CASE 50/94

Members:
Barry J

Tribunal:
Administrative Appeals Tribunal

Decision date: 12 July 1994

---

JPO Barry (Presidential Member)

In late 1978 Ronald James purchased in his own name a freehold property of about 62 hectares in the Gympie area. I accept that, in doing so, he acquired the land at the request of his son Desmond James, as deposed to in the son's affidavit (refer paragraph 1 of affidavit of Desmond James sworn 28 June 1994):

``I had an interest in acquiring the property and developing it as a farm. At the time I was only 20 years old and had just completed an apprenticeship. I did not have the financial capacity to purchase the land myself. I inspected the property and then approached my father requesting his assistance to acquire it. I discussed with him the possibility of his buying the property on my behalf and transferring it to me when I could afford it.''

I accept this account of events. As I understand the evidence, the consideration for the original purchase by Mr James, Snr was $30,000. The oral agreement between father and son was expressed by the father in his affidavit in the following terms (refer paragraph 5 of affidavit of Ronald James sworn on 28 June 1994):

``It was agreed that, at a later date, I would transfer the property to him and that he would refund to me the purchase price of the land, together with any other money which I had contributed for developing the property.''

After the transfer of the property to the father's name, the son began to work the property - clearing it and cultivating it. He planted small crops on that portion of the land which had been cleared. Together with his father he constructed a dam on the property.

Mr James, Snr and his wife Joan, operated a cane farm in the Nambour District some distance away. In 1981 he had the opportunity to apply for a further sugar cane assignment. The existing cane farm was fully assigned and under cane. The father approached his son and discussed his proposal to apply for a cane assignment on the Gympie property. The son offered no objection. To apply for the assignment it was necessary for the land to be held in the same terms on which the cane farm was held. Accordingly, Ronald James transferred the Gympie property into the joint names of his wife and himself. This transfer was registered on 30 March 1981. Shortly thereafter a cane assignment of 6.9 hectares was granted for the subject property. The first planting of cane was in the 1981 year and was harvested in the 1982 crushing season. The father expended money establishing an irrigation plant on that portion of the farm on which he was growing cane. Thereafter Mr James Snr and his wife harvested four more crops of cane up to and including the 1986 season. The son continued to utilise a significant portion of the property for the cultivation of small crops.

In December of 1981 the son married Helen James (the taxpayer).

It is asserted and for present purposes I accept that:

• (a) Ronald James originally held the land on behalf of his son;
• (b) After the transfer into joint names with his wife, Ronald James and Joan James, held the land on behalf of the son;
• (c) After the marriage of Desmond James and Helen James in late 1981 the parents held the farm on behalf of the son and his wife.

It was a loose family arrangement typical of many carried out in farming communities throughout the length and breadth of this country.

I am not satisfied that the arrangements were made as formally as is suggested in the affidavits of the various deponents. It was more a case of a general understanding that some day, when it suited everyone, the subject property would be transferred to the son and his wife. The son and his wife conducted their farming operations in partnership as between themselves. They effected various improvements to the property at their on expense. The father, likewise, effected improvements for which pursuant to the understanding with his son, he would be reimbursed when the property was finally transferred.

---

ATC 442

In 1982, Ronald and Joan James mortgaged all their properties, including the Gympie property to the National Australia Bank, to raise finance for the purchase of more land. This mortgage remained on the property until the eventual transfer to their son and Helen.

Ronald James deposes in paragraph 13 of his affidavit that in approximately 1983 or 1984 his son indicated that he was then in a position where he could pay the agreed purchase price but he and his wife were unable to transfer Title owing to the existence of the cane assignment.

On 16 August 1985, the parents entered into an arrangement with Patrick O'Brien to lease 9 hectares of the subject land, being the area of land on which the cane assignment existed, and to sell the cane assignment to him. It was the parents' intention to sell the cane assignment to Mr O'Brien, but to do so it was necessary to effect a lease over that part of the subject land. Once Mr O'Brien was registered as the lessee, he intended to transfer the cane assignment to other land held by him. The lease was for a term expiring:

``On 31 December 1987 or upon a day next following the day upon which the Central Sugar Cane Prices Board confirms the total substitution of the sugar cane assignment attached to the demised land whichever date shall first occur.''

Clause 6 of the Lease provided:

``The parties hereto further acknowledge and agree that notwithstanding the terms and conditions of this Lease, the Lessor and their servants or licensees shall be entitled to use any areas of the demised land for their own purposes which does not contain standing cane for harvest in the 1986 sugar crushing season.''

For reasons which escape me, a further Lease was executed on 26 May 1986 in basically the same terms as the earlier Lease between Mr and Mrs James Snr and Mr O'Brien. The original Lease was for 9 hectares whilst the second Lease was for 7.5 hectares. It may have had something to do with the requirements of the Central Sugar Cane Prices Board, but in any event I find it unnecessary to resolve why the second Lease was executed. The second Lease contained a clause identical to Clause 6 of the original Lease quoted above. It was also expressed to be for a term similar to that which I have quoted as pertaining to the original Lease.

After the transfer of the cane assignment to Mr O'Brien was effected and the parents had harvested the 1986 crop of cane, they set about transferring the land to Desmond and Helen.

In paragraph 17 of his affidavit, the father deposes:

``17. I calculated that the total sum which I had contributed to the property, being the original purchase price and improvements carried out by me, was approximately $65,000. It was agreed that my son and the Applicant would pay this amount to myself and my wife at the time of transfer.''

In paragraph 8 of his affidavit Desmond says:

``My father estimated that the total amount which he had contributed to the property, was approximately $65,000. The applicant and myself agreed to refund the amount to my parents when Title to the land was transferred to us.''

The taxpayer in her affidavit (paragraphs 7 and 8) makes no reference to the calculation of the purchase price though she does depose to the matter of payment:

``7. After our marriage, I do not recall any specific agreement that the property would be transferred into the joint names of my husband and myself, rather than my husband solely. However, between us it was accepted that this would be done. After we had been married approximately two (2) years I suggested to my husband that some steps should be taken to transfer ownership of the land to us. I was somewhat concerned that we were spending money on the property and it was still not in our names. I did not have any direct conversations with my husband's parents regarding the transfer. However my husband subsequently told me that he had spoken to his parents regarding this matter and that they could not transfer the land to us at that time because the sugar cane assignment was still in their names. I do not recall exactly when these conversations took place but I would estimate that it was approximately late in 1983 or in 1984.

8. I continued to mention the matter to my husband from time to time and eventually I was told that Mr and Mrs James Snr were selling their assignment and that the

---

ATC 443

property could be transferred to us. I was aware that we were to refund to my husband's parents the capital expenditure that they had contributed towards the property, including original purchase price thereof and improvements to the land. By approximately 1983 or 1984 we were in a position to begin repaying that expenditure to my husband's parents, although the final payment was not actually made to them until sometime after the land had been transferred to us. I recall that during 1986 I was advised that the transfer of the land could proceed because Mr and Mrs James Snr had sold the assignment from the property.''

No details were placed before the Tribunal as to how the sum of $65,000 was paid. Desmond James indicated in his oral evidence, it was paid in two instalments, with the second payment being made after the date of transfer. The transfer was eventually registered in the name of the taxpayer and her husband on 13 October 1986. The date of the Memorandum of Transfer was 18 August 1986.

It is common ground that in February 1991, the taxpayer and her husband sold the property for $250,000.

A ruling was sought by the taxpayer's accountant as to the liability of the taxpayer to pay Capital Gains Tax on the transaction. The Commissioner ruled that the land was acquired by the taxpayer after 20 September 1985, and therefore the profit on the resale was assessable for Capital Gains Tax purposes. The taxpayer now seeks a review of the Commissioner's determination.

The facts are not greatly in dispute. The taxpayer and her witnesses impressed me as honest farming folk. There was no guile about them. There was clearly a close bond between all of them, of mutual reliance and trust.

I accept that the taxpayer and her husband expended $11,000 on fertiliser for the subject land to improve its productive capacity. They also effected other improvements to the land by way of the establishment of roads and such like.

There was no enquiry at the hearing other than in general terms as to how the sum of $65,000 was calculated. It appears to be taken a serendipitous that the agreed price approximated the valuation obtained for stamp duty purposes of $67,000.

I make the following findings:

• 1. All parties accepted that the land was eventually to be transferred to the taxpayer and her husband and this arrangement was in place well prior to 20 September 1985.
• 2. The taxpayer and her husband, as well as his parents, had the use and enjoyment of the land from 1978 until August of 1986.
• 3. In the Statutory Declarations contained in the T Documents, sworn by Ronald James and Desmond James, reference is made to a ``Contract'' dated 28 October 1986. I am satisfied from the evidence of the accountant and the other witnesses that this reference in the Statutory Declaration is an error and that no such document exists.

For the taxpayer it was contended that there was a trust established at the time of purchase by Ronald James. The agreement constituting the trust, it is argued, was not subject to a further agreement as to price but was readily calculable by reference to sums Mr James Snr expended on the improvements to the property.

The taxpayer argues that section 160ZX does not apply as she and her husband were ``absolutely entitled'' to the land prior to 20 September 1985. It was argued, if in 1984 the parents had defaulted on the arrangements made, equity would have required the parents to convey the land on the terms of the original agreement. For reasons I advert to later, that is a submission I have difficulty in accepting.

The taxpayer contended she and her husband were the beneficial owners of the property as from the time the husband's parents acknowledged the property would be transferred to them. She relied on sections 160M(3) and 160U(7) as the operative sections of the Act.

It is necessary to set out the various sections of the Income Tax Assessment Act, so far as they are relevant:

``SECTION 160MWHAT CONSTITUTES A DISPOSAL OR ACQUISITION

160M(1) [Change in ownership] 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

---

ATC 444

person who owned it immediately after the change.

160M(1A) [Change in beneficial ownership] It is declared for the avoidance of doubt that a change in the legal ownership of an asset does not constitute a change in the ownership of the asset for the purposes of this Part unless there is also a change in the beneficial ownership of the asset.

...

160M(3) [Declaration of trust, choses in action, etc.] Without limiting the generality of subsection (2), a change shall be taken to have occurred in the ownership of an asset by-

(a) a declaration of trust in relation to the asset under which the beneficiary is absolutely entitled to the asset as against the trustee;

...

(d) subject to subsection (4), a transaction in relation to the asset under which the use and enjoyment of the asset was or is obtained by a person for a period at the end of which the title to the asset will or may pass to that person.

160M(4) [Use and enjoyment but no title passes] A change shall not be taken to have occurred in the ownership of an asset by a transaction referred to in paragraph (3)(d) if the period for which the person referred to in that paragraph has the use and enjoyment of the asset terminates without the title to the asset passing to that person.

...

SECTION 160UTIME OF DISPOSAL AND ACQUISITION

160U(1) [Scope of section] Subject to the provisions of this Part other than this section, where an asset has been acquired or disposed of, the tlme of acquisition or disposal for the purposes of this Part shall be ascertained in accordance with this section.

160U(2) [Later subsections take precedence to earlier subsections] If the time of acquisition or disposal as ascertained under a sub-section of this section is different from the time of acquisition or disposal as ascertained under a subsequent sub-section of this section, the time of acquisition or disposal shall be taken to have been the time of acquisition or disposal as ascertained under that subsequent sub- section.

160U(3) [Acquisition or disposal under contract] Where the asset was acquired or disposed of under a contract, the time of acquisition or disposal shall be taken to have been the time of the making of the contract.

160U(4) [Acquisition or disposal not under contract] Where the asset was acquired or disposed of otherwise than under a contract, the time of acquisition or disposal shall be taken to have been the time when the change in the ownership of the asset that constituted or gave rise to the acquisition or disposal occurred.

...

160U(7) [Use and enjoyment] Where the acquisition or disposal of the asset occurred as a result of a transaction referred to in paragraph 160M(3)(d), the time of acquisition or disposal shall be taken to have been the time when the use and enjoyment of the asset was first obtained by the person mentioned in that paragraph.

...

SECTION 160VDISPOSALS BY BARE TRUSTEES AND PERSONS ENFORCING SECURITIES

160V(1) [Absolutely entitled beneficiary] If an asset is held by a person as trustee for another person who is absolutely entitled to the asset as against the trustee, this Part applies as if the asset were vested in the other person and any acts of the trustee were the acts of the other person.

...

Division 6 - Trusts other than Unit Trusts

SECTION 160ZXPERSON BECOM- ING ENTITLED TO BENEFICIAL OWNERSHIP OF TRUST ASSET

160ZX(1) [Deemed disposal to absolutely entitled beneficiary] Where-

• (a) an asset is held by a person as trustee...; and
• (b) a beneficiary under the trust becomes absolutely entitled to the asset as against the trustee,

  ---

  ATC 445

the trustee shall be deemed, for the purposes of this Part, to have disposed of the asset to the beneficiary at the time when the beneficiary became so entitled.''

Constructive Trust

The Tribunal was referred to decisions of the High Court in
Muschinski v Dodds (1984-1985) 160 CLR 583, and
Baumgartner v Baumgartner (1987) 164 CLR 137.

The headnote in Muschinski v Dodds reads (in part):

``Per curiam. There is no place in Australian law for the notion of a constructive trust which is imposed by law whenever justice and good conscience require it. Proprietary rights fall to be determined by principles of law and not by some mixture of judicial discretion, subjective views about which party ought to win, or the formless void of individual moral opinion.''

I accept that the headnote fairly reflects the various judgments of the Court in this respect.

At page 613, Deane J (with whom Mason J agreed) observed as follows:

``The use or trust of equity, like equity itself, was essentially remedial in its origins. In its basic form it was imposed, as a personal obligation attaching to property, to enforce the equitable principle that a legal owner should not be permitted to use his common law rights as owner to abuse or subvert the intention which underlay his acquisition and possession of those rights. This was consistent with the traditional concern of equity with substance rather than form.''

and at page 614:

``Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.''

In Baumgartner v Baumgartner, at page 147 of the judgment of Mason CJ, Wilson and Deane JJ, in referring to the judgment of Mahoney JA of the New South Wales Court of Appeal, their Honours state:

``But in the course of reasoning to that result Mahoney J.A. indicated some situations in which it might be appropriate to impose a constructive trust. Thus, he said:

`A husband may pay for the matrimonial home and cause legal title to be vested in the wife. The wife may earn money and use it in defraying the household expenses, thus relieving the family budget and allowing the husband to pay mortgage instalments on the home. It will be necessary, from time to time, to determine whether, in such situations, the failure to recognize that the one or the other has a proprietary interest in the home is so contrary to justice and good conscience that a trust or other equitable obligation should be imposed.'

His Honour's reference to `contrary to justice and good conscience' is to be understood as `unconscionable'. The significance of this statement so understood is that it asserts that the foundation for the imposition of a constructive trust in situations of the kind mentioned is that a refusal to recognize the existence of the equitable interest amounts to unconscionable conduct and that the trust is imposed as a remedy to circumvent that unconscionable conduct.''

The view I have reached in the present case is that there is no room for the doctrine of constructive trust on the facts as presented to me. Had the parents purported to sell the land to a third party or otherwise acted in an unconscionable manner, no doubt the rights of the taxpayer and her husband would, at that stage, have been protected by the imposition of a constructive trust by way of a remedy offered in equity. However, on the interpretation of the authorities quoted, it would seem that a constructive trust only arises where there is unconscionable conduct. Here the plans of the parties were to eventually transfer the land. In the absence of any unconscionable conduct by the legal owners, the taxpayer simply had a right to the use and enjoyment of part of the land in accordance with the loose family arrangement which was in place until either the transfer took place or some precipitating incident occurred which gave rise to a constructive trust.

In any event, if section 160ZX was to apply, I find the purchasers could not establish they were ``absolutely entitled'' to the land until the whole of the purchase price had been paid.

---

ATC 446

During the course of arguments, I was referred to the determination by Deputy President Gerber in Case 24/94,
94 ATC 239. At paragraph 14 of his reasons, he observes:

``14. In the present state of the law I am thus unable to accept Mr Harrison's submission that s 160ZX applies in the circumstances. Even if it is correct to say that the vendor under a contract for the sale of land does hold the land as trustee for the purchaser (a proposition which appears to me to be now doubtful at best), it would appear that any such trust does not arise prior to `when the purchase money specified in the contract has been paid, title has been made or accepted and the purchaser is entitled to a conveyance or transfer...'''

The passage quoted by the learned Deputy President is from
Stern & Anor v McArthur & Anor ((1987-1988) 165 CLR 489 at p 523) in the joint judgment of Dean and Dawson JJ:

``To put the matter in this way is to say little more than that the equitable interest of a purchaser under a contract for the sale of land is that which equity recognizes and protects:
Hewett v. Court ((1983) 149 C.L.R. 639, at pp. 665-666), per Deane J. The relationship of trustee and beneficial owner will certainly be in existence when the purchase money specified in the contract has been paid, title has been made or accepted and the purchaser is entitled to a conveyance or transfer. At that point the purchaser is entitled in equity to the land and the vendor is a bare trustee:
McWilliam v. McWilliams Wines Pty. Ltd. ((1964) 114 C.L.R. 656, at p. 660), per McTiernan and Taylor JJ. Otherwise there is no unanimity upon when the relationship of trustee and beneficial owner arises:
Chang v. Registrar of Titles (1976) 137 C.L.R. 177, at p. 184), per Mason J. But that does not mean that before that time has arrived the purchaser may not be entitled to a lesser equitable interest than ownership.''

Whatever interest the taxpayer and her husband had in the subject land prior to 20 September 1985, I am satisfied on the basis of the authorities cited she is unable to assert she was ``absolutely entitled'' to the asset as against the trustee prior to the payment of the purchase price.

I do not find it necessary to consider the question whether a result in trust arose. There is a suggestion in the taxpayer's evidence that payments on the land were made to the parents over a period of time. I am of the view that the taxpayer's evidence in this regard is unlikely. The better evidence is that payments were made by two instalments. It is probable that both such payments were made after 20 September 1985 but certainly the secod instalment was.

Section 160M(3)(d)

I am unable to accept the taxpayer's submission that the situation is governed by this sub-section. This sub-section only applies to a transaction where the use and enjoyment of the asset was or is obtained for a period at the end of which the title to the asset will or may pass to that person. The words ``for a period'' can only be construed as meaning ``for a fixed period''. This interpretation seems clear when regard is had to the terms of section 160M(4):

``... a change shall not be taken to have occurred in the ownership of an asset... if the period for which...''

This interpretation is further supported by the wording of section 160U(7). There was no fixed period for which the taxpayer and her husband had the use and enjoyment of the land. The parties were quite prepared to allow the arrangements to carry on as they were until the taxpayer and her husband had the financial capacity to repay the parents and until such time as the parents had disposed of the cane assignment on the land. Accordingly, I find sections 160M(3)(d) and 160U(7) have no relevance to the current application.

I would have thought the common sense view was that pursuant to section 160M(3)(d), the use and enjoyment of the asset would refer to the sole use and enjoyment of the whole of the land. This was certainly not the case here, as is obvious from the facts, but in view of the interpretation I have placed on the sub-section, that it only applies to a fixed term, I do not have to consider this further aspect of the submissions made on behalf of the Commissioner.

Section 160U(3)

The taxpayer had no enforceable right pursuant to the oral agreement other than by the remedial device of the constructive trust. Had there been a written contract or had they paid the purchase price in full, they may well have been in a position to argue they were the beneficial owners and different considerations

---

ATC 447

may apply. The taxpayer, however, mounted an alternative argument that, although an oral contract for the acquisition of land is unenforceable (by virtue of the provisions of sections 11 and 59 of the Property Law Act (Qld)), there was no need to enforce it and hence the contract itself had validity (refer the Applicant's Statement of Facts and Contentions, paragraph 18):

``18. The agreement by Ronald James and Joan James to transfer legal title to the applicant and Desmond James was enforceable, (although not in writing) notwithstanding the provisions of section 59 of the Property Law Act 1974 as a result of the establishment of the trust (Rochefoucald v Boustead).''

It may be that in certain limited circumstances, an oral contract can be valid for purposes other than enforcement. However, I am of the view the use of the word ``contract'' in section 160U(3) should be interpreted as an ``enforceable contract''. To read it in any other way would lead to astonishing results. In any event, the oral contract which the taxpayer relies on between the father and son lacks validity on the grounds of uncertainty. The evidence clearly indicates the parties intended there be further negotiations at an appropriate time to determine the sale price. The fact that the father gave the taxpayer and his son a list of expenditures, and they accepted it without argument, does not alter the fact there had to be that further agreement. It seems to me a self- obvious proposition the parents would have had great difficulty in insisting on a sale of $65,000 if the taxpayer and her husband for any reason had disputed that figure. Similarly, I am unable to accept the submission made on behalf of the applicant that such amount was readily calculable by a Court ordering an accounting procedure.

I have reached the conclusion the vendors disposed of the property and the purchasers acquired same when the Memorandum of Transfer dated 18 August 1986 was signed.

The transaction is governed by section 160U(4) - that is a disposal or acquisition not under contract. It may be that the Memorandum of Transfer is interpreted as a contract, in which case, by virtue of section 160U(3), the disposal was on that date. However, if the view is taken that the signing of the Memorandum of Transfer is merely the execution of a conveyancing instrument and cannot properly be interpreted as itself a contract in writing, the position is governed by a combination of sections 160M(2) and 160U(4).

Prior to the date of the Memorandum of Transfer the applicant and her husband were merely the intended beneficiaries of the subject land. It suited their purposes as a family group to retain the title in the parents' name. I hold they are now unable to assert that they were the beneficial owners of the land prior to the transfer to their names.

In circumstances where the purchasers have acquiesced in the vendors holding themselves out as the beneficial owners to the National Australia Bank, the Central Sugar Cane Prices Board and Patrick O'Brien, I would have thought it could be argued they were estopped from asserting they (the purchasers) were the beneficial, owners at the relevant time.

No such argument was addressed to the Tribunal and I find it unnecessary to determine this issue.

For the taxpayer, considerable reliance was placed on the decision of
Rochefoucald v Boustead [1897] 1 Ch 196. I am unable to accept that this case supports the proposition contended.

In the result, the objection decision under review is affirmed.