property" as defined to anclude real and personal Property and every interest im resl or personal prooerly. Para. 14¢1)¢f), so far as 1b 15 relevant, 15 ag "14.¢01) Notwitnastanding anytnina contarnes! am this Act, gitt duty shall nol be piyable in respect of - C£) any gift whieh is made ain Lhe course of carrying on a business, for the purpose of obtaining any commercial benefit wenn we eee ee tollows: a ee ee ne Pe -- - Pe ee ee | Lido am incorporaled company ine enzres or stock of writen are mok or as nat qauobed am the otfocial List of any Stock Exchange. rf tae Comissioner 15 satisfied tnat the donee 1s not 3 director or the company or 15 not cannmected by lies of blood or marriage with any director ot the company" Para. 18¢1)¢3a) 15 as follows: "18.(1) For the purpose ef computing the value of 3a gift - (3) no allowsnce small be made oan respect of any contingency affecting Lhe interests of the Ywonees or anv of them; *" Section 23 15 in the following terms: "23. If any donor or dones makes default ain furnishing any return, document or tnformation, or the Commissioner is not satisfied with any return, document or information furnished, he may cause an assessment to be made of the smount or whienme am his Judgment, gift sbuty ougnt Lo be levied, and the donor and the donee shall be lisble to pay gift ditty thereon, excepl so far as the amount 1S, On appeal, shown to be excessive." 1 have earizer referred to the provisions of ss. 31 and 34 which ure in Part VI providing for objsetions and sppeal ua In the case which they presenled the respondents made mo secret of the fact that the transactions which have been made the subject of 36s5essment by the Commissicner were entered into for the purpose of reducing Lhe incidence of sales tic. Mr. Kelly as a director of the two Kelly companies. He gave evidence Of a meeting which toor place om LO July 1978 aL ' which were present arir. Butler, who wes the Kelly companies' a we ee ee ee me ee ee ee - - eee eee ee ee ek rns = eee -- ase - - ay auditor, a Mr. Stanlield, woo wes bLneir manager. 3 Mr. Joyves., Who W3S 5 darector of the Bane and UValival companies ard ur, Kelly namself. Th patagraph 12 of am arPlCudavit Hew nelly seid that st that meelinag Mr. Jovece saids "A course of dealing can te estinlashed by tne Companias to each of their benefits and by whieh the sales tan presently payantle oy Willagee Investments Pbey. Limived might be reduced. Tne sleps whieh woulda he involved aren Leguna InveslLments Pty. Limited (helly Ford) would notify Willagqee Investments Pty. Limited (Kelly Wholesale) of tno detalles of tne Ford motor venicles whien Lequna Investments Phy. Limited required for retail sale: Willagee Investments Pty. Limited would order from Ford Holor Conpany af Australis Limited the requisite mutor vehicles to meet the orders of Legunea Investments Phy. Limited) Wallanee Investments Pty. Limited would grant to Bane Finance Pty. Limited arn option to purenase each of Lhese movor vehicles: Leguna Inveshkments Ply. Limited would then pay to Hane Finance Pty. Limiled amounts to relinquish ats rights under : each option provided that Bane Fanane- Pty. Limited would ensure that esch relevant molor vehicle would oe sold by Wallaqee Investments Fly. Limited to Datival Merchandising Ply. Limtbted which im turn would sell to Lequna Investments Phy. Lamited. I¢ this scceptatle to you?" Mr. Kelly said that he had told mr. Jeyee thak what nn suggested was accepLabie. Irv o4 second aftadavit Mr. Kelly referred to his first arfidayvit and gave further evidence of what transpired at tne meeting. He sardi "70. During this meeting I said tuo mr. Joyees "Wheb ts to stop your company (meaning Bane Finance Puy. Limited) from exercising ite oobionm atter dxelly Ford has bought Lhe car?" Me. Joyer owe me ee er ree eee - ae - ne ie re ee ll. ce ee ee =e wee - 4 so seplired' "That cen't happen tecause ib tS 8 condibion of Keliy Yorel's purchase that the ontian will be relingutecned cy fy company (mesutig Bane Cionswnee Fly Limited?," io otnmenm said: 'Winal as to stop your obher company C(neaning Yatrival Merchandising Fry. Limited) Prom refusing to sell the gar co Kelly Ford and ther seliing at to someone else?" Mr. Jovee reolied: "Nothing eseeol for the fack thab the car would still be subyect to Lhe option and Lhe arrangement 1s that Kelly Ford will only pay for the option to oe relinquished af the car is sald by my campamy to 1a." After Mr. dJoyee had deseribeu the Brrangement proposed as stated hy me in paragrapn 12 of my sstd affidavit Mr. Butler then deew 4 diagram depicting each of the four cuompanzes to bry involved un toe arrangement. In Lhe drawing of that disoram mr. Buller axplained to me the arrangement 23 followsi- "Kelly Wholesale 22 the owner of the Ford car, An independant Company 4 Wouded then purchase an option to buy a1 an agreed amount. Company B would then purchase the car subject to tie terms QP the option. Kelly Ford wouls then be am oa posttion where effectively at this stage it was unshble to purchase cars from Kelly Wholesale. Kelly Ford would then be forced to purchase tne car subject to the option from Company ic and come Lo sone financial arrangement with Comoany A to enable a4 to sell tne car for retail." Uuring the course of this explanation Mr. Butler poinled to tne diacram at tne st wae immediately the option trad been granted bo one of Mr. Joyes'4 companies and tne sale to his obtner tompany amd said? "Yo you realise that al tnis stage one of the independant companies owne tins car and snotner owns an opliom over the Car." dreplied, "Yes f£ do." io. Mr. Butler then replied: *You will nave to rely upon fr. dJoyee's honesty ard our agreemenl thst the arrarngemenl will be carried out ain the proper manner," Ioreplied! "1 understand that." Mr. Rutler nen sald: "the transactions with all happen on the sane day anyway and ot will bee impractical for sumeone to take off with Lone money 35 all parties will be Makang use of the same Bark and wall te depositing their cheques at the same time.* T then said to Mr. Butler and to Mr. Joyce, "That appears to be scceptable., Tam prepared to go ahead subject to satistactory @C's advice," Mr. Butlers mentioned to me, "We already have 3 GC's advice." 1 replied, "I would rather have oo an advice by a @C given just for us. Can you (meaning Mr. HKutler) get one for he?" Mr. Butler replied. '1 will organise tiat." Thereafter the scheme was aumplemented. The detail of how 1% was implemented ts recounted in Lhe evidence of Mr, Stantield. He said that the course of business was that an imvo1ce was received from the Ford Wotor Company in respect of each vehicle ordered by Kelly Wholesale. The invoice was addressed bolh to Kelly Wholesale and Kelly Ford, Ue referred to finance which was mide available by a Linanee company, Esanda Wholessie Pry. Limiled, but 124 15 unnecessary to refer to tne detarl of that evidence. The venicle would then be delivered and paid for by Kelly Wholesale. Sometimes the venicle would already be in tne possession of that company. Thereafler the steps which together constibuted the scheme were put into effect. What was involved ain them is ll. shown an detail am ome of tre ehibits, Tris snows tnat ab 4,30 p.m. each afvernoon Lae ttocr cumbers of vehicsws tt o: registered the following day were obtained from 4a delivery boot. The sales Lax which would mormally be payable was calculated, The ww ale price of the veniele from kKeily Wholesale to Lataval was calculated at 20 pear cent of Lie Ford invoice price. The oobionm orice was calculated at the total cost of Lhe venicle less the ale price to Kelly ue Wholesale. The purcnase price paid by Kelly Ford was tha price paid by Datival to Kelly Wholesale plus one dollar. Kelly Ford would psy Bane the orice tb reesived for che option le HT Ss 35 per cent of the sales bax which wowld have been payable had the transaction been a direct one between the two Kelly companies. Kelly Ford drew Lwo eneques payable, apparently, to felly Wholesale for the bwo Components. that 15, the price and tne consideration For the relinquishing af the option. The optian documents were in a standard form. an examglr of which 15 38 fellows: *TO KANE FINANCE PTY. LTO. OPTIGN NO. 003 [N_CONSTHERATION of Line sum of $6,361.45 paid to the undersigned by you (the receipl wheresor is hereby acknowledged) the undersigned grants lo you or your mominee am optiom to purchase the below deserice goods for the-sum of: a $1,710.77 which ancluded™ssles tax in the sum of $ 368.77 upom tne following terms and comdstione? Ll. This opbtitom may be exercised by von of your nomines by motice ain writing handed to Lhe undersirqned at oar before moon on 17 AUG. 1978 1c 2. The undassrgred warsanss rbeealt ts owner of the sartd goods und nee amto amv aqyeement whieh ir dub would prevent bhe gente of lire btakina place ahd tne undersigsed during Loe period of Linis opbean, enter unto any sich sereement wibnou Wiritben consent and will mot do any ace would prejudice your piants under this option. DESCR(PTION_OF GuODS Ford Fairmont GXL Sedan Engine JG 32Ua 36338 DATEL this 1? diy of duty 1979 SIGNED for and on behalf of) Brian RK. Kelly ' Nuk. Stanfield Witness KELLY WHOLESALE PTY. LTu." Appended to each option was an agreement intended to oe signed oon benelf of Lhe Hare company. The form of thal appended to the oplion above set ot immediately betore the transaction was completed was 45 follows: KELLY WHOLESALE PITY. LTI. OPTION MO. 00% 17.7.1978 "We hereby acknowledge Lhe grant of Lhe option to purchase the goods identalied am the slbovementioned option. The option is nereby declineds Steere wAidelete' ane. Bane Fanmanee Pey. Led. R. Joyce . ft 15 bo be observed that the word "exercised" has oaeen struck ouwb and the document sianed on benal' of Bane Finance ww ee Re ee ree ee ene we ee - 13. by Mr. Jovee. Tnat occurecea before the transarclior was completed. Some additional words, "Provided vou sell Lac goods for $1,354" were apnprtrentily added to tne document some time after comoletion af tne transaction, The eviuence is boat the transachions were all complete within oa very snort space of time Fhher 4.590 pam. een afternoon. Tne procedure 15 described sm Mr. Slanfieid's affidavail. For the purpose of desling with Lane submissir: which were made it 1s enough to say thst all tne documents Were prepared so that settlement could tare place, af nal instantaneously, then within a very few minutes. The optrone were signed and the word *exercised* was aunvariably struct out at the time settlement occurred. Tk 15 to be observed Lnat the aption was to be exercisable at or before moon on 17 August 1973, that 1s, one manth, atter ils date. kut 1t wad declined om the date 1t hears, 17 July 1978, The evidence establishes tnat this practice was an invariable one, Thare Ls mothing un the avidence Lo suggesl that there was ever anv departure from it. Counsel for the raspondent conceded this to be Lhe case. Subject to the question of whether the relinguishment cf tne options mad legal effect because of the apparent absence of consideration passing from Bane Finance for derlining to exercise them, Lie options in each case fad an existenco which was mo mere than transient, Litbie attention was given to this question im argument. It seems to me, however, thal there was im fact comsideration for their relinauishment. a et al a nt a wee ae ee a eee eee . an 14, i That 1¢ %berause of the ainctergesendence os the viriour Lranmsections agreed upon by Lane parbies. Trst 23 a matter af wnich I shall say more. lohave earlier menlLioned the orovigo to the a4reement, concerning tne exercise of the options. His Honeur Pound that the words of the proviso were not tyned om the sqreeneni, ab the time Liey were exercised, He Was plainly Justsfied in making this finding. Bue he also toNMmd thak they nevertheless accorded wilh Loe Bane company's urnelerstanding of the arrangement. Again, thls was 2 Pirdang which was amply justified. it was not cnallenged before ue. T have rsterred to suffictrenk of the evidence ta enable the sutmissions of the parlies to be understood and the resolution of the questions between them to be embarted upon. There 1s furst to be dealt with 2 submission made on behalf of the Commisstonmer that, by reason of the provissone of s. 323 of the Act, Lie onus was upon the respondents bo show that the assessments were wromg. Tne words of tie a section relied upon are the words, "except so far as the amounl 18, on appeal, shown to be excessive," f would secept Lnat those words are, in some circumstances, apt to cash an onus woon 4 person s89381nSb whom am assessment has been wade. But IT do not think that an the ecircumstanres of this case the respondents carry any such omus 36 13 relied upon by the Commissioner. In my opiniom the pravisian relied upom operates only in e3ses where there 15 Unquestionably as gift witrun the meaning me a ee ee ee woes - - 1S. of tne Ae. It thas be Line case. and the parties to the qitt 'laspute the amount of oitk duty whienm mis bee aseeseead, 1h will Es for them or ome of them to show that the amournb 15 BACesslve. But oan these causes tne respondents disoute that there as any gift ab all. To o@ more specific thers objections te tne assessments are basset on Lhere havina been mo transaction without adequate congideration. That being su aay ry 1b 1S, 1m my gpinion,. for the Commissioner Lo show bast & = In the course of the oargument reference was made tu Trautwein ov. Federal Commissioner of Taxalion (1936) 56 C.L.R. G62 stp. 89. That case wae concerned with the provisions of $s. 36 of the Income Ta:: Assessment Act 1924, The seclion a1as mob an the same terms as 5. 23 of the Act here. The cuse, im my opinion, 18 tlearly distungquishatle. lt does not bear on the proper construction of 3s. 23, Tne significance which the Commitsioner's submyssion as to the onus of prool would have had. hid at been upheld. as that at would have enabled him to challenqe more strongly a number of the findings made by nis Honour 35 to the seuuence rm whieh the various sleps waich went to make up the seheme were carried aut. Notwitnstandaing that khe submission miqni mot be accepted, counsel for the Commissioner revertheles-~ sought to challenge his Honour's findings as to sequence, He 'lad oso principally because of discrepancies in the dales borne by a number of the documerts amd for other reasons a3 well. In my Opinion his sutmission in this respect snould te ce rela ee M te a ee —- - eee ry 16. rejected, It must te remenmcpered that the staps tntended Lo culminate am 3 settlemer+ span voien the tatle to the venicles would pass to Kelly Ford and cheques would be paid over by at in discharge of its obligutinns. Hearing in Mind the antended inlerdependence of each step om saen of the others, +the purpose which each step nad an the overall implementation of the scneme and what oceurred when the transactions were sebtlerd, IT am of opinjan that his Honaue was correct im concluding thal the Lepe occurred ul Qpder um which he stated them (pp. 3 ~ 4 above) and in the in wnien they appear in the disqram; cf. Inland _kevenue Commissioners Vie Plummer LL979] 1 Ch. 63 per Buckley God. at pp. 76 Igo then to the submissions of the parties in WS -— fo relabicnr Lo each of the transactions said to constitute a gift. Nat unnaturally these were centred vypon the opblions and the ®1gnificarce they had im relation ta Lhe vartoun transactions. In the submission of counsel for tne Commissioner gift duty 26s payakie on respect of ine transaction referred to as step 3 in the diagram (see also paras. 28 om p. 3) because Lsatival received an unencumberad title to each vehicle tut part only 36 per cent of the wholesale market price fFor it. The comsideration was therefore amadequale. TrRere bad been a gift witnin the meaning of the Act as to 9O par cent of Lhe vholessle marrel prices. ASSESSMENTS were mane aceurnainaly. The submission was put im a mumber of wavs, One Way Was based upon 1t having been estaolished thal the oplione weary ee em ee ee ee -- ne ti a el ee ee ee ee ee ee wee - ee eee eee 17, daclined (step 3) before the sale of the venicles by Kelly Wholesale Lo Dlatiuvel (slan Ge. If that were se, 1b would clearly te correckh to say thit Dataval hal recsived the Venicles free from any effect the options mignt have had for 20 ver cent of their value. Bul for reasons eariier given | am mot prepared La conclude tnat the aplions were deelined before the sales tu Datival took place. Shen 3 did ovcur, nowever momentarily, hbetare step 3. Although that 1s the case, the queektion neverthelesc arises as to whether Vatival did mot tare the venicles free of the oplions. It seems umlikely. to say the leash, that a contract for the sale of 2 new Ford motor car, am for the grant of an optitom to purchase such a c3r, could be mide the subject of am action for specific performance. {f thar be so, aS I think at 1s, 1% seems difficult to conclude that any interest im property was conferred ywoon the Bane comoany by the grant of the options. tis rights of ackton, 1f there were any tresaches of the option agreements, would be personal ones against ome or more of the parties to the scheme. Lut assuming tnat the consequence of Lihat conclusion 1.4 that, notwithstanding the grant of the options, the entirety of Kelly Wnolesie's raighl, title and interest in the vehicles p2¢sed to Datival, I do mot whink thal tie Commissioner's Hilbimate submission is advanced, That submission ts thak tne vehicles weve gold to Datival for a consideration whteda was inadequate. Qne must remember Lona each transanctian Cineludina the sale by Kelly Wholesale to Dabtival?' was park ne en ie ee) ee rd te ee ne ee te ee ee - - 18. of an oauntegraled scheme to which saen of bho for campainies TEL my tial r was a partly. Usbival toak trblr wilh express a options. Tt dud s0 am cire;msbances wniech obtsged al te Observe their berms. IL thus meesame bound. In wy Opinior, uv an ooligabion to transfers title in the vaniclas to Bane if iy snould exercise Lhe options or to pay damages to Rane af it Tarled te do so. In those circumstances 1% might be expected not to be prepared to pay any more Lian (or even as much 35) 20 per cent af the wholesale marbet orice. It is true that there is no evidence of value to support that conclusiom, bul it seems to me to be 4 fare inference to deaw from the whole of the evidence. In any event the omus 215 dipom Lhe Commissioner to satisfy the Court that there 1¢ an inadeuuacy of consideration. In my opinion ne has mot disenarged toat onus unless 1t be that further considerations need to be takerm onto account. In the submission of the Commizgsiomer there are. To this end he relied upon two further approacnes with whieh fT snall deal together. These were alternatively put. They accepLed that the transactions occurred in the order stated in the diagram. The first alternative was that 16 should be inferred from the evidence that the Kane company was bound by a contractual obligation always to decline to sxercise the options. fn eonsequance the evistence of the opttrans snouls! be disregarded with the result thas there was a clear inadequacy of considerablion for Lhe e2le of the vehicles to Datival. The secon] approach was that. although there was no te ne ee en ne ee a ee ee ee see ae "! 19. legsl obligation binding Bane not to exercise the options. 16 was $0 pracLlically or morally certesin that ct wondd mok boat the position wos tiat DPaliaval could s3fely agnore ths afl G@x2stence of the options when it purchased Lhe vehicles. Having reflected on the whole of the evidence, particularly tnat set out im Ne. Kelly's second alfidavil. @arlier quoted, I have reached the conclusion that tie Bane company was bound by a canbractual abligatson ts decline to Bxere1se each of tne options. In saying wnat I nave JT bese zeomind what was ssid at the meetang both by Mr. Butler and fir. Joyce about the meed far the Kelly compaties to trust fir. Joyee. Hut 1t seems to me that if there had been an athemplL by the Kane company al any time to exercise Line options iat would aun all the circumstances nave been in treach of comtractusl obligations owed by 1t to ane or botn of thea Kelly companies. Tne only way Lo est tne posityan as to assume that for some resasom the Bane and fatival companies, or those behind them, wished 0 take advantage of the zituation ain order tao commit a fraud upon the Kelly companies. lL seems to me to be nbhink able bnat Lhe Kelly Companies would, in those circumstancess, nave mo redress. a Tf Ibe wrong in that view, IT would wvthesitatinaly conclude that ait was certsin 45 could be that the Bane company Would always decline +o exercise the options. If al had mot done so the scheme would nol) nave worved, Thrauan Mr. dJoyee 16 was ibs cleariy expressed intention never to exercise them and Mr. Kelly was askeqaq by Me. Joyce to baru re te ree ee mee ee em ee ee - ate ek et A Be ei Ee ee ee ee — aes . no, Aim an trey on Roum Les regard. ru follows that aach t_-me a vehicle was sold by Keliy Wholesale to MNakhival. both Compantes would Frnow vtthoul a snaden of 3 doukk chat tne options granted in respect of encm vehicle would never be exercised by Bane. There 18 3 furtner reagonm wnoyvy tne exisbenve cf the options should be lett out of accounl. lt ts provided by para. 16¢1)(3) of the Act. lt sravides that for the purpose ut _ te x iyit co T of computing the value of 3 gift, mo allowasnes sh "Fwu o ut a Hy, ct oF fA in respect of any contingency arfecting the inte donees or any of them, This was mot a matter relied vpor before the primary Judge, tub counsel for the Commissioner was given leave to rely on 1t before us. In counsel's submission the chance thal Bane might oO <ercise the options was a conlaingency within Loe meaning of the paragraph and ought therefore to be ignored. Ths meaning of pars. 18(1)¢43) was the subject of consideration by tne High Court im Commiasstoner_ot_Tasatizon_ ov. Sl. Helens Farm (A.0.T.) Pty. Limited (1981) 146 C.L.R. 336. The Court ws Lhere concerned with a mumber of Gorton schemes entered inta Cor the purpose of avoiding destn and estate dulies; sec Gorton ve Federal Conmissioner of Tavation 11965) 113 C.LLR. G04. The Commissioner had assessed for gift duty transachions entered into for the purpose of imolzmenting ine scnemes, One feature of four of the five senemes urles comsideratuom was that in various ways they orovided ain ' articiss of associatiom of 3 company for the selllor wo ve ee ae i et a sae _ - . reconvert oraference shares anlo wien ordinary shsaees had been converLed back to ardinary shares. LL wae parlty becsuse of Loie rignt retained by the seltiar during nie Tifetume that at was said that the allotment of ether ordinasy shace to those whom the sebltlorc wished to benefil, yi was mot for an insiequale consideraticn. ky majority tne High Court meld that Lo reconvert lhe preference snares to ordinary a contingency within tne paragranh and aught to te 1qnored in valuing the shares allotted te the ordinary shareholders. ny summary the majority thought that the chance that the sattlor mrgnt reconvert the shares was a contingency which affected the enjoyment and hence the value of the interests of the donees in what was given. Thus tne paragraph operated Lo exclude that matter being taken aunmbo agcount. Cid refer generally lo the judgment of Stepnen J. (op. 369-7) wilh whom, om this point, Murphy J. agreed ¢p, 368) amd te the gaagment of Mason J. (pp. 385-6) in whose judgment tailson J, agreer (p. 445). In my opinion the present case 12 covered by ke St. Helens_Farm case. There Lhe contingency which Lhe majority of the Hian Court thought was wilhin para. I18¢1)(a) of the Act was tne chance that the selllor might exercise his right to reconvert tbe preference shares to ordimasy shares, 'ere, what 39s involved ais time chance thst Bane Fainsnes migh. exercise its options ta acquire tne vehicles. In $b, Helans Lhe gift was from the company to allottees of shares olher ee ee em ne ee ee eS -- -—-- ~ me A ee ee ee a ee ee eee ae eee -e es an aba than the settlor. Here at 1& satd to be from a company (Kelly Wholesale) le arolnes company tMativals uni circumstances where 4s third party (Bane fanance) mrant @Qxercise options over Lhe vehicles thus alffecling the subject matter and value of whal as claimed to be the property the subject of tne gifts. Lake the contingency ain $b. _Helers, the chance that the options might be exercised aftected the enjoyment, and LbLhus Lhe value of what was said to be given. Pars. 18¢1)(3) therefore obliges one to leave oul of accaunmt imo arriving at the value of the property which puaseed to Tatival the contangency or chance thal the oplions might be exercised by Bane. So, for a number of reasons, the options and the chance that they might have been exercised by Kane ougnt to be left Dut of account. Rut there remains a question a¢ to how far this conclusion Lsres the Commissioner. Tne exercise whien 1S Being enyaged un ois Lhe determination of whether the consideration passing from ltataval to Kelly Wholesaie for the sale to Datival of the vehicles was adequate or. mor: accurately, whether the Commissioner nas sinown Lt to ie inadequate. The fact that the existence and passible exercise of Lhe options 15 8 circumstunce vo be lalt ouk ot aceounk ain the valuation process 15 a very relevant Circumstance, Eut does 20 warrant the conelusion that tre consideration passing from Datival to fealliv Wholesale was inadequate by 80 per cent am relation Lo each of tre vehicles* ee ee ee ae ee ee ee ee ees ane ee ta 3. in tk does mol. Just a HY ODInson J oor at tine interdependence of eacn other transaction for the purpose would mever exercise the optione, 50 tt at this anberdenpendence for otner tine scheme never aintemiled Itatival to vehicles for more tnam a few moments. wm-sell them immediately ib took mad refused to do so and kept the ve transferred them Lo Bare, 1t would have of a contract wrth one or both of the Kel an those circumstances should one CcomSideration passing from it to Kelly Vo be, in opder to be adequate, yvenhicles™ Lo determane what adequate circumstances would be, bub am the way Left .2t would be wrong, ait assessment which 15 calculated on Lransi0419) Of coneluding thakpurposes ave Ths obligation Latte Lo Kelly Forel. cic beers conclude Wnolessle would It may have been a difficult exercise for 3 consirleraLia3i the evidence ha My Opiniany, the basis of the 1b wae ralavart to pom e@.ch mane relevant to look . Tie parties tu tible tai odin was tu las for abteelf or im clear tread, ly compinies. Lian Lhe neal the fil markel value of the valuer ar all Lne heen = to upnold Lnqne dirferencea between ine wholessle price of the venicles and tne 26 per cent thereof paid ty Dataval to Kelly Ford. The position may nave been different aif Liere sad been no consideration or nomanad consideration for the Vransactzrons. Then there would probably nave been a gift ain the true sense, Whar the value of the property passing under Line gift would have been would still have been a matter for valuation. But prokhably some duty Would Nave been payatle. he ade a le ast mk Ll ne A am ee ee le ee ee ne ne ee ee - +* rks te T evpress mo concluded view. I am therefore of opinien that tes Commistorar has 7ot shown that the transactions tetween Melly Wholesale 'and Tataval were for an oo amadequate consiage ation, The Commissioner's appeal in relavson to tnese ceransscbirons should be dismissed. The next trams3ctions to te ceansidered sre those between Datiuval ard Keliy Ford (slep 4 of Lne diagram). The Commissioner's case was based upon similar considerations ta those upon woich he relied in relation to tne Kelly Wholesale - Ylatival transactions. That was because the sales by Tataval to Kelly Ford were again subject ta toe oantions. For ressons similar to those which asonplied in relation to the Kelly Wholesale - Istuval transactions I consider the existence of-the options and the chance that Bane might exercise them should be left out of aeccounl. But btiat conclusion does not warreanb the further conclusiom toat tae Consideration passing from Kelly ford to Latival (20 per cent of the wholesale market price plus one doliar plus sales tax) Was wmadequate either ab all or by 80 per cant of the wholesale market price less one dollar. Agatn one has Lo take into account Lhe interdependence of the transactions or ~sheos going to make up the senemea. — Kelly Ford was obliged to pay out HSte-Finance. It was bound by a contract to psy Bane 80 per cent of the wholesale orics less ome dollar together wilh 25 per cent of the sales bar which the scheme saved it. Why in those errcumslances ce ee ee ee a ee "oes oe L, ada should 16 28 nrepired to pay Tntavl the fuit wholesale mar' at 7 4&3 an bre alner case Loe Camkteeiarer nas f3srlerct to demonstrate tiab Lhe consideration was p wnadequale or, if it wa yt » by How much .t Was imadequare. ity or these raasons I am of the apinion that the appeal concerning the Uatival - Kelly Ford transactions slso fails. That leaves the assessments made im respect of step 35. {t was firstly said' that the transactions encompacsed by step S ainvolved aogifl by kelly Ford to Bane because Kelly Ford received no benefit from Bane for Lie money whieh it paid. This time ait 1s mob an inadequacy of comsiderabion whieh 1¢ alleged; in the Commissioner's submission there was no cansideration at all. This submission seemed to me to be bound up with the Commissiomer's wmirbsal submission that the onus of proof was upon the respondents and that they had not established that Lhe sequence of the transactions was as tney contended. If Rane had declined to exercise the options prior to the sales from Kelly Wholesale to Datival one could understand thal. Selly Ford was receiving mo tenefit For 1ts pavment to Bane, Tne options had already been given up. Onee, hnwever. 16 16 concluded, as IT have decided it should be, that the seuuence of Lhe transactions w2s Loat conlended far by the respondents, 1b 1s difficult to see any baeis upom which tre SUBMISGS10OnN Gum sucteed, Selly Eord did pay Bane fue declining to exercise the options and the proportion of sales tax saved whicn it had promised ta pay. There was ee et ee en ee ee ee ce ee ee oe. - a ee ae ee ie ee ee a eee eee - . - 26. consideration for the transactions. No gilt wes invo The second Way im woich at wes said Uhat step 5 lved. ari hear! a g1Tt was again oecaute of the Commissioner's view of Lan order of the transactions. There was suid to le 3 4 Bane Finance to Kelly Wholesate. ib ow3s a 7d received the benefit of Pane's relinquishment of the Lik 2 | opbions but paid nothing for at. No comsideration passed from Kelly Wholesale for tne transaclions. in my opin ton Ibn Commissioner cannot succeed because the transactions did occur in the order contended for ty the respondents. thus Kelly Ford, amd mot Kelly Wholesale, which rece benefit of the relinguisnment of the nptions once what was due to Bane Finance. It w3 a iyved tne 2k paid IL follows that I am of opinion that each of the four appeals should be dimissed. But before concluding Lnere are two matters that should be mentioned. Firstly. my coneluszton makes it unnecessary to deal with 3a submission made on behalf of tne respondents based on para. 14¢19(P) of the Ac. In the respondents' submissi1on, Lf all else failed, Lhe transactons, if olherwise Lliatie tor giflL duly. were ervenpt because of the operation of Lhis paragraph. Eneh was 8 aify made an the course of carrying on 3 business and far the Purpose of obtaining a commercial banefil. Tne respondents relied upon Investment_&% Merchant Finanes Copsoration Lamited vu. Federal Commissioner of Tarabion (LO7L) 125 CAL Federal Commissioner _of Taxation ov.__Petcors Investmen we ee ee ee we te ee ee eee - + - ~- - I, / ' f 27. Tayatuon_ov._ Wesbraders Pky, Gamited ¢1980) 244 Ciba. SS. In Lne ecircumslantes it 18 Unnecessary to exp ass a view on ine ' respondents' submissirom and I do not. The second matter which Io wash blo menmbion 15 tis. The Lransactions im question were entered inlo for tie ouspose of lmolementing = scheme for tne avoidance of sales Lax. For that reason the Commissioner, aim seeking to orang tne tramsactione blo gift duly. was umable to rely upon the principle watch has been established in the United Kingdom that tne fiscal consequences of 3a preordained seriet of transactions, antender to operate as such, ace generally ta be ascertained by considering the result of Lhe series 35 23 whole and not by dissecting tha scheme and considering e3ch todavidual transaction separately; see the decrotons of the House of Lords ain W.T. Pamsay_ Limited ova_Inland Revenue Commissioners £19821] A.C. 300, Inionnd Revenue foanmmiessioners ve Burmah_O1il_ Company Limited (1982) 54 T.C. 200 and Furniss ve Tawsor (the Tames, Ll4th February L984). The two earlier cases have received some consideration in Australia. I refer Lo Federal Commissioner of _Taxalion__ov. Llhery (198h) 38 A.L.K. 172 ab op. 173-5 and Federal Commissioner of Tayapion Ve Werehon (1982) 42 ALAR. 485 at pp. 445 amd 447-98. fb us not relevant to @xpress any view on what would have been tna outcome had the Commisstoner asseseed Kelly ford for tho sales bax woren 1b would have been liable to pay if there had been moa scheme. Accordingly, I express mo view om thal question. Ae Nee ea ere ee er ee oe ee \- - . mo Na ele Al i ee Ne te ee ee shy ' 28. T should add that 2h was mot in interest to submat bLinat tre transactions u he had chosen tc assess them ror allt ameccept the validity of each of Lie together constituted the scheme, In the recult I would dismiss each cosks. the Camnmisesioner's Bor ber aucna Snamee dutvy, ne needed to transactions whien of the spopaals with J certify that this and the 27 preceding pages are a true copy of the 1easons for Judgment herein of The Honourable Mr Justice Sheppard. RT ra cme me cm em ee we yet ee ee ee J. LL pooor~ Aeting Associate Dated = XL Pbk (IR