Bray v. Federal Commissioner of Taxation.

Members: Barwick CJ
Stephen J
Mason J
Jacobs J

Aickin J

Tribunal:
Full High Court

Decision date: Judgment handed down 19 May 1978.

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Aickin J.: The facts relating to this appeal are set out in the judgment of my brother Jacobs and I do not need to repeat them here.

I find myself in substantial agreement with the judgment of Deane J. in the Full Court of the Federal Court, both in his discussion of the facts and of the law. I make the minor and in the end irrelevant exception that I do not think it is possible to say one way or the other whether the appellant's cheque had been drawn either on or before 12th June 1974 and held by him as a trustee pending the first meeting and the decision to open a bank account. There does not appear to me to be any evidence one way or the other on that point. I do not think however that it is necessary to advert to that question to conclude that there were two separate and successive gifts, the earlier of money and the later of shares, even though the separation in time was insignificant. Each was complete in the sense that the trustees were put into the position in which they could themselves take such steps as might be necessary to complete the transfer of the property to themselves, though no doubt the legal title to the shares must have been dependent upon the approval of the directors of M.B.J. Constructions Pty. Ltd. The fund may properly be regarded as ``established'' by the gift of $100, it being clear that the mere execution of a trust deed without there being any trust property could not of itself establish the fund - see
Compton v. F.C. of T. (1966) 116 C.L.R. 233 , at p. 246 .

The two critical questions are whether this was a ``public fund'' and whether it was ``established and maintained under a will or instrument of trust exclusively for the purpose of providing money etc.'' for the specified purposes. As to the first of those questions, I am of opinion that the word ``public'' in the

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ATC 4190

phrase ``public fund'' is used in the sense of being open to the public to make contributions to it. It is by way of contrast with ``private funds'' which are open only to subscriptions by specified groups and not by the public generally. An appeal to the congregation of a particular church for subscriptions to a trust fund for the repair of the church, or a pension for a minister of that church, though charitable in the technical sense, would not be an appeal to the public or for a public fund. Similarly an appeal to former pupils of a particular school or to graduates of a particular university for subscriptions to a fund to be used for the benefit of the school or university would not be a public appeal, nor the fund resulting therefrom a ``public fund''. This adjectival use of the word ``public'' is analogous to its use in such expressions as ``public libraries'', ``public transport'', ``public art gallery'' or ``public park''. A ``public appeal'' or a ``public fund'' is one which is addressed to or open to members of the public generally to respond or subscribe. Upon such view it is not material whether the public or members of the public do in fact subscribe. It also follows that public involvement in the formation, establishment or launching of the fund is not a requirement. Indeed, such a requirement is necessarily excluded by the provision of the section which shows that ``public funds'' may be established and maintained under a will or an instrument of trust. A fund established under a will is necessarily one established by the action of an individual person acting wholly on his own. It is important also to notice that the expression ``established and maintained'' applies equally to funds under a will as to those established by an ``instrument of trust'', an expression which must mean a deed poll or an instrument inter vivos . There is no basis for construing the expression ``established under... an instrument of trust'' in a manner which excludes such establishment by a single individual as donor or both donor and trustee. The word ``maintained'' in this context must mean maintained in accordance with the terms of the will or the instrument of trust as the case may be.

The second question is: what is the significance in the present case of the requirement that the fund be maintained exclusively for the purpose of providing money etc. for the specified purposes, i.e. the funds, authorities and institutions listed in sub-para. (i) to (xliv). It appears to me to be clear that for the fund to be ``established'' for those purposes the trusts of the relevant instrument must provide only for the provision of money, property or benefits to or for such specified funds, authorities or institutions, and for no other purpose or institution. For such a public fund to be ``maintained'' under a will or instrument of trust it must, in my opinion, continue to be subject to the trust for those purposes. If ``maintained'' means ``in fact administered'', there is a practical problem in this section because it is obvious that, in the case of a fund which is open to subscriptions from the public generally, members of the public will have neither actual knowledge nor any means of obtaining knowledge that such a fund is in fact being so administered or that there have been no breaches of trust by the trustees either in the past or current at the time of the donation. Nor would there be any means of ascertaining whether such breaches are deliberate or accidental, in the sense that part of the fund or its income may have been used to provide money for that which was believed by the trustees to be a fund, authority or institution specified in the subsection, but which, in fact and in law, was not such a fund or institution. It does not seem a likely intention to attribute to the legislature that, in its evident policy of encouraging donations to the institutions and for the purposes specified, those taxpayers who are so encouraged or induced should gain or lose the tax benefit held out to them by reference to facts not ascertainable by them. The requirement of the legislature is that the fund should be of that character and to have that character at the time of the donation. It is at least clear that subsequent breaches of trust by application of the funds in an unauthorized manner, or failure properly to keep the investments under review, could not affect the deductibility of the donation. However it is not in the present case necessary to decide what would be the effect of breaches of trust prior to or current at the date of the gift, for there were none at the relevant time.

The purposes for which such a fund is established and maintained are in my opinion to be derived from the terms of the will or instrument of trust and not from the subjective intentions or motives of the founder or of other donors, nor of the trustees. There is clear authority for this proposition in relation to charitable trusts (see e.g.
Hoare v. Osborne

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ATC 4191

(1866) L.R. 1 Eq. 585 and
Keren Kavemeth Le Jisroel Limited v. Commrs. of I.R. (1932) A.C. 650 at pp. 657, 661 ) and that view is in my opinion equally applicable to the determination of whether a fund is a ``public fund'' and is ``established and maintained'' for the prescribed purposes.

In the present case we are concerned only with the donation of property in the year of income ended 30th June 1974. I am satisfied that, at the time of the handing over of the instrument of transfer of these shares and, presumably the necessary share certificate, there was an established fund which was of the necessary character. At that time, and indeed for the balance of that financial year, there was no suggestion of any breach of trust by the trustees, either active or passive. I say ``passive'' because there could be a breach of trust if the trustees did not review from time to time the manner in which the trust funds were invested, so as to ensure that the fund is so far as possible preserved from loss through failure of companies in which the trustees hold shares, whether by unwise investment by the directors of such companies, or otherwise. However nothing occurred in the relevant financial year which would have called for action and there was no reason for the trustees as such to fear that any unusual risks attached to the nature of the property which had been the subject of the donation. It is true it was a proprietary company which had liquid funds and no other assets and of which one of their number was in effect the controlling director. It would have been clear to them that M.B.J. Constructions Pty. Ltd. would have to put the funds to use by an investment of some kind in order to earn income. At that moment there was no reason why they should question the taxpayer's undertaking that he would do his best to see that there was a proper return in the form of dividends and that of course would depend upon the success or wisdom of the investment or use to which the M.B.J. Constructions put the funds at its disposal. They were not a party to the taxpayer's plan that the funds should be used in other companies controlled by him, rather than used in some business conducted by M.B.J. Constructions itself. The findings make it clear that they were unaware of those plans of the taxpayer and also make it clear that at the time of the donation the taxpayer had no plan or intention to divert the funds for his personal benefit.

No doubt there are cases in which subsequent events may cast light on earlier events and intentions, but it is a mode of reasoning to be used with some caution and in the present case it cannot be used to suggest that the trustees were, whether at the time of the foundation of the fund or during the balance of that financial year, actuated by improper intentions or by an intention that the fund should be applied in the manner likely to involve losses by reasons of substantial reduction in the value of the shares which were the subject of the donation, or an intention to put the actual use of funds out of the reach of the company in which the trustees held shares.

For those reasons I am of opinion that this appeal should be allowed.

ORDER:

Appeal dismissed with costs.