Scott v Federal Commissioner of Taxation (No 2)

(1966) 14 ATD 333

(Judgment by: Windeyer J)

v.Federal Commissioner of Taxation (No 2)

High Court

Windeyer J

Hearing date: 7 October 1966
Judgment date: 7 October 1966


Judgment by:
Windeyer J

These are eleven appeals against assessments or amended assessments of income tax. With the assent of the parties I heard all the evidence together, it being understood that I was to deal separately with each ease. Also in the list at the same time were two other appeals. One of these, No. 45 of 1965, was withdrawn and by consent I dismissed it. In the other (No. 47 of 1965) I have already given my judgment. (1966) 14 ATD 286 . I proceed now to those that remain. They are by three separate taxpayers whose affairs are interrelated. They relate variously to the years of income ended on 30th June, 1959, 1960, 1961, 1962 and 1963. All the cases arise as a result of the taxpayers claiming, in one capacity or another, the benefit of provision of the Income Tax and Social Services Contribution Assessment Act 1936-1962 concerning superannuation funds. These claims the Commissioner did not allow.

The relevant parts of the sections on which the case turns (as they were before amendments made after the relevant years) were as follows:

"23. The following income shall be exempt from income tax:-

the incomes of the following funds, provided that the particular fund is being applied for the purpose for which it was established-
a provident, benefit or superannuation fund established for the benefit of employees."

"66. (1) Where a taxpayer, for the purpose of making provision for individual personal benefits, pensions or retiring allowances for, or for dependants of, employees of the taxpayer, being or including employees engaged in producing his assessable income, sets apart or pays in the year of income a sum as or to a fund from which such benefits, pensions or allowances are to be provided, and the rights of the employees or dependants to receive the benefits, pensions or allowances are fully secured, an amount ascertained in accordance with the provisions of this section shall be an allowable deduction."
"82H. (1) Amounts paid by the taxpayer in the year of income (not being amounts referred to in the next succeeding section) as-

payments for the personal benefit of the taxpayer or his spouse or child made to-

a superannuation, sustenation, windows' or orphans' fund, shall be allowable deductions."

The three taxpayers are Leslie Gordon Scott (whom I shall refer to as Mr. Scott or as Scott), Belvidere Investments Pty. Limited (which I shall call "Belvidere"), a company formed by and controlled by Scott, and Associated Provident Funds Pty. Limited (which I shall call "Associated Provident Funds"), another company formed and controlled by him.

Mr. Scott is a solicitor who is, and at all relevant times was, practising his profession at Parramatta., having an office also at Epping. In addition to his law practice he has large interests in land, both in buying and selling land and in holding properties let to tenants for rent. These activities he has carried on through private companies he had formed and which he controlled. He had, he said, twelve such companies Belvidere is one of them. It was incorporated in 1955 with a nominal capital of £10,000 divided into 200 A shares of £1 each and 9,800 B shares of each. By article 53 the A shares entitle the holder or holders thereof to seventy-six per cent of all votes. On 20th April, 1953, 199 A shares were allotted to Mr. Scott (making him the holder of all the A shares); 4,000 B shares to Mrs. Scott; and 4,000 B shares to June Patricia Scott, their daughter. The B shares were on issue to be paid up to 1-per share. The daughter was then a young child. She has taken no part at any time in the company's affairs.

Associated Provident Funds is a company formed by Scott for the purpose of being a trustee of what it is contended were superannuation funds for the benefit of employees. One of these funds-the one with which all these appeals are concerned-called Belvidere Staff Superannuation and Provident Fund (which I shall refer to as the "Belvidere fund" or as "the fund") was set up ostensibly for the benefit of certain employees of Belvidere. The persons considered to be employees and as the beneficiaries in the fund were Mr. and Mrs. Scott, she being called the secretary of the company, and her father and mother, a Mr. and Mrs. Stephenson, whose position and activities as employees of the company I shall describe later.

Associated Provident Funds was also the trustee of at least two other similar funds set up at the same time as the Belvidere fund in connexion with two other companies which Mr. Scott controlled. One of these was called Professional Office Management Pty. Limited. It apparently owned, or managed, the building where Mr. Scott's legal practice at Epping was carried on and, it was said, employed some of the office staff. The directors of that company were Mr. and Mrs. Scott and Mr. and Mrs. Stephenson. It made contributions for them to its fund with Associated Provident Funds. They themselves made no contributions. They were the only members of that fund. Another company for which a fund was established was known as Western Line Electric Limited. It apparently dealt in electrical appliances and in land. Its directors at relevant times were Mr. Scott and Mrs. Scott and Mr. and Mrs. Stephenson. Again they themselves made no contributions to the fund of that company, but contributions were made on their behalf by Western Line Electric. They were the only members of that fund, although that company had other employees who were not invited to join the fund and apparently not told of its existence. I admitted this much evidence concerning other funds held by Associated Provident Funds as it was suggested for the Commissioner that. it threw some reflected light upon questions I have to decide. However, I am not in this case concerned with the other funds. No doubt they were all brought into existence for the same reasons. But the questions that I have to decide in this case are not really made easier because of the existence of other companies similarly designed. The answer does not depend upon the motives of those who devised the plan but on the legal consequences of it.

Scott is the appellant in appeals in respect of the years ended 30th June, 1959 and 1961. In these years he himself made contributions to the fund-£150 in 1959 and £250 in 1961. These he claims are allowable deductions by virtue of s. 82H (1) (b).

Associated Provident Funds is the appellant in respect of the years ended 30th June, 1960, 1961, 1962 and 1963. In each of these years it made large profits professedly on behalf of the Belvidere fund. These it claims are not taxable by virtue of s. 23 (j) (i).

Belvidere is the appellant in respect of the years ended 30th June, 1961 and 1963, claiming that a sum of £800 in respect of the former year and £600 in respect of the latter year paid by it to Associated Provident Funds an allowable deductions by virtue of s. 66.

The main questions that arise for my decision are:

(1) Whether the Belvidere fund is "a superannuation fund established fur the benefit of employees" within the meaning of s. 23 (j) (i).
(2) If so, whether in the years of income 1960, 1961, 1962 and 1963 respectively the fund was "being applied for the purpose for which it was established" within the meaning of that provision, s. 23 (j) (i).
(3) Whether the moneys said to be income of the fund were in fact income of such a fund being so applied. (The three questions above cannot be kept rigidly separate. Evidence bearing upon any one has a bearing on the others.)
(4) Whether the payments made to the fund by Scott. in 1959 and 1961 were "payments made to a superannuation fund" within the meaning of s. 82H (1).
(5) Whether the payments made by Belvidere to the fund were made for the purposes of making provision for benefits of the kind mentioned in s. (66 for employees of Belvidere or their dependants; and, if so, whether the rights to receive those benefits are "fully secured" within the meaning of that section.

To determine these questions it is necessary to consider the terms of the deed by which the fund was constituted; and what was done purportedly in performance of it. I shall state in the following order what appear to me to be the main relevant facts: events before the execution of the trust deed; the terms of the deed; transactions of Associated Provident Funds professedly as a trustee of the fund; the position of Mr. and Mrs. Scott and Mr. and Mrs. Stephenson in the matter.

Preliminary events.

Belvidere was, as I have said, incorporated in 1955 with two shareholders, Scott and Mrs. Scott. By the original articles he was to be governing director until he died or ceased to hold one share in the Company. By special resolution this provision was altered, so that he became governing director for life whether or not he was a shareholder; and he could appoint a successor to that office, failing which Mrs. Scott was to become governing director on his death. The company's objects were stated in the expansive terms common in memoranda of association. In fact the business it carried on was buying land and owning premises let to tenants. On its inception it, by borrowing money, bought from Scott five shops near the railway station at Pendle Hill of which he was then the proprietor. These shops it then let to another company which Scott had formed called New Business Enterprises Pty. Limited. That company nominally conducted businesses on the Pendle Hill premises in association with the actual shopkeepers. They, however, actually paid their rent to Belvidere. Belvidere later became the owner of other properties at Parramatta and elsewhere. According to the minute book of Belvidere (in which there appear minutes of the meetings of the directors and of shareholders) meetings of the directors Scott and Mrs. Scott were held from time to time at their home, Mrs. Scott being recorded as being present as a director and also as acting as secretary. All that she did as secretary was apparently occasionally to type minutes composed by her husband and to type the company's land tax return. Scott was described as the manager of the company.

An entry in the minute book records the start of the present story:

"Annual General Meeting of the Shareholders of Belvidere Investments Pty. Limited held at 23 Boden Avenue, Strathfield on the 31st December, 1957.
L. G. Scott, Esq. (Chairman) and Mrs. M. Scott (acting as secretary).
The minutes of the 1st annual general meeting were read and confirmed. Balance Sheet and Auditor's Report:
These were received and adopted.
The appointment of D. M. Clarke, Esq., was renewed.
The Chairman reported that managerial duties were now much increased by the additions to the Company's properties, rentals and expenses. Something would have to be done to provide some remuneration for him and the Secretary. Alternatively, some of his duties and those of the Secretary would have to be handed over to others as the burden was becoming very heavy along with his other professional work and interests. Trips to D. M. Clarke & Co. and supplying books and information to them had involved hours of unnecessary work.
It was resolved that the services of a Secretary-Accountant be obtained to take over the books and attend to same at. 61a George Street, Parramatta where Mr. Scott could supervise the work of the Company with less inconvenience.
Mr. Scott was to continue general supervision of the Company's interests including licensees, tenants, leases, insurance, bank matters and finance. He would arrange for transfer of duties of rent collection and property repairs and supervision.
Mrs. Scott to continue to be acting secretary where the new Secretary was ill or unavailable. She would also attend to preparation of Land Tax returns, Companies Act returns and other official matters not handled by the Secretary-Accountant."

At about this time one Reynolds became secretary of this company, as he was of several other companies controlled by Scott.

According to the minute book a meeting of directors was held on some unspecified date in January. Scott and Mrs. Scott were present (she being described "Acting Secretary in absence of Mr. Reynolds"). The minute reads in part:

"Report of Chairman:
Mr. Scott reported that he was finding the duties of supervision of the Company's properties and income was getting heavier. Whilst no rental was being got in from the service station, incomes were being collected for the cake-shop, milk-bar, delicatessen, electric appliance store and the garage workshop. Property inspection and supervision of repairs to the properties and new building also took up time. He suggested that the duties of rent collection and property supervision be given to part time employees. Mr. Scott would carry on as Manager of the Company although some recompense for his work would have to be provided soon as he was neglecting his private affairs to attend to the management of the Company. Resolved:

That the Company engage on part time basis at £100 per annum a property supervisor to inspect all properties of the Company regularly, to carry out what repairs could be done and to engage contractors to carry out other work necessary.
That the Company employ some one on part time basis at £50 per annum to get in all rents, licence fees, and other income due to the Company, and bank same or arrange for same to be banked, also to report on collections from time to time as Mr. Scott required."

All this seems almost play acting-Scott and his wife having assembled at home as a general meeting, he takes the chair and naively explains to the meeting that he has been "neglecting his private affairs" to manage the company, although its affairs were in reality his affairs: the meeting then carried a resolution that his burden should be eased by the company employing a "property supervisor" and a "collector of rents" at a total cost of £150 a year.

The company did not have to look for suitable persons to fill these positions at the salaries proposed. Mr. and Mrs. Stephenson, Mrs. Scott's father and mother, were available. Mr. Stephenson was a sub-foreman employed full-time in an engineering works. He was then seventy. Mrs. Stephenson was a school teacher at Ryde Public School. She was then sixty-eight. What they did for Belvidere, they did in their spare time. Stephenson on some Saturday mornings did work at the Pendle Hill shops. Such things as cleaning a drain, mending a door, were specifically mentioned but the extent of his activities was not clearly established. Mrs. Stephenson performed her work as rent collector in an unusual way. Belvidere had bank accounts at Parramatta and at Pendle Hill. Mr. and Mrs. Stephenson were living during this period first at Concord West and afterwards at Cronulla. Some tenants paid their rent into the company's bank account at Pendle Hill. Others were directed to send their rent to Mrs. Stephenson at Cronulla. This seens to have involved an unnecessary circuity, for she paid what she received into a bank at Cronulla to be remitted to the company's account at Parramatta. In addition to thus collecting rents Mrs. Stephenson was, it is said, expected to notify either Reynolds or Scott if any tenant was in arrears.

Written agreements were made on some date in January 1958 recording the terms and conditions on which Stephenson and Mrs. Stephenson were to serve Belvidere. The documents were executed by Belvidere under its common seal. Counsel for the Commissioner questioned whether these documents (in which the day of the month is not stated) were in fact executed in January 1958. It was suggested that they may not have come into existence until sometime in 1961 after officers of the Taxation Department had begun their inquiries into Scott's affairs. But, although a notation on them of the date when they were presented to the New South Wales Stamp Duties Office and other matters provide some grounds for inquiry, I think it is more probable than not that these documents were executed in January 1958 and as part of a plan to set up "a superannuation fund for the benefit of employees". The agreements stated the duties of the two employees in some detail, making them seem more important than was anything that they in fact did. They provided for the determination of their employments in the event of bankruptcy, dishonesty and so on. As counsel for the Commissioner commented, they are formal and formidable means adopted by the governing director of Belvidere to produce the result that his father-in-law and mother-in-law were employees of Belvidere. But that does not make the documents unreal: rather the reverse. Scott was well aware of the need to have correct records to establish legal transactions. These agreements were made by completing roneoed forms and he had a stock of roneoed forms ready for the purpose of his various companies. They recite that for the purposes of carrying on its business the company has agreed with the employee to employ him in and about its business on the duties thereinafter set out. This recital is of some significance. It fits the definition, to which I shall come, of "employee" in the deed by which the Belvidere fund was constituted. There is a difference between the recitals in the agreements of Mr. and Mrs. Stephenson, the result of the blank spaces in the roneoed form being differently filled in. In Stephenson's agreement Belvidere's business is described as that of "an investment company and property owner" and he is to be employed as "property supervisor part. time ... in and about the business of property owner". In Mrs. Stephenson's agreement the business of the company is described as "Investment Company" and she is employed in that business as a "collector of rents and fees". The employment of each is expressed to be "for a term of one or more years". In each case the roneoed form provides that "the employee shall not be required to work at any specific time or times during each day but shall work on the business of the company for not less than - hours per week". In Stephenson's agreement this blank was filled as "four hours"; in Mrs. Stephenson's agreement as "two hours".

Mr. and Mrs. Stephenson were not long to be only employees of Belvidere. Very soon they were made directors. The minutes state that at a meeting on 11th April, 1958, Scott and Mrs. Scott being present,

"Mr. Scott advised that he considered it necessary to appoint additional directors to the Company and he proposed to appoint Sydney Stephenson and Mildred Stephenson as directors of the Company in exercise of his powers of appointment of directors under the Articles of Association of the Company. Resolved that his report be adopted."

Scott in his evidence said that his making them directors was "in case of emergency, on my death". This explanation is somewhat curious, because the articles, as amended in the previous month, provided that on Scott's death his wife should become governing director and as such she could appoint or dismiss directors. There is a further reference in the minute book to the same matter: at a meeting on 12th June, 1958 (Mr. and Mrs. Scott being present), held this time at Parramatta, it is stated that Mr. Scott advised that, pursuant to article 25 (which gave him power to appoint and dismiss directors), he had appointed Mr. and Mrs. Stephenson directors and requested that their appointment by confirmed and it was resolved that this be done. This minute was subjected to some scrutiny by counsel for the Commissioner. But no sure ground was shewn for treating it as less authentic than any of the other minutes in the book. All are typed on sheets and pasted in the book. There is no definite evidence of when any minute was prepared, whether in advance of the meeting it records or afterwards. Some were typed by Mrs. Scott apparently on a typewriter kept at home; others were apparently typed by someone in the office at Parramatta. It may well be that they give to meetings of Mr. and Mrs. Scott as directors an appearance of greater regularity and formality than is likely to have actually prevailed. But this does not mean that I should regard them as fictitious records. I take them as recording the substance of whatever Scott in his capacity as director decided from time to time should be done, his wife concurring. The only one which brings doubts to my mind is the record of an extraordinary general meeting said to have been held on 25th April, 1958 at Parramatta. That a meeting should be held in Scott's office on Anzac Day, Scott, Mrs. Scott and Reynolds being present, and that Scott has no recollection of this event is surprising. Moreover the minute is pasted in at the wrong place in the book, appearing before the minute of the meeting of 11th April. There was in April 1958 some urgency to declare a dividend in respect of the previous year. That may account for the meeting having been held on a public holiday, although why at the Parramatta office instead of at home and how Reynolds came to be at the office that day are unanswered questions. However, I do not think that because I have some doubts about the authenticity of this minute (which deals with matters largely irrelevant to this case) I should not accept the rest of the minute book, so far as it is relevant to this case, as a substantially correct and contemporaneous record.

I therefore accept as a fact that, at some date before the execution of the deed constituting the Belvidere fund, Scott purported to appoint Stephenson and Mrs. Stephenson as directors. But whether their appointment to this office was better than a sham I greatly doubt. Neither of them ever attended any directors' meetings or company meetings. Neither took any part in the direction of the company's business. It seems that neither of them was ever consulted or informed of the company's affairs. They seem to have done no acts as directors except that Mrs. Stephenson signed the superannuation fund deed as a director authenticating the affixing of Belvidere's common seal.

Neither as employee nor as director did either Stephenson or Mrs. Stephenson receive any payment from Belvidere in respect of the year ended 30th June, 1958, although they are said to have become its employees in January. And I am not satisfied that they performed any work at all for the company until some time after 1st July, 1958. Entries in the bank deposit book in Mrs. Stephenson's handwriting seem to begin only in April 1959. So far as Stephenson is concerned there is no convincing evidence of when his Saturday morning activities as "property supervisor" began. Scott could not say that they started before 1959. Entries in the books of account of the company do show a sum of £100 accrued as due for director's fees in respect of the year ended 30th June, 1958. But Scott insisted that this was a mistake made by the accountants: it should, he said, have been shown as salary, although it is not clear how two annual salaries of £100 and £50 would yield for a half year £100. Whatever it was, this £100 has never been actually paid, but has been carried forward each year in the books. Counsel for the Commissioner made pointed reference to these facts in support of his contention that the date on the service agreements, January 1958, is not their true date. Neither Mr. nor Mrs. Stephenson was, he suggested, really engaged in the business of the company at the time they are said to have been admitted as members of the fund.

The minutes also state that, at the meeting on 11th April, 1958, immediately after Scott had reported his appointment of Stephenson and Mrs. Stephenson as directors, the question of a superannuation fund was raised. This part of the minute reads:

"Superannuation and Provident Fund:
Mr. Scott reported that his attention had been directed to the provisions of the Income Tax and Social Services Contribution Assessment Act which enabled the Company if it so desired to establish a superannuation and provident fund for the payment of benefits to such employees of the Company as became members of such a fund. Directors were regarded as employees for the purposes of Section 66 of that Act. He considered it proper that the Company should make such provision. In his own case he had been working for the Company since its incorporation free of charge to the Company but now that the Company was overcoming earlier heavy expenses it would be in a position soon to pay him something for his services as Manager and should also make provision for some contribution to a fund so that he and any other employees could get the benefit eventually of some superannuation payment or retiring allowance which would largely be free of taxation in his or their hands. The same applied to Mrs. Scott who had been acting as Secretary for the past few years also without recompense.


That Mr. Scott inquire as to the procedure to establish such a fund and to make the necessary arrangements.
Upon further advice from Mr. Scott that a trustee of such a fund would need to be obtained, the question of the advisability of a person or a Company to act in that capacity was discussed. Mr. Scott thought that a separate proprietary Trust Company should be formed in lieu of the expense and delay associated with the Trustee Companies now operating.


That the appointment of a trustee be left in the hands of Mr. Scott with preference for a private trust Company to be formed."

Thus it was that Associated Provident Funds came into existence, being incorporated on 2nd June, 1958, Scott and Mrs. Scott being the two subscribers to its memorandum. Scott was by the articles made governing director and given complete control of the company's affairs, a resolution in writing under his hand to be valid and binding on the company as a resolution passed by the board of directors. The first two objects of the company are expressed to be:

"(1) To act as trustee of or manager or agent for any provident, superannuation or other fund or funds with or without remuneration and in pursuance of such object to exercise all or any of the powers hereinafter more particularly mentioned in paragraphs (2) to (21) inclusive.
(2) To promote, purchase or invest in real estate of all kinds in the State of New South Wales or elsewhere and to re-sell the same or any part or parts thereof."

On 21st June, 1958 a deed was made between Belvidere, called therein "the founder", and Associated Provident Funds, called therein "the trustee". It was executed under the common seals of these companies,. Scott and Mrs. Stephenson signing as directors in one case, Scott and Mrs. Scott in the other. It appears, both from the minute book of Belvidere and from correspondence, that before the deed was executed a copy had been submitted to the Taxation Department by a firm of accountants retained by Belvidere and that, after some amendments had been made as required by the Department, the Deputy Commissioner had said that contributions to the proposed fund would be allowed as deductions under s. 66 of the Act. It was urged for the taxpayers that this amounted to a recognition of the fund as a superannuation fund for the purposes of the Act. I admitted the correspondence as perhaps relevant to some incidental aspects of the matter. But I said that I did not regard it as an admission binding on the Commissioner or as creating any kind of estoppel against him. To that view I adhere. I am confirmed in it by the remark of Kitto J. in Federal Commissioner of Taxation v. Wade (1951) 9 ATD 337, at p. 344.; (1951) 84 CLR 105 , at p. 117, that "no conduct on the part of the Commissioner could operate as an estoppel against the operation of the Act".

I turn to the provisions of the deed.

The Deed.

The deed recites that "Whereas the founder is desirous of establishing a Superannuation and Provident Fund for the benefit of certain of its employees for the purpose of providing individual personal benefits, pensions and/or retiring allowances on and subject to the terms hereinafter pursuing (sic) and whereas the founder has requested the Trustee to act as Trustee for the said Fund subject to the terms hereinafter appearing and whereas the Trustee has agreed now this deed witnesseth and it is hereby agreed and declared as follows-

1. There is hereby established by the founder a Superannuation and Provident Fund called 'Belvidere Staff Superannuation and Provident Fund'".
(The reference in the recital to "certain of its employees" is to be noted.)

Clause 7 reads: "This fund shall be deemed to have come into operation on the 1st day of January, One thousand nine hundred and fifty-eight". This provision is one of the peculiarities of the document. On 1st January, 1958, Associated Provident Funds, the trustee of the fund, was not in existence. It came into existence on 2nd June: and the deed is dated 27th June: the fund was not then in existence: the first contributions were not made until 30th June. How the fund could have come into operation, or be deemed to have come into operation, six months earlier is not apparent.

The terms of the deed were closely examined by counsel for the Commissioner in the course of his argument. I do not think that I need dwell here upon all the criticisms that he advanced. The description "a superannuation fund established for the benefit of employees" is not, in my opinion, negatived simply by shewing that the benefits of which employees are assured are not great or are less than other superannuation schemes give. If, however, an employee might, at the unfettered discretion of the trustee of the fund, be deprived of benefits seemingly given, then different considerations can arise. It is important therefore to set out some of the provisions of the deed.

The deed contains a definition clause. "Employee" is "any employee who, since the date hereof, and at the time of application for admission as a member of the fund is engaged in the business of the Founder". "Member" means any employee admitted to membership and whose name is entered in the register of the fund in accordance with relevant provisions of the deed. The fund is described as including "all moneys, contributions, investments and additions, paid, transferred or set apart upon the execution hereof (soil. of the (Iced) or at any subsequent date to the credit of the Trustee to be held for the fund...".

There is an investment. clause (clause 8). In investing moneys standing to the credit of the fund the trustee is not restricted to investments ordinarily permitted by law for the investment of trust funds, but is empowered to do a great variety of things. Some of these, such as to hold shares, stocks and debentures in companies, are merely extensions, not unusual, of the range of permissible trustee investments. But others are surprising. They include power to carry on, in the Commonwealth of Australia or elsewhere, the businesses of manufacturers' agents, commission agents, importers, exporters, retail storekeepers, wharfingers and carriers by land, sea and air; and to buy, sell, manufacture, repair, let on hire, export and deal in all kinds of articles and things in connexion with any of the said businesses. I need not recite all these powers. They are not powers of investment such as one might expect to be given to a trustee: rather they are like the objects of a trading company such as one might expect to find in a memorandum of association. They include extensive powers to deal in land. And this, as events would reveal, was to be the main activity of the trustee. It may fairly be inferred that it was always intended by Scott that it would be so. The trustee, Associated Provident Funds, was entirely under his control.

The deed does not give an employee a right to become a member of the fund. An employee wishing to become a member must make written application in the manner prescribed (clause 35). The trustee then "in its discretion may either accept or reject such application without assigning any reason therefor" (clause 36). In short the preliminary recital that the founder (Belvidere, controlled by Scott) was desirous of establishing a fund for the benefit of certain of its employees meant that the trustee (Associated Provident Funds, controlled by Scott) could always decide who of its employees should be permitted to have the benefit of the fund. Clause 16 states that "any discretion given to the Trustee by these presents for the exercise of powers conferred hereby shall be absolutely unrestricted and uncontrolled and no person whether a member or not shall be entitled to raise any objection as to the mariner in which a particular discretion has been exercised".

A member is not required to pay any fixed contribution to the fund, or indeed any contribution at all. He can pay what he likes, if he likes and when lie likes (clause 38). The employer or any other person may make contributions in respect of a member; but, says the deed, "Nothing in these presents shall be deemed to impute any promise or liability for any employer or any other person to make any payments to the fund in respect of any member" (clause 39). Belvidere could therefore (Scott deciding) make contributions of varying amounts, large or small, in respect of different members or it might make no contributions at all in respect of all or any of them.

Assuming an employee to be admitted as a member and contributions to have been made by him or by Belvidere, what benefits does the deed give him? That is the next question. The answer must be found in clauses 46 and 48.

Clause 46 is as follows:-

"When a member-

reaches the retiring age and retires from employment, or
resigns from his employment, or
is dismissed by his employer from his employment,

the Trustee shall make available the benefits referred to in clause 48 hereof provided that when either of the events referred to in sub-clauses (b) and (c) have happened if before any benefits are made available the member obtained. further employment with another employer then the Trustee may, in its discretion, refrain from making any benefits available and may continue to hold the amounts standing to the credit of the member on the same terms and conditions as if such dismissal or resignation had not taken place."

"Retiring age" is defined as sixty-five for males and fifty-five for female members of the fund "or in either case such earlier or later date as may be mutually agreed by the member and the Trustee". Stephenson and Mrs. Stephenson were both past the prescribed retiring age when they are said to have become members of the fund, yet no other retiring age was at any time agreed by either of them and the trustee.

Clause 48 is as follows:

"When benefits are payable in respect of a member pursuant to clause 46 hereof, the Trustee shall within three months from the date thereof-

pay an amount equal to the aggregate of the member, and
pay an amount equal to that proportion of the balance of the fund as such aggregate of that member bears to the aggregate of all members, and
transfer any current policies effected by the Trustee on the life of such member

to the member and/or his dependants or any of them whoever the Trustee in its discretion may determine, provided that where the member has been dismissed from his employment by his employer or has resigned from his employment other than a deemed resignation pursuant to clause 47 hereof and the member has had less than twenty years (20 years) continuous service, the Trustee in its discretion may substitute for the amounts referred to in (a) and (b) an amount equal to the contributions made by the member in respect of himself, less the amount of premiums paid to the Society by the Trustee in respect of policies effected by the Trustee on the life of that member."

The reference to premiums paid in respect of policies on the life of a member may be just noticed and then disregarded. There are provisions in the deed enabling the trustee to take out such policies, but in fact none was ever taken out; and everything that occurred leads to an inference that it was never intended that this should be done.

There appears to be no express provision to meet the contingency of a member dying before reaching the retiring age. Apparently he does not even get back any contributions he has made. This is unusual in a superannuation deed.

The provisions for the dissolution of the fund are important. They include clause 57 (b) and (c) as follows:

"(b) This fund may be dissolved if the Trustee decides in its discretion that-

the fund has become impracticable or
it has become inexpedient to carry on the fund, or
that the fund will not accomplish or achieve the objects for which it was established.

(c) On the dissolution of the fund as hereinbefore provided the fund, other than the policies, if any, shall be converted into money and the proceeds shall be applied by the Trustee in the following order of priority

in paying the costs charges and expenses of the trusts in the winding up of the fund, and then
in payment of or due provision for all liabilities of the fund contingent or otherwise and thereafter
the balance as hereinbefore provided by clause 46."

In the events that have happened, Mr. and Mrs. Stephenson having ceased to be members, the result is that Scott could now at any time wind up the fund; and he and Mrs. Scott would then divide it between them according to clause 46-- that is in the manner referred to in clause 48.

Any employee of Belvidere could, it seems, be dismissed at any time; and if he had not then had twenty years' service he need not be given anything from the fund except a return (without interest) of the amount of any contributions he had made, but not of any contributions made by the employer for his benefit.

The minutes of Belvidere record that at a directors' meeting on 21st June, 1958 (Mr. and Mrs. Scott being present) it was resolved to execute the deed under the company's seal. When and where it was in fact executed does not appear. It bears the same date as the date of the minute, 21st June, 1958. It is signed by Mrs. Stephenson as a director; but she was not at the meeting on that date. However, I see no sound reason for thinking that it was not duly executed.

To establish a superannuation fund for the benefit of employees in accordance with the deed it was next necessary that the trustee should be furnished, by means of contributions or otherwise, with money or investments to be held by it upon the trusts of the deed; and that members should be admitted in the manner provided. I therefore go now to what was done to set up the fund and to admit members.

The evidence on these matters has to be examined carefully, because one of the grounds on which the Commissioner challenges the claim of Associated Provident Funds that profits made for the fund are exempt from tax is that when these profits were made there was not in truth in existence a superannuation fund established for the benefit of employees of Belvidere which was then being applied for that purpose. The Commissioner does not concede the authenticity of some of the documents that were tendered.

The Start of the Belvidere fund.

As soon as the deed was executed Scott transferred his 200 A shares in Belvidere to the Belvidere fund; and Mrs. Scott similarly transferred her 4,000 B shares. The result was that Scott, although he continued to be governing director of Belvidere, was no longer a shareholder; and neither was Mrs. Scott, although she continued to be a director. And when, according to the minutes, shareholders' meetings were held thereafter the only persons present were Scott, said to have been there as proxy for Associated Provident Funds, and Mrs. Scott as proxy for her daughter, June Patricia Scott.

The minutes of a meeting of the directors of Associated Provident Funds (present Scott and Mrs. Scott) on 23rd June, 1958, state that applications for membership of the fund were lodged on account of Mr. and Mrs. Stephenson and Mr. and Mrs. Scott; and that it was resolved that their applications be approved and their names entered on the register of members. There are some puzzling features of this. The register of the fund shews all four persons as admitted to membership on 23rd June, 1958, and it records that on 30th June, 1958, the sum .of £200 was paid in respect of each by their employer, Belvidere. The supporting applications in the case of Stephenson and Mrs. Stephenson, signed by them, are dated 21st June, 1958, and witnessed by Reynolds. They are on typewritten forms filled in in ink. Of the date "1958" the first three figures, "195", are in type; the "8" is in ink. There are also in existence applications by Scott and Mrs. Scott. But in their case the documents are not witnessed, although there is a place for a witness to sign: and the application signed by Mrs. Scott is on a carbon copy of that of her husband, his name having been erased and hers inserted: and in the date line no day of the month appears-all that appears is "June 1958"; and the figures "58" are written where the typing was 196". Having regard to this I was invited by counsel for the Commissioner to find that no application for membership of the fund had been made by Scott or Mrs. Scott in 1958, and to conclude that this was noticed sometime in the nineteen sixties and that the documents then first came into existence. Scott in his evidence was quite definite that the application forms were in fact signed in June 1958. He was at first unready to admit that the figure "6" had been altered to "5". This, however, is apparent under a magnifying glass, and ultimately he could offer no explanation except to suggest that it was a typist's error. If this were a critical issue in the case, I would have to say that I am not satisfied that the documents did come into existence in 1958. But I do not think that, of itself, it is critical. If in fact and law there was a valid and effective trust of a trust fund created in accordance with the deed, then it seems to me that Mr. and Mrs. Scott (assuming them to have been employees entitled to be members) would have to be considered to be members if the trustees recognized them as such and accepted contributions bona fide made on the basis that they were members, notwithstanding that they had not previously signed application forms.

However, the question arises of when contributions were first made in respect of both Scott and Mrs. Scott and Stephenson and Mrs. Stephenson.

So far as Scott and Mrs. Scott are concerned, there seem to be discrepancies, to which counsel pointed, between on the one hand accounts annexed to the income tax return of Belvidere for the year ended 30th June, 1958 (Exhibit 28) and certain resolutions in the minute book which first record approval on 30th June, 1960, of contributions by Belvidere in respect of Mr. and Mrs. Scott, and on the other hand entries in the cash book of the fund and in the register of the fund. The register shews contributions to the fund as having been made by Belvidere in respect of both Scott and Mrs. Scott. The first for each was, according to the books, made on 30th June, 1958. There seems to be no doubt that in 1958 Belvidere paid the sum of £800 to Associated Provident Funds for the superannuation fund and that, at some stage and for some purposes, this has been treated as contributions of £200 each in respect of Scott and Mrs. Scott, Stephenson and Mrs. Stephenson. But initially £400 of the £800 was treated not as contributions but as a loan by Scott and Mrs. Scott made as at 30th June, 1958. (Why this was I have not discovered: it may have been in connexion with the transfer by Scott and Mrs. Scott of their shares in Belvidere to the fund.) Later the sum was treated in some entries not as a loan but as contributions in respect of Scott and Mrs. Scott in respect of the year 1958/1959. The whole matter is not made less puzzling by the wording and the appearance of the ink in the entry under date 27th June, 1958, on folio 12 of Belvidere's cash book or by the register of the fund, which shows no contributions as having been made by Belvidere in respect of either Scott or Mrs. Scott for the year ended 30th June, 1959, but contributions for that year made in respect of Stephenson and Mrs. Stephenson.

The inconsistencies between the documents among themselves and at some points with the evidence of Scott were naturally relied upon for the Commissioner in support of the suggestion that the applications for membership of the fund of both Scott and Mrs. Scott did not come into existence until some time in 1960 and that the date "January 1958" is a false date. I agree that the documents, or some of them, are consistent with this supposition. But they do not to my mind establish it as a fact. Moreover, as I have said, even if the application forms were not signed on the date they bear, this would not necessarily mean that Scott and Mrs. Scott did not beome members. The minute book of the fund shows them as having been accepted as members from the outset. Scott himself made contributions and Belvidere also made contributions in respect of him. Belvidere also made contributions in respect of Mrs. Scott and of Stephenson and Mrs. Stephenson (none of whom contributed personally).

Contributions to and profits of the fund.

It is convenient to set out next what contributions were made to the fund from 30th June, 1958 to 7th June, 1963. No contributions have been made since the latter date, for reasons that are probably not unrelated to the affairs of Scott, Belvidere and Associated Provident Fund having by them attracted the attention and inquiries of the Taxation Department.

According to the records Scott himself contributed, in varying amounts, the sum of in all £1,300: Belvidere in respect of him contributed £200 a year for five years, £1,000 in all: his contribution account therefore totals £2.300. For Mrs. Scott, Belvidere contributed £200 a year, £1,000 in all. The amount contributed in respect of Mrs. Stephenson was, according to the register, £1,200, a payment of £200 having apparently been made in respect of her in 1959 when none was made in respect of Scott and Mrs. Scott. Contributions in respect of Mr. Stephenson amounted to £1,000, being made on the same dates as those in respect of Mrs. Stephenson except that, he being treated as having retired before 30th June, 1963, no contribution was made in respect of him in that month as was done in respect of the others.

The total amount received by the fund as contributions was thus, according to the register, £5,500. It certainly was no more. It may on one view have been £400 less. All contributions were lent to Belvidere, apparently as they were received. Some of the transactions shown as contributions and loans may have been merely book entries.

Five thousand five hundred pounds may seem a small capital for a superannuation fund. But the amounts said to be income of the fund, and as such to be exempt from tax, are far from small. As shown in the taxpayers' returns they are:

For the year ended 30th June, 1960, £19,584.
For the year ended 30th June, 1961, £28,442.
For the year ended 30th June, 1962, £3,856.
For the year ended 30th June, 1963, £4,667.

The Commissioner, it may be noted, had begun some inquiries before the end of 1961. The amounts set out above were to some extent adjusted by the Commissioner; but they are substantially the amounts in dispute in the appeals by Associated Provident Funds, although as there were amended assessments as well as original assessments there are seven appeals by the company.

By 30th June, 1963, the accumulated assets of the fund amounted to £59,869. (The main items representing this were: holdings in Australian Property Unit Management Ltd., a company formed by Scott, £16,695; rented shops £21,543 and advances made to others of Scott's companies £29,112.) It is obvious enough that Associated Provident Funds could not by investing in the ordinary way a capital of £5,500 provided by periodic contributions made over five years have in the same period accumulated £59,869. The assets of the fund thus do not in reality represent the accumulated contributions of employees and their employer and the produce of the investment of the fund thus created, as would be normal in a superannuation fund. The accumulations in the fund really represent profits made by dealings in land, mainly by subdividing land and selling it off in allotments. For example, the revenue account for the year ended 30th June, 1960, shows "profit from land dealing £22,977" (against which was a share of loss in a land development syndicate at Forster, £2,256). In the next year the "profit from land dealing" was £26,724 (this time there was a share of profit from the syndicate's undertaking at Forster, £2,443). The contributions to the fund which Belvidere made in respect of Mr. and Mrs. Scott and Mr. and Mrs. Stephenson, were never invested as a separate fund. As I have said, they were as they were received lent by Associated Provident Funds to Belvidere, it is said at eight per cent interest. But on occasions Associated Provident Funds borrowed money from Belvidere or from Scott and at other times it advanced moneys to Belvidere, so that contributions, lendings and borrowings seem to have become, in some cases at all events, a matter of mere cross-entries in bookkeeping.

Land Dealings of Associated Provident Funds.

Although when the fund was started its only investments consisted of money lent by it to Belvidere and of the shares in Belvidere which had been acquired from Mr. and Mrs. Scott, it was able to engage almost at once in the business of dealing in land. Its dealings were initially financed mainly by money borrowed from Belvidere or some other of Scott's companies or from the Bank of New South Wales.

The accounts of the fund which are annexed to the income tax returns give some indication of the nature and extent of its activities and Scott gave further details in cross-examination. He was the only witness. Mrs. Scott and Stephenson and Mrs. Stephenson were not called. He was cross-examined at length by counsel for the Commissioner. Generally speaking, his answers were I thought truthful and careful. He had a close knowledge and good memory of the affairs of both Belvidere and Associated Provident Funds. That is not surprising because he is governing director of both companies and their affairs were his affairs. He had a lawyer's appreciation of his companies as separate entities in law. He was not always ready to recognize that they were nevertheless puppets whose actions he manipulated as he wished. His answers to questions were sometimes sophisticated when he cautiously separated himself as governing director of Belvidere from himself as governing director of Associated Provident Funds or of other companies. The following passage from his cross-examination is an example:

"As governing director of Belvidere Investments did you, before the deed was executed, give any consideration to the form of investments which the trustee of the fund would acquire after the fund was set up?-No.
None at all?-That was for the trustee company.
That was for the trustee company?-Yes.
Of which you were the governing director?-Yes.
Did you contemplate, as governing director of Belvidere Investments, that you, as governing director of Associated Provident Funds would cause the fund to acquire any particular assets?-No, nothing particular.
Nothing particular? Did you, in any capacity, give any consideration before the deed was executed in June 1958 as to whether the fund, or a trustee of the fund would on behalf of the fund, acquire any particular land?-I don't think so.
You don't think so?-No."

This is not altogether convincing. The first two objects in the memorandum of association of Associated Provident Funds and what was done after the deed was executed, taken with Scott's evidence as a whole, leave me in little doubt that before Associated Provident Funds was formed, Scott's intention was that it would deal in land. And as, according to the records, it was arranged on the very day that the deed was executed that it should acquire the shares of himself and his wife in Belvidere (a land dealing and land owning company) I am unable to accept that this had not been in his mind. In fact all his companies, including Associated Provident Funds operating it is said as a trustee, were for Scott convenient means by which transactions in land were carried on-transactions in the name of Associated Provident Funds having the virtue that it was assumed that profits realized would be exempt from tax.

It is not necessary that I examine all details of all the evidence that was elicited about all the transactions in which Associated Provident Funds, acting as Scott directed, engaged. Much of this seemed to me to be on the fringe of this case. There are, however, two transactions which I fear I must describe at length because for the Commissioner much reliance was put upon them as, it was said, showing that the fund was not in truth a superannuation fund within the meaning of s. 23 (j) which was at relevant times being applied for the purposes for which it is claimed it was established.

Among the companies which, in 1958, Scott controlled was one called London Dry Cleaners Limited. He and Mrs. Scott had, in 1956, acquired between them enough shares in it to have control of it, although a few other shareholders remained. When the company was thus in effect taken over by Scott it had been unsuccessful. It had accumulated losses of £22,000. Scott did not want, to revive a defunct and unprofitable dry cleaning business. It was the accumulated losses that made London Dry Cleaners attractive to him. Under him it became a land subdivider and land seller, the profits of the new enterprises being set off against the earlier losses. By 1958 the profits were catching up with the losses. The prospects of the company soon becoming liable to tax if it should make large profits in the future were apparent. London Dry Cleaners owned a large subdividable area of land at Seven Hills near the shopping centre in a district that was becoming populous. Near this land was a smaller area of land owned by another company, Modern Investments Limited. That company, which had been formed by Scott many years earlier, was under his control in 1958. It too was a company with unrecouped losses which it had incurred in house building shortly after the war. These losses also had by profitable enterprises been largely recovered by 1958.

Before September 1958 Scott had been for some time in correspondence with the Blacktown Council seeking approval on behalf of London Dry Cleaners for the subdivision in one scheme of both parcels of land at Seven Hills. With some qualification the proposal had been approved in principle. It was apparent that if carried through this would be a profitable undertaking for the two companies. But Scott did not allow them to have that profit. In September 1958 they agreed to sell their lands to Associated Provident Funds for the Belvidere fund-that is to say, Scott for the vendors agreed to sell and Scott for the purchaser agreed to buy. The purchase price to be paid by Associated Provident Funds was £17,850 (being £14,500 for London Dry Cleaners' land and £3,350 for Modern Investments' land). No part of the purchase price was in fact paid at the time to either vendor. The whole amounts were treated as loans to be paid off as Associated Provident Funds sold the lands. The subdivision plan was approved. Sales in subdivision occurred. In the result Associated Provident Funds after the repayment of the loans had made a profit from this venture of over £41,000 before 30th June, 1963; and it still retained one block on which it had erected premises for letting. Scott gave in a somewhat unconvincing manner an unconvincing explanation of the whole transaction. The only inference that I can draw is that the lands of London Dry Cleaners and of Modern Investments were transferred to Associated Provident Funds in order that the profit upon the subdivision would not attract income tax. Had the profit been earned by the two companies that owned the land it would have more than absorbed their unrecouped losses and have been taxable. In other words, looked at realistically, Scott I believe wanted the profit to go into a pocket from which none could be taken out by the Taxation Commissioner. But although much was made of this for the Commissioner, it only touches indirectly the question in this case. The motives behind the transaction seem immaterial. It was advantageous to Associated Provident Funds. The complaints that shareholders other than Scott in the other companies could have and the disappointment of the Taxation authorities are matters with which I am not concerned. Apparently the shareholders in London Dry Cleaners other than Scott and Mrs. Scott had lost interest in their company and never attended meetings. Whether they were given notice of them was questioned. The authenticity of the minutes of London Dry Cleaners was questioned. It was suggested that they were manufactured long after the event. Scott, however, said they were genuine contemporaneous records. It seemed to me that, except as perhaps going to credit, they were quite irrelevant to any issue that I have to decide. I therefore rejected any evidence to controvert him on this point.

Turning to the other transaction on which the Commissioner laid stress. This occurred in 1963. It is a significant fact that it was by them known that the Commissioner regarded the profits of Associated Provident Funds as taxable. Late in 1961 or early in 1962 the Taxation authorities had begun extensive inquiries into Scott's affairs. A minute of a directors' meeting of Associated Provident Funds on 24th May, 1962 (Scott and Mrs. Scott being present) states in reference to the Belvidere fund that "Mr. Scott reported that our accountants had received a request to lodge returns of income and that they believed that an attempt would be made to assess tax on the fund". A minute of 30th June, 1962, refers to the same matter and to an interview Scott had had with the company's bank and the need to arrange the company's affairs so that there would be a reserve to meet the threat. It was in this setting that the transaction in what has been called the Targo Road land at Pendle Hill took place. This land had been bought by Associated Provident Funds for the fund in May 1960 for £13,000. It was subdivided and certain lots were sold during 1962 and 1963 at a profit of some £2,500. One lot remained unsold in April 1963. On 4th April a surveyor acting for Associated Provident Funds made an application to the Holroyd Council, in whose area the land is, for approval of a further subdivision of the residue into four lots. The Council approved; but before any subdivision was actually effected Associated Provident Funds transferred the land to Western Line Electric Limited. That company had at that date accumulated losses of between £12,000 and £13,000. Therefore if a profit were made by the sale of the four lots, it would not attract tax if it were made by Western Line Electric: whereas, as Scott was by then well aware, the Commissioner's attitude was that a profit made by Associated Provident Funds would be taxable. Scott arranged that the land should be sold by Associated Provident Funds to Western Electric for the amount of the Valuer-General's valuation and that Western Electric should then complete the subdivision in accordance with the Council's approval and then sell the lots. The Valuer-General's valuation was sought. It was £4,000. Scott then applied to the Valuer-General to have this value reduced. Whether in doing so he considered himself to be acting for the trustee of the fund (the vendor) or for the purchaser (Western Electric) is not clear. The valuation was, on his representations, reduced to £3,600; and at this price Associated Provident Funds sold the land to Western Electric on 24th April. In June and August, Western Electric, having satisfied the Council's requirements and completed the subdivision, sold the four lots to separate purchasers for £7,100 in all. After some expenditure that company made a profit of £2,111. By this transaction the fund thus lost more than £2,000 which it could have had if Associated Provident Funds had itself sold the land to the ultimate purchasers instead of to Western Electric. It is worth noting at this point that nearly all the shares in Western Electric were held by London Dry Cleaners.

Now this was surely a strange way for the trustee of a superannuation fund to deal with an asset of the fund. It certainly was not for the benefit of the beneficiaries of the fund. Scott, when asked to explain why he had sought a reduction in the Valuer-General's valuation, said: "I considered the £4,000 was too high for four blocks, which would have been £1,000 a block. Adding development costs on to that there would be practically nothing in it for Western Line Electrics". This explanation did not greatly impress me because I have not been able to understand why Associated Provident Funds as a trustee was concerned to assist Western Line Electric. I say this without assuming as I was invited by counsel for the Commissioner to do, that when Scott sought approval for the subdivision into four blocks he was aware that they would fetch the prices they did.

This episode is significant, although it perhaps shows only that there had been a breach of trust (assuming that there was in reality a trust). But it would be a material matter for consideration if one asks was there a fund for the benefit, of employees which was being applied for the purposes for which it was established: see the judgment of Owen J. in Mahoney v. Federal Commissioner of Taxation (1965) 13 ATD 519 , at p. 526.

The accounts annexed to the income tax returns show the extent of the dealings in land in which Associated Provident Funds, purporting to act as trustee of the fund, engaged in the years in question. The falling off in income in the years ended 30th June, 1962 and 1963 in comparison with that of the two previous years is largely due to greatly reduced dealings in land. This was probably not unrelated to Scott having become aware that the Commissioner did not accept the view that the profits of the land dealings were exempt income.

Benefits Mr. and Mrs. Stephenson received from the fund.

The next matter for consideration is what benefits Mr. and Mrs. Stephenson got as members of the fund, so far as this bears on the question of its true character.

First as to Mr. Stephenson. In 1960 he ceased working for his regular employer. He was then seventy-two. He was suffering from arthritis. This got worse towards the end of 1961 and sometime thereafter he apparently ceased to do anything for Belvidere. Nevertheless no payment was made to him out of the fund. An officer of the Taxation Department made some observations about this to Scott, probably in 1962 or 1963. It was sought to regularize the position, at least in appearance. In the minute book of Associated Provident Funds there is a record of a directors' meeting on 22nd June, 1963, at which Mr. and Mrs. Scott were present. It reads: "Retirement of Sydney Stephenson. Advice has been received from Belvidere Investments Pty. Ltd. that Mr. Stephenson has been unable owing to illness during the past six months to carry on his duties with that company and that his salary has not been paid. Resolved that Mr. Stephenson be deemed to have retired from his employment with Belvidere Investments Pty. Ltd." There follow two further resolutions: one that his aggregate and the balance of the fund be ascertained and "the amounts due to him under clause 48 (a) and (b) be paid as soon as practicable": the other that in making the calculation the accountants be requested to make due allowance for the assessments of income tax in respect of the years 1960 and 1961. These assessments had issued in October 1962 and objections had been lodged and disallowed. It seems that Stephenson had really been doing nothing for Belvidere for much longer than six months before June 1963. And, so far as I can ascertain from the company's books, he had not been paid any salary for a considerable time....The cash book shows that in February 1961 he was paid £100 as salary for 1961-62: he was paid nothing in 1962. On 30th June he was paid £50 as salary. This seems not to accord with the minute of the meeting of a week before: but perhaps it was meant to make good the assertions in the minute, and the £50 was to represent salary for six months up to December 1962.

The whole minute reads as a record of careful make-believe with its suggestion. that Mr. and Mrs. Scott, directors of Associated Provident Funds, had just received advice from Belvidere (of which they were directors) about the condition of health of Belvidere's servant, Mrs. Scott's father. It is the beginning of a series of events giving an appearance of regularity but dissembling reality. Belvidere's auditor was duly asked to compute the amount payable to Stephenson upon retirement. On the assumption that the fund was not exempt from taxation, the auditor, by taking the assets at their book values, calculated Stephenson's share in the fund as £5,849. This appears in a letter of 23rd July. But, according to Scott he had been told of the amount by the auditor before the letter came and had decided that Stephenson should have £5,000, not £5,849. He said in evidence that he did this because he considered that the auditor had fixed too high a figure, and that he made the reduction in the exercise of his discretion. There is no record of this matter in the minute book. The books of account make it appear that Stephenson was paid £5,000 on 29th June which is there stated as the date of his retirement. This sum is shown as made up of £4,000, debited to the accumulation account, and £1,000, debited to the contribution account and described as "contributions refunded" although in fact Stephenson had not himself made any contribution. But all those entries are misleading, and not made less so by the answers that Scott at first gave to questions on this matter. When asked what sum was actually paid he said "£5,000". It transpired that this was not the whole story. Scott gave Stephenson a cheque for £5,000 drawn on the fund. He said that Stephenson then lent this sum to the fund. What actually occurred was this. The cheque was drawn on 29th June and given to Stephenson. It was, obviously by arrangement , not presented. It appears from the cash book of the fund as outstanding until 30th January, 1964. It was then presented; and on the same day Stephenson paid a cheque for the same amount into the bank account of the fund. This was said to be a loan. If so, it obviously was not made until January 1964: yet in August and October 1963 sums of £60 and £70 were paid to Stephenson and described in the books as "retirement allowance". From the cheque butts it appears that these sums represent £10 a week called "reduction of loan re retirement allowance". Scott could not give any rational explanation of these entries. He said that Stephenson, having agreed not to present the cheque, wanted to be paid £10 a week in reduction of the amount it represented and that he, Scott, therefore paid these moneys and said they were in reduction of a loan. But it is not clear to me how a loan which was not made until January 1964 and which when then made was said to be for the full sum of £5,000, was being reduced by payments made months before. Stephenson was, it is said, to have interest on his loan and two amounts are credited to him for interest in the books of the fund, one on 30th June, 1964, the other on 30th June, 1965. But they have not been actually paid to him.

Turning now to Mrs. Stephenson. She was paid by Belvidere, by way it is said of salary, £50 for each of the years ended 30th June, 1958-1962. Then for the next year she was paid £100 in May 1962 (described as "salary 1962/1963") and for the year following that £104. Apparently she ceased to do anything for Belvidere at some time in 1965-Scott said in March. From then on she was paid various amounts described as "retirement benefits". There is no minute about her retirement. Scott said he simply authorized some payments to her: "I did this work as governing director, I thought it was in order for me to do so". By a letter dated 24th June, 1965, the auditors had reported to Associated Provident Funds as trustee of the fund that Mrs. Stephenson's entitlement on her retirement was £7,066 18s. 8d. Scott said that instead of paying her this amount at once he had decided she should have it at the rate of £1,000 a year. But in fact, he said, she has only had "about £600 up till now"; the reason given for this is that the fund was short of liquid assets.

I have spoken of the amounts Stephenson and Mrs. Stephenson were "entitled to" on retirement and I have assumed these to be as the auditor calculated them. But one of the oddities of the matter is that when they became "employees" of Belvidere they were each well past the retiring ages mentioned in the deed. Moreover, it seems questionable whether when they applied for membership of the fund they were "engaged in the business of the Founder" within the meaning of the definition of "employee" in the deed.

The position of Mr. and Mrs. Scott.

I go now to what the evidence discloses as to the only other persons said to be employees of the fund, Scott and Mrs. Scott. Each of them was, from time to time, paid by Belvidere small sums said to be by way of salary-Scott allegedly as manager, Mrs. Scott as secretary. Mrs. Scott has some acquanitance with business affairs. She worked at one time in her husband's office at Epping. Before Reynolds became secretary of Belvidere she was described as the secretary. During this period she was not paid anything. But, somewhat surprisingly, after she ceased to be secretary and Reynolds had been made secretary she received a small sum as salary, apparently for acting sometimes in Reynolds' absence and for doing some occasional typing. She did not give evidence and I have little means of judging whether she really took any part in the management of any of the companies of which she was a director. My general impression is that, apart from her being present when it was necessary that a meeting be held to record some resolution, her activities were more or less nominal. Scott was the governing director; and, if one regards him as also being in reality a servant of Belvidere, it may be that he was an employee entitled as such to be a member of the fund: see Lee v. Lee's Air Farming Ltd. (1961) A.C. 12 . Whether he and Mrs. Scott could simply as directors claim to be employees entitled to be members of the fund and whether a fund established for the benefit of directors only would be within s. 23 (j) were discussed by counsel. Section 66 (11) provides that for the purposes of s. 66 a director of a company shall be deemed to be an employee. This express provision in relation to that section makes me doubt whether directors are employees for the purposes of s. 23 (j): see In re Lee, Behrens & Co. Ltd. (1932) 2 Ch. 46 . But in the view I take I need not come to a firm decision on this aspect.


(i) Appeals by Associated Provident Funds Pty. Limited.

I consider it a mistake to take to pieces the phrase "superannuation fund established for the benefit of employees", and to analyse, as the argument for the Commissioner did, the extent of the benefits which an employee could get under the fund. That is not the issue. The phrase is descriptive of a kind or type of fund by reference to its purpose or object-"established for the benefit of employees", not established for some other purpose, not established for the benefit of persons other than employees. It is the income of such a superannuation fund that by s. 23 (j) is exempt from tax.

There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage, the attributes of a thing thus denominated being those which things ordinarily so described have. To say that all that one need do to decide whether there was here a superannuation fund of the required kind is to study the deed is a mistake, because the deed must be read with a preconception of what such a fund is, otherwise reading it can provide no answer. There are many books and many articles in periodicals about employees' superannuation and pension funds. I have read some of them, or parts of them, with a view to seeing what meaning is generally given to these expressions by those who use them. Some of these works are written from a sociological point of view, emphasizing the social and industrial advantages of superannuation schemes established for employees. It was no doubt an appreciation of matters of that kind which led the Parliament to exempt income of such funds from tax. Others of the works I have seen deal primarily with economic and accountancy considerations which ought to govern the administration of superannuation or pension funds to ensure that their incomes are securely applied for the purposes for which the funds were established. Such reading as I have been able to do leaves me with the impression that the connotation of the phrase in the Act must be determined by one's general knowledge of the extent of the denotation of the phrase in common parlance. The same kind of question arises in connexion with other composite expressions in the Act. The term "co-operative company" is an example: see the judgment of Dixon, J. in Shelley v. Federal Commissioner of Taxation (1929) 43 CLR 208 ; R. & McG. (1928-1930) 136 . Considering the question in this way, and without my attention having been directed by counsel to any commonly accepted definition or to any standard form of constating document, I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalized. I do not put this forward as a definition, but rather as a general description. The Act carries the matter somewhat further, because it (in ss. 66 and 82) suggests that a superannuation fund is made up of contributions. Doubtless a "contribution" properly speaking has the sense of Doctor Johnson's definition: "that which is given by several hands for some common purpose". But in the sense that the word has in the Act, contributions to a superannuation fund may I think all be made by one hand, that of the employer. Ordinarily no doubt contributions, whether from one or more contributors, are amounts furnished from time to time; but I am not to be taken as saying that a superannuation fund could not be a single sum set aside for the purpose. I think it could be. But, however the fund be established, what s. 23 (j) exempts from tax is the income of the fund. This I consider postulates a fund invested and yielding income. Profits made by buying land with borrowed money, or on credit, and selling it, as in this case, are not to my mind income of a fund within the meaning of the Act. Profits made in that way might be set apart to be an income-producing fund; but they are not themselves income of a fund. To say that is to answer, at all events in part, the contention of Associated Provident Funds. But there is a more fundamental reason why I must reject its appeals.

A superannuation fund for employees may, I take it, be said to be "established" when property composing the fund is set aside and subjected to appropriate trusts. It is as at the date when this is said to have been done that the effect of what was done must be considered. And it is the legal consequence of what was done must be considered. And it is the legal consequence of what was then done, not the motives of those doing it that must be considered.

I shall assume that a fund set up in the manner and for the purpose that the deed in this case apparently contemplates could be a superannuation fund for the benefit of employees. I make that assumption, notwithstanding that the extent to which an employee would benefit could, it seems, depend very much on the wishes, perhaps on the whims, of the employer. But it is not enough to say that a fund governed by the provisions of a deed such as that we have here could be a superannuation fund within the meaning of the Act. For it to be so in fact the parties concerned must have intended that the deed should take effect and operate according to its tenor; that a fund should be set up subjected to the trusts of the deed; and that Associated Provident Funds should as trustee be bound to carry out those trusts. On the other hand, if the scheme, including the deed, was intended to be a mere facade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, then the words of the deed should be disregarded. It was urged for the appellant Associated Provident Funds that it is a real company and that the deed was really executed by it: and that, it was said, is the end of the question. But it is not. A disguise is a real thing: it may be an elaborate and carefully prepared thing: but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a, disguise, a facade, a sham, a false front-all these words have been metaphorically used-concealing their real transaction: see the cases referred to by Jordan C.J. in Perpetual Trustee Co. v. Bligh (1940) 41 S.R. (N.S.W.) 33 , at p. 39., Hawke v. Edwards (1947) 48 S.R. (N.S.W.) 21 , at p. 23. and Collis v. Magroarty and O'Sullivan (1913) S.R. Qld. 25 and (1913) 15 CLR 692 .

The onus is on the taxpayer to satisfy me that the assessments appealed against are excessive. It has failed to do so. The inference I draw from the evidence as a whole is that there never was in truth a superannuation fund established for the benefit of employees. I should add that if there were such a fund established it was not in my view being applied at any time for the purposes for which it was established, that is to say for the benefit of employees according to its terms: Mahoney v. Federal Commissioner of Taxation, supra, Compton v. Commissioner of Taxation (1966) 14 ATD 157 ; (1966) 39 A.L.J.R. 400 .

I therefore dismiss the appeals of Associated Provident Funds Pty. Limited.

(ii) Appeals by L. G. Scott.

For the reasons that I have given the appeals of this taxpayer must also be dismissed.

(iii) Appeals by Belvidere Investments Pty. Limited.

For the same reasons the appeals of this taxpayer are also dismissed. It is unnecessary for me to consider whether, if there were a fund answering the description in s. 66 constituted in accordance with the deed, it could be said that the employees' rights to receive its benefits were fully secured. I am inclined to think that, because of the wide discretions given by the deed to the employer, they were not.

I should add that Mr. Scott believed, and may have been advised by accountants, that by doing what he did he could somehow make appearance and pretence into reality. In this he was not dishonest or fraudulent, merely mistaken.


All appeals dismissed with costs.

M. H. Byers Q.C. and J. D. O'Meally,, instructed by Berne Murray & Tout, for the appellants.

R. J. Ellicott Q.C. and C. S. C. Sheller, instructed by H. E. Renfree, Commonwealth Crown Solicitor, for the respondent.