Jones v. Federal Commissioner of Taxation.

Judges:
Bray CJ

Court:
Supreme Court of South Australia

Judgment date: Judgment handed down 16 February 1977.

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Bray C.J.: This is another objection by a pharmaceutical chemist to a taxation assessment, the objection having been disallowed by the respondent Commissioner and, at the request of the taxpayer, treated as an appeal to this court.

The case bears a close resemblance to the case of Bayly, judgment in which has just been delivered, though there are important differences. I will endeavour as far as possible to avoid repetition. My reasons for judgment in
Bayly's case 77 ATC 4045 are, wherever appropriate, to be deemed to be incorporated in these reasons.

Again the appeal relates to the assessment of the appellant's taxable income for the year 1st July 1971 to the 30th June 1972. Again the appellant, who is a qualified pharmaceutical chemist, included in his return certain amounts as wages paid to him by his wife, Dee Grenfell Jones, as the manager of certain businesses of a pharmaceutical chemist allegedly owned by her.

(In the copy of the return furnished to me the name of the employer is shown as D.P. Jones instead of D.G. Jones, but this is obviously a mistake and has been so treated by the respondent.)

Again the respondent adjusted the return by deleting the amounts so shown as wages and substituting the net profits of the pharmacy businesses over the year in question. Again the appellant contends that the two pharmacy businesses, to which reference will hereafter be made, were at all material times the businesses of his wife and that the only income derived by him therefrom was his salary as manager.

The appellant, his wife and two accountants, Mr. Jamieson and Mr. Mann, gave evidence. The appellant and his wife acted under the successive guidance of these two gentlemen. It is apparent, I think, that they did not understand the details of the complicated bookkeeping entries and financial transactions into which they were induced to enter, and I have not found them easy to follow either. I do not think much reliance can be placed on their account of these matters, but I acquit them of any intention to deceive me. I accept the two accountants as honest witnesses, though I think that Mr. Jamieson had some difficulty in remembering events which happened nearly 10 years ago and the memorandum compiled by him for submission by Mrs. Jones to the respondent with her return for the year ended 30th June 1968 (Exh. D. 34) contains what at first sight appears to be inaccurate and even disingenuous statements, but which are susceptible of charitable explanation on the ground that they represent what the draftsman intended to happen rather than what actually did happen.

Though, as I have said, I have had difficulty in appreciating the precise nature and effect of the things that were done, I think it is sufficient for the purposes of this case to make the following findings of fact.

1. The appellant became a qualified pharmaceutical chemist in 1945 and married in 1953.

2. After qualification he worked at various pharmacies belonging to other people and then purchased a pharmacy at Glenelg. In

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ATC 4061

September 1954 he sold that and purchased a pharmacy at McLaren Vale, buying first the business and the stock and then the premises in which the business was conducted and an adjoining block of land on which there was a house in which the spouses resided.

3. In July 1967 or thereabouts he sold the pharmacy business to his wife. The sale was in terms of the document Exh. P. 2. That is in the form of an agreement with the date 1st July 1967 inserted in the appropriate position. It was signed by Mrs. Jones but not by the appellant. I think she signed it some time about that date, but I cannot find precisely when. The appellant and his wife are unable to remember why he did not sign it, but I accept the evidence of Mr. Jamieson that the abstention was deliberate on Mr. Jamieson's advice in order to save stamp duty in the hope that the document signed by Mrs. Jones alone could be used as proof of the terms of an oral agreement for sale.

4. The agreement, as I will hereafter inaccurately but conveniently label the document, provided -

• (a) for a sale at a price made up of three components representing goodwill, sundry debtors and stock in trade. The goodwill was specified in typescript at $6,000. The debtors were specified in handwriting as $1,387.55. The value of the stock was left blank but I accept that it had been counted and that it was a mere matter of calculation to work out the appropriate figure.
• (b) for an escalation of the price if the gift duty authorities should consider the consideration to be inadequate.
• (c) for a payment of $3,000 deposit on signature and for the balance to be payable on demand and until payment to carry interest at 7%.

5. There was no written contract of employment, but it was verbally agreed that Mrs. Jones would employ the appellant as manager at a weekly salary of $120, either party being entitled to terminate the employment on a month's notice. His salary was subsequently raised.

6. The appellant retained the shop, premises, fixtures and fittings. Mrs. Jones was to pay $30 per week rent as a monthly tenant.

7. Evidence was given by Mr. Jamieson that in the circumstances the figure of $6,000 for goodwill was a proper figure according to the calculations he detailed. I am not convinced by that evidence. In my view the sum was considerably less than an ordinary commercial purchaser at arm's length would have had to pay. I think that such a purchaser would have had to pay. I think that such a purchaser would have had to pay something in the region of $8,000 for the goodwill. Despite what is said in Exh. D. 34, I am satisfied that Mr. and Mrs. Jones were not at arm's length for the purpose of this sale.

8. The stock was ultimately valued at $4,872, making the total purchase price $12,259.55, or in round figures $12,260.

9. The $3,000 deposit was not paid until February 1968. It was paid by cheque drawn on the business account in the name of Jones Chemist i.e. Mrs. Jones. The memorandum. Exh. P. 34, says that Mrs. Jones arranged for an overdraft from the bank to pay this. This is not strictly accurate. The overdraft had been arranged before the account was opened and it was in credit when the cheque for $3,000 was paid.

10. Interest was credited to the appellant and debited against Mrs. Jones in an account kept by the accountants and misleadingly entitled ``Loan Account''. The rent was paid periodically out of the business account to the appellant.

11. The balance of the purchase price, then by reason of accumulated interest standing at $12,213.16, was not paid until April 1975 after the disallowance of the objection. I think it was paid then primarily because it was thought that payment might improve the appearance of the appellant's case. That payment flowed from a confused and muddy spring. The spouses had acquired a vineyard. They put money into the vineyard and their respective advances were credited to them in what was called a loan account. In 1974 Mrs. Jones' loan account with this vineyard partnership stood at $26,220 and the appellant's at $17,236. That loan account had been fed by withdrawals from the business account. In effect, as I see it, the pharmacy business was paid for out of its own profits, both as to the deposit and as to the final payment, though in the latter case the money had taken a little trip out of the pharmacy account into the farm account and back again. The appellant and his wife were disposed to agree with this version of what happened. Mr. Mann was shocked by it and vigorously contended that in accounting terms

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ATC 4062

this was not a correct description of what had happened. Substantially, however, I think that it represents the true position. I do not propose to investigate the true juristic nature of these so-called loans by each member of a partnership of two to the partnership.

12. Mrs. Jones helped in the pharmacy business at McLaren Vale, both before she bought it and afterwards. On an average I think that she spent at least half of each working day in the shop at relevant times, perhaps more in the later stages before the parties moved to Adelaide as will be mentioned later. Naturally she had no part in the dispensing: but I think she played an intelligent and interested part in the conduct of the business in other respects and particularly in such matters as display, decor and the engagement of staff, and she helped with the books and the clerical work generally.

13. After the purchase all proper steps were taken by way of notification of the acquisition of the business by Mrs. Jones to the Pharmacy Board, the Department of Health, the Deputy Commissioner of Repatriation and the customers of the business, and appropriate notices were displayed on the premises and appropriate endorsements made on the stationery to indicate that the business had passed to Mrs. Jones and that the appellant was managing it.

14. In so far as it is relevant I think that the primary reason for the transfer was to equalise the assets of the spouses and to provide a security to Mrs. Jones in the event of death (or also, I think, divorce), to give her an asset and to save death duties. In addition there were rumours that the Pharmacy Act was about to be altered so as to allow pharmacies to be owned only by qualified pharmaceutical chemists and to allow even such a pharmacist to own only one pharmacy business, so that if the business was ever to be transferred to Mrs. Jones it was desirable to act quickly. The question of the saving of income tax was present to the minds of the spouses but was not, to use the words of the appellant, which I accept, the major reason for the sale.

15. In 1972, during the year of income, Mrs. Jones acquired another pharmacy situated at Highgate. The owner was a Mr. Arbon. The agreement was signed on the 10th May 1972. The price was $20,000 plus fixtures and fittings and stock in trade at valuation. The premises were held under a lease for a term of 10 years from the 1st May 1968 and the unexpired portion of the term was assigned to Mrs. Jones. The purchase price was raised by overdraft, but later a suburban house in the joint names of the spouses was sold and the purchase price was paid into the overdraft account. In 1974 Mrs. Jones sold the Highgate business. While she had it the appellant managed it and another pharmaceutical chemist, a Mr. Barratt, managed McLaren Vale pharmacy subject to the supervision of the appellant. His salary was adjusted accordingly. The parties continued to live at McLaren Vale until 1973 when they moved to the city. Eventually, after the sale of the Highgate pharmacy, the appellant returned to full-time management of the McLaren Vale pharmacy.

16. The principal reason for the purchase of the Highgate pharmacy was again, in my view, rumours of proposed changes to the Pharmacy Act which might make it impossible in future for Mrs. Jones to acquire another pharmacy business. In fact, as will be seen later, she acted too late. Another reason given was that the parties desired to move to the city because of the children's education, but I think that this was only a subsidiary motive. In fact the parties did not move to Adelaide until a considerable time after the Highgate purchase. The income for the taxation year with which I am concerned includes both McLaren Vale and Highgate income, but, because I am of opinion, for reasons given in Bayly's case, that the Highgate income can never be attributed to the appellant, even if sec. 260 of the Income Tax Assessment Act is applicable, since that business was never his and annihilating the Highgate purchase as against the Commissioner could not make its income his income, I forebear to analyse the Highgate situation in depth.

17. Some stress was laid on other matters, such as the claim by Mrs. Jones in her return for the year 1971-1972 to a deduction for the expenses of the children's education, even though these were probably paid by the appellant, and a claim by Mrs. Jones for depreciation in respect of a car, for which he had claimed depreciation before the transfer of the business, despite the absence of any payment by her for that car. I do not attach significance to these matters, but I mention them to show that I have not overlooked them.

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ATC 4063

Mr. Matheson for the Commissioner intimated at the beginning of the trial that he would reply in support of the assessment on the same four matters as those on which he relied in Bayly's case, namely sham, illegality, derivation of income within the meaning of sec. 17 and 19 of the Income Tax Assessment Act and sec. 260 of that Act. With regard to many matters my decision in Bayly's case concludes my decision in this case and, as I have said, I will endeavour to avoid repetition of what I said there. I say something about each of these four matters.

1. Sham

In his final address Mr. Matheson intimated that he no longer contended that the transactions were sham transactions. Despite this I think I should say that I find specifically that neither with regard to McLaren Vale nor with regard to Highgate was the transaction a sham in the relevant sense. The parties intended that Mrs. Jones should acquire the legal and equitable rights and interests which would ordinarily flow from the transactions into which she entered. She did acquire the title in law and in equity to the goodwill and the stock in trade and the debts of the McLaren Vale business. She acquired similar rights to the assets assigned to her by the agreement with Mr. Arbon. I am satisfied that at all relevant times she regarded the McLaren Vale business and the Highgate business, while she had it, as hers and that in fact the two businesses during the year of income were hers both in law and in equity. Any illegality in the ownership of a chemist's business by her, if there was any, would not alter this situation.

Since, however, the question of sham was raised at the beginning of the trial much evidence as to intention and motive was admissible which may not have been admissible with regard to other branches of the case. I have endeavoured to bear this in mind where relevant.

2. Illegality

For the reasons given in Bayly's case I do not think that it matters whether or not it was at any relevant time illegal for Mrs. Jones to own or conduct a pharmacy in general or a pharmacy in which drugs were compounded and sold containing poisons within the meaning of the Poisons Regulations under the Food and Drugs Act 1908 as amended.

Further, for reasons given in that case, I do not think that she was prohibited by the Pharmacy Act 1935 as amended from owning and conducting the McLaren Vale business, notwithstanding her lack of personal qualifications, so long as it was under the supervision of a registered pharmaceutical chemist and his name was displayed as required by the Act. Both the appellant and Barratt were registered pharmaceutical chemists. No point was made about any non-compliance with the statutory requirements concerning the display of the name of the manager and I am not prepared to find that those requirements were violated.

With regard to Highgate, however, the matter stands differently.

The amending Act of 1972, which came into operation on the 20th April 1972, about four weeks before the date of the Arbon agreement, by sec. 25a prohibited the ownership by any person who was not a registered pharmaceutical chemist of any business consisting wholly or partly of retailing, compounding or dispensing drugs or medicines on the prescription of legally qualified medical practitioners. These businesses, of course, were such businesses. But there is, as I pointed out in Bayly's case, an exception in the section in favour of a person who owned such a business before the commencement of the amending Act and continued to own it afterwards, provided that the business in question was under the constant supervision and management of a registered pharmaceutical chemist and his name was displayed as required. Before the amending Act came into force Mrs. Jones was the owner of the McLaren Vale business which was under the supervision of a registered pharmaceutical chemist and hence she was protected by the exception. But she acquired or purported to acquire the Highgate business too late to come within it. Hence it was illegal, in my view, for her to own and carry on that business, despite the fact that the Pharmacy Board had been notified of her acquisition and given its approval to it, see Exh. D. 41.

Be it so. In my view, despite the illegality, she remains taxable on the income she derived from that business. And even if she were not, the net profits from the Highgate pharmacy cannot be converted into the appellant's income. He did not own the goodwill or the stock in trade of the business and he was not

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ATC 4064

the lessee of the premises. I have expatiated sufficiently on this point in Bayly's case and I will not repeat what I there said about it or about the construction of the Poisons Regulations.

3. Derivation of income

On this point, too, my decision in Bayly's case largely governs the matter. An employee does not derive his employer's income within the meaning of sec. 17 and 19 of the Income Tax Assessment Act simply because it is paid into his hands or earned as the result of his labours.

I will not repeat what I said in Bayly's case about the provisions of the National Health Act 1953 as amended relating to pharmaceutical benefits or about sec. 82F of the Income Tax Assessment Act relating to deductions for payments made by taxpayers to legally qualified chemists.

In this case too, as in Bayly's case, claims were made for payments of pharmaceutical benefits in claim forms signed by the appellant. As in Bayly's case too, those claim forms have to be read in the context of correspondence with the Department of Health. An application for approval as a pharmaceutical chemist in a form containing the printed words ``By a registered pharmacist manager'' (Exh. P. 11) was lodged on the 18th July 1967. On the 27th July 1967 the delegate of the Director-General of Health granted approval (Exh. P. 12) to the appellant as pharmacist manager to supply pharmaceutical benefits at the McLaren Vale pharmacy. At the same time it cancelled the approval previosuly given to the appellant as the proprietor of the business (Exh. P. 13) The pharmaceutical benefits, therefore, payment for which was claimed by ``Jones Chemist'' on forms signed by the appellant were to the knowledge of the Department benefits supplied by the business owned by Mrs. Jones and managed by the appellant. The Department was also notified that the Highgate business belonged to Mrs. Jones and was being managed by the appellant (Exh. D. 33).

What, therefore, was said about the claim forms and the supply of pharmaceutical benefits in Bayly's case applies here also.

So, too, with regard to payments of commission by the Mutual Hospital Association and the Savings Bank. Whatever may have happened before the taxation year in question, the Mutual Hospital Association appointed as its agent Mrs. Jones, trading as ``Jones Chemist'', by memorandum of agreement dated the 13th January 1971 (Exh. D. 20). There is no reason to doubt that during that year the commission was due to her and received by her as a principal. As in Bayly's case also the Savings Bank agency was granted to the appellant personally and it was he who entered into the bond to the bank in his own name. But for the same reasons as those given by me in Bayly's case I do not think that the small amounts of Savings Bank commission involved should be dissociated from the other receipts of the business. I think that, as he said, he signed the form ostensibly as a principal by inadvertence and without thought and that he received the Savings Bank commission as his wife's manager and agent and entered into the agreement with the bank on her behalf as an undisclosed principal. As between the spouses, the money was hers not his and it was in fact paid into the business account in her name.

The derivation argument fails.

4. Section 260

This is the real point of the case.

In my view sec. 260, even if otherwise applicable, cannot for the reasons I gave in Bayly's case, make the taxable income of the Highgate pharmacy the appellant's taxable income. Even if the agreement of purchase between Mrs. Jones and Arbon is annihilated as against the respondent, the Highgate income would not become the appellant's income. Mr. Matheson hardly contended to the contrary.

But I would add that there is, in my view, no case at all for the application of sec. 260 to Highgate. At the time Mrs. Jones bought the Highgate pharmacy she had owned the McLaren Vale pharmacy in her own right for some years and was in a position to finance the purchase herself, even if the overdraft she obtained was subsequently reduced by the sale price of a property in the joint names of the spouses. I see no reason to doubt that she bought Highgate as a principal in her own right in every sense.

With regard to McLaren Vale the case, of course, stands differently. A business belonging to the appellant was transferred to

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ATC 4065

his wife and the annihilation as against the respondent of that transaction would leave the business notionally still in the hands of the appellant and its net profits notionally his income. I therefore have to decide a point which I found it unnecessary to decide in Bayly's case, though ex abundanti cautela I made some remarks about it.

Mr. Fisher, Q.C., for the appellant asked Mr. Matheson to specify the contract, agreement or arrangement relied on for the purpose of his argument on sec. 260. He responded with a document in the following terms:

``COMMISSIONER'S VIEW OF ARRANGEMENT UNDER SEC. 260

AN arrangement entered into in or about 1967

BETWEEN

• Douglas Perry Jones (the Appellant) and
• Dee Grenfell Jones (the Appellant's wife)

THAT the Appellant would sell to his wife, and the Appellant's wife would purchase from the Appellant, the pharmacy business which had up till that time been owned and carried on by the Appellant at McLaren Vale, and henceforth it would be owned and carried on by the Appellant's wife, and that the Appellant and his wife would do all such things necessary to enable the income from the practice of pharmacy and other activities of the business to be derived by the Appellant's wife instead of by Appellant.

AND the Appellant did sell to his wife, and the Appellant's wife did purchase from the Appellant, the pharmacy business at McLaren Vale, and henceforth it was owned and carried on by the Appellant's wife, and the Appellant and his wife did do all such things necessary to enable the income from the practice of pharmacy and other activities of the business, firstly only at McLaren Vale, and then both at McLaren Vale and Highgate, and subsequently only at McLaren Vale, to be derived by the Appellant's wife instead of the Appellant.

AND the arrangement has or purports to have the purpose or effect of defeating or avoiding liability imposed on the Appellant by the Income Tax Assessment Act.''

Again I will not repeat the terms of sec. 260 or my general remarks about the section. For those matters I refer to my reasons in Bayly's case.

I will repeat, however, a crucial and famous passage from the words of Lord Denning in delivering the judgment of the Privy Council in
Newton v. F.C. of T. (1958) 98 C.L.R. 1 at p. 8:

``In order to bring the arrangement within the section you must be able to predicate - by looking at the overt acts by which it was implemented - that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.''

This passage has been subsequently reaffirmed by the Privy Council,
Mobil Oil Australia Ltd. v. F.C. of T. (1965) 112 C.L.R. 407 at p. 411.
Mangin v. Commr. of I.R. 70 ATC 6001 at p. 6006; (1971) A.C. 739 at p. 751, and inferentially again last year in
Europa Oil (N.Z.) Ltd. (No.2) v. Commr. of I.R. 76 ATC 6001 at p. 6009.

In applying these words to the case at bar it is convenient to begin with some reference to the onus of proof. Mr. Matheson placed strong reliance on sec. 190(b) of the Income Tax Assessment Act which provides that on any appeal the burden of proving that the assessment is excessive shall lie upon the taxpayer. That subsection has recently been considered by the High Court in
Gauci v. F.C. of T. 75 ATC 4257. It is true that that case turned on sec. 26(a), not on sec. 260, but, in my view, the remarks of the learned judges in the majority on the matter of sec. 190(b) are of general application.

Barwick C.J. said at p. 4260:

``There is no presumption that property is acquired for resale at a profit. No doubt sec. 190 of the Act requires the appellant to show that the assessment is excessive. But the relevant facts being known, if there is no material upon which it may properly be concluded that the property was acquired

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ATC 4066

with the relevant purpose, the assessment is thereby shown to be excessive.''

So here, if on the known facts there is no material upon which it may properly be concluded that the transactions in question are incapable of explanation by reference to ordinary business or family dealing, or that they must necessarily be labelled as a means to avoid tax, the assessment is shown to be excessive. Section 190 does not require the appellant to show positively that the transactions cannot possibly be labelled as a means to avoid tax, or that they are only explicable by reference to ordinary business or family dealing.

An all important consideration, in my view, is the part which the purpose or effect of tax avoidance can legitimately play in the transaction without provoking the thunder of sec. 260. In Mangin's case above the Privy Council said at ATC p. 6007 and A.C. p. 751:

``The clue to Lord Denning's meaning lies in the words `without necessarily being labelled as a means to avoid tax'. Neither of the examples above given could justly be so labelled. Their Lordships think that what this phrase refers to is, to adopt the language of Turner J. in the present case, `a scheme... devised for the sole purpose, or at least the principal purpose, of bringing it about that this taxpayer should escape liability on tax for a substantial part of the income which, without it, he would have derived'.''

This passage was commented upon by Gibbs J. in
Hollyock v. F.C. of T. 71 ATC 4202 at pp. 4205-6; 125 C.L.R. 647 at p. 657 in the following words:

``With great respect, I cannot accept that the words which Turner J. used to refer to the facts of the case before him, but which their Lordships adopted as indicating the meaning of Lord Denning's remarks, express completely the effect of sec. 260. To say that the section applies only to arrangements whose sole purpose is tax avoidance would be contrary to the decisions in Newton's case and
Hancock v. F.C. of T. (1961) 108 C.L.R. 258. To hold that tax avoidance should be the principal purpose of the arrangement would seem to me to be opposed to the reasoning on which those decisions rest, and would introduce into sec. 260 a refinement which is not suggested by the words of the section itself, and which would tend to increase, rather than remove, the difficulties to which the section gives rise, by requiring the courts to weigh one purpose against another and to decide which was predominant. An arrangement may, for example, be designed to secure both the avoidance of income tax and the avoidance of death duties - each purpose may be equally important - and in such a case the arrangement does not in my opinion escape from sec. 260 simply because it cannot be held that the avoidance of tax is the principal purpose of the scheme. On the other hand, if tax avoidance is an inessential or incidental feature of the arrangement, that may well serve to show that the arrangement cannot necessarily be labelled as a means to avoid tax.''

But it seems to me that in the Europa case (No. 2) above the Privy Council has returned to the formulation in Mangin's case with perhaps some slight shift of meaning. There it was said at ATC p. 6009:

``Fourthly, the section in any case does not strike down transactions which do not have as their main purpose or one of their main purposes tax avoidance.''

I have finally come to the conclusion that this difference is decisive of the present difficult controversy and that I should follow the Privy Council formulation. I might add that although in Mangin's case and the Europa case it was New Zealand legislation, not Australian legislation, which was under consideration, the courts in general and the Privy Council in particular do not seem to have regarded any difference in language as significant, but to have applied and interpreted Newton's case with reference to the legislation of both countries.

If I were asked to say of the McLaren Vale purchase, either looked at objectively in the light of all the known facts and circumstances, or, if that be relevant, looked at subjectively from the point of view of what was in the minds of the spouses, whether tax avoidance was a mere inessential or incidental feature of the arrangement, I doubt if I could answer in the affirmative. Tax avoidance, or rather tax reduction, was an obvious consequence of the arrangement if it is looked at objectively: both the appellant and his wife had the topic present

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ATC 4067

to their minds. I think I could hardly hold that it was a mere irrelevant incident.

But I do not think that it was the main purpose or one of the main purposes of the arrangement, either objectively or subjectively. I think that the main purpose of the arrangement was to distribute the assets of the spouses between them so as to give her a share in them and a protection against the future, a protection against death duty, which was no trifling matter even between spouses in 1967, but not only against death duty. We know that the appellant at some time after the transfer had a coronary occlusion. The fear of impending changes to the Pharmacy Act acted as a spur to immediate action. It was, in my view, legally possible in 1967 for a pharmacy to be owned by a non-qualified person if managed by a qualified person, but it was feared that that might soon cease to be possible. In fact the change feared did come about in 1972, though with protection for existing businesses. If Mrs. Jones was to get the kind of interest in her husband's business which she could have acquired and held without question by any taxation authority, if the business had been that of a farm, a manufacturer or a retail storekeeper, it was prudent to act at once. It was no doubt a pleasing additional consequence of the arrangement that the total income tax payable by the family would be reduced in consequence of the transaction, but it was not one of the principal or main purposes or effects of it. It was a minor and subsidiary purpose and effect.

In my view the arrangement is capable of explanation by reference to ordinary family dealing and is not necessarily to be labelled as a means to avoid tax. It falls within the class of case illustrated by
Peacock v. F.C. of T. 76 ATC 4375 rather than within the class of case illustrated by
Peate's case (116 C.L.R. 38) or Hollyock's case above. I repeat that a redistribution of family assets including a family business, as between husband and wife is a normal, ordinary, everyday family transaction which would not normally attract sec. 260 where there is no professional element in the business. Farmers, shopkeepers, factory owners do it frequently. As the Privy Council has recently pointed out, in modern times marriage has come to be regarded as a partnership of free equals in which the partners perform complementary functions and appropriate proprietary adjustments are regarded with approval,
Haldane v. Haldane (1976) 3 W.L.R. 760 at p. 767. Sometimes it is more convenient for a company to be formed for the purpose of giving effect to these ideas. Sometimes the machinery of partnership or joint ownership is employed. Sometimes an asset or a considerable share in it is transferred from the name of the husband into the name of the wife. Here the appellant did not strip himself entirely of his assets. He retained the ownership of the land and fittings at McLaren Vale. This is said to heighten suspicion. To me it lessens it. It points to a purpose and effect of equalisation, or at least sharing, of the matrimonial assets.

The fact that the appellant is a registered pharmaceutical chemist makes the transaction appear at first sight unusual to the lawyer's mind, because the notion of a professional man working in the course of his profession as a salaried employee of a lay employer seems disturbing or, to some minds perhaps, shocking. In this connection it is an important, though not a decisive, consideration that, in my view, there was nothing illegal in the ownership of the McLaren Vale pharmacy business by Mrs. Jones in the circumstances of this case. Here the case falls in line with Peacock's case, and not with Peate's case or Hollyock's case. It is true, as I have found, that she could not legally own or carry on the Highgate business, but the respondent for other reasons can take no comfort from that. It is noteworthy to my mind that the conduct of the McLaren Vale pharmacy by the appellant as his wife's manager was accepted without demur and even with approval by the governmental and semi-governmental authorities concerned with the operation of pharmacies, the Pharmacy Board, the Department of Health and the Department of Repatriation. That would not make that operation of the business legal if it were otherwise illegal. As Mr. Matheson says, there can be no estoppel against a statute. But it does have some bearing to my mind on the normality of the transaction. It evidently did not appear to those authorities to be shocking or so unusual or extraordinary as to demand special investigation. In some cases, as I have said, the authority was using what were apparently normal departmental forms to deal

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ATC 4068

with pharmacist managers for pharmacy businesses owned by other people.

I have come to the conclusion then that the arrangement specified in Mr. Matheson's memorandum is not caught by sec. 260.

That means that the Commissioner fails on all points in the case, the appeal is allowed, the disallowance of the objection set aside and the objection allowed in toto.