High Court of Australia Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ Hepples v Commissioner of Taxation [1991] HCA 39 ORDER Orders I agree with the orders proposed by Mason CJ. Cur. adv. vult. Mason CJ The provisions of s 160M(5), (6)and (7) of the Income Tax Assessment Act 1936 (the Act) and provisions to which they are related are extraordinarily complex. They must be obscure, if not bewildering, both to the taxpayer who seeks to determine his or her liability to capital gains tax by reference to them and to the lawyer who is called upon to interpret them. After some hesitation, I have come to the conclusion that the appeal should be allowed and that paras (a)and (b) of the first question referred for the opinion of the Full Court of the Federal Court should be answered in the negative. I agree with the reasons given by McHugh J for concluding that the provisions of s 160M(5)(c)and (6) of the Act have no application to the facts of this case. I agree also with the reasons given by Brennan J in so far as those reasons support the conclusion that the asset referred to in s 160M(7)(a) is an asset which exists when the act or transaction in relation to it takes place or the event affecting it occurs. I further agree with his Honour that the appellant's entry into the deed containing the covenant did not relate to the then existing assets of Hunter Douglas Ltd. The form of question (A) in the special case referred by the Administrative Appeals Tribunal to the Federal Court presents a difficulty in the formulation of an answer which would give effect to the conclusions reached by the majority of justices with respect to the application of s 160M(6) and s 160M(7) respectively. Instead of asking separate questions in relation to the application of each of those provisions, the special case asks a more general question, the answer to which would not reflect the majority opinion of the court in relation to separate questions. In these circumstances the parties should be given the opportunity of presenting submissions to the court as to the form of the orders which should be made. Subject to consideration of such submissions as the parties may wish to present, I propose that the court should make the following orders: Appeal allowed with costs. Set aside the order of the Full Court of the Federal Court dated 28 June 1990 except in so far as that order relates to question (B) in the special case referred. In lieu of an answer to question (A) in the special case referred to the Federal Court, declare that the sum of $40,000 paid to the appellant pursuant to the terms of the registered covenant deed made on or about 27 June 1986 between the appellant and Hunter Douglas Ltd: (i) does not form part of the assessable income for the appellant for the year ended 30 June 1986 by reason of the provisions of s 160M(6) of the Income Tax Assessment Act 1936; and (ii) does not form part of the assessable income for the appellant for the year ended 30 June 1986 by reason of the provisions of s 160M(7) of the Income Tax Assessment Act 1936. Brennan J The respondent Commissioner has assessed the appellant to tax on the footing that his assessable income for the tax year ended 30 June 1986 included an amount of $40,000 received by the appellant pursuant to a deed executed by the appellant and his former employer, Hunter Douglas Ltd, on the termination of his employment. The Commissioner contends that that sum was a "net capital gain" within the meaning of that term in Pt IIIA of the Income Tax Assessment Act 1936 (the Act). By s 160ZO(1) of the Act, a "net capital gain" which has accrued to a taxpayer is included in a taxpayer's assessable income but, by s 160ZO(2), a "net capital loss" incurred by a taxpayer in respect of a year of income is not included in a taxpayer's allowable deductions, though it may be taken into account in the circumstances prescribed by s 160ZC in calculating the net capital gain accruing to or net capital loss incurred by a taxpayer in the next succeeding year of income. In an appeal to the Administrative Appeals Tribunal against the assessment, the President (Hartigan J), at the request of the parties, stated a case and referred a question of law for decision by the Full Court of the Federal Court under s 45(2) of the Administrative Appeals Tribunal Act 1975 (Cth). The question was: "Was there, in consequence of the facts recited herein, included in the assessable income of the applicant for the year of income ended 30 June 1986• (a) an amount of $40,000; or (b) some other amount, and if so, what amount, pursuant to sub-section 160ZO(1) of the Income Tax Assessment Act, 1936?" A Full Court by majority (Lockhart and Gummow JJ, Hill J dissenting) answered the question raised by para (a) "Yes". The appellant appeals against that decision. A net capital gain or a net capital loss for the purposes of s 160ZO is ascertained by striking a balance between capital gains and capital losses in the manner prescribed by s 160ZC. The amount of a capital gain or a capital loss is ascertained in accordance with s 160Z(1) which provides: "Subject to this Part, where an asset other than a personal-use asset has been disposed of during the year of income• (a) if the consideration in respect of the disposal exceeds the indexed cost base to the taxpayer in respect of the asset • a capital gain equal to the excess shall be deemed for the purposes of this Part to have accrued to the taxpayer during the year of income; or (b) if the reduced cost base to the taxpayer in respect of the asset exceeds the consideration in respect of the disposal • a capital loss equal to the excess shall be deemed for the purposes of this Part to have been incurred by the taxpayer during the year of income." To apply para (a) of this provision (the paragraph material to this case) it is necessary to determine whether there has been a "disposal" of an "asset", to identify the relevant "taxpayer" and to ascertain the relevant "consideration" and "indexed cost base". These terms are defined by other provisions in Pt IIIA, to which reference will be made after we trace the source of the $40,000 paid to the appellant. The deed executed by Hunter Douglas and the appellant contained the following clauses: 1. In consideration of Hepples entering into this Deed and provided that he shall at all times observe and fulfil all of the terms covenants and conditions hereof Hunter Douglas shall pay Hepples the sum of FORTY THOUSAND DOLLARS ($40,000) upon signing of this Deed. 2. In consideration of Hunter Douglas entering into this Deed, Hepples covenants with Hunter Douglas or any successor, subsidiary or affiliate thereof (hereinafter called 'the associated companies') that for a period of TWO (2) years immediately following the moment of the termination of his employment by Hunter Douglas within the territorial limits of Australia, he will continue to be bound by the cll 2, 3, 4 and 5 of his employment agreement …" The employment agreement governed the employment of the appellant by Hunter Douglas. By its terms, the appellant was restrained from divulging to third parties or from using Hunter Douglas' "special processes" and "trade secrets" (cl 2) and from competing in business within Australia against Hunter Douglas (cl 3) and he was bound to disclose to, and to assign to, Hunter Douglas any patent protection in any invention made by the appellant resulting from use of the "special processes" (cl 4). The consideration for the $40,000 received by the appellant under the deed was thus the appellant's covenant to be bound by the terms of the employment agreement for two years following the termination of his employment. The application of Pt IIIA is governed by s 160L. Subsection (1) of that section reads: "Subject to this section, this Part applies in respect of every disposal on or after 20 September 1985 of an asset, whether situated in Australia or elsewhere, that• (a) immediately before the disposal took place, was owned by• (i) a person (not being a person in the capacity of a trustee) who was a resident of Australia; or (ii) a person in the capacity of a trustee of a resident trust estate or of a resident unit trust; and (b) was acquired by that person on or after 20 September 1985." The term "asset" is defined in s 160A as follows: "In this Part, unless the contrary intention appears, 'asset' means any form of property and includes• (a) an option, a debt, a chose in action, any other right, goodwill and any other form of incorporeal property; (b) currency of a foreign country; and (c) any form of property created or constructed, or otherwise coming to be owned without being acquired, but does not include a motor vehicle of a kind mentioned in para 82AF(2)(a)." The term "asset" is defined to mean "any form of property"; the classes of property falling within the definition include those specified in paras (a), (b)and (c). Each paragraph thus specifies particular forms of property, and therefore a "chose in action, any other right [or] goodwill" falling within para (a) must be a form of incorporeal property. The leading, but not exhaustive, provisions relating to the "disposal" of an asset are sub-ss (1)and (2) of s 160M: "(1) Subject to this Part, where a change has occurred in the ownership of an asset, the change shall be deemed, for the purposes of this Part, to have effected a disposal of the asset by the person who owned it immediately before the change and an acquisition of the asset by the person who owned it immediately after the change. "(2) A reference in sub-section (1) to a change in the ownership of an asset is a reference to a change that has occurred in any way, including any of the following ways: (a) by the execution of an instrument; (b) by the entering into of a transaction; (c) by the transmission of the asset by operation of law; (d) by the delivery of the asset; (e) by the doing of any other act or thing; (f) by the occurrence of any event." For the purposes of Pt IIIA, a definition of "taxpayer", supplementary to the definition in s 6(1), is provided by s 160C: "(1) A reference in this Part to a taxpayer, in relation to an asset that has been disposed of or in relation to a capital gain or listed personal-use asset gain that accrued or a capital loss or a listed personal-use asset loss that was incurred in respect of such an asset, is a reference• (a) except where para (b) applies • to the person who owned the asset immediately before the disposal took place; or (b) where the disposal resulted from an act that is, by virtue of sub-section 160V(1) or section 160W, deemed to be the act of a person other than the person who owned the asset immediately before the disposal took place • to that other person. "(2) A reference in this Part to a taxpayer, in relation to an asset that has been acquired, is a reference to the person who owned the asset immediately after the acquisition took place." These provisions are similar to but not identical with the provisions of Pt III of the Finance Act 1965 (UK) which, prior to the Capital Gains Tax Act 1979 (UK), imposed a tax on capital gains. Nicholls LJ, in Kirby (Inspector of Taxes) v Thorn EMI Plc. [1988] 1 WLR 445, at 450; [1988] 2 All ER 947, at 951-952, described that tax in these terms. Thus the basic structure of the tax is of a charge on gains accruing to a person on disposal of an asset by him. There is no statutory definition of disposal but, having regard to the context, what is envisaged by that expression is a transfer of an asset (ie of ownership of an asset) as widely defined, by one person to another. The Act presupposes that, immediately prior to the disposal, there was an asset and that the disponor owned it. Section 22(2)(a) then deals with the case where only part of an asset is disposed of, and s 22(2)(b) covers the case where, although the disponor owned an asset before the disposal, what he did by the disposal was not to transfer that asset but to carve or create out of it a right in favour of another. The grant of an easement over land is an obvious example. That also is stated to be a part disposal. In that instance also the disponor owned a relevant asset prior to the disposal. Consistently with this basic structure of an existing asset owned by the disponor, s 22(3) provides that, where a capital sum is derived from assets, there is a disposal of assets "by their owner". The critical proposition for present purposes is whether Pt IIIA of the Act presupposes, as his Lordship held the Finance Act to presuppose, "that, immediately prior to the disposal, there was an asset and that the disponor owned it". In the present case, the appellant did not own any asset, being any form of incorporeal property, of which he disposed by entering into the deed. The covenant not to divulge or use special processes or trade secrets and the covenant to assign any patent protection for an invention made as a result of using a special process did not dispose of any asset or part of an asset theretofore owned by the appellant. Nor did the restrictive covenant against competition with Hunter Douglas. In one sense it may be said that that covenant operated on the appellant's right to trade but such a right, like a right to work, is not a form of property. Barwick CJ in Forbes v NSW Trotting Club Ltd (1979) 143 CLR 242, at 260-1, said: To convert the doctrine that, because of the public interest, there should be no unreasonable restraint on employment into a doctrine that every man has a "right to work", is, in my opinion, to depart radically from the tenets of the common law. Yet it was the constant refrain in the appellant's argument on this branch of the case that the resolution of the respondent impinged upon his "right to work". If the expression "ability to work" is used, there is less likelihood of misconception. It is in the public interest that a man should be able to exercise his capacity to work. The law does not enforce a right to exercise that capacity: it does no more than remove the unreasonable impediment upon its exercise. Similarly, in Kirby v Thorn EMI Plc., Nicholls LJ said (at 452; 953): I agree that the liberty or freedom to trade enjoyed by everyone is not a form of "property" within the meaning of s 22. This liberty or freedom is a "right" if that word is given a very wide meaning, as when we speak of a person's "rights" in a free society. But in s 22 the words used are "assets" and "property". "Property" is not a term of art, but takes its meaning from its context and from its collocation in the document or Act of Parliament in which it is found and from the mischief with which that Act or document is intended to deal: see Lord Porter in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, 1051. The context in the instant case is a taxing Act which is concerned with assets, and with disposals and acquisitions, gains and losses. I can see no reason to doubt that in s 22 "property" bears the meaning of that which is capable of being owned, in the normal, legal sense, and that it does not bear the extended meaning that would be needed if it were to include a person's freedom to trade. I accept, therefore, that, if the taxpayer company had no goodwill in respect of the trades in question, and its non-competition covenant impinged only on its freedom to trade, the giving of the covenant would not constitute the disposal of an asset. As the appellant's covenant to continue to be bound by cll 2, 3, 4 and 5 of the employment agreement did not affect any proprietary right which he then possessed, his covenant did not effect any change in ownership of any asset or of any part of an asset which he then owned. The appellant submits that, absent an asset owned by a taxpayer immediately before a putative disposal, there is no foundation for attributing the character of a capital gain to any consideration received by the taxpayer under or by reason of the putative disposal. Section 160L(1) requires that there be a "disposal … of an asset … that … immediately before the disposal took place, was owned by … a person" and s 160C(1)(a) defines "taxpayer" for the purposes of Pt IIIA to be "the person who owned the asset immediately before the disposal took place". The definition appears to be framed on the hypothesis that, when an asset is disposed of (subs (1)), the asset has been owned immediately before the disposal takes place and that, when an asset is acquired (sub- s (2)), the asset is owned immediately after the acquisition takes place. The express terms of the definition do not mention the case where an asset is created by an act which vests it in the person who acquires it nor the case where an asset is extinguished or sterilised by an act done in favour of another though the other acquires no asset. However, the words "or in relation to a capital gain" would seem to have no function if the only asset in relation to which a capital gain can occur is an asset the ownership of which is changed by an act constituting a disposal under s 160M(1)and (2). No doubt, the paradigm case for the application of Pt IIIA is one where there is a change in the ownership of an asset which, ex hypothesi, existed prior to the change. Section 160M(1)and (2) apply to such a case, but subss (6) and (7) of s 160M apply in other cases. Subsections (6)and (7) are the leading, though not exhaustive, provisions which apply when an asset is created by an act which vests it in the person who acquires it and when an asset is extinguished or sterilised by an act done in favour of another though the other acquires no asset. These subsections read: "(6) A disposal of an asset that did not exist (either by itself or as part of another asset) before the disposal, but is created by the disposal, constitutes a disposal of the asset for the purposes of this Part, but the person who so disposes of the asset shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in para 160ZH(1)(a), (b), (c)or (d), (2)(a), (b), (c)or (d)or (3)(a), (b), (c)or (d) in respect of the asset. "(7) Without limiting the generality of subsection (2) but subject to the other provisions of this Part, where• (a) an act or transaction has taken place in relation to an asset or an event affecting an asset has occurred; and (b) a person has received, or is entitled to receive, an amount of money or other consideration by reason of the act, transaction or event (whether or not any asset was or will be acquired by the person paying the money or giving the other consideration) including, but not limited to, an amount of money or other consideration• (i) in the case of an asset being a right • in return for forfeiture or surrender of the right or for refraining from exercising the right; or (ii) for use or exploitation of the asset, the act, transaction or event constitutes a disposal by the person who received, or is entitled to receive, the money or other consideration of an asset created by the disposal and, for the purposes of the application of this Part in relation to that disposal• (c) the money or other consideration constitutes the consideration in respect of the disposal; and (d) the person shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in para 160ZH(1)(a) , (b), (c)or (d), 2(a), (b), (c)or (d)or 3(a), (b), (c)or (d) in respect of the asset." Subsection (6) is a difficult provision to construe. How can there be a "disposal of an asset that did not exist … before the disposal"? The notion of a disposal of something which does not exist inevitably gives rise to uncertainty as to the meaning of a provision containing the notion, as Ord Forrest Pty Ltd v FCT (1974) 130 CLR 124, at 148, 155; 4 ATR 230; 2 ALR 403 , and FCT v St. Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336, at 349-50, 356-7, 428; 11 ATR 544; 34 ALR 23, illustrate. Yet the "asset" of which subs (6) speaks is "created by the disposal" and therefore the "disposal" of which the subsection speaks is a disposal which itself creates the asset disposed of. An asset may be created by one person and vested in another though the asset in question had no prior existence and the first person did not own and was not capable of owning it. The benefit of a covenant in reasonable restraint of trade is an example: the covenantor does not carve the benefit of the covenant out of his property, but the benefit of the covenant is acquired by the covenantee and, as part of his goodwill, is assignable as a proprietary right: Jacoby v Whitmore (1883) 49 LT 335, at 338; Comrs of Inland Revenue v Angus (1889) 23 QBD 579, at 596; Townsend v Jarman [1900] 2 Ch 698, at 702-4. Thus, by the deed entered into by the appellant and Hunter Douglas, the appellant conferred on Hunter Douglas the benefit of his covenant to continue to be bound by cll 2, 3, 4 and 5 of his employment agreement and that benefit, becoming part of the goodwill of the business of Hunter Douglas, was assignable by it as a proprietary right. By his entry into the deed, the appellant vested in Hunter Douglas an asset that had no previous existence. Nevertheless, the appellant submits that in the present case there cannot be a capital gain to which Pt IIIA might apply, for there was no "owner" of the benefit of the appellant's covenant before the deed was entered into and that element of the definition of "taxpayer" in s 160C (being an element required also by s 160L(1)) is wanting. As we have seen, the express terms of s 160C do not mention the case of an asset created by the act which confers it on the person who acquires it, but some operation must be accorded to the words "or in relation to a capital gain" in s 160C(1). If the definition of "taxpayer" in s 160C(1) were to be construed as excluding cases where, prior to a putative disposal, there is no asset and thus no owner, s 160M(6) would fail in its manifest purpose of bringing within the net of taxation a transaction by which a person vests in another an asset that had no existence prior to the transaction. Nor would s 160M(6) be the only provision that would fail in its purpose. Section 160ZS deems the grant of a lease of property to be the disposal of an asset by the lessor to the lessee, although a lessor is never the "owner" of a lease: DCT (Qld) v Camphin (1937) 57 CLR 127, at 133, 134; 1 AITR 133, 147. (By comparison, s 160ZZC(3)(b) specifically provides that the grantor of an option be deemed to be the owner of the option immediately before the "disposal".) To hold that s 160C(1) applies only when there is a disposition of an existing asset in fact owned immediately before the disposition would deny practical effect to s 160M(6) and s 160ZS. I would construe the words "an asset … in relation to a capital gain" in s 160C(1) to include an asset created by a person whose act both creates the asset and simultaneously vests it in another. Then s 160M(5)(c) operates: "For the purposes of this Part• (a) … (b) … (c) the creation of an asset by or for a person constitutes the acquisition of the asset by the person." For the purposes of Pt IIIA, a disposal which creates an asset also constitutes an acquisition of the same asset by the disponor. Notionally, the fictional acquisition must precede the disposal and therefore I respectfully agree with an observation upon the operation of s 160M(5)(c) by Hill J in FCT v Cooling (1990) 22 FCR 42, at 68; 21 ATR 13 (though made in reference to the operation of s 160M(5)(c) upon s 160M(7)): Once one finds the deemed acquisition to occur immediately before the disposal it is not a big jump to conclude that in between the deemed acquisition and the deemed disposal of the deemed asset it was for the purposes of the Part to be deemed owned by the taxpayer. A person whose act creates an asset and vests it in another may therefore be taken to be a person who owned the asset created immediately before the disposal took place for the purposes of ss 160L(1)and 160M(6). Though this is a strained construction, it is dictated by the context to which I have referred. Subsection (6) of s 160M had no precise counterpart in the Finance Act which Nicholls LJ considered in Kirby v Thorn EMI Plc., although s 22(1) of that Act included in the forms of property which were "assets" for the purposes of the provisions relating to the capital gains tax "any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired": see Kirby, ( WLR) 450; (All ER) 951. It is unnecessary to construe those words in this case. It is sufficient to note that the United Kingdom Act did not contain an equivalent of s 160M(6) and that construction of Pt IIIA of the Act must give effect to that subsection whatever view the English courts took of s 22(1) of the Finance Act (or now take of s 19 of the Capital Gains Tax Act 1979 (UK)). In this case, subs (6) of s 160M was interpreted by all members of the Full Court as applicable only where there is an asset in existence from which the created asset is derived. Lockhart J held there must be "an asset in existence before the occurrence of the act or event which gave birth to the new asset". Gummow J described the asset referred to in the subsection as "the product of a dealing with a pre-existing asset" and, in Cooling's case (at ( FCR) 44), a case decided at the same time, he agreed with the view: that s 160M(6) should be read as confined in its operation to cases where proprietary rights are carved out of or over existing assets in circumstances where the asset affected by the rights created continues to exist. Hill J, incorporating the reasons he gave in Cooling's case, at ( FCR) 65, held that subs (6) is: "confined to those cases where proprietary rights are created out of or over existing assets in circumstances where the asset affected by the right created continues to exist". I am respectfully unable to agree with these views. Once the legislature chooses to provide for a case where there is a "disposal" of an asset "that did not exist (either by itself or as part of another asset)", it is impermissible, in my opinion, to read that provision down so that it applies only if the asset created is born of, carved out of or created out of or over existing assets. It may be that a transaction falling within s 160M(6) impairs the rights, privileges, freedoms or capacities of the person who effects the "disposal", but there is no warrant for limiting the operation of subs (6) to a case where the source of the asset created is the property of the person who creates it. The appellant then seeks to confine the cases in which s 160M(6) operates to cases where disposals of assets are deemed to occur in the circumstances prescribed by ss 160M(7), 160ZSand 160ZZC. Like s 160M(6) each of these provisions relates to a transaction that creates an asset. There is no textual reason for confining the operation of s 160M(6) in that way. To the contrary, s 160M(6) on the one hand and ss 160M(7), 160ZS(2)and 160ZZC(6) on the other contain their own respective provisions as to the calculation of the cost base applicable to the cases to which those provisions respectively apply. To confine s 160M(6) in the way submitted would deprive either the whole of s 160M(6) or the cost base provisions of the other subsections of effective operation. Subsection (7) may be compared with subs (6), though it is an equally difficult subsection to interpret. Whereas subs (6) operates only when the asset to which it relates has no existence prior to the act of disposal, subs (7) operates only when there is an asset in existence prior to the act of disposal, being the asset referred to in para (a). Subsection (7) may apply to cases where the existing asset is extinguished or sterilised and where no asset is vested in the person who pays the consideration (see para (b)(i)), whereas subs (6) can apply only to a case where an asset is vested in a person other than the disponor. The two subsections are complementary, though there may be cases (other than those falling within subs (7)(b)(i)) which fall under both. In the Federal Court, the assessment was held by a majority (Lockhart and Gummow JJ, Hill J dissenting) to be supported by subs (7). It was pointed out that the asset which is "created by the disposal" in that subsection is a notional asset, different from the asset referred to in para (a) of that subsection. Yet the asset referred to in para (a) is necessarily an existing asset when the act or transaction in relation to it takes place or the event affecting it occurs. A majority of the Federal Court identified the trade secrets, trade connection and goodwill of Hunter Douglas as assets falling within para (a) of subs (7). The question then arose as to whether the asset referred to in para (a) had to be an asset of the taxpayer. The majority gave a negative answer to this question. I forbear from answering the same question because, in my respectful opinion, there was no connection between the assets of Hunter Douglas and the appellant's entry into the deed containing the covenant which satisfies the requirements of para (a). The only way in which the appellant's covenant affected these Hunter Douglas assets was to add to them the benefit of the appellant's covenant. The appellant's entry into the deed containing the covenant did not relate to the then existing assets of Hunter Douglas which were wholly unaffected thereby. The asset created by the covenant in no way depended on the enjoyment by Hunter Douglas of its other assets. Ex hypothesi, the benefit of the covenant did not exist before the covenant took effect. As there was no existing asset in relation to which the appellant's entry into the deed took place (thus no relevant "act or transaction") nor any asset which was affected by the appellant's entry into the deed (thus no relevant "event"), I would hold that subs (7) has no application in this case. In my opinion, this case falls within s 160M(6): the benefit of the appellant's covenant is the relevant asset; it was created by the appellant who is taken, for the purposes of Pt IIIA, to have acquired the relevant asset (and thus to have owned it) immediately before he disposed of it by vesting it in Hunter Douglas. Section 160ZD defines the consideration for a disposal and the $40,000 received by the appellant answers the definition. Section 160ZH is the general provision prescribing the cost base to be set off against the consideration. By force of s 160M(6), however, the appellant as taxpayer is deemed not to have given any consideration or incurred any costs or expenditure in respect of the asset of which he disposed. The $40,000 received as consideration is thus a capital gain and, absent any capital loss, is a net capital gain. A further point should be mentioned. The provisions of subs (6) relating to the cost base of an asset created by a disposal under that subsection led Hill J in Cooling's case (at ( FCR) 62) to conclude that, if subs (6) be construed as applying to cases where the disposal does not diminish the assets of the disponor, bizarre results would follow. But the bizarre results (if such they were) did not flow from what is deemed to be a "disposal" of a non-existent asset; they flowed from s 160ZD(2) which provides, inter alia, that, where there is no consideration in respect of a disposal, the taxpayer is deemed to have received as consideration for the disposal an amount equal to the market value of the asset. If s 160ZD(2) brings to tax the value of an asset disposed of by way of gift (a proposition which need not now be addressed), tax liability is attracted whether the asset disposed of was or was not in existence prior to the disposal or deemed disposal. For these reasons, I would hold that the appellant is a "taxpayer" who, for a consideration of $40,000, disposed of an asset consisting of the benefit of the restrictive covenants which he entered into in favour of Hunter Douglas. That sum of $40,000 was correctly included in his assessable income by reason of the operation of s 160M(6), but not by reason of the operation of s 160M(7). In my opinion, the question reserved for the decision of the Federal Court was correctly answered. However, having regard to the majority views on the operation of these two subsections, I would not presently favour the making of an order dismissing the appeal. I agree with the course proposed by the Chief Justice. Deane J The detailed background facts and the relevant statutory provisions are set out in the judgment of McHugh J. I refrain from repeating them. The issue in the appeal is whether an amount of $40,000 received by the appellant from his employer as consideration for covenants in restraint of his freedom to compete or to use or divulge certain information during the period of two years after the termination of his employment was, for the purposes of the Income Tax Assessment Act 1936 (the Act), included in the appellant's assessable income derived in the tax year (1986) in which it was received. There has been a marked, and justifiable, tendency in recent times for the courts to construe taxation provisions as being directed to the substance as well as the form of transactions to an extent which previously would have been thought to be inconsistent with statements of high authority in cases such as Partington v A-G (1869) LR 4 HL 100, at 122, and IRC v Duke of Westminster [1936] AC 1, at 20, 24-5, 28, 31. None the less, at least in cases where tax avoidance is not involved and where the substance of relevant transactions is not concealed by artificialities of form, the basic "principles of statutory construction" of taxing provisions remain those identified and explained by Rich and Dixon JJ in their joint judgment in Anderson v DCT (Vic) (1937) 57 CLR 233, at 243. It is appropriate to repeat what their Honours there said: In Brunton v Comr of Stamp Duties [[1913] AC 747, at 760], Lord Parker of Waddington, speaking for the Privy Council, says: "The intention to impose a tax or duty, or to increase a tax or duty already imposed, must be shown by clear and unambiguous language and cannot be inferred from ambiguous words." This rule he again emphasised in A-G v Milne [[1914] AC 765, at 781], where he said, in the House of Lords: "The Finance Act is a taxing statute, and if the Crown claims a duty thereunder it must show that such duty is imposed by clear and unambiguous words." In Ormond Investment Co v Betts [[1928] AC 143, at 151], Lord Buckmaster, although differing from the majority of their Lordships and holding that in the particular case the Crown had satisfied the burden lying upon it, described the rule as a "cardinal principle … a principle well known to the common law that has not been and ought not to be weakened • namely, that the imposition of a tax must be in plain terms". He added: "The subject ought not to be involved in these liabilities by an elaborate process of hair-splitting arguments." Lord Atkinson, who agreed in the decision of the House, expressed the rule as follows [at 162]: "It is well established that one is bound, in construing Revenue Acts, to give a fair and reasonable construction to their language without leaning to one side or the other, that no tax can be imposed on a subject by an Act of Parliament without words in it clearly showing an intention to lay the burden upon him, that the words of the statute must be adhered to, and that so-called equitable constructions of them are not permissible." The above extract constituted the foundation of Rich and Dixon JJ's decision in Anderson. It represents a general statement of the "principles of construction applicable to an Act which imposes a tax or duty" (see, eg, Western Australian Trustee Executor & Agency Co Ltd v Comr of State Taxation (WA) (1980) 147 CLR 119, at 126; 11 ATR 330; 32 ALR 639). It is supported by strong reasons in both law and common sense. For one thing, statutes imposing taxation derogate from the ordinary rights of the citizen in that they represent a compulsory exaction of money. For another, the framing of the provisions of such legislation is essentially within the control of government. Indeed, in so far as provisions of the Act are concerned, it would seem that, particularly in relation to technical matters, the content and drafting of such provisions may, on occasion, reflect the advice and views of officers of the Australian Taxation Office itself (see, eg, Trevor Boucher, "Living with Tax Reform • The Taxation Office Approach", "Taxation in Australia", Vol 22, 1988, pp 652-3 ). In circumstances where the heavy burden of legal costs is likely to constitute an insurmountable obstacle to the challenge by the average taxpayer of an assessment in the courts and where successive administrations have allowed the Act to become a legislative jungle in which even the non-specialist lawyer and accountant are likely to lose their way in the search to identify the provisions relevant to a particular case, the least that such a taxpayer is entitled to demand of government is that, once the relevant provisions are finally identified, a legislative intent to impose a tax upon him or her in respect of a commonplace transaction will be expressed in clear words. So to say is not, of course, to deny that complicated and even obscure taxation provisions may be necessary either to deal with technical situations or to prevent the avoidance of tax by artificiality of form or other device. However, it could not realistically be suggested that there would be any difficulty at all in plainly expressing a legislative intent that an amount received by an employee as consideration for a promise to refrain from competing with his or her employer or divulging or using the employer's information after the termination of the employment should be included in the employee's assessable income for income tax purposes. It has not been suggested that the contractual provisions providing for the payment of the $40,000 to the appellant in the present case represented a device to conceal what was in substance a payment of some other kind or were otherwise other than genuine. Traditionally, a genuine payment to an individual employee as consideration for covenants in restraint of his or her freedom to compete or to use or divulge certain information during a specified number of years after the termination of employment has not been seen as income in the ordinary sense for the purposes of s 25(1) of the Act (see, eg, FCT v Woite (1982) 31 SASR 223, at 226-7; 13 ATR 579; Dickenson v FCT (1958) 98 CLR 460, at 492; 7 AITR 257). Nor does such a payment fall within the scope of the central provisions of Pt IIIA (Capital Gains and Capital Losses) of the Act which include gains or net receipts resulting from a "disposal" (in the sense of a change "in the ownership") of an "asset" acquired on or after 20 September 1985 in the assessable income of "the person who owned the asset immediately before the disposal took place" (see, in particular, ss 160C(1), 160L(1), 160M(1) and, since 1990, s 160M(1A) and, generally, Professor Ross Parsons, "A Survey of the General Provisions of Part IIIA of the Income Tax Assessment Act", Australian Tax Forum, Vol 4, 1987, p 357, at pp 360-6 ). It is not argued on behalf of the Commissioner that the payment in the present case constituted income within the ordinary meaning of the word or that it fell within the central operative provisions of Pt IIIA. The Commissioner's argument is that, even though the transaction in the present case did not involve any "change" of ownership of any identified asset, the payment of $40,000 which the appellant received as consideration for the restraint upon his freedom to compete and to use or divulge certain information after the termination of his employment is brought within Pt IIIA by reason of the operation of s 160M(6) or s 160M(7) to produce a deemed "disposal" of an "asset" by the appellant for the purposes of that Part. On the Commissioner's argument, the $40,000 was received by the appellant as consideration for that "disposal" and is included in the taxpayer's assessable income by reason of the combined operation of the relevant sub-section and ss 160Z(1), 160ZC(1)and 160ZO(1). In the light of what has been said above about the settled principles governing the applicability of taxation provisions at least in cases not involving contrived artificialities of form, the Commissioner's submission can only be accepted if the relevant provisions of Pt IIIA of the Act express in "clear" or "plain" or "unambiguous" terms a legislative intent that they should be construed in a way which would (subject to any allowable expenses) include in the assessable income of an employee an amount received from his or her employer as consideration for covenants in restraint of his or her freedom to compete or to use or divulge certain information after the termination of employment. With due respect to those who see the matter differently, it appears to me to be plain to the point of incontrovertibility that the words which the Parliament has seen fit to use cannot properly be said to express such a legislative intent with even tolerable clarity. Indeed, when the provisions of s 160M(6) and s 160M(7) are read in the context of the other provisions of Pt IIIA, it appears to me that the preferable view is that any coherent legislative intent would probably have been to the contrary. I turn to explain why that is so. Neither s 160M(6) nor s 160M(7) operates, of itself, to include anything in the assessable income of a taxpayer. All the two subsections do is to deem that certain acts or transactions constitute "disposals" for the purposes of Pt IIIA. For present purposes, what is included in the assessable income of "the taxpayer" is "a net capital gain" which has "accrued to a taxpayer in respect of the year of income" (see s 160ZO(1)). Under s 160ZC(1), a "net capital gain" will not have accrued to a particular taxpayer in a tax year unless "a capital gain or capital gains accrued to the taxpayer" during that tax year. Such "a capital gain" will "have accrued to the taxpayer" only where "an asset … has been disposed of during the year of income" (s 160Z(1)) (emphasis added in each case). In that context, it is obviously critical to an understanding of Pt IIIA to identify "the taxpayer" to whom the "capital gain" or "net capital gain" "shall be deemed … to have accrued" (s 160Z(1)) or "shall be taken to have accrued" (s 160ZC(1)). At least prima facie, that identification is effected by s 160C(1) which expressly and unequivocally provides that a "reference" in Pt IIIA "to a taxpayer, in relation to an asset that has been disposed of or in relation to a capital gain … that accrued" is, subject to a presently immaterial exception (see ss 160C(1)(b), 160V(1)and 160W), a reference "to the person who owned the asset immediately before the disposal took place". That definition of a taxpayer specifically for the purposes of Pt IIIA provides strong support for the view that it was the legislative intent that Pt IIIA should apply only to a case where one can identify a relevant "asset" which the suggested taxpayer owned "immediately before" the relevant "disposal" took place. The fact that the definition in s 160C(1) applies both to a reference to a taxpayer "in relation to an asset that has been disposed of" and to a reference to a taxpayer "in relation to a capital gain" provides no reason for denying the above effect to the sub-section since Pt IIIA contains references to a taxpayer in each of those two contexts (see, eg, ss 160Z(1)(a)and 160ZC(1)). Indeed, since a receipt can only, in a case such as the present, be brought to assessable income under Pt IIIA by a process which includes both an actual or deemed "disposal" of an "asset" by "a taxpayer" and the attribution of a "capital gain" and a "net capital gain" to "a taxpayer", the express provision of s 160C(1) that a reference to "a taxpayer" in relation either to "an asset that has been disposed of" or to "a capital gain … that accrued" has the effect at two distinct levels that, at least prima facie and subject to the qualification contained in s 160C(1)(b), Pt IIIA does not bring a receipt to assessable income in a case where the person alleged to be liable to tax was not the "owner" of a relevant "asset" immediately before the actual or deemed "disposal". Put differently, if one can identify no such "owner", there is, at least prima facie, no "taxpayer" either in relation to the actual or deemed "disposal" of the relevant asset or in relation to the "capital gain" under s 160Z(1) or the "net capital gain" under s 160ZC(1). Section 160M(6) must be read in conjunction with s 160R which provides that, for the purposes of Pt IIIA, "a reference to a disposal of an asset includes, unless the contrary intention appears, a reference to a disposal of part of an asset". Where what is disposed of is "part" of an already existing asset, s 160R applies. Section 160M(6) applies only where there is a "disposal" of an "asset" which "did not exist (either by itself or as part of another asset) before the disposal" but which "is created by the disposal". It was argued on behalf of the Commissioner that the words of s 160M(1) encompassed any case in which an "asset" (eg a "chose in action" or "any other right" or "any other form of incorporeal property": see s 160A) is "created" by mutual dealings regardless of whether the person allegedly liable to tax was at any time the owner of any relevant "asset". One difficulty about that construction of s 160M(6) is that it involves giving to the word "disposal", where first occurring in the subsection, a meaning that lies ill with the ordinary meaning of the word and with the general scheme of Pt IIIA. Both that ordinary meaning and that general scheme lend support for the view that the section should be confined to the case where the "disposal" of the newly-created "asset" involves something done by the suggested taxpayer as the actual or purported owner of something. Another and greater difficulty with that wide construction is that, for the reasons given in the preceding paragraph, it either attributes to s 160M(6) a pointless operation in a case such as the present where the person allegedly liable to tax owned no relevant asset immediately before the deemed "disposal" or requires that s 160Z(1), s 160ZC(1) and s 160ZO(1) be construed so as to include in assessable income a net capital gain which is not caught if those subsections are construed in accordance with the plain and unqualified direction of s 160C(1). In these circumstances, it appears to me that the above-mentioned "principles" applicable to the construction of taxation provisions compel the conclusion that s 160M(6) should, in the context of the other provisions of Pt IIIA, be construed as applying only to a case where the newly-created "asset" to which it refers arises from, or involves the use or exploitation of, an existing "asset" owned by the person alleged to be liable to tax "immediately before the disposal". That construction of those provisions substantially conforms with the general context provided by the other provisions of Pt IIIA (particularly s 160C(1)), with the use of the word "disposal" in the opening words of the subsection and with the implication of ownership which is implicit in the ordinary meaning of the word "asset" and of the word "property" in the definition of "asset" (see s 160A). It is also supported by s 160L which confines the operation of Pt IIIA to an asset that "immediately before the disposal took place, was owned by … a person" and by the absence of any express general provision that operates to deem the existence of a prior "ownership" in the circumstances contemplated by s 160M(6) or, for that matter, those contemplated by s 160M(7); cf s 160ZZC(3)(b). In that regard, I do not construe the provisions of s 160U(6) as being applicable to create a deemed ownership for the purposes of ss 160Cand 160L. Nor do I consider that, in the context of taxing provisions, it is permissible to read s 160M(6) in conjunction with ss 160M(1) and 160M(2) as impliedly creating a deemed ownership for the purposes of ss 160Cand 160L. As has been said, s 160M(6) must be read in conjunction with s 160R. In the Federal Court, the distinction was made between an asset which was "part" of an existing asset and an asset which was "carved out of" an existing asset. The example of an easement was given. Strictly speaking, it is unnecessary that I express any view in relation to that distinction since it has not been suggested that, on any approach, any relevant "asset" was owned by the appellant in the present case or that the Full Federal Court was mistaken in holding that the appellant's "right to work" was not an "asset" for the purposes of Pt IIIA. I should, however, indicate that, in a context where s 160R (when read with s 160ZI) allows and s 160M(6) precludes an allowance being made in respect of a proportion of the cost base of the existing asset, I have difficulty in accepting that it would have been the legislative intent that s 160M(6) (and not s 160R) should apply to every case where there is "carved out of" an existing asset something which could not previously be identified as already independently existing as a distinct "part" of that asset. It seems to me that the preferable approach is to treat s 160R as applying to a case where there has been a disposal, in the sense of a change of ownership, of any part of the rights involved in the ownership of an asset, those rights themselves constituting an asset for the purposes of Pt IIIA. On that approach, the grant of an enforceable easement or profit a prendre would come within s 160R as a disposal of part of the pre-existing right to use or exploit and the calculation of any resulting "capital gain" would make allowance for any resulting diminution in the value of the subject property. On the other hand, if all that was involved was, for example, the creation of a personal right in relation to the use of the taxpayer's pre-existing asset in circumstances where the creation of that right did not involve any "disposal" of any of the pre-existing rights of ownership with resulting diminution in value of the residual asset (eg a mere personal licence to enter which was revocable at will), the case could be of a type which fell within the provisions of s 160M(6) . The provisions of s 160M(7) raise comparable problems of construction to those raised by s 160M(6). Their prima facie effect, if they be construed without regard to context, is that any person who receives, or becomes entitled to receive, an amount of money or other consideration by reason of an act or transaction in relation to an asset or an event affecting an asset is deemed, for the purposes of Pt IIIA, to have disposed of "an asset created by the disposal" in consideration of the money or other consideration so received. Such a construction would embrace cases where the person receiving the money or other consideration had never been the owner of any relevant asset and was therefore, by reason of the express provision of s 160C(1), not a "taxpayer" for the purposes of s 160Z(1), s 160ZC(1) or s 160ZO(1). The result would be that the operation of the subsection would be pointless in a case where the suggested "taxpayer" was not the owner of the pre-existing asset unless one could extend the scope of ss 160Z(1), 160ZC(1)and 160ZO(1) in disregard of the express direction of s 160C(1). For reasons corresponding to those given in relation to s 160M(6) and subject to one possible qualification, I consider that it is not permissible so to extend the scope of ss 160Z(1), 160ZC(1)and 160ZO(1) and that the provisions of s 160M(7) should be construed as confined to a case where the person who has received the money or other consideration was, immediately before the deemed disposal, the owner of the pre-existing asset referred to in the subsection. When s 160M(7) is so construed, it is apparent that it is not applicable to the present case where the suggested existing "asset" for the purposes of the subsection is the goodwill and trade secrets which were owned by the employer and not by the appellant. The possible qualification, which is not relevant for the purposes of the present case, is that it may be arguable that the provisions of the subsection should be construed as applying to a case where the person allegedly liable to tax, while not the owner of a relevant pre-existing asset, has received consideration for an act purportedly done as such owner or for an act done for or with the licence of the owner. It is true that the effect of the construction which I would give to s 160M(6) and s 160M(7) may be that there is little scope for their significant operation. If that be so, it is the inevitable consequence of the fundamental principles applicable to the construction of taxation provisions at least in cases where no question of concealment of true substance under the artificialities of form is involved. In such cases, the relevant question is not how the particular provision can be construed in a way which will give best effect to some dimly-perceived legislative intent. It is whether the words which the legislature has used clearly impose the claimed tax. The importance of those principles is reinforced in present-day circumstances where the taxation system is based upon self-assessment by taxpayers enforced by significant penalties for understatement. There are two further matters which should be mentioned. The first is that it was submitted in the Commissioner's written submissions that the effect of s 160M(5)(c) is that the rights conferred upon the appellant's employer by the appellant's covenants not to compete or to use or divulge certain information are, for the purposes of Pt IIIA, "deemed to [have been] acquired and thus to [have been] owned by [the appellant], notwithstanding that the act of creation vests them in [the employer]". That submission was not developed in oral argument. There is, in my view, a short answer to it. Section 160M(5)(c) provides that "the creation of an asset by or for a person constitutes the acquisition of the asset by the person". The clause should, in my view, not be read as meaning that, where an "asset" is "created" by one person for another person, it is to be deemed to have been acquired by both of them at the moment of creation. The clause should be construed as meaning that, where an asset is created by a person "for" himself or herself, it is deemed to have been acquired by him or her and, where it is created "for a person", it is deemed to have been acquired by that person. If, in the present case, it can properly be said that an "asset" was "created" for the purposes of s 160M(5)(c), it was so "created" for the appellant's employer and is deemed to have been acquired by the employer. That being so, the argument based on s 160M(5)(c) leads nowhere. I would add that I am, in any event, in general agreement with the reasons given by McHugh J for concluding that s 160M(5)(c) has no relevant operation in the circumstances of the present case. The other further matter which should be mentioned is that cl 4 of the appellant's 1985 employment agreement provided that the appellant would assign and convey to his employer all his interest in any inventions that related to the business of the employer which were discovered, conceived or developed by the appellant, alone or with others, as a result of the use or utilisation of certain processes. It has, however, not been suggested that there are or are likely to be any such inventions and the case has been conducted on both sides on the basis that the receipt by the appellant of the $40,000 was as consideration for covenants not to compete or to use or divulge certain information during the specified period of two years after the termination of his employment. Were the matter for me alone, I would allow the appeal with costs, set aside the orders of the Full Court of the Federal Court and, in lieu thereof, order that Question (A) of the questions referred to that court be answered: "(a) No; (b) No". In view of the conclusions reached by other members of the court, however, the appropriate course to be adopted at this stage is that proposed by the Chief Justice. Dawson J I have had the advantage of reading the reasons for judgment of Brennan J. I agree with him, for the reasons which he gives, that the appellant is liable to tax under s 160M(6) of the Income Tax Assessment Act 1936 (the Act) in respect of the disposal, within the meaning of that section, of the benefit of the covenants in restraint of trade (in which I include the covenants in respect of special processes, trade secrets and patent protection) which he conferred on Hunter Douglas Ltd (Hunter Douglas) for a consideration of $40,000. Section 160M(7) of the Act is expressed to be "subject to the other provisions of this Part", ie Pt IIIA, and it seems to me that, as the transaction in question falls within s 160M(6) (which is not made subject to the other provisions of Pt IIIA), it cannot fall within s 160M(7). Nevertheless, were s 160M(7) to apply, I would be of the view that, in entering into the covenants in restraint of trade, the appellant was doing an act or entering into a transaction in relation to an asset. The entry into the covenants might also be seen as an event affecting an asset. The asset for these purposes is the goodwill of Hunter Douglas. "Goodwill" is notoriously difficult to define: see IRC v Muller & Co's Margarine Ltd [1901] AC 217, at 238. But it certainly extends beyond the likelihood of customers returning to the same business. An important element in estimating the value of the goodwill of a business is the existence of covenants restraining competition with that business, whether those covenants be given by a vendor, a partner or an employee of the business: see Halsbury's Laws of England, 4th ed, vol 35, para 1110 and the cases there cited. As Rich J pointed out in FCT v Williamson (1943) 67 CLR 561, at 564; 2 AITR 454:… the goodwill of a business is a composite thing referable in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, many customers being no doubt actuated by mixed motives in conferring their custom. (My emphasis) And in IRC v Muller & Co's Margarine Ltd , at 235, Lord Lindley said of "goodwill": I understand the word to include whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others which do not occur to me. (My emphasis) The covenants in question in this case all went to protect Hunter Douglas's business against competition by the appellant and the entry by the appellant into those covenants was an act or transaction which took place in relation to Hunter Douglas's goodwill. It was an act or transaction which enhanced Hunter Douglas's goodwill and it was, therefore, also an event affecting Hunter Douglas's goodwill. The trade secrets and the special processes may also have constituted knowledge with a value apart from goodwill and therefore might be regarded as assets separate from Hunter Douglas's goodwill, but the covenants not to divulge or use them undoubtedly protected Hunter Douglas against competition and in so doing assisted in generating goodwill. I do not think that it can be doubted that a covenant in restraint of trade may enhance the value of the goodwill of a business: see Box v FCT (1952) 86 CLR 387, at 394; 5 AITR 351; Townsend v Jarman [1900] 2 Ch 698, at 703; Jacoby v Whitmore (1883) 49 LT 335, per Brett MR at 337; Kennedy v Lee (1817) 3 Mer 441, per Lord Eldon at 452 [ 36 ER 170, at 174]. Even if a covenant in restraint of trade is regarded merely as protecting, that is preserving rather than increasing the value of, goodwill, eg as in Herbert Morris Ltd v Saxelby [1916] 1 AC 688, at 710, the absence of competition which it ensures is nevertheless part of the goodwill itself and it is that which enhances its value. It is, therefore, of no moment whether that which enhances the value of the goodwill is seen as the covenant itself or what the covenant does. Nor does it seem to me to matter that a covenant in restraint of trade may be enforced only in the future (in this case following the termination of the appellant's employment with Hunter Douglas) rather than in the present. The goodwill, which it is accepted was owned by Hunter Douglas, was immediately enhanced by the covenants entered into by the appellant in the sense that its present value was increased simply by their being given, notwithstanding that the enforcement of the covenants might only be called for in the future. Having made these observations, it may be desirable if I add shortly my view of s 160M(7), notwithstanding that the present case is, I think, governed by s 160M(6) to the exclusion of s 160M(7). I have already expressed my conclusion that the entry into the covenants by the appellant was both an act or transaction in relation to an asset and an event affecting an asset. I see no reason to restrict the asset referred to in para (a) of s 160M(7) to an asset owned by the appellant. For the purposes of para (b) of s 160M(7) the taxpayer (as defined in s 160C) is the person who receives or is entitled to receive consideration by reason of an act or transaction taking place in relation to an asset or the occurrence of an event affecting an asset. Here the appellant received an amount of money by way of consideration ($40,000) by reason of such an act, transaction or event (namely, the entry into the covenants in restraint of trade). Further, he received the money expressly in consideration of his entering into the deed, so that there was a direct, causal connection between the entry into the deed (ie the act, transaction or event) and the receipt of the consideration. In this case the consideration was not paid in return for forfeiture or surrender of a right or for refraining from exercising a right. Nor was it paid for use or exploitation of a right. However, although paras (b)(i)and (ii) of s 160M(7) are directed at situations which would seem only to arise where the taxpayer is the owner of the asset referred to in para (a) of s 160M(7), these are not exhaustive instances of the circumstances in which s 160M(7) is intended to apply. Therefore, paras (b)(i) and (ii) afford no reason for concluding that the asset referred to in para (a) must be owned by the taxpayer. Indeed, the contrary conclusion is indicated by the following words of s 160M(7) which provide that the act, transaction or event referred to in para (a) constitutes the notional disposal of a notional asset, which is different from the actual asset referred to in para (a). Section 160M(7) therefore contemplates the receipt by the taxpayer of a capital gain which does not involve the disposal of any actual asset. It achieves this purpose by the creation of a fictitious asset which is notionally disposed of. No doubt s 160M(7) is cast in terms of a notional disposal of a fictitious asset in order to conform to the general scheme of Pt IIIA, which is aimed primarily at situations in which there is an actual change in ownership of an asset. However, the fact that it is cast in that way serves to make it clear that the asset referred to in para (a) of s 160M(7) is different from the fictitious asset deemed to be created under s 160M(7). It is this fictitious asset which is deemed to be disposed of under s 160M(7) and there is no reason to assume that the owner of the asset referred to in para (a) of s 160M(7) will also necessarily be the "owner" of this fictitious asset. Indeed a consideration of the broad wording of s 160M(7) indicates that this will often not be the case. Because s 160M(6) applies, s 160M(7) does not in my view apply, but were s 160M(7) to have an application independently of s 160M(6), I think it would also apply in the present case. These conclusions and those reached by other members of the court raise the question of how the appeal should be disposed of. While I would dismiss the appeal, in the circumstances I agree with the course proposed by the Chief Justice. Toohey J The circumstances giving rise to this appeal and the relevant statutory provisions appear in other judgments of the court. Part IIIA of the Income Tax Assessment Act 1936 (the Act) is couched in terms which, even allowing for the difficulties inherent in legislating for a capital gains tax, are unduly labyrinthine. The heading to Pt IIIA • Capital Gains and Capital Losses • is no guide to construction; it is necessary to go to particular sections, at the same time seeking for some consistent policy or approach, if such is to be found. That said, the question for the court is whether the sum of $40,000 received by the appellant on the termination of his employment with Hunter Douglas Ltd was a "net capital gain" within Pt IIIA. Specifically, the question is whether, in respect of that sum, the appellant is liable to tax under s 160M(7) of the Act, (as held by a majority in the Federal Court) or under s 160M(6) (as rejected by the three judges in the Federal Court). So far as subs (7) is concerned, I take as a starting point the conclusion reached by Lockhart and Gummow JJ that "an asset created by the disposal" to which para (b) refers is necessarily a notional asset different from the asset identified in para (a), the latter being an asset in relation to which an act or transaction has taken place or being an asset affected by an event which has occurred: see Hepples v FCT (1990) 22 FCR 1, at 14-15, 29-30; 21 ATR 42. That conclusion is inevitable in light of the language of subs (7). Also inevitable is the conclusion reached by the majority in the Federal Court that the asset identified in para (a) must be an asset that exists when the relevant act or transaction takes place or when the event affecting the asset occurs. There is a question whether the asset referred to in para (a) must be an asset of the taxpayer. Lockhart and Gummow JJ thought that the asset need not be an asset of the taxpayer and they were right in that view. There is nothing in para (a) or elsewhere in subs (7), or indeed anywhere in Pt IIIA, which requires such a limitation to be placed on the language of the paragraph. In a piece of legislation clearly designed to catch a wide range of situations, it is reasonable to expect that if parliament had intended the limitation it would have said so. There is no justification for reading down para (a) in this way. What, in the present case, is the asset to which para (a) refers? It may or may not be the case that Hunter Douglas' rights under the deed constituted an asset for the purpose of Pt IIIA; that is a matter adverted to later in these reasons. But in the respondent's submission it was, as Lockhart and Gummow JJ held, the trade secrets, trade connection and goodwill of Hunter Douglas which constituted the asset for the purposes of para (a). Any of those is capable of constituting such an asset. As Gummow J pointed out, they are "of a proprietary character and therefore 'assets' within the meaning of the definition in s 160A": at ( FCR) 31-32. That section expressly includes "goodwill" in the definition of "asset" for the purposes of Pt IIIA. The next question is • was there an act, transaction or event to satisfy the requirements of the paragraph? The respondent's answer to that question was to point to the entry by the appellant into the deed with Hunter Douglas, in particular to those covenants whereby the appellant undertook to be bound, for a period of two years after the termination of his employment, by certain clauses of his employment agreement. By those clauses the appellant covenanted not to divulge or turn to his own account any special processes or trade secrets of his employer; not to compete with his employer; not to canvass or solicit customers of his employer with whom he had dealings; and to disclose to his employer any inventions discovered, conceived or developed by him during the course of his employment and to assign to his employer his interest in those inventions. It is therefore necessary to answer a further question • did the entry by the appellant into the deed relate to trade secrets, trade connection or goodwill of Hunter Douglas? Alternatively, did it affect any of those assets? If it did not, there can be no liability to tax under s 160M(7) . It is true that the case stated does not assert the existence of any trade secret, goodwill or trade connection on the part of Hunter Douglas. But, as Lockhart J pointed out, "it is obvious that goodwill in fact exists and this court may draw inferences both of fact and of law": at ( FCR) 15. It would be unreal to proceed on any other basis. But that is to identify only one part of the equation, as it were. The other part requires that the entry into the deed be in relation to the goodwill or that it be an event affecting the goodwill. In Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410, at 438, Isaacs J said: "Goodwill is property, but, as such, is inseparable from a particular 'business' in the sense of a particular going concern. It is an asset of that business, and enhances its value." The inseparability of the goodwill of a business from the business itself was reiterated by this court in Geraghty v Minter (1979) 142 CLR 177, at 181, 193. An important component of goodwill is the likelihood of competition: see FCT v Williamson (1943) 67 CLR 561, at 564; 2 AITR 454; IRC v Muller & Co's Margarine Ltd [1901] AC 217, at 235. The company's trade secrets, goodwill and trade connections were assets to which the relevant covenants in the deed might relate or which those covenants might affect. The expression "in relation to" is of broad import (O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356, at 374; 92 ALR 213) though it must be read in context. And, I agree with Gummow J when he said: "I would read the expression 'affecting an asset' as touching or concerning the asset, but without necessarily altering its nature or character: cf Shanks v Shanks (1942) 65 CLR 334 at 336; Ford v Ford (1947) 73 CLR 524 at 527, 533, 539, 541-542": at ( FCR) 32. The entry by the appellant into the deed, with his assumption of continuing obligations in respect of the relevant covenants, was an act relating to an asset of Hunter Douglas, namely, that company's goodwill; there was a direct, certainly a sufficient, connection between the two. Furthermore, the entry into the deed affected the goodwill by removing a situation which would otherwise have existed and have exposed Hunter Douglas to the risk of competition from a former employee. It is somewhat unreal to treat the covenants as bearing only upon future goodwill. Goodwill is not an asset that can be dissected so neatly. It is a continuing asset of a business, though its content and value may vary. In the present case, goodwill was an asset of Hunter Douglas to which the act of entering into the deed related; and it was an asset which was thereby affected in the sense that a factor capable of reducing the value of the goodwill was eliminated by the deed. Unquestionably the appellant received the $40,000 "by reason of" his entry into the deed. No nice questions of causation arise; the appellant got the $40,000 in return for the obligations he assumed under the deed. He is therefore liable for tax by reason of s 160M(7) of the Act. Section 160M(6) has its own difficulties, not the least of which is the concept of a "disposal of an asset that did not exist". All members of the Federal Court held that subs (6) had no application to the facts of the present case. In the view of the Federal Court (see Lockhart J, at (FCR) 13; Gummow J, at ( FCR) 33-4; Hill J, at ( FCR) 36), subs (6) is confined to situations in which proprietary rights are created out of or over existing assets in circumstances where the asset out of which the right is created continues to exist. Lockhart J (at ( FCR) 13) thought that "the draftsman of the subsection was endeavouring to provide principally that, where the same act or event both creates and disposes of an asset which emerges from a larger asset previously in existence, there is a notional disposal of the newborn asset for the purpose of Pt IIIA ". The objection to the view taken by the Federal Court of subs (6) is that it involves reading into the subsection something which is not there and something which is at odds with the words in parentheses, "(either by itself or as part of another asset)". The argument for reading into subs (6) the existence of an asset out of which an asset is created is that otherwise bizarre results ensue. Various examples are suggested by Hill J in FCT v Cooling (1990) 22 FCR 42, at 62; 21 ATR 13, for instance a covenant to contribute to a charitable appeal which would have the result that the donor was required to include the amount of the donation in his assessable income. Other curious consequences are not hard to find. It is of course quite appropriate to point to the consequences which will ensue if a particular statutory construction is adopted. The exercise is not quite so profitable with Pt IIIA of the Act because anomalies are likely to exist, whatever construction is adopted. The observation of Hill J in Cooling, at ( FCR) 64: An interpretation which confines s 160M(6) to a reasonable meaning, consistent with the object and policy of the legislation is … to be preferred to one which produces capricious results which seem inconsistent with the scheme of it. This is one case at least, where … ambiguity of expression should be resolved in favour of the taxpayer. Perhaps the word "ambiguity" is in the present context unduly kind. must strike a chord of sympathy. However, the observation does tend to overlook the point made by Brennan J in his judgment that the results described as bizarre flow, not from the "disposal" of a non-existent asset, but rather from s 160ZD(2) which, in the circumstances there mentioned, deems the taxpayer to have received as consideration for the disposal an amount equal to the market value of the asset at the time of disposal. It is that provision which gives rise to the capital gain and may produce an unexpected and unfair result. The view of the Federal Court that there must be an existing asset requires a substantial rewriting of the language of subs (6), too substantial to be warranted. I therefore proceed on the footing that the subsection does not require an existing asset. If that view be right, the legislature may need to give consideration to the implications of s 160ZD(2). What occurred in the present case is that the appellant entered into a deed containing the covenants mentioned earlier in these reasons. Hunter Douglas thereby obtained the benefit of those covenants. It is true that the benefit was assignable by Hunter Douglas as an incident of its business: Townsend v Jarman [1900] 2 Ch 698, at 702-4. But that is not to the point as I shall try to explain. It may well be, as Lockhart J suggested, at ( FCR) 12, that:… the draftsman of subs (6) sought to overcome the problem to which reference was made by P G Whiteman and G S A Wheatcroft, "Capital Gains Tax", 3rd ed, 1980, par 6-50 where the learned authors said: "Where, however, the asset did not exist (either by itself or as part of another asset) before the disposal but is created by the disposal, it is submitted in the absence of special provisions that there is no disposal for capital gains tax. The word 'disposal' must, it is suggested, involve there being some proprietary or beneficial right in the disposer at the time. Hence there will be a distinction between the creation of a contractual right in B's favour, which will not involve a disposal by A, and the creation in favour of B of a right in or over an asset owned by A, which will be a part disposal of that asset …" Whether or not that was the intention of the draftsman, the fact is that, for subs (6) to operate, there must be a disposal of an asset, whatever that may mean. If the draftsman had intended to say that the creation of an asset also constituted its disposal, the draftsman should have said so. In a part of the Act that is a minefield for the taxpayer, there is no warrant for reading words into the provision or giving it a meaning which its words do not ordinarily bear. Even if (as I hold) subs (6) does not require the existence of an asset before the "disposal", there must be an asset which is disposed of. It is not enough to say that an asset is created; the asset must be created and be disposed of. At the very least, it is necessary to identify something that the taxpayer owned or something that the taxpayer did in the capacity of owner, which is the subject of disposal. To say this may seem to come close to acknowledging that there must be a pre-existing asset but I do not think that this is so. The point is that there must be an asset which is disposed of at the moment of its creation. It is the creation and disposal which "constitutes a disposal of the asset for the purposes of this Part". Essentially what Hunter Douglas obtained by reason of the deed was the right to hold the appellant to his undertakings, whether by injunction or damages or both. Although s 160A defines "asset" in broad terms for the purposes of Pt IIIA, including "any other right, goodwill and any other form of incorporeal property", it is incorporeal property with which the section is concerned and in the present context it is the incorporeal property of the taxpayer. The freedom of a person, in this case the appellant, to compete in the marketplace is not of itself an asset: Forbes v NSW Trotting Club Ltd (1979) 143 CLR 242, at 260-1. In Kirby (Inspector of Taxes) v Thorn EMI Plc. [1988] 1 WLR 445, at 458; [1988] 2 All ER 947, at 959, Purchas LJ observed of the capital gains tax provisions of the Finance Act 1965 (UK): The right to trade in the marketplace is a right which is common to all … To suggest that it is an incorporeal right … is wholly unjustifiable within the basic concept of an acquisition of an asset with its accretion in value owing to changes in economic circumstances, etc over a period of inflation followed by disposal with a realisation of a chargeable gain. In the present case, the appellant received $40,000 in consideration of his undertaking not to exercise his right to work in competition with Hunter Douglas. Neither the right to work nor the undertaking to restrict that right was an asset capable of disposal even though Hunter Douglas' rights under the deed were capable of transmission. It is not enough that the deed created an asset in the hands of the company. The appellant passed nothing in the capacity of an owner; he merely restricted his freedom to compete. In this regard the respondent's case is not helped by subs (5) which provides that, for the purposes of Pt IIIA: " (c) the creation of an asset by or for a person constitutes the acquisition of the asset by the person." The same objection exists. The asset must be created by its disposal, to use the language the draftsman has employed. Nothing was disposed of here; the taxpayer simply agreed not to exercise certain personal rights otherwise available to him. It follows that s 160M(6) is not applicable to the circumstances of the present case. Nevertheless, the receipt of the $40,000 by the appellant constitutes a capital gain in respect of which the appellant is, in my view, liable for tax by reason of s 160M(7) of the Act. While I would dismiss this appeal, in view of the conclusions reached by other members of the court I agree with the course proposed by the Chief Justice for the disposition of the appeal, namely, that the parties be permitted to make submissions as to the form of order. Gaudron J The facts and the relevant legislative provisions are set out in other judgments. The question that arises by reference to those facts and provisions is whether a promise by the appellant to be bound for a further period by earlier promises not to divulge trade secrets, not to compete with his employer (including not to canvass or solicit its customers) and to assign his interest in any inventions relating to his employer's business falls within either of s 160M(6) or s 160M(7) of the Income Tax Assessment Act 1936 (the Act). The promise will fall within s 160M(6) if, in terms of that subsection, it is "[a] disposal of an asset that did not exist (either by itself or as part of another asset) before the disposal, but is created by the disposal". I agree with Brennan J, for the reasons that his Honour gives, that the subsection covers situations in which an asset is simultaneously created and vested in some other person, and that it is not to be read down by a requirement that the asset should have been created out of some pre-existing asset or by reference to ss 160M(7), 160ZSand 160ZZC. The right of the appellant's employer and its associated companies to enforce the promise of the appellant is an asset within the ordinary meaning of that word and as defined in s 160A of the Act. That asset was created by the making of the promise and, apart from purely metaphysical problems which s 160M(6) is designed to overcome, there is no difficulty in treating the making of that promise as the disposal of the asset. I agree with Dawson J that s 160M(7), which is subject to the other provisions of Pt IIIA, has no application in this case because the promise of the appellant falls within s 160M(6). I also agree with his Honour, substantially for the reasons that he gives, that, if that promise did not fall within s 160M(6), it would fall within s 160M(7). The only matter on which I would differ from Dawson J is in identification of the asset by reference to which s 160M(7)(a) would then operate. In my view, the promise was, in terms of s 160M(7)(a), "an act or transaction … in relation to an asset or an event affecting an asset" because it affected or related to the earlier promises made by the appellant. The earlier promises operated only during the period of the appellant's employment and the later promise was, in substance and in effect, a variation of their term and, thus, an act in relation to them and an act affecting them. This appeal arose out of questions referred to the Federal Court under s 45(2) of the Administrative Appeals Tribunal Act 1975. The form of the first question may need reconsideration in the light of the conclusions reached in this court. I agree with the course proposed by the Chief Justice with respect to the making of final orders. McHugh J The question in this appeal is whether, by reason of s 160ZO(1) of the Income Tax Assessment Act 1936 (the Act), the receipt of the sum of $40,000 by the appellant in consideration of his continuing to be bound by a "restraint of trade" agreement with his employer after the termination of his employment constituted assessable income of the appellant for the year of income ended 30 June 1986. The appeal is brought against a majority decision of the Full Court of the Federal Court on a special case referred from the Administrative Appeals Tribunal. The factual background The appellant was an employee of Hunter Douglas Ltd. On or about 1 September 1985, the appellant and his employer entered into a written employment agreement governing the terms and conditions of his employment which, inter alia, imposed a restraint of trade on the appellant. On or about 27 June 1986, the parties entered into a deed, the purpose of which was: "…to record the terms upon which [the appellant] has agreed, in consideration of the covenants of Hunter Douglas herein contained and from and after the date of his ceasing to be employed by Hunter Douglas, to be restrained from carrying on or being interested in any business or other undertaking or activity as more particularly herein referred to." On or about the same date, Hunter Douglas paid the amount of $40,000 to the appellant pursuant to the terms of the deed. The appellant and Hunter Douglas also orally agreed that the restraint of trade imposed on him by the 1985 agreement should cease to have any effect from the date of entry into the deed. Clauses 1, 2, 3 and 4 of the deed provided: "1. In consideration of Hepples entering into this deed and provided that he shall at all times observe and fulfil all of the terms covenants and conditions hereof Hunter Douglas shall pay Hepples the sum of FORTY THOUSAND DOLLARS ($40,000) upon signing of this deed. 2. In consideration of Hunter Douglas entering into this deed, Hepples covenants with Hunter Douglas or any successor, subsidiary or affiliate thereof (hereinafter called 'the associated companies') that for a period of TWO (2) years immediately following the moment of the termination of his employment by Hunter Douglas within the territorial limits of Australia, he will continue to be bound by the cll 2, 3, 4 and 5 of his employment agreement; copy of said clauses are attached to this deed as schedule 'A'. 3. During the term hereof, Hepples shall be entitled to request Hunter Douglas' acknowledgment that the term of this deed shall no longer apply in relation to any products which Hunter Douglas and/or its associated companies has ceased to produce or license which acknowledgment shall not be unreasonably withheld. 4. Hepples acknowledges and agrees that this deed has been entered into by him not only in favour of Hunter Douglas but in favour of each of the associated companies for their respective rights and interests with the intent that each of the same shall be entitled to enforce the obligations of this deed against him to the extent to which the protection of the business and assets may require." Clause 2 of the employment agreement made in 1985 was headed "special processes and trade secrets". By that clause, the appellant covenanted with his employer and the associated companies that, during the continuance of his employment and for a period of two years thereafter, he would not divulge any information concerning trade secrets or utilise or turn to his own account any trade secrets. It may be that under cl 2 the appellant was similarly bound in respect of special processes. By cl 3, the appellant covenanted with his employer that, upon the termination of his employment and for a period which was not in evidence before the Federal Court, he would not engage in any business or occupation in competition with his employer. The appellant also covenanted not to canvass or solicit any customer or prospective customer of Hunter Douglas with whom he had had dealings or negotiations during the course of his employment with Hunter Douglas. Clause 4 contained a covenant on the part of the appellant to assign and convey to Hunter Douglas all his interest in any inventions that related to the business of Hunter Douglas, provided such inventions were discovered, conceived or developed by the appellant alone or with others either during the course of his employment or at any time resulting from use or utilisation of certain special processes. The legislation at the relevant time Section 160ZO of the Act is found in Pt III A which is headed "Capital Gains and Capital Losses". Division 4, which contains s 160ZO, has the heading "Treatment of Gains and Losses". Section 160ZO enacts: "(1) Where a net capital gain accrued to a taxpayer in respect of the year of income, the assessable income of the taxpayer of the year of income includes that net capital gain. "(2) A net capital loss that was incurred by a taxpayer in respect of a year of income shall be taken into account in accordance with section 160ZC but is not otherwise allowable to the taxpayer as a deduction under this Act in respect of any year of income." Section 160ZC defines the circumstances in which a net capital gain shall be taken to have accrued to a taxpayer in respect of the year of income. Central to this determination is the anterior determination that a capital gain or capital gains accrued to the taxpayer during the year of income. Thus, s 160ZC relevantly provides: "(1) For the purposes of this Part, a net capital gain shall be taken to have accrued to a taxpayer in respect of the year of income if a capital gain or capital gains accrued to the taxpayer during the year of income and • (a) the taxpayer did not incur a capital loss during the year of income and did not incur a net capital loss in respect of the immediately preceding year of income; or (b) where the taxpayer incurred a capital loss or capital losses during the year of income or incurred a net capital loss in respect of the immediately preceding year of income, the capital gain or the sum of the capital gains exceeded • (i) if the taxpayer incurred a capital loss or capital losses during the year of income but did not incur a net capital loss in respect of the immediately preceding year of income • that capital loss or the sum of those capital losses; (ii) if the taxpayer did not incur a capital loss during the year of income but incurred a net capital loss in respect of the immediately preceding year of income • that net capital loss; or (iii) if the taxpayer incurred a capital loss or capital losses during the year of income and incurred a net capital loss in respect of the immediately preceding year of income • the sum of that capital loss or those capital losses and that net capital loss." Section 160Z relevantly enacts: "(1) Subject to this Part, where an asset other than a personal-use asset has been disposed of during the year of income • (a) if the consideration in respect of the disposal exceeds the indexed cost base to the taxpayer in respect of the asset • a capital gain equal to the excess shall be deemed for the purposes of this Part to have accrued to the taxpayer during the year of income; or (b) if the reduced cost base to the taxpayer in respect of the asset exceeds the consideration in respect of the disposal • a capital loss equal to the excess shall be deemed for the purposes of this Part to have been incurred by the taxpayer during the year of income." Section 160A defines "asset" by providing: "In this Part, unless the contrary intention appears, 'asset' means any form of property and includes • (a) an option, a debt, a chose in action, any other right, goodwill and any other form of incorporeal property; (b) currency of a foreign country; and (c) any form of property created or constructed, or otherwise coming to be owned without being acquired, but does not include a motor vehicle of a kind mentioned in para 82AF(2)(a)." Section 160ZD provides the mechanism for determining "the consideration in respect of a disposal of an asset". Section 160ZH(2)and (3) respectively provide the mechanism for determining the "indexed cost base" and "reduced cost base" referred to in s 160Z. The "consideration in respect of the acquisition of the asset" is a central feature of these mechanisms. Section 160M is the critical section in this appeal, for it defines the circumstances which constitute the disposal or acquisition of an asset. It relevantly provides: "(1) Subject to this Part, where a change has occurred in the ownership of an asset, the change shall be deemed, for the purposes of this Part, to have effected a disposal of the asset by the person who owned it immediately before the change and an acquisition of the asset by the person who owned it immediately after the change. "(2) A reference in sub-section (1) to a change in the ownership of an asset is a reference to a change that has occurred in any way, including any of the following ways: (a) by the execution of an instrument; (b) by the entering into of a transaction; (c) by the transmission of the asset by operation of law; (d) by the delivery of the asset; (e) by the doing of any other act or thing; (f) by the occurrence of any event. … "5. For the purposes of this Part • … (c) the creation of an asset by or for a person constitutes the acquisition of the asset by the person. "(6) A disposal of an asset that did not exist (either by itself or as part of another asset) before the disposal, but is created by the disposal, constitutes a disposal of the asset for the purposes of this Part, but the person who so disposes of the asset shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in paragraph 160ZH(1)(a), (b), (c)or (d), (2)(a), (b), (c)or (d)or (3)(a), (b), (c)or (d) in respect of the asset. "(7) Without limiting the generality of sub-section (2) but subject to the other provisions of this Part, where • (a) an act or transaction has taken place in relation to an asset or an event affecting an asset has occurred; and (b) a person has received, or is entitled to receive, an amount of money or other consideration by reason of the act, transaction or event (whether or not any asset was or will be acquired by the person paying the money or giving the other consideration) including, but not limited to, an amount of money or other consideration • (i) in the case of an asset being a right • in return for forfeiture or surrender of the right or for refraining from exercising the right; or (ii) for use or exploitation of the asset, the act, transaction or event constitutes a disposal by the person who received, or is entitled to receive, the money or other consideration of an asset created by the disposal and, for the purposes of the application of this Part in relation to that disposal • (c) the money or other consideration constitutes the consideration in respect of the disposal; and (d) the person shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in paragraph 160ZH(1)(a), (b), (c)or (d), (2)(a), (b), (c)or (d)or (3)(a), (b), (c)or (d) in respect of the asset." Section 160L relevantly provides: "(1) Subject to this section, this Part applies in respect of every disposal on or after 20 September 1985 of an asset, whether situated in Australia or elsewhere, that • (a) immediately before the disposal took place, was owned by • (i) a person (not being a person in the capacity of a trustee) who was a resident of Australia; or (ii) a person in the capacity of a trustee of a resident trust estate or of a resident unit trust; and (b) was acquired by that person on or after 20 September 1985." Section 160C provides: "(1) A reference in this Part to a taxpayer, in relation to an asset that has been disposed of or in relation to a capital gain or listed personal-use asset gain that accrued or a capital loss or a listed personal-use asset loss that was incurred in respect of such an asset, is a reference • (a) except where paragraph (b) applies • to the person who owned the asset immediately before the disposal took place; or (b) where the disposal resulted from an act that is, by virtue of sub-section 160V(1) or section 160W, deemed to be the act of a person other than the person who owned the asset immediately before the disposal took place • to that other person. "(2) A reference in this Part to a taxpayer, in relation to an asset that has been acquired, is a reference to the person who owned the asset immediately after the acquisition took place." The respondent contends that the entry into the deed of 27 June 1986 resulted in the appellant disposing of an asset within the meaning of s 160M(7) or, alternatively, s 160M(5)(c) or s 160M(6) with the consequence that no consideration was paid in respect of the asset for the purposes of s 160ZH(2)and (3). The sum of $40,000 is therefore said to have accrued to the taxpayer as a net capital gain for the purpose of s 160ZO(1). The Full Court's decision The Full Court (Lockhart and Gummow JJ, Hill J dissenting) held that the receipt of the sum of $40,000 by the appellant was within the terms of s 160M(7) and, as a result, taxable under s 160ZO(1) of the Act: (1990) 22 FCR 1; 21 AITR 42. The Full Court unanimously held, however, that the case was not within s 160M(6). The applicability of s 160M(5)(c) was not discussed. Lockhart J rejected the appellant's argument that the "asset" referred to in s 160M(7)(a) was the asset of the taxpayer. His Honour held that in this case the "asset", for the purpose of that paragraph, consisted of the trade secrets, trade connections and goodwill attaching to the business of Hunter Douglas. His Honour then said (at ( FCR) 15): The grant of the restrictive covenant by the applicant to Hunter Douglas under the deed constitutes an act or transaction that took place in relation to an asset of Hunter Douglas and was also an event that occurred affecting that asset. The applicant received and was entitled to receive $40,000 under the deed in consideration for his giving the restrictive covenants. The deeming provisions of s 160M(7) then operate so as to constitute the giving of the restrictive covenant a disposal by the applicant of an asset created by the disposal. The $40,000 is therefore to be treated as the base cost from which only the incidental cost to the applicant of the disposal of the asset, reduced or indexed as the case may be, may be taken into account. The judgment of Gummow J on these parts of the case was to similar effect. Accordingly, Lockhart and Gummow JJ. held that the receipt of the sum of $40,000 was assessable income of the appellant for the year ended 30 June 1986. Section 160M(7) Counsel for the appellant contended that, on its proper construction, s 160M(7) operated only where the owner of an asset received a consideration by reason of some dispositive act in relation to that asset. He contended that, if s 160M(7) was given its literal or grammatical meaning, it produced a result which did not conform to the legislative intention as ascertained from Pt IIIA as a whole. In A-G for Canada v Hallet & Carey Ltd [1952] AC 427, Lord Radcliffe pointed out (at 449) that "the paramount rule remains that every statute is to be expounded according to its manifest or expressed intention". In determining that intention a court "must give effect to what the words of the statute would be reasonably understood to mean by those whose conduct it regulates": Black-Clawson Ltd v Papierwerke AG [1975] AC 591, per Lord Diplock at 638. These statements do not mean, however, that the intention of Parliament is commensurate with the ordinary grammatical meaning of the legislative provision in question. As I pointed out in Corporate Affairs Commission of New South Wales v Yuill (1991) 65 ALJR 500, at 511; 100 ALR 609, at 628, the literal or grammatical meaning of a legislative provision is not always the meaning which parliament intended the enactment to have. Thus, parliament is presumed to have intended that the meaning of its enactment should be determined by applying the rules of construction which traditionally the courts have used to construe legislation. The application of those rules often results in the "intended" or statutory meaning being different from the literal or grammatical meaning of the enactment. As Mason and Wilson JJ pointed out in Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297, at 320; 11 ATR 949: The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction. The rules [of construction], as DC Pearce says in "Statutory Interpretation", p 14, are no more than rules of common sense, designed to achieve this object. They are not rules of law. Departure from the literal or grammatical meaning of a legislative provision "extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions": Cooper Brookes, at ( CLR) 321. Unless the context of a legislative provision or the purpose of the statute or the application of a rule of construction throws real doubt on the literal or grammatical meaning of the provision, however, that meaning must be taken as representing parliament's intention as to the meaning of the provision. A court is not entitled to depart from the literal or grammatical meaning of a provision simply because that meaning produces anomalies or inconveniences: Cooper Brookes, at ( CLR) 305, 320; Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231, at 234-5, 237, 238; [1978] 1 All ER 948, at 951, 954, 955. Of course, if the literal or grammatical meaning gives rise to an injustice, or even in some cases to an anomaly or inconvenience, it may indicate that parliament did not intend that meaning to prevail. In Cooper Brookes, Mason and Wilson JJ pointed out (at ( CLR) 321): Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended. Counsel for the appellant submitted that, unless s 160M(7) was construed so as to confine its operation to an asset owned by the relevant taxpayer, it gave rise to consequences which produced such absurdities that Parliament could not have intended them. Moreover, so counsel for the appellant submitted, the construction for which he contended was in harmony with Pt IIIA read as a whole. To support the construction for which he contended, counsel for the appellant relied on three general matters. The first matter relied upon was the assertion that Pt IIIA dealt only with the actual or deemed disposal of a taxpayer's assets. It is obvious that the primary purpose of Pt IIIA is to bring to tax gains made by a taxpayer upon the actual or deemed disposal of an asset owned by the taxpayer. But an important question in this case is whether s 160M(7) goes beyond that purpose and brings to tax gains to taxpayers arising from acts, transactions and events in respect of assets owned by others. It would be wrong, therefore, to approach that question with the assumption that Pt IIIA is concerned only with those gains which arise from acts, transactions and events concerning the assets of the taxpayer. Moreover, the concluding words of s 160M(7)(b) show that that para is not concerned with the actual or deemed disposal of an existing asset; it deems a relevant act or transaction in relation to, or an event affecting, an existing asset to be the disposal of a notional asset. The second matter relied on was that Pt IIIA was not intended to introduce a gift tax. That proposition may be accepted. It does not follow, however, that all gifts are outside the scope of Pt IIIA. The third matter relied on was the claim that the effect of the majority judgment in the Full Court is to widen the entire scope of capital gains taxation so that a capital receipt will be treated as a capital gain whenever the receipt can be related to an asset. But, whatever its limits, s 160M(7) is concerned to bring to tax some classes of receipts even though no disposition of an asset has been effected. In that respect, therefore, Pt III A does bring receipts to tax although they have arisen not from the actual disposal of an asset but by reason of an act or transaction which has taken place in relation to, or an event which has affected, an asset. The problem is to identify what are the conditions which must be satisfied before such receipts come within s 160M(7). Counsel for the appellant also relied heavily on the reasoning of Hill J in his dissenting judgment in FCT v Cooling (1990) 22 FCR 42; 21 ATR 13. The Full Court of the Federal Court gave judgment in that case on the same day as it gave judgment in the present case. In Cooling, Hill J said (at ( FCR) 68) that, if the words of s 160M(7) are read literally without reference to the scheme of Pt IIIA as a whole, it could readily be said that the subsection "is capable of referring to any asset at all". However, his Honour pointed out (at (FCR) 68-69) that the process of statutory construction does not consist merely in ascertaining the meaning of the words used aided, if necessary, by a dictionary; regard had to be had to the legislation as a whole and the consequences of a literal interpretation. His Honour said it seemed to him (at ( FCR) 69):… that the purpose of s 160M(7) was to deal with the case where an asset of a taxpayer was not disposed of in the ordinary sense as a result of the transaction (that is not within s 160L), was not the subject of the creation of an interest out of that asset (that is not within s 160M(6)) but nevertheless there was a transaction etc which related to or affected that asset which gave rise to consideration being paid or becoming payable. Because the taxpayer may be left, so far as the specific s 160M(7) transaction is concerned, with the existing asset in his ownership it is appropriate not to allow him any cost base just as was the case with s 160M(6) where the existing asset also continued in the taxpayer's ownership. To consider the section by reference to an asset of a person other than the taxpayer seems to me to turn the policy of the legislation upon its head. Hill J thought that the respondent's interpretation gave rise to consequences which produced absurdities. He gave as an example (at ( FCR) 70-1) the case where a contract of sale of an asset by a husband provided for payment of the purchase money to the wife. His Honour said that, on the respondent's argument, both husband and wife would be potentially assessable. His Honour said (at ( FCR) 71) that the consequences of the handing over of a cheque to a person by way of gift was an even more absurd example of the respondent's interpretation. The delivery of the cheque, said his Honour, was an act which either took place in relation to the donor's bank account (a chose in action) or which could be said to affect that bank account. His Honour thought that it could not be seriously suggested that the recipient of the cheque was deemed to have made a chargeable gain equal to the cash received. Yet, he said, this would seem to be the result which follows unless the asset of which the subsection speaks was "confined to an asset of the taxpayer who receives the money or other consideration or becomes entitled to receive it". A third example given by his Honour (at ( FCR) 71) was that of a person who repaired a house for reward. His Honour said that, by reason of s 160M(7), it would be possible to have the consideration included as assessable income under s 160ZO(1) yet, if the taxpayer was not assessable on an accruals basis, the receipt could be caught by s 25(1) or s 26(e) in a different tax year. His Honour went on to say (at ( FCR) 71): The clear policy was to bring to tax gains made by a taxpayer only where the taxpayer held an asset acquired by him on or after 20 September 1985 which he turned to account by either disposing of it in the normal sense of that word or by entering a transaction that by force of one or other of the subsections of s 160M of the Act was deemed to be a disposition. This policy is furthered by interpreting subs (7) as applying to, and only to a case where the taxpayer does not dispose of the asset itself but enters into a transaction that has a real relationship to the asset or affects the asset and gives rise to a circumstance where the taxpayer receives money or other consideration but is left still holding the asset at the end of the transaction, albeit that the asset has been diminished in value. In such a case, the cost base of the asset is undiminished but the consideration is treated as a gain to him. If separately or even in a related transaction the asset is disposed of then the cost base of the asset will be available to calculate any gain or loss to the taxpayer arising from the disposition of the asset itself. Counsel for the respondent criticised his Honour's examples and contended that, properly analysed, none of the alleged absurdities were within s 160M(7). I think that the criticisms of counsel for the respondent are well founded. But to explain my reasons for this conclusion would unduly lengthen what is already a lengthy judgment. In any event, even if his Honour's examples were well founded, they do not compel the conclusion that "an asset" in para (a) of that subsection means "an asset owned by the taxpayer". If the examples given by his Honour are correct illustrations of the operation of the subsection, they show no more than that, in some situations, Pt IIIA has a far-reaching operation and that it goes beyond what most people would regard as the proper domain of a capital gains tax. I should note that both sides relied upon the explanatory memorandum of the Treasurer which accompanied the Capital Gains Bill. This gave as examples of acts, transactions or events affected by s 160M(7): "… an amateur sportsman who receives a payment on becoming a professional, the receipt of consideration for entering into exclusive trade tie agreements or restrictive covenants, or in connection with the variation, cancellation or breach of business contracts or agency agreements." However, the examples in the memorandum do not assist either party's case. The examples were not meant to be exhaustive and no example given is precisely in point. Counsel for the appellant also sought to support his construction of s 160M(7) by reference to the insertion of a new subs (7A) into the Act by the Taxation Laws Amendment Act 1990 (Cth). That subsection affords relief to taxpayers from the operation of s 160M(7) in cases where, in the period commencing 20 September 1985 and ending 22 May 1986, an act, transaction or event occurred in respect of assets acquired by the taxpayer before 20 September 1985. Section 160M(7A) seems to be drafted on the assumption that s 160M(7) operates only in respect of the assets of the relevant taxpayer. Accordingly, so the appellant contended, the enactment of subs (7A) shows that the intention of Parliament in enacting subs (7) was that "an asset" meant "an asset owned by the taxpayer". I have difficulty with the notion that the terms of an amending enactment can throw light on the intention of an earlier enactment. There is, however, high authority for the proposition that the terms of an amending Act may be used to construe the Act which it amends: Grain Elevators Board (Vic) v Shire of Dunmunkle (1946) 73 CLR 70, at 85-6; and see Cape Brandy Syndicate v IRC [1921] 2 KB 403, at 414. Nevertheless, the assumption or belief of the parliament which enacted s 160M(7A) does not in my view require the conclusion that s 160M(7) applies only to assets owned by the taxpayer. The terms of s 160M(7A) are not inconsistent with "an asset" in s 160M(7) applying to assets other than the taxpayer's assets. If the words "an asset" in s 160M(7) are construed literally, the enactment of s 160M(7A) was not futile. If parliament had intended the word "an asset" in s 160M(7)(a) to mean "an asset owned by the taxpayer", it would have been easy enough for it to have said so. The language of subs (7) is very general and provides no support for the conclusion that parliament intended the subsection to apply only to a person who has received an amount of money or other consideration in respect of an asset which he or she owned. Significantly, s 160M(7)(b) refers to "a person [who] has received … consideration". If the contention of the appellant was correct, the words "a person" must mean "the taxpayer" or "the owner". Thus, the contention of the appellant requires that the words "owned by the taxpayer" be read into para (a) and that the general expression "a person" in para (b) be read as a specific reference to "the taxpayer" or "the owner of the asset". To give effect to the appellant's contention requires a drastic rewriting of the subsection; it would require the court to legislate for, and not construe, s 160M(7). The appellant's contention that, in that subsection, "an asset" means "an asset owned by the taxpayer" must be rejected. Furthermore, I am unable to agree that s 160M(7) has as wide a scope as Hill J thought it had if the term "asset" includes an asset which the taxpayer does not own. The words "subject to the other provisions of this Part" are a significant limitation on the operation of the subsection. They have the effect that s 160M(7) does not operate in respect of transactions which fall within other provisions of Pt IIIA. The words "has taken place in relation to an asset", "affecting an asset has occurred" and "by reason of" are also significant words of limitation. The starting point in any analysis of an act, transaction or event alleged to be within s 160M(7) is to identify whether the act, transaction or event is one by reason of which "an amount of money or other consideration" has been paid. The phrase "by reason of" requires that the act, transaction or event upon which the Commissioner relies be the cause of the receipt of or entitlement to the amount of money or other consideration. This means that the act, transaction or event must be precisely identified. Further, while it is not appropriate to substitute another verbal formula for the causal phrase "by reason of", a causal connection between two events is not established in a statutory context merely because one event is a causa sine qua non of the other or because, in the widest sense, one event has contributed to the occurrence of the other, unless the language of the statute clearly indicates that it is established: see Commonwealth v Butler (1958) 102 CLR 465, per Taylor J at 476-7. The language of s 160M(7) is not so clear as to compel the conclusion that an act, transaction or event is within s 160M(7) merely because it was a causa sine qua non of, or contributed to, the receipt of an amount of money or other consideration by the taxpayer. The act, transaction or event must be the cause of the receipt or entitlement to receive the money or other consideration which has accrued to the taxpayer. Section 160M(7) also requires that the identified act or transaction shall have "taken place in relation to an asset" or that the identified event shall have been one "affecting an asset". The phrase "in relation to" can be of wide import, but in para (a) the association of that phrase with the words "has taken place" show that "a coincidental or mere connexion" is not enough; there must be a direct connection between the act or transaction which has taken place and the "asset": cf O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356, at 367, 374. The words "an event affecting an asset" also require an event which produces some effect on or change in the asset. Furthermore, "an asset" in para (a) means an existing asset. The subsection treats, as the notional disposal of an asset, an act, transaction or event which has taken place or has occurred in respect of another asset. Since "asset" is defined as "any form of property", the most natural reading of s 160M(7)(a) is that the form of property which is the subject of the act, transaction or event is an existing, and not future, form of property. In the present case, the act, transaction or event by reason of which the appellant received the amount of $40,000 was the entering into the deed of 27 June 1986 and his promise to observe the covenants and conditions of that deed. (The words "provided that he shall at all times observe and fulfil etc" in cl 1 of the deed should be read as a promise and not as a condition subsequent.) The question which then arises is whether that act or transaction has taken place in relation to, or that event has affected, any asset of Hunter Douglas. In the Full Court, Lockhart J (at (FCR) 15) identified the "asset" as the trade secrets, trade connection and goodwill of Hunter Douglas. As I have already said, the "asset" to which para (a) of s 160M(7) refers must be an existing asset. The special case referred does not contain any fact establishing that, at the time of entry into the Deed, Hunter Douglas had any trade secrets, trade connection or goodwill of value. However, para 2 of the special case referred recited that the Division which the appellant managed "accounted for a very significant proportion (approximately two-thirds) of the total business activities of Hunter Douglas". In these circumstances, it seems proper to infer that Hunter Douglas, as at 27 June 1986, had some form of goodwill which had some value. In IRC v Muller & Co's Margarine Ltd [1901] AC 217 Lord Macnaghten said (at 224) that goodwill "is the attractive force which brings in custom". Lord Lindley said (at 235): Goodwill regarded as property has no meaning except in connection with some trade, business, or calling. In that connection I understand the word to include whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others which do not occur to me. In this wide sense, goodwill is inseparable from the business to which [it] adds value, and, in my opinion, exists where the business is carried on. This passage was cited with evident approval by Dixon CJ, Williams, Fullagar and Kitto JJ in Box v Commissioner of Taxation (1952) 86 CLR 387, at 396-7; 5 AITR 351. It will be seen from the statements in IRC v Muller that goodwill is the collective name for various intangible sources of the earnings of a business which are not able to be individually quantified and recorded in the accounts as assets of the business. The goodwill may be constituted by sources internally generated by the business entity or "from the combination or inter-relationship of entities or groups of assets (synergistic benefits)" or both: see the Statement of Accounting Standards AAS 18: "Accounting for Goodwill" (March 1984), para 7. Goodwill, therefore, is "inherently inseverable from the business to which it relates": Geraghty v Minter (1979) 142 CLR 177, at 193. It does not survive the cessation of the business and cannot be dealt with independently of that business: Geraghty , at 181, 193; Red Wing Malting Co v Willcuts (1926) 15 F (2d) 626, at 633. Although goodwill is commonly valued by capitalising the expected future net profits or by estimating the worth of purchasing several years of the past profits of a business, it may exist even though the business has not made any profits and is unlikely to do so for some time. In the case of a new business, money expended on research, advertising and distribution networks, for example, may have created sources of goodwill which will ultimately generate future profits even though the business has not yet made any profit. In IRC v Muller, Lord Lindley referred (at ( AC) 235) to goodwill as including the "agreed absence from competition". In Box, Dixon CJ, Williams, Fullagar and Kitto JJ said (at ( CLR) 394) that money paid as consideration for a vendor entering into a covenant not to compete with the purchaser of the business was "not paid directly for the purchase of the goodwill". But their Honours went on to say (at ( CLR) 397) that goodwill "includes whatever adds value to a business" and that the money paid as consideration for the covenant "was paid to protect and enhance the value" of the business. They appear, therefore, to have treated the restrictive covenant as adding to the sources of goodwill existing as at the time of the sale. In Jacoby v Whitmore (1883) 49 LT 335, Brett MR said (at 338) that a covenant by an employee that he would not work in the trade again within a certain area was "part of the goodwill". It does not follow, however, that, where money is received in consideration for an act or transaction which enhances the value of the goodwill of a business, "an act or transaction has taken place in relation to an asset or an event affecting an asset has occurred" for the purposes of s 160M(7). Money spent on research or training staff or improving the service of a business may enhance the value of a business and, therefore, its goodwill. But it seems absurd to think that the legislature intended s 160M(7) to bring the receipt of such money to account as a capital gain. Such acts or transactions are outside the scope of s 160M(7) because they merely add to the existing sources of earnings which constitute the goodwill of the business in the same way that the purchase of a new machine adds to the value of, but does not relate to or affect or change those pieces of existing machinery which constitute, the plant of a business. Likewise, a covenant by an employee of a business not to compete with the business on the termination of his or her employment is not an act or transaction which has taken place in relation to an asset of the business or an event which affects an asset of the business within the meaning of s 160M(7). At least one thing is clear about that subsection: it does not apply unless either an act or transaction has taken place in relation to an existing asset or an event has occurred which affects an existing asset. A covenant by an employee not to compete with the business on the future termination of his or her employment does not relate to or affect any existing source of the earnings of that business. In the present case the relevant asset relied on for the purpose of s 160M(7) is the goodwill of Hunter Douglas. That means that company's goodwill which existed as at 27 June 1986 when the appellant entered into the deed, that is to say, those sources of earnings which formed the goodwill of the business as at that date. The covenant of the appellant, however, was not directed to those sources. It was directed to the protection of whatever sources of earnings constitute the goodwill of Hunter Douglas as at the future termination of his employment and for a period of two years thereafter. There may be no goodwill when his employment terminates; or, if there is, the sources of earnings which constitute the goodwill may be very different from those which existed as at 27 June 1986. When the employment of the appellant terminates, for example, Hunter Douglas may have different product lines or different customers or different locations. The promise of the appellant contained in the deed of 27 June 1986, therefore, was not an act or transaction which took place in relation to the sources of earnings which constituted the goodwill of Hunter Douglas as at that date. Nor was the promise of the appellant or the entry into the deed an event which affected those sources. The promise of the appellant became, of course, part of the goodwill of Hunter Douglas. But that means no more than that it became another addition to the various sources which collectively constituted the goodwill of Hunter Douglas as at 27 June 1986. The vital point is that it did nothing with respect to or in relation to the then existing sources of goodwill. And it is those sources and not the descriptive name goodwill which are the form of property which constitute the "asset" or "assets" of the business. Accordingly, it follows that the entry into the deed and the promise of the appellant in the present case were not within the terms of s 160M(7). It was not an act or transaction that took place in relation to an asset of Hunter Douglas. Nor was it an event which affected an asset of that company. Section 160M(5)(c) In his written submissions, the respondent contended that the rights which Hunter Douglas obtained were "'property' and an asset (a chose in action)" within the meaning of s 160A. The respondent contended that these rights were created by the appellant when he executed the deed of 27 June 1986. Consequently, it was argued, the rights so created were within s 160M(5)(c). That paragraph provides that: "For the purposes of this Part • … (c) the creation of an asset by or for a person constitutes the acquisition of the asset by the person." The respondent contended that, when the appellant created the asset, s 160M(5)(c) deemed him to have acquired it, notwithstanding that the creation of the asset vested it in Hunter Douglas. The acquisition of the asset by the appellant and its "subsequent vesting" in Hunter Douglas was then said to have constituted a change of ownership within s 160M(1) of the Act and was, therefore, deemed to have effected a disposal of the asset by the appellant and the acquisition of the asset by Hunter Douglas. Counsel for the respondent proffered no oral argument in support of the contention based on s 160M(5)(c). No argument of any kind seems to have been advanced in the Full Court in support of the contention. Indeed, the contention itself does not seem to have been raised in that court and was not referred to in the notice of contention filed in this court. While discussing s 160M(6) in his judgment in this case, Gummow J incidentally expressed the view (at ( FCR) 33) that paras (b) and (c) of s 160M(5) deal with the construction and creation of assets "in a physical sense". This view seems to be correct. If it is, s 160M(5)(c) does not assist the respondent in the present case. However, I prefer to reject the respondent's contention based on s 160M(5)(c) on the ground that, if that paragraph applies to the creation of a proprietary right and not to an asset in a physical sense, s 160M(1) does not assist the respondent since no "change has occurred in the ownership of an asset" within the meaning of that subsection. Section 160M(5)(c) does no more than deem the creation of an asset to be "the acquisition of the asset by the person" who created it. A change of ownership of an asset is the condition which brings into operation the deeming provisions of s 160M(1). Since the rights created in favour of Hunter Douglas by the deed were never owned by the appellant, no actual change of ownership of that "asset" has occurred. Nor does s 160M(5)(c) deem the creation of an asset to constitute a change of ownership of the asset. The respondent's written submissions sought to overcome this gap by asserting that the deemed acquisition momentarily vested the ownership of the asset in the appellant before its "subsequent vesting" in Hunter Douglas. However, neither in fact nor by deeming was the asset vested in the appellant before it was vested in Hunter Douglas. Section 160M(6) By a notice of contention, the respondent submitted that, if the entry into the deed was not within the terms of s 160M(7), it fell within s 160M(6). The meaning of s 160M(6) is so obscure that it is appropriate to set out the subsection once again. It provides: "A disposal of an asset that did not exist (either by itself or as part of another asset) before the disposal, but is created by the disposal, constitutes a disposal of the asset for the purposes of this Part, but the person who so disposes of the asset shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in para 160ZH(1)(a), (b), (c)or (d), (2)(a), (b), (c)or (d)or (3)(a), (b), (c)or (d) in respect of the asset." The difficulties in construing the subsection are very great. One reading is sufficient to confirm the statement of Hill J in Cooling (at ( FCR) 61) that it "is drafted with such obscurity that even those used to interpreting the utterances of the Delphic oracle might falter in seeking to elicit a sensible meaning from its terms". How can a person dispose of an asset that did not exist before the disposal even as part of another asset? In his written submissions, counsel for the respondent argued that where the word "disposal" first appears in the subsection "it is an elliptical description of an act whereby an asset, not before that act in existence, is brought into existence such that it is vested in a person other than the creator". This construction would mean that a person who had borrowed money and promised to repay it had disposed of an asset (the promise to repay the money) and would be subject to tax under Pt IIIA on the whole amount of the borrowing because that is "the consideration in respect of a disposal" of the asset: see s 160ZD(1)(a) or, alternatively, s 160ZD(2)(a). This result is so absurd that it is difficult to believe that parliament intended it. If parliament had intended the creation of rights in another person to constitute a disposal of those rights by the person creating them, it would have been easy enough for it to have said so. Significantly, the explanatory memorandum does not suggest that s 160M(6) was intended to apply to the creation of rights generally. But more importantly it would require a strained construction of s 160M(6) to cover the case where no more has occurred than that a person has entered into an obligation which created a correlative right in another person. Whatever the proper construction of the subsection may be, its language demands that there be a "disposal of an asset that did not exist … but is created by the disposal". Now, without straining the meaning of the word "disposal", there are forms of property which can be said to be disposed of even though they did not exist until an act of the disponor simultaneously created and vested that property in another person. In Cooling, Hill J gave as examples (at ( FCR) 63) the creation of an easement over an existing asset, the creation out of land of a profit a prendre, and the grant of a lease. His Honour also pointed out (at ( FCR) 63) that "it is at least colloquial usage to refer to the grant of an option as involving a disposition of property". But neither legal parlance nor the ordinary meaning of the words "disposal of an asset" could justify interpreting those words to cover the case where the "asset" is a personal right to sue the grantor of that right. When a person creates a right in another person to sue him or her, the grantor does not dispose of any asset of his or her own. The personal right to sue is never vested in the grantor, even momentarily. It is only when the right to sue is vested in the grantee, and not before, that it bears the character of a proprietary right. It would require a very strained construction of s 160M(6) to hold that a transaction in which A incurred an obligation giving rise to a correlative right in B constituted a "disposal of an asset" (the right to sue) by A to B. There is nothing to suggest that parliament intended s 160M(6) to cover such a case: neither the explanatory memorandum nor the language of the subsection supports it. In Cooling and in the present case, the Full Court of the Federal Court held that s 160M(6) operates only where new proprietary rights have been created out of or over an existing asset. In Cooling, Hill J said (at ( FCR) 65):… the section should be confined to those cases where proprietary rights are created out of or over existing assets in circumstances where the asset affected by the right created continues to exist. In the present case, he said (at ( FCR) 36) that s 160M(6) was "limited to the class of case where there is created out of existing property of the taxpayer a right in respect of that property and in circumstances where the property otherwise continues to be owned by the taxpayer". Also in the present case, Lockhart J said (at ( FCR) 13):… it seems to me that the draftsman of the subsection was endeavouring to provide principally that, where the same act or event both creates and disposes of an asset which emerges from a larger asset previously in existence, there is a notional disposal of the newborn asset for the purpose of Pt IIIA. Gummow J also accepted (at ( FCR) 33) that the subsection "should be read as confined in its operation to those cases where proprietary rights are created out of or over existing assets, in circumstances where the asset affected by the rights created continues to exist". His Honour thought that to construe s 160M(6) in this way was to remove a lacuna in s 160M. After referring to other provisions of that section, his Honour said (at ( FCR) 33-34): None of these provisions deals with the creation of a fresh set of proprietary rights out of a greater bundle of pre-existing proprietary rights, so as to leave a residue of such rights but to treat what has happened as the creation of a new asset. Subsection (6) then goes further by deeming the asset so created as having been ipso facto disposed of, without payment of consideration by the disponor and with the same position as to cost base as is set up under subs (7). Support for these views as to the meaning of s 160M(6) is provided by the only two examples of its application given in the explanatory memorandum. The examples given are "a disposal of an asset by a person granting a lease, or giving an option to another person to buy an asset at a future date". Both examples are cases where the taxpayer creates a right in favour of another person out of an asset of his or her own. Ironically, however, what constitutes a disposal in respect of a lease or an option is dealt with by ss 160ZSand 160ZZC respectively. The terms of these sections seem to indicate that s 160M(6) has no operation in respect of the grant of leases and options. Nevertheless, the examples indicate that, in enacting s 160M(6), parliament perceived the subsection to be concerned with gains made from disposing of rights which were created out of or over existing assets by transactions which created and simultaneously disposed of those rights. The language of the subsection gives much support for that construction and so do the considerations to which Gummow J referred. On balance, I think that it is the better of the competing constructions, none of which can be regarded as entirely satisfactory. The principal argument against the construction which the Full Court placed on s 160M(6) is that to give effect to it contradicts the words in brackets in that subsection. It is true that the Full Court's construction requires that the "asset" be created out of or over an existing asset while s 160M(6) in terms applies only to a case where the asset "did not exist (either by itself or as part of another asset) before the disposal". But I do not think that there is any conflict between the Full Court's construction and the words in brackets. Although a lease, an easement and a profit a prendre are created out of land, for example, it is not a misuse of language to say that they were not part of the land before their creation. Consequently, I would hold that s 160M(6) applies only where the asset disposed of was created out of or over an existing asset. In the present case, the asset relied on is Hunter Douglas' right to sue the appellant to enforce the covenants which he gave in the deed of 27 June 1986. But the appellant did not dispose of that asset. Further, the right to sue was not created out of or over any existing asset. The case, therefore, is not within s 160M(6). Conclusion While it is true that the appellant has obtained a gain in the sense that he received $40,000 and that he had no prior claim to that sum, that gain was obtained by the surrender of his liberty. It was the result of his exploitation of what his counsel called his "right to work". The Full Court held unanimously that such a right was not an "asset" for the purposes of Pt IIIA (cf Kirby (Inspector of Taxes) v Thorn EMI Plc [1988] 1 WLR 445, at 452; [1988] 2 All ER 947, at 953; Forbes v NSW Trotting Club Ltd (1979) 143 CLR 242, at 260-1) and that proposition was not disputed in this court. If the receipt of $40,000 in return for the appellant surrendering part of his right to work when, where and how he pleases is a net gain in an economic sense, it is a gain which arose from the exploitation of a personal right which was not an asset for the purpose of Pt IIIA.