Slutzkin and Others v. Federal Commissioner of Taxation.

Members: Barwick CJ

Stephen J
Aickin J

Tribunal:
Full High Court

Decision date: Judgment handed down 25 February 1977.

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Stephen J.: A sufficient statement of the facts appear in the reasons for judgment of the Chief Justice. I agree that these appeals should be allowed.

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ATC 4081

It is a simple enough case, an instance of shareholders in a company wishing to be rid of their investment and, to that end, electing to sell their shares rather than to place the company in liquidation. Had they opted for liquidation or had they otherwise, as by way of dividend declaration, sought to receive the fruits of the great surplus of assets over liabilities which reposed in the company a heavy tax liability would have been incurred. Instead they decided to sell their shares, which comprised the whole of the company's issued capital, and proceeded to give effect to that decision. This is, in substance, all they did or, for that matter, needed to do.

They had, it is true, readied the company for a sale at maximum advantage. The company's assets had largely consisted of deposits with public companies and before sale these were called in and liabilities were paid off, the only remaining debit item on the balance sheet, apart from issued capital, being a modest provision for income tax. The taking of these steps made the company's issued capital a more attractive asset in the market place since it then represented virtually liquid assets; to one class of buyer, known as dividend strippers, it would be particularly attractive. It was to just such a buyer that the sale was made for cash and the banking of the cheques representing the sale price received by each of the vendor shareholders constituted, according to the unchallenged finding of the learned trial judge, the end of the transaction in which the taxpayers were involved. They were in no way interested in what occurred to the company after they sold their shares.

No doubt the taxpayers were astute to adopt the particular means they did in bringing to an end their connexion with the company; no doubt they appreciated the tax advantages which such a course offered. But this in itself reveals no purpose or effect such as that of which sec. 260 speaks: a purpose or effect of altering the incidence of tax, of relieving from liability to pay tax, of defeating, evading or avoiding liability imposed by the taxing legislation or of in any respect preventing the operating of that legislation. The company's shares were assets of a capital nature and to realise their value, converting it to cash, would in itself attract no tax; their sale effected no alteration in the incidence of, nor any relief from liability to pay tax, nor was liability to tax evaded or avoided; the operation of the legislation was not prevented. At most what was done was consciously to refrain from taking a course which, had it been taken, would then, for the first time, have brought into existence a situation whose features would have subjected the appellants to liability to pay tax. But it is not to this that sec. 260 is directed. The reasons for judgment of the other members of the Court and the citations of authority which they contain amply demonstrate this to be the case.

It is for these reasons that I would allow these appeals.