Federal Commissioner of Taxation v McPhail

(1968) 117 CLR 111
41 ALJR 346

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(Judgment by: Owen J.)

FEDERAL COMMISSIONER OF TAXATION
v McPHAIL

Court:

Judge:
Owen J.

Judgment date: 26 March 1968

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Judgment by:
Owen J.

March 26.

OWEN J. delivered the following written judgment:-

In his return of income for the year ended 30th June 1965 the respondent taxpayer, who was the father of a boy at the Camberwell Grammar School, claimed a deduction of 15 pounds as being a gift made by him to the trustees of a fund known as "The Camberwell Grammar School Building Fund", a fund which had been set up in 1954 for the purpose of acquiring, constructing and maintaining school buildings to be used by the school. The deduction was disallowed by the appellant Commissioner but on appeal to the Board of Review, the majority of the members of that Board allowed the deduction and the Commissioner's assessment was amended accordingly. The Commissioner has appealed to this Court and has raised two questions. The first is whether, on the facts which are not in dispute, the amount claimed as a deduction can properly be described as a "gift" within the meaning of that word in s. 78 (1) (a) of the Income Tax Assessment Act 1936-1966. If the submissions made on behalf of the Commissioner on that question are rejected, a further question arises whether the case is one for the application of s. 260 of the Act. (at p112)

The facts are as follows: At all relevant times "The Camberwell Grammar School Building Fund" (which I shall call "the Fund") has been a public fund vested in trustees and established and maintained exclusively for providing money for the acquisition, construction and maintenance of the school buildings, the school being carried on by a society otherwise than for the purposes of profit or gain to the individual members of that society. Until 1965 the income of the Fund came from two sources, donations made by members of the public, who were generally parents of boys who were or had been at the school, and the proceeds of what was called a "special charge", at first of 2 pounds and later 3 pounds per term, imposed upon all parents of boys attending the School, a charge which was included in the account for each term sent to each parent. During the latter part of 1964 the school council gave consideration to increasing the fees to be charged during the forthcoming year and in the result it decided that there should be two scales of fees, one described as schedule A, the other as schedule G. Following this decision each parent was, in November 1964, sent a communication in the following terms:

"Dear Parent,

For some weeks the school council has been giving detailed consideration to the schedule of fees for 1965. A number of other independent schools have already made substantial increases during 3rd term, and several are known to be planning to do so next year.

Staff salaries and wages which are the largest single component of expenditure have shown marked increases. Other running expenses have also risen. Fortunately purchases of properties necessary for school expansion have been supported by substantial legacies. Interest and capital repayments have been arranged over long terms of years so that there is no undue effect on current expenses, but there are higher interest charges to be met.

Your Council has arrived at the 1965 scale of fees set out in schedule 'A' of the attached statement as the minimum necessary to maintain and improve the standard of education and services available at the school and to continue its policy of developing the buildings and facilities. The 'special charge' hitherto levied is incorporated in schedule 'A'.

A careful review of the fee structure taking the new scale into account has shown that our rates will still be below the average of those already being charged or to be charged next year by other schools similar in character to our own.

The Council has also given consideration to an arrangement which may be of interest to parents, and in regard to this your careful attention is drawn to the accompanying statement.

Yours faithfully,

(Sgd.) Wilfred Holt

Chairman - School Council."

Two documents accompanied this letter. The first was headed "Schedule of Fees" and was as follows:

Intention to set up Fee Schedule 'G'. In general there are two main sources of revenue received by the School, (a) from fees and (b) from the Trustees of the Camberwell Grammar School Building Fund (a fund under a trust deed, registered with the Taxation Department, contributions to which are allowable deductions for income tax purposes).

The Trustees of the Fund are required to apply money from the Fund 'towards the acquisition construction and maintenance of buildings to be used in connexion with C.G.S. in such manner as the School (Council) shall from time to time direct'. The acquisition of land for school buildings is also accepted by the taxation authorities as implied in these objects. Every penny available from the Building Fund is a penny which would otherwise have to be found as fees. Hence it would seem reasonable to make some allowance in fees when the money-flow into and from the Building Fund permits.

The Council has therefore adopted a special scale of fees which it has named 'Fee Schedule G', as a scale of fees which at the discretion of the Council may be charged to parents.

It will be evident that the Council must know before the start of the school year what the intentions are concerning gifts to the Building Fund. So that arrangements can be made, you are invited if you wish to be considered for admission to schedule G, to complete and return the declaration which is attached to this letter in respect of every boy you have at the School.

The Bursar and the Trustees of the Building Fund have agreed that fees and gifts to the Fund may be paid at the same time. The fees due and the contributions pledged (if any) will be itemized on the term accounts which will be sent out in the usual way.

At the end of June certificates will be sent by the trustees to parents who have made contributions to the Building Fund listing the total gifts made during the tax year just ended. It is recommended that such certificates be attached to the parent's tax return when claiming deductions.

The second document was in the following terms:

"The Bursar,

Camberwell Grammar School.

Dear Sir,

. . . . . . . . . . . . . . . . . . . . . . . . . . (name/s of pupil/s)

In respect of (each of) the abovementioned pupil/s, I undertake to pay 15 pounds (fifteen pounds) into the Building Fund of the Camberwell Grammar School at the commencement of each term while the said (respective) pupil/s attend the school.

I apply to be charged according to fee schedule G for the said pupil/s.

Dated this . . . . . . . day of . . . . . . 19 . . . . . . . . . . . . . (signed) Parent (or)

Guardian . . . . . . . . . . . . . . . . . . . . Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "

The fees set out in schedule G were the same as those charged during 1964 omitting the "special charge" of 3 pounds per term and were 14pounds 15s. per term less than those set out in schedule A. (at p115)

The appellant signed the undertaking directed to the School Bursar to pay 15 pounds per term to the Fund and applied to be charged according to schedule G. The School Council accepted his application along with those made by all other parents who wished to adopt the same course and, for the first school term in 1965, each parent was sent an account for fees as set out in schedule G together with a "special charge" of 15 pounds. The account sent to the respondent was paid by him and as each account was paid by the parent concerned, 15 pounds of the amount paid was paid to the credit of the Fund's bank account and the balance to the credit of the School Council's account. (at p115)

The first question then is whether, in these circumstances, the amount of 15 pounds paid by the respondent was a "gift" made by the taxpayer within the meaning of s. 78 (1) (a) (xv). (at p115)

There is nothing in the Act which defines the word "gift" or which extends its ordinary meaning to cover a disposition of property in circumstances in which the disponor receives a benefit in return for the transfer of the property. The Act contains no such provision as was to be found in the Customs and Inland Revenue Act, 1889, the effect of which was to include in the word "gift" as used in the Customs and Inland Revenue Act, 1881 "property taken under any gift of which property bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift and thenceforth retained to the entire exclusion of the donor, or of any benefit to him by contract or otherwise". Referring to the words which I have put in italics, Vaughan Williams L.J. in Attorney-General v. Johnson [1903] 1 KB 617 said: "We come to the conclusion that the Legislature intends that property shall be treated as taken under a 'gift', although such gift may have been made under a contract by which the donor takes a benefit" (1903) 1 KB, at p 624 : see also Attorney-General v. Worrall [1895] 1 QB 99 , where Lord Esher M.R. (1895) 1 QB, at p 105 drew a distinction between what he described as "a pure and simple gift" and a "gift" within the meaning of the statute. The word as used in s. 78 [1903] 1 KB 617 is, I think, used in the sense in which it is understood in ordinary parlance. In that sense Viscount Radcliffe in Rennell v. Inland Revenue Commissioners [1964] AC 173 , at p 193 described it as being "a present made without return of any kind". The words "of any kind" are perhaps too wide and should I think be read as referring to a return of something of material advantage to the disponor. The Shorter Oxford Dictionary defines the act of giving as "a transfer of property in a thing voluntarily and without any valuable consideration" and the thing given as being "something the property in which is voluntarily transferred to another without expectation or receipt of any equivalent".

This last definition is, I think, too narrow. A disposition of property would not be regarded as a "gift" in the ordinary sense of the word if what is received in return for it is not equal in value to the value of the property the subject of the disposition. (at p116)

But it is, I think, clear that to constitute a "gift", it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return. In my opinion, neither of these conditions was fulfilled in the present case. The taxpayer gave an undertaking to the School Council to contribute 15 pounds per term to the Fund and coupled with that undertaking a request to be charged fees at the rates set out in schedule G. The School Council granted his application and charged him accordingly. In the result, it seems to me, there came into existence a contractual obligation on the taxpayer's part to pay those fees and to contribute to the Fund and on the part of the School Council an obligation to provide education facilities for the taxpayer's son for the appropriate fee set out in schedule G. The payment of 15 pounds was not a voluntary payment. In the events that happened it was a payment made pursuant to a contract between the taxpayer and the School Council. If, however, the payment should be regarded as a voluntary payment, the taxpayer made it in the expectation that in return he would receive, and he did in fact receive, a substantial concession in the fees charged for the education of his son. In neither event did he make a "gift" within the meaning of s. 78 (1). (at p117)

In these circumstances it is unnecessary to consider whether the case is one for the application of s. 260. (at p117)

The appeal should be allowed with costs. The decision of the Board of Review should be set aside and the Commissioner's assessment confirmed. (at p117)