Ord Forrest Pty Ltd v Commissioner of Taxation (Cth) [1974] HCA 57

High Court of Australia Stephen J. Barwick C.J. McTiernan, Gibbs and Mason JJ. Ord Forrest Pty Ltd v Commissioner of Taxation (Cth) [1974] HCA 57

ORDER Appeal dismissed with costs.

Cur. adv. vult.

1973, April 27 Stephen J. delivered the following written judgment:—

By a default assessment the Commissioner of Taxation has assessed to gift duty Ord Forrest Pty. Ltd. (the company) in an amount of $772,743.92 following upon the allotment by it of eight ordinary shares of $1 at a premium of $99 per share each of which shares the Commissioner asserts to have been worth $323,910.

The Commissioner supports his assessment on the footing that the allotment was a disposition of property by the company accompanied by an inadequacy of consideration and hence a dutiable gift; the company denies the existence of any dutiable gift, asserting that an allotment of shares for cash at par, with or without a premium, cannot constitute a dutiable gift regardless of the value of the shares to the allottees.

The company was incorporated in March 1969 under the Companies Ordinance 1962 A.C.T.; a few days later it borrowed from one of its two shareholders, who was also beneficially entitled to the only other issued share in its capital, the sum of $1,050,000, at call free of interest. On the same day it bought from that shareholder for cash two large parcels of shares in listed companies for $1,035,055. On 23rd April 1969 it borrowed from that same shareholder a further $1,450,000, again at call free of interest, which it immediately lent, on the same terms, to two other proprietary companies. Five minutes after the holding of the board meeting at which these three transactions were resolved upon a further meeting was held at which it was resolved that, that shareholder having now called for repayment of $2,480,000 of her loan moneys, that sum be repaid to her. At that same meeting she then applied for 24,800 ordinary shares of $1 each in the company's capital at a premium of $99 per share, accompanied by a cheque for $2,480,000, and those shares were then allotted to her and a resolution passed that a general meeting be convened on short notice to convert all the then issued capital of the company into preference shares. This general meeting then followed, only twenty minutes after the commencement of the preceding board meeting, and the appropriate resolutions were carried; all that need be noted is that the rights of preference shares were limited to a fixed preference dividend of four per cent and to priority as regards capital (not including premium moneys) and dividends on a winding up or reduction of capital but with no right to further participation in profits or assets; the preference shares conferred no voting rights.