Case B40

FE Dubout Ch

G Thompson M
N Dempsey M

No. 3 Board of Review

Judgment date: 30 June 1970.

F. E. Dubout (Chairman): This is a case arising under sec. 23F(16) of the Assessment Act. The essential facts in the case have been carefully set out by my colleague Mr. Dempsey, and I need not repeat them. Further, I am in agreement with his reasons for declining, in the circumstances of this case, to form an opinion that it would be reasonable to exempt the subject dividend from tax. There were, however, certain matters raised by Counsel for the Fund regarding the interpretation of sub-sec. (16), and I propose to make some comment on those matters, with particular reference to the facts of this case.

2. In forming an opinion as to whether it would be reasonable to exempt the dividend from tax, the Commissioner (or a Board upon a reference) must have regard to the matters set out in paras. (a) to (f) of sub-sec. (16). Paragraphs (a) to (e) might be described as dealing with specific factors or considerations, although the use of the word ``specific'' might be regarded as tending to gloss over difficulties which may arise in deciding what is the real import of a particular paragraph. But they are certainly specific in comparison with para. (f), which is cast in the widest of terms, and requires regard to be had to ``any other matters that the Commissioner considers relevant''.

3. I agree with the submission of Counsel for the Fund that paragraph (a)-``the paid-up value of the shares in that company that are assets of the fund''-is not a consideration which, on the facts of this case, should influence the formation of an opinion one way or the other. I agree with Counsel, too, that the word ``value'' in para. (a) has no connotations of market value or real value or of value in any related sense. I take the words ``paid-up value'' to refer to the proportion of the nominal value of a share which has in fact been contributed by the shareholder and applied by the company in reduction of the amount which would have to be paid to obtain a fully paid-up share. Thus, one speaks of a $1 share paid to 50 cents, and refers to that share as having a paid-up value of 50 cents. But whatever the meaning of the expression ``paid-up value'', it merely states a fact, and to make this paragraph effective, it must be read, in my opinion, as importing an idea of comparison. It speaks of shares in that company that are assets of the fund and I regard the words that I have italicised as permitting a comparison with shares in that company which are held by persons other than the fund. If such an interpretation can not be given to para. (a) then undoubtedly the necessary comparison could be achieved by reliance upon para. (f).

4. On the facts of this case, the matters referred to in paras. (c), (d) and (e) do not, in my opinion, have any bearing on the formation of the opinion. It is otherwise, however, with regard to para. (b)-``the cost to the fund of the shares on which the dividend was paid by the company''. Like the words ``paid-up value'' in para. (a), the word ``cost'' in para. (b) relates simply to a matter of fact. In isolation, the cost to the fund of the shares would seem to me to be an entirely neutral consideration. Again, as with para. (a), it seems that there is this implied notion of a comparison to be made, and one obvious comparison that suggests itself is a comparison between cost and value. If the

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language of para. (b) itself does not authorise such a comparison to be made, I have no doubt that the value of the shares would be a relevant matter within the meaning of para. (f) and that a comparison could be obtained by a reading together of the two paragraphs.

5. In this particular case, it is clear that the fund obtained the shares at a cost which represented something less than one-fifth of their value. Disparity between cost and value of the shares is a factor which Board of Review No. 1 has regarded as militating against the formation of an opinion favourable to a fund, and I agree that it should be so regarded. I make no attempt to indicate what might be an acceptable margin between the value of shares and their cost to a fund, as each case of this type must be decided on its own particular facts. It is sufficient to say that in the circumstances of this case, the excess of the value of the shares over their cost to the fund was so great, and the fund thereby obtained so great an advantage, that I am not of the opinion that it would be reasonable to exempt the dividend from tax.

6. Accordingly, I would confirm the Commissioner's assessment.

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