Case X12

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 24 October 1989.

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Dr P. Gerber (Deputy President)

In this case, the taxpayer obtained two parcels of opals in circumstances which must give rise to some degree of uncertainty as to their background. One parcel was acquired from an itinerant ``antique dealer'', address unknown, now thought to be in the United Kingdom; the other stones were bought from a ``retired opal miner'' at the back of a pub in Murwillumbah.

2. The taxpayer was vague in the extreme as to time and amnesic as to price. Although irrelevant for present purposes, it seems likely that these opals were obtained at prices vastly below the value placed upon them when donated to the Queensland Museum in two parcels, one in 1980 and one in 1981.

3. On each occasion the taxpayer obtained two independent valuations: one from a Mr Heiser who, due to illness, was unable to give evidence, the other from a Mr Daddow, both approved valuers for purposes of the Tax Act in relation to the class of property donated.

4. In his return for the 1980 tax year the taxpayer claimed by way of deduction an amount of $48,015, being the alleged ``value'' of the opals, and an amount of $47,469 was claimed in the following year for a further donation. These amounts were arrived at, so it is alleged, by averaging the Daddow and Heiser valuations (I get a different amount in 1980 by this method). Both experts arrived at their valuation by adopting what was described as ``insurance replacement value'', which was treated at the hearing as equivalent to ``retail plus sales tax''. The Commissioner reduced these amounts to $18,829 and $18,615 respectively, amounts arrived at by averaging the wholesale valuations placed on the stones by his own valuer, a Mr Keady, together with the two (wholesale) valuations obtained by the taxpayer (each of whom supplied three

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valuations; ``wholesale'', ``retail'' and ``retail plus sales tax''). In effect, what was described as Mr Keady's ``wholesale'' valuation was obtained - at the request of the Commissioner - by applying the ``test'' of what ``a willing but not anxious purchaser would have paid a willing but not anxious vendor, both alike uninfluenced by any consideration of sentiment or need''. In the alternative, the Crown asserted that the transactions were shams and/or nullities and/or void against the Commissioner pursuant to sec. 260.

5. The deductions were claimed in reliance on sec. 78(1)(aa) of the Income Tax Assessment Act 1980-1981, which permitted (at that time) the value of gifts of property donated, inter alia, to public museums to be treated as allowable deductions. In this case, the Commissioner refused to accept the taxpayer's valuations, replacing them with the Keady ``wholesale'' figures.

6. Subsection 78(6B) provides that a gift of property is not an allowable deduction under para. (1)(aa) unless the person by whom the gift was made furnishes to the Commissioner with the return of income of the person in respect of the year ending during which the gift was made not less than two valuations in writing stating the amount that, in the opinion of the person making the valuation, was the value of the property at the time the gift was made. Subsection 78(6E) provides:

``For the purposes of paragraphs 1(aa) and (ab), the value of a gift of property shall, subject to sub-section (6F), be taken to be -

• (a) in a case to which paragraph (b) of this sub-section does not apply -
  • (i) if the Commissioner is of the opinion that an amount equal to the average of the values specified in the valuations furnished to him in accordance with sub-section (6B) in relation to the property fairly represents the value of the property as at the time when the gift was made - that amount; or
  • (ii) if the Commissioner is not of that opinion the amount that the Commissioner considers was the value of the property as at that time;...''

7. I am asked, in effect, to determine which - if any - of the methods adopted by the experts is the appropriate measure of ``value''; is Mr Keady correct in adopting, what might be termed the ``Clapham omnibus'' approach, involving two strangers haggling with feigned indifference over a bag of opals, or are the taxpayer's valuers correct in adopting an insurance replacement valuation, the choice being, for practical purposes, ``wholesale'' versus ``retail''; the sales tax component got a trifle lost in the confusion. It goes without saying that the Commissioner argued in favour of the lower figure, whilst the taxpayer supported a valuation based on ``retail'' with all the trimmings.

8. Pausing here, I might add that the wholesale valuations in the 1981 year arrived at by all three valuers are sufficiently proximate in amount as to not raise any problems on quantum. To the extent that there is substantial disagreement on valuations in 1980 between Mr Keady on the one hand, and the valuations of Messrs Heiser and Daddow, I prefer the Heiser/Daddow valuations. Mr Keady was not an impressive witness; he conceded that his first valuation of the 1980 opals was based on an inspection in bad light and was subsequently amended upwards. I therefore propose to adopt the Daddow and Heiser valuations as being the more reliable.

9. The parties have assured me that the point raised in this case is a novel one; certainly no authorities were cited which bore on the mechanics of calculating the value, for purposes of sec. 78(1)(aa), of gifts of property donated to public institutions. However, several decisions were relied on which dealt with the appropriate measure of ``value'' for purposes of shares donated to a public hospital and land compulsorily acquired; cf.
Coppleson v. F.C. of T. 81 ATC 4019 (on appeal 81 ATC 4550) and the several decisions discussed therein. With respect, I find these cases of little assistance when applied to gifts of opals to public institutions which have - and were intended to have - certain fiscal relief.

10. On the facts of this case, I find the test suggested by the Crown of a ``willing but not anxious vendor and a willing but not anxious purchaser'' (which was treated at the hearing as equivalent to the wholesale value) as inappropriate as ``insurance replacement value'' when applied to opals of less than gemstone quality, donated to a public museum, prepared

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to accept any gift horse without oral inspection by a more than willing donor with no intention of going into the market-place to replace his gift, whose sole desire - as I find - in making the donation is to reap the tax benefits - substantial in this case due to the highly inflated valuation method adopted - then available under the Act. It follows that I reject out of hand the taxpayer's pious assertion that he was most anxious that this ``collection'' of stones should remain in Queensland. Be that as it may, anyone is still entitled to take advantage of specific benefits provided for by the Act; the ``choice principle'' as enunciated by the High Court in such cases as
F.C. of T. v. Westraders Pty. Ltd. 80 ATC 4357, although a trifle pale and given to the occasional consumptive cough, is at last count still alive and well; cf.
F.C. of T. v. Gulland 85 ATC 4765. That disposes of the application of sec. 260.

11. Doing the best I can, and bearing in mind that the facts of this case are less than ideal for purposes of a confident pronouncement on ``value'', it seems to me that the ultimate choice lies somewhere between the ``wholesale'' and ``retail'' valuations. To the extent that the retail valuations were the base from which the applicant's valuers commenced, the inclusion of sales tax seems to me to be wholly inappropriate where the institution is freed from such impost by virtue of its status and the donor has no intention of replacing his gift by going into the open market.

12. ``Value'' for the purpose of the section is not defined. To the extent that a legislative intent can be gleaned from the provision as it then stood, it appears to me that it was designed to encourage donations of property to public institutions by way of a tax incentive. The Crown's formula can hardly be said to provide much encouragement to make donations of items of value. On the other hand, to apply the ``retail plus sales tax'' formula, advanced on behalf of the applicant, would substantially overcompensate donors for the real value of their benefaction (and not infrequently result - as in this case - in ``gifts'' to which all other taxpayers make a substantial, albeit unintended, contribution).

13. In the result, I have concluded that restitutio in integrum is not the appropriate test to apply in the calculation of ``value'' for purposes of the section. I believe that it is possible to quantify ``value'' more in tune with the legislative intent by looking at each gift from the perspective of donor and donee. This ``formula'' ignores sales tax and takes account of the undoubted fact that the museum obtains for nothing items which it appears to want and which, if acquired on the open market, would involve it in an outlay of the retail price, but freed of the sales tax component. Seen from the perspective of the donor, and taking into account that, generally, gifts are donated with no expectation of any material advantage being received by the transferor by way of return (the present case is somewhat exceptional since this taxpayer was concerned with nothing other than the fiscal benefits to himself which his gifts attracted), it is unlikely that Parliament intended to overcompensate men and women of public spirit, motivated to make donations to public institutions, by including a notional amount of sales tax in quantifying the amount these public benefactors are allowed to deduct from their taxable income.

14. The above view notwithstanding, Ms Gertrude Stein's maxim that ``gift is a gift is a gift'' undoubtedly applies to sec. 78 of the Income Tax Assessment Act, however impure the motive. Be that as it may, whatever else Parliament may have intended by enacting tax concessions for gifts donated to public institutions, it is unlikely that it intended to introduce a form of unjust enrichment, which would ensue if one adopted the taxpayer's argument on ``value''. I receive some comfort in adopting a more flexible approach to ``value'' in cases involving fiscal considerations from the observations of Dixon J. (as he then was) in
Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Company of South Australia Ltd. (1947) 74 C.L.R. 358 at pp. 373-374:

``there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal

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estimate in a revenue case, of a more conservative estimate.''

15. Ideally, the true value of any item would be arrived at by asking what the donated item would fetch at public auction. It seems to me that this measure is fair to both sides; the donor would be saved the commission he/she would have to pay if the article were thus sold, and the donee obtains the article freed of sales tax and - in Victoria - of buyer's commission. Alas, such a ``test'' is only rarely achievable and is impossible when applied to a gaggle of second grade opals. Lacking a more accurate guide, I feel justice is done to both sides by applying the average ``retail'' valuation supplied by Messrs Heiser/Daddow.

16. I therefore vary the decision on the objections in the two years under review by allowing a deduction of $37,660 in 1980 and an amount of $37,231 in 1981 (using my own calculations based on the average ``retail'' figures supplied by the applicant's experts) and direct that the returns be amended accordingly.