Bray v. Federal Commissioner of Taxation.

Judges:
Barwick CJ
Stephen J
Mason J
Jacobs J
Aickin J

Court:
Full High Court

Judgment date: Judgment handed down 19 May 1978.

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Barwick C.J.: Section 78 of the Income Tax Assessment Act, 1936 (Cth.), as relevantly amended (the Act), provides for a deduction to be made from a taxpayer's assessable income of gifts to a public fund established and maintained under an instrument of trust for the purpose of providing material assistance to any of a number of designated objects, and of gifts for the establishment of any such objects.

The resolution of this appeal by a taxpayer against the refusal of the Commissioner of Taxation to allow him a deduction of gifts made by him to a fund established under an instrument of trust which in terms satisfied the requirements of the Act depends, in my opinion, upon the answer to the question whether the fund so established is a public fund within the meaning and operation of sec. 78.

The deed is set out in full in the reasons for judgment prepared in the appeal by my brother Jacobs , which I have had the privilege of reading. In those reasons there will also be found the detailed circumstances under

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which the gifts to the fund were made by the appellant and of the manner in which the fund was operated by its trustees of whom the appellant was the chairman.

The critical facts, in my opinion, in the resolution of this question are that the fund was set up on the sole initiative of the appellant and, though the deed setting it up allowed of contributions being received from members of the public, at all material times the appellant was the only contributor to the fund although the appellant claimed to have made an endeavour to obtain subscriptions from the public. In this connection, it may be said that this endeavour was of a minimal nature, if indeed there could really be said to have been any effective endeavour at all.

There is no definition of a public fund provided by the Act: this is perhaps understandable because the circumstances which may warrant the conclusion that a fund is a public fund are likely to be various and quite disparate. But at least, in order for a fund to be a public fund, it must, in my opinion, either originate in a public initiative or attract public financial participation to a substantial degree. Given one of these conditions, there may yet be other circumstances which must be present to warrant the conclusion that the fund is of a public nature. In any case, a fund cannot obtain its public character from the nature of the purposes for which the fund may be used. The Act requires both that the fund should be a public fund and that it be devoted to the specified purposes. Thus, in this case, the fact that the deed complies with the requirements of the Act affords no reason for the conclusion that the fund constituted under it is a public fund.

The idea of the need for a fund no doubt springs from the fact that individual contributors might be unable directly to make substantial contributions to one or more of the specified objects, whereas when contributions by a number are aggregated, worthwhile assistance might be given.

The evident purpose of sec. 78 is to encourage the support by the public of the objects specified in the sub-paragraph of that section by contribution of sums of varying amounts to a fund which, by aggregating them, can significantly assist one or more of the specified objects. The provision of the deduction is for the implemention of that policy and in no sense as due in equity to the taxpayer in order justly to arrive at the net advantage to him of the receipt of assessable income. Deductions conforming to the terms of sec. 56 are of this latter order.

Whilst I do not think an exhaustive statement of the circumstances which would designate a fund as public fund for the purposes of the Act is possible, the decision of that question in any case must be against a background of this policy of the Act.

Here, the only effect of the deed and of the appellant's gifts to the fund it creates is to provide the appellant with a deduction from his assessable income. The fund cannot be said to exist as a means of producing assistance for a specified object. The appellant, minded to assist any of those objects, could have done so directly. The amount of his second gift was substantial and, in any case, was not augmented by the amount of any other gift. It was not a case of the necessity for a fund to enable contributions, relatively insubstantial in their amount, to be aggregated so as to permit of their useful deployment in aid of one or more of these objects. The fund existed at material times solely as a vehicle for the justification of the deduction by the appellant.

Of course, if the fund were in truth a public fund, the fact that a taxpayer made a gift to it solely to obtain the deduction could not justify a refusal to allow the deduction. Nor would it matter that the taxpayer, having regard to the amount of the gift, might as easily make his gift directly to a specified object. In any such case, the fund being a public fund, the policy of the Act would have been achieved in that it existed conformably to the Act and encouraged the making of contributions, albeit from a purely self-benefiting motive, which through the fund would become available for use under the terms of the trust for one or more of the specified objects.

My conclusion is that the fund established under the deed of trust in this case was not at any relevant time a public fund. Beyond the possibility of public contributions it had no public element. In reaching that conclusion I have not placed any reliance on the manner in which the funds of the trust were dealt with by the trustees; nor have I found it necessary to impugn the bona fides of the appellant. I have done so because there are, in fact, no public elements whatsoever in the establishment or maintenance of the fund under the deed of trust. There was no public initiative in its establishment and no public participation in its maintenance. Nor do I by my conclusion

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rule out the possibility that the fund could yet become a public fund by the participation of the public in it to a substantial degree. Whether it does so or not must remain a question to be decided in the circumstances which then exist. Neither the fact that the appellant himself initiated the fund, nor the fact that he did so as a means of perpetuating the memory of his parents, militates in my opinion against the conclusion that, if all other necessary elements were present, the fund had become a public fund.

I agree with the reasons given by my brother Jacobs for this conclusion. For the reasons I have expressed and those in the same sense expressed by my brother Jacobs , I would dismiss the appeal.