Case P27

Members:
HP Stevens Ch
JR Harrowell M
BR Pape M

Tribunal:
No. 1 Board of Review

Decision date: 15 April 1982.

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H.P. Stevens (Chairman)

The question at issue in this reference is whether a profit of $57,343 derived from the sale of gold and silver ingots said to have been acquired as a ``hedge against inflation'' is assessable in terms of the first limb of sec. 26(a).

2. I adopt the statements of fact set out in the reasons of my colleagues Mr. Harrowell and Mr. Pape.

3. Insofar as the law to be applied is concerned the situation is that the latest

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ATC 118

decision of the Full High Court in
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 has, on one view, ``muddied'' what were, in any event, less than crystal clear waters. In that case it was found, on the facts existing, that sec. 25(1) applied. However there is in the individual judgments much comment in relation to sec. 26(a) and, in particular, the second limb thereof. The comments make it plain that certain previous decisions in respect to sec. 26(a) are of doubtful future validity.

4. In Whitfords Beach Pty. Ltd. (supra) Mason J. said at p. 4044:

``I do not doubt that the majority was right to exclude from the second limb of sec. 26(a) successful wagers and lottery windfalls. Perhaps the exclusion of private investments originally made as a hedge against inflation was more open to question but there is now a strong body of authority to support its exclusion.''

Although his Honour was here speaking only in relation to the second limb of sec. 26(a) he, in the earlier case of
Gauci & ors. v. F.C. of T. 75 ATC 4257 which did involve the first limb, left ``out of account other purposes such as acquisition for capital appreciation as a hedge against inflation not falling within sec. 26(a) which are not relevant to this case'' (at pp. 4261-4262). Was this because he accepted ``hedges against inflation'' could never be caught by the first limb of sec. 26(a) or simply because, there being no such claim involved in that case, it was therefore irrelevant to consider the issue? Whatever the reason the fact appears to be that no ratio decidendi in relation to ``hedges against inflation'' can be extracted from the reasons of Mason J. or from those of any other member of the High Court. Obiter certainly but nothing binding.

5. Overall I think the position in relation to ``hedges against inflation'' is the same as for sec. 26(a) in general, viz., to use the words of Wilson J. at p. 4958, not ``settled by existing authority''. However it will only be necessary to go further into this aspect if I make a finding that the ingots were acquired for that reason.

6. The taxpayer's argument is based on the proposition that he acquired the ingots at age 47 in order to ensure that he would have available, at age 55, money of equivalent (or perhaps slightly higher) purchasing power to that used to purchase the ingots at age 47. He actually sold them after 2 ½ years - instructions for sale being given within two hours of hearing a radio message concerning the price of bullion on that day - but had not originally thought ``there would be wild fluctuations'' and had not really ``thought of selling it before age 55 because it would have had to be reinvested''.

7. In reply to his request for information re investing $15,000 of ``Bond holdings in bullion'' the taxpayer was, inter alia, advised that gold had ``appreciated by an average annual rate of 30% over the past ten years'', that ``the drop in price over the last year, presents an excellent buying opportunity since the depressing facts which have coincided during this year are of a temporary nature'' and that ``should inflation surge upwards again as we expect, then the performance of gold could well surpass even the most optimistic estimates''. In relation to silver it was said that the all time low stockpiles could have ``only one possible result - a price explosion''.

8. In view of the details given the taxpayer prior to his decision to acquire the ingots I find it difficult to accept that there had been no thought given to a sale prior to age 55. It is my view that the actual sale is consistent with an intention to hold only until a convenient time to sell eventuated. It might have been that nothing would eventuate until about eight years but, if there was a ``price explosion'', it could be much earlier.

9. Giving the matter the best consideration I can I feel unable to do any better than to adopt the words of Gibbs J. (as he then was) in
Jacob v. F.C. of T. 71 ATC 4192 at p. 4194 , viz.:

``The (taxpayer) has not satisfied me that it is more probable than not that he bought (the ingots) for the purpose of holding them as (a hedge against inflation) rather than for the purpose of reselling them at a profit.''

10. For the above reasons I would uphold the Commissioner's decision on the objection and confirm the taxpayer's assessment for the year ended 30 June 1980.

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ATC 119