Booth v. Federal Commissioner of Taxation.

Judges:
McGarvie J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 3 February 1986.

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McGarvie J.

The taxpayer, Mr Booth, having had objections disallowed to assessments of his income tax for the years ended 30 June 1982 and 1983 had the objections treated as appeals and forwarded to this Court.

At all relevant times Mr Booth has owned the land and building used as a retail shop at 471 Chapel Street, South Yarra, which he has let to a succession of tenants. By agreements under seal made before the relevant income years, Mr Booth purported to assign for value 70 per cent and 30 per cent respectively of the right to receive all rentals payable in respect of the property for substantial periods including those income years.

The Commissioner accepts that, according to the general principles of law and equity, the right to the rental income from the property had been assigned by Mr Booth before the beginning of the two years and was therefore not income derived by him. The Commissioner's case, however, is that sec. 102B or 260 of the Income Tax Assessment Act 1936 operates so that for the purpose of assessing income tax the assignments are to be disregarded and the rental income for the two years is to be treated as income derived by Mr Booth.

There are three broad issues before me.

Section 102B

Section 102B(1) provides:

``Subject to this section, where, after 22 October 1964, a right to receive income from property is transferred, otherwise than by a will or codicil, by a person to another person for a period that will, or may for any reason other than the death of any person or the other person's becoming under a legal disability, terminate before the prescribed date, any income derived from the property that is paid to, or applied or accumulated for the benefit of, the other person by reason of the transfer, being income that, but for the transfer, would have been included in the assessable income of the transferor, shall be treated for the purposes of this Act as if the transfer had not been made.''

Section 102A(1) provides that:

``...

`right to receive income from property' means a right to have income that will or may be derived from property paid to, or applied or accumulated for the benefit of, the person owning the right.''

For the Commissioner, Dr Buchanan Q.C. argues that sec. 102B(1) applies in every respect to the assignments in question. Mr Pose for the taxpayer submits that the section does not apply because the assignments are not for periods which will or may terminate before the prescribed date; because the section does not apply to an assignment of a part of a right to income; and, in relation to the assignment by Mr Booth to himself as trustee, because there was no transfer within the meaning of the section.

By a lease dated 25 January 1974 Mr Booth let the property to Fischer and Bovell for three years from that date at a rent of $65 a week. Then by a lease dated 21 September 1976 he let it to Bovell for a term of three years from 25 January 1977. At the end of that term Bovell overheld and on 18 February 1980 agreed to remain in possession at a reduced rent during building operations. Then by a lease dated 5 July 1980 Mr Booth let the property to Bovell for three years from that date. Finally by a lease dated 8 July 1983 Mr Booth let the property to Normende Australia Pty. Ltd. for a term of four years from 5 July 1983.

By an agreement under seal dated 16 May 1975 and executed by Mr Booth and his wife (``the first agreement'') he transferred and assigned to her in consideration of $1,500 the right to receive 70 per cent of all rental payable in respect of the property from 28 June 1975 to 30 June 1982. This agreement was replaced before the income years in question.

By an agreement under seal dated 18 November 1976 which he executed both as assignor and as trustee for a family trust (``the second agreement'') Mr Booth for a consideration of $200 transferred and assigned to himself as trustee the right to receive 30 per cent of all rental payable in respect of the property from 18 November 1976 to 30 November 1987. I return later to that agreement.

By an agreement under seal dated 2 January 1981 (``the third agreement'') Mr Booth transferred and assigned to his wife in consideration of $19,000 the right to receive 70 per cent of all rental payable in respect of the

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ATC 4052

property from 2 January 1981 to 30 June 1988. I set out the agreement in full:

``THIS AGREEMENT made the Second day of January One thousand nine hundred and eighty-one BETWEEN DOUGLAS FRANKLIN BOOTH of 25 Mullens Road Vermont in the State of Victoria Public Servant (hereinafter called `the Assignor') of the one part and LYNN ELIZABETH BOOTH of the same place Married Woman (hereinafter called `the Assignee') of the other part WHEREAS

• (a) The assignor is the registered proprietor of and is beneficially entitled to an estate in fee simple in ALL THAT piece of land being the land more particularly described in Certificate of Title Volume 6067 Folio 273 upon which is erected the shop premises situate at and known as 471 Chapel Street South Yarra.
• (b) By an Agreement dated the 16th day of May 1975 the Assignor assigned to the Assignee the right to receive part of the rentals from the said premises until the 30th day of June 1982.
• (c) The parties hereto have agreed to extend the term of the Assignment from the 30th day of June 1982 to the 30th day of June 1988 for the further consideration hereinafter appearing.
• (d) Pursuant to an Indenture of Lease dated the 5th day of July 1980 the Assignor leased to Nicholas Bovell the said premises for a term of three years from the 5th day of July 1980 with an option for renewal for a further four years thereafter at the rental referred to.
• (e) For the consideration hereinafter appearing the Assignor has agreed to transfer and assign the Assignee the right to receive a fractional part of the rentals from the said premises for as well as the residue unexpired of the term of the said lease as thereafter until the 30th day of June 1988.

NOW THIS AGREEMENT WITNESSETH -

• 1. For the consideration of the sum of $19,000.00 agreed to be paid by the Assignee to the Assignor in manner hereinafter appearing the Assignor transfers and assigns to the Assignee the right to receive seventy per centum of all rentals payable in respect of the said premises from and inclusive of the second day of January 1981 until and inclusive of the 30th day of June 1988 to be held by the Assignee for her own use and benefit absolutely.
• 2. In consideration of the said Assignment the Assignee undertakes and agrees to pay to the Assignor the sum of $4,000.00 on the 30th day of June 1982, a further amount of $7,500.00 on the 30th day of June 1986 and the balance of $7,500.00 on the 30th day of June 1987.
• 3. The Assignor undertakes and agrees that during the said term seventy per centum of the rental received from the said premises will be payable to and will be paid to the Assignee for her own use and benefit absolutely.
• 4. The Assignee shall pay and shall be responsible for seventy per centum of all outgoings and expenses in relation to the said premises and in relation to the collection of rental payable in relation thereto.
• 5. The Assignor further undertakes and agrees with the Assignee that he will not until the 30th day of June 1988 enter into any further lease or tenancy agreement in respect of the said premises without the consent of the Assignee.
• 6. It is further agreed and declared that this Agreement shall not terminate before the 30th day of June 1988 other than upon the death or legal incapacity of the Assignee.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals the day and year first hereinbefore written.

      SIGNED SEALED AND                     )
      DELIVERED by the said                 )  D.F. Booth
      DOUGLAS FRANKLIN                      )   (signed)
      BOOTH in the presence of: --          )

      Witness (signed)

      SIGNED SEALED AND                     )
      DELIVERED by the said                 )  L.E. Booth
      LYNN ELIZABETH                        )   (signed)
      BOOTH in the presence of: --          )

      Witness (signed)''
          

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I defer consideration of the effect on this third agreement of the first agreement.

On 2 January 1981, the date of the third agreement, the property was let to Bovell for a term of three years from 5 July 1980. The term had about two and a half years to run.

It is basic to the submission for the Commissioner that sec. 102B applies to a transfer of a right to receive income for a period which would or might terminate before the prescribed date. It was accepted for the Commissioner that the third agreement transferred to Mrs Booth the right to receive the rent for the remaining two and a half years of the term of the existing lease. This was accepted on the basis that what was being transferred was an existing right under the lease. It was submitted however that at the time of the third agreement, Mr Booth had no right to rental for the balance of the period, after the end of the term of the current lease. He had no more than an expectancy in respect of that period. It was put that, as he had no right to rental for the balance of the period, he could not effectively transfer any such right. As he could not transfer any such right it could not be said that the agreement had transferred a right for a period that would not terminate before the prescribed date. It was thus the Commissioner's case that the agreement had transferred the right to rental income for the duration of the term of the existing lease and no longer.

Dr Buchanan conceded that the third agreement brought into existence a valid contract between Mr Booth and Mrs Booth which would, as soon as Mr Booth entered into a later lease, operate to assign to her 70 per cent of the right to rental under that lease. His submission was that unless and until Mr Booth entered into a later lease the third agreement transferred to her nothing but 70 per cent of the right to rental under the current lease. Dr Buchanan based his submission first on the proposition that property which has not come into existence cannot be assigned until it does, and secondly on the proposition which he sought to draw from partnership cases such as
F.C. of T. v. Everett 80 ATC 4076; (1980) 143 C.L.R. 440, that at the time of the third agreement the income to be received under future leases could not be separated from the property from which it arose.

The essence of the submission for the Commissioner was that instead of there being one transfer at the time of the third agreement of the right to a percentage of rental income for a period extending beyond the prescribed date, there was a series of transfers of such rights which occur whenever a later lease was entered into.

Dr Buchanan argued that the reference in sec. 102B(1) to the transfer of a right to receive income from property is to be given its proper legal meaning and not a popular meaning. He referred to what Lord Diplock said in his dissenting speech in
Carver v. Duncan (1985) 2 W.L.R. 1010 at p. 1014.

Mr Pose's submission was that upon the proper construction of sec. 102B, the third agreement transferred from Mr Booth to Mrs Booth 70 per cent of the right to rental income for the period to 30 June 1988.

The overall object in construing the section is to ascertain the legislative intent and to construe it in accordance with that. See:
Cooper Brookes (Wollongong) Pty. Ltd. v. F.C. of T. 81 ATC 4292 at pp. 4304-4306; (1981) 147 C.L.R. 297 at pp. 319-321 per Mason and Wilson JJ. It would be permissible to construe the section in a popular rather than a technical sense if that appeared to be the intention of Parliament.

For a number of reasons I consider that the section is not to be construed in the strict technical sense advanced for the Commissioner but in the more practical popular sense advanced for the taxpayer.

The objective of the legislature in enacting Div. 6A, and in particular sec. 102B, was clear. Owners of interests in property were able to avoid taxation by assigning some or all of the income of the property. Income which had been assigned was treated as derived by the assignee, not the assignor. By assigning income, for example, to members of his family, the owner of the property interest could free himself from tax on the income and the total tax payable on it could be reduced. The statutory remedy to reduce this form of tax avoidance was for tax purposes to disregard an assignment unless there was a high prospect that the assignment would divert the income flow for a relatively long period. Section 102B is concerned with the income flow from property, as would be expected of a provision with its objective.

A period of seven years was selected as the period. The section disregards an assignment or

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transfer where there is from the outset a high prospect that it will divert the flow of income from the owner of the property interest for less than seven years. From the practical need to make annual assessments of income tax it was necessary to adopt a statutory test that would enable the assignment or transfer to be characterised from the outset as one to which the section did or did not apply.

Section 102B has no effect whatsoever on the operation of any transaction. The transaction operates in accordance with ordinary principles of law and equity. The section provides, in effect, that where particular rights to receive income from property are transferred, income which is paid to the transferee as a result of the transfer is to be treated for tax purposes as the income of the transferor. Clearly, in indicating the characteristics of the transfers of rights which are to have this taxation consequence, the legislature was not restricted to the selection of characteristics found in traditional concepts of law and equity.

The words of Div. 6A show that the legislature decided to apply the section to transfers of rights to receive payment of income from property where:

• the right
  • • is one to receive payment of income that will or may be derived in future from real or personal property of any kind, and
  • • arose from ownership by the transferor of an interest in the property but need not have resulted from a contract or have arisen in any particular way;
• the transferee
  • • has become entitled to receive payment of the income instead of the transferor but the transferor retains the interest in the property from which the right arose; and
• the right is transferred
  • • for a period that will or may, for reasons other than those specified, terminate before the prescribed date.

The characteristics selected by the legislature to identify the transactions to which the section applies are relatively simple ones and there is much to be said for applying it to any transaction which can be seen to have those characteristics.

It is to be noted that the section concerns itself with the transfer of rights to receive payment of income that will or may be derived from the property. It does not refer to the transfer or assignment of other interests or property. In concerning itself with those rights it is concerning itself with what will determine whether the flow of income is transferred. Instead of looking at the position of estates or interest as between transferor and transferee, the section fastens its attention on that which will in fact determine whether the income flow goes to the transferee for the period of the transfer.

It is my opinion that whether the third agreement transferred to Mrs Booth part of an existing right to rentals to be received under future leases, as I think it did, or whether it amounted to a contract to transfer part of future rights to such rentals when acquired, it was, within the meaning of the section a transfer of the right to receive payment of that rental income. As soon as the third agreement was made, Mrs Booth had the right that entitled her to receive payment of 70 per cent of all rentals payable in respect of the property until 30 June 1988. She received from that contract alone the right which has entitled her to receive payment of 70 per cent of all rental income since received. She had the whole of that right as soon as the contract was made. Her right has not been supplemented since.

I consider that as soon as the third agreement was made it transferred to Mrs Booth the right to receive payment of 70 per cent of all rental income that would or might be derived from the property to 30 June 1988. I use the word ``transferred'' in the sense in which it is used in sec. 102B(1).

It is useful to look at the right that Mr Booth had as owner to receive payment of income that would or might be derived in future from the property. As part of the bundle of rights of ownership an owner has an existing right to receive the income presently derived and which will or may in the future be derived from the property. Existing rights of ownership usually operate and apply to the future. An owner may dispose of existing rights which operate and apply to the future. A landowner may on a

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particular day grant an easement, lease or licence which, commencing on that day or on a later day, extends into the future. Mr Booth as owner had an existing right to income which in future would or might be derived from the property and could dispose of that right or part of it.

By contrast, he would have had no right to the future income of a property which he did not yet own and could not dispose of any such right.

Income may be derived from property through the medium of a contract such as a lease or a royalty agreement or in other ways. If the property is a business it may produce income from its own activity. However the income is derived, it is the right of the owner to receive it unless he has disposed of the right or part of the right.

In considering the nature and operation of a transfer of rights or property it is important to see what, upon proper analysis of the transaction, has been transferred or purported to be transferred. Sometimes what has been transferred is an existing right to payments which will or may become due in the future. Sometimes the transaction will have purported to transfer debts which will or may come into existence in the future. Other transactions will have purported to transfer the actual money of a payment which will or may be made at a future time. The first type of transaction transfers existing property; i.e. the existing right. The second and third types purport to transfer future property; i.e. rights or property that will come into existence in future.

The distinction between these types of transactions was demonstrated in
Shepherd v. F.C. of T. (1965) 113 C.L.R. 385. A taxpayer was entitled under a licence agreement to royalties directly proportionate to the number of products manufactured. By deed he made an assignment by way of gift to several persons in respect of 90 per cent of the royalties for a period of three years. As it was a voluntary transaction it was effective if it was an assignment of an existing right but ineffective if it was an assignment of a future right. Both Judges of the majority (Barwick C.J. and Kitto J.) construed the assignment as an assignment of part of an existing contractual right to receive such royalties as might become payable, not as an assignment of part of the ultimate produce of that right (the royalties) as and when they became payable.

By the third agreement Mr Booth transferred and assigned to Mrs Booth ``the right to receive seventy per centum of all rentals payable in respect of the said premises'' during the period of the agreement. That was a transfer of part of Mr Booth's existing right as owner to income which in future would or might be derived from the property. It clearly applied to rentals payable under the then current lease and under such later leases or agreements as might be made. No question of uncertainty arose. Compare:
Tailby v. Official Receiver (1888) 13 A.C. 523.

The transfer under the third agreement and the transfer under the document considered in Shepherd's case were both transfers of parts of existing rights to receive such income of a particular type as may be received during a future period. To borrow the simile used by Kitto J. in Shepherd's case (at p. 396) initially the tree though not the fruit existed as an ownership right to future rental income from the property, and Mr Booth transferred 70 per cent of the tree.

Perhaps, recognising that rental income does not arise naturally from property ownership but through the making of a lease, the illustration could be taken of a field capable of producing hay from natural pasture or from cultivated crop. Mr Booth, entitled as owner of the field to take its products, could be regarded as having transferred to Mrs Booth the right to take 70 per cent of such hay as the field may produce from cultivated crop over a period.

Being for valuable consideration the third agreement operated as an equitable assignment immediately passing to Mrs Booth the beneficial interest in 70 per cent of the right to receive rentals payable during the period. F.C. of T. v. Everett 80 ATC 4076 at pp. 4080-4081; (1980) 143 C.L.R. 440 at p. 450.

If, contrary to my view, the third agreement did not transfer part of an existing right, but purported to transfer part of debts for rent not then in existence or part of rental moneys not then in existence, it would still, in my opinion, be a transfer within the meaning of the section. In that event, equity would treat the third agreement as a contract to transfer part of the debts when they come into existence or part of the purchase money when it was acquired, as

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ATC 4056

the case might be. In the meantime, although the interest of Mrs Booth rested primarily in contract her prospective interest in the after-acquired debts or moneys would be a higher right than to have the contract specifically performed and would be protected by equity. As soon as the future debts or money came into existence the beneficial interest in part of the debts or money would automatically vest in
Mrs Booth. Palette Shoes Pty. Ltd. v. Krohn (1937) 58 C.L.R. 1 at pp. 26-27 per Dixon J.;
Norman v. F.C. of T. (1962-1963) 109 C.L.R. 9 at pp. 24-25 per Windeyer J.; F.C. of T. v. Everett 80 ATC 4076 at pp. 4080-4081; (1980) 143 C.L.R. 440 at p. 450.

The contest between the parties on the section turns largely on whether the word ``transfer'' is construed as having a narrow or a broad meaning. In the primary meaning of the word ``transfer'', a person makes a transfer of property to another if he does the act or executes the instrument which divests him of the property and at the same time vests it in the other person.
St. Aubyn v. Attorney-General (1952) A.C. 15 at p. 53 per Lord Radcliffe. However it was said in
Gathercole v. Smith (1881) 17 Ch.D. 1 that ``... `transfer' is one of the widest terms that can be used'' (James L.J. at p. 7); and Lush L.J. said: ``The word `transferable', I agree with Lord Justice James, is a word of the widest import, and includes every means by which the property may be passed from one person to another.'' (p. 9)

Whether the third agreement operated to transfer immediately to Mrs Booth part of an existing right to future rental income or operated as a contract to transfer future rights to rental income it would in ordinary speech be called a transfer of a right to receive income that would or might be derived from the property.

Before the third agreement Mr Booth had the right to receive payment of any rental which became due under the current lease or any later lease during the period. It was a valuable right of the type often transferred for value. After the agreement it would not in ordinary speech be said that Mr Booth had the right to receive 70 per cent of the rental income during the period of the agreement but it would be said that Mrs Booth had that right. Mrs Booth would be able to treat the right as one of her assets but Mr Booth could not treat it as his. Mr Booth would never become entitled during the period to receive the percentage of rental income. So long as the appropriate notices were given Mrs Booth would be entitled to receive it the moment it became due. Until she received payment Mrs Booth would for all practical purposes be treated as the person entitled to receive payment. The third agreement was the only thing that Mr Booth did by way of transfer which put Mrs Booth in the position in which she was in equity, and in practice, the person entitled to receive payment of the rental income during the period.

I consider that with a section which operates by treating a situation for tax purposes as being other than it actually is, to import into the word ``transfer'' restrictions and limitations which come in the main from the rules of law and equity relating to voluntary assignments, would be to disregard the spirit of the precept given by Lord Wright in another context:

``The section is clearly of an amending or remedial character. It is essential to approach the construction of such an enactment without undue bias in favour of the strict law which the enactment is setting out to change. It is wrong to construe it in a niggardly and technical spirit, with an eye fixed on the old law. If it is approached in that spirit, it may be easy to eviscerate the enactment and deprive it of any effect. At the same time its effect must be ascertained by considering the words actually used, interpreted in a fair and reasonable way in the light of the whole tenor of the section read as forming part of the income tax legislation. The actual words of sub-s. (4)(b) are not words of art or such as a conveyancer would use. They are popular in character.''

Earl Fitzwilliam's Collieries v. Phillips (1943) A.C. 570 at p. 580. See also In
re Parkes' Settlement (1956) 1 W.L.R. 397 at pp. 402-403.

It is important to bear in mind that the Income Tax Assessment Act is not written primarily for lawyers. It is much read by taxpayers and their advisers and by tax assessors. It is obscure enough as it is. When the language used by Parliament would be given a meaning by intelligent lay persons who read it, that should, wherever practicable, be treated as its proper meaning in the absence of some indication to the contrary. There should

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ATC 4057

not be an enthusiasm for giving the language a meaning which would come naturally to the minds of few but lawyers.

It is not apparent how the legislative objective would be achieved by adoption of the construction advanced for the Commissioner. The object of the Division is to disregard the transfer of an income flow from property unless there is a high prospect that it will divert the income flow for seven years or more. The third agreement is accepted by the Commissioner as being effective as one which would divert the income flow for that period and which so far has done so. Yet the Commissioner's case is that upon a very technical construction the section renders the taxpayer liable for tax. It seems to me that Parliament is hardly likely to have intended that in a case such as the present, the taxpayer is not liable to tax only if there happens to be in existence at the time a lease with more than seven years to run.

I do not draw from the partnership cases principles which assist in the resolution of the issues in this case which concern income from ownership interests in land. Section 102B is only concerned with rights to income which can be separated from the owner's interest from which they arise. It was not suggested that an owner's right to income from land cannot be separated from his right to his interest as owner in the land.

Unless the remaining arguments affect the position I consider that the third agreement transferred 70 per cent of the right to receive payment of rental income to Mrs Booth for the period of the agreement.

Section 102B applies to a transfer for a period that will or may for any reason other than the death of any person or the transferee becoming under a legal disability, terminate before the prescribed date. As a result of its definition in sec. 102A(1), the prescribed date was the day preceding the seventh anniversary of the date on which rental income was first paid to Mrs Booth by reason of the transfer. There is evidence that the tenants were given notice of the various assignments and transfers and directed to make payments in accordance with them. There is no evidence of the date on which rental income was first paid to the trustee by reason of this transfer. No issue was raised in the appeals which turns on the precise date on which the first payment was made by reason of a transfer. The rent was payable weekly and I will for convenience treat the prescribed date in respect of the third agreement as 1 February 1988.

By its terms the period of transfer under the third agreement was until 30 June 1988, some six months later than the date I treat as the relevant prescribed date. However it was argued for the Commissioner that the existence and operation of the first agreement had the effect of reducing the period of the third agreement so that it fell short of the prescribed date. The submission was that the first agreement had operated so as to transfer the right to receive 70 per cent of the rental income to Mrs Booth until the end of the period mentioned in the first agreement (30 June 1982). It was argued that the transfer pursuant to the first agreement of the right to 30 June 1982, occurred when the lease was granted to Bovell for three years from 5 July 1980.

The reason for making the third agreement before the expiry of the period of the first agreement was that Mr Booth, who is a taxation investigator employed in the office of the Commissioner, believed that as a result of a decision of a Taxation Board of Review, Case M52,
80 ATC 354 it was necessary to have a clause in the agreement to the effect of cl. 6 of the third agreement. That clause expressly provided that the agreement should not terminate before 30 June 1988 other than upon the death or legal incapacity of Mrs Booth. Otherwise the provisions of the third agreement were to a similar effect to those of the first agreement.

The third agreement in terms applies to all rentals payable during its seven and a half year period. As the later agreement covers the same field as the earlier one for the whole future period I regard the proper inference as being that the parties by making the third agreement discharged the first agreement.

The transfer to Mrs Booth of the percentage of the right to receive rental income, which was brought about by the first agreement was on any view of its operation a transfer which depended on the operation of the first agreement. There was no transfer which was independent of the agreement as happens when an estate in fee simple in land is transferred by registration in the course of a conveyancing transaction. When the first agreement ceased to

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ATC 4058

operate upon its discharge there was no unconditionally acquired right in Mrs Booth to receive payments, which continued notwithstanding the discharge. When she no longer had a contractual right under the first agreement to the payments she had no equity arising from that agreement. From the making of the third agreement her contractual right to the payments and her equitable interest in receiving payment of them came from the latter agreement.

It follows that the prescribed date relevant to the third agreement is measured from the first payment of the percentage of rent to Mrs Booth after the making of the third agreement not from the first payment after 30 June 1982. That would be the first payment made by reason of the transfer effected by the third agreement.

Mr Pose argued that in any event sec. 102B(1) could apply only when the whole of a right to receive income from property is transferred as distinct from part or a proportion of a right. He supported the submission by reference to decisions on other legislation. In the cases where it has been held that a reference to the whole does not include a reference to a part, that has been the result of some indication in the context of some good reason for regarding that as the legislative intention. At first sight the right transferred here seems to satisfy the description of a right to receive income. If the provision were to be confined to the transfer of the whole of a right it would provide an easy way of escaping the section and avoiding tax and it would often present difficulties of application. I regard the section as applicable to the transfer of rights to receive a percentage of an item of income.

A view of sec. 102B(1) which would be relevant to my decision was referred to by counsel but not supported by either of them. In Case M52, 80 ATC 354 the words of the subsection ``a period that will or may for any reason other than the death of any person or the other person's becoming under a legal disability, terminate before the prescribed date'' were considered. The Board considered that the transferor in that case had power to revoke the transfer before the prescribed date. Also the Board referred to the possibility that the transferor would before the prescribed date have sold the property and put an end to the rental income the subject of the transfer. As there was a possibility that the period might terminate before the prescribed date in one of those ways it was held that sec. 102B applied. It was that decision which led to the making of the third agreement.

I do not think that is the correct construction of the provision. While it is within the literal words it would result in the section applying to all or almost all transfers. It is difficult to think of any contract of which it could be said that there was literally no possibility of its operation terminating before a particular date. Most contracts can be determined by mutual agreement. I do not think that Parliament would have intended that result. It is necessary then to see what limited meaning the virtually unlimited words are intended to have in the context. See:
Ansett Transport Industries (Operations) Ltd. v. Comptroller of Stamps (Vic.) 82 ATC 4643 at pp. 4645-4648; (1983) 2 V.R. 305 at pp. 307-310.

I consider that the words are intended to refer to transfers which if carried out in the normal course of events in accordance with their terms will or may terminate before the prescribed date. Transfers under contracts whose terms provide for termination or give an option of termination before the prescribed date are typical examples of such transfers. Transfers for a period beyond the prescribed date of rights which will not last to the prescribed date or which are so composed that in the ordinary course of events they may be ended before the prescribed date are other examples.

Even without the cautious inclusion of cl. 6 of the third agreement, there was nothing in its terms which indicated that the period of the transfer would or might in the ordinary course of events terminate before the prescribed date. Nor on what I have held was there anything about the nature of the rights transferred which gave that indication.

I conclude that sec. 102B(1) applied to the transfer effected by the third agreement in every respect except that it was not a transfer for a period which would or might, for reasons other than those mentioned in the subsection, terminate before the prescribed date. Section 102B therefore does not apply to the transfer.

I turn to the second agreement.

By a trust deed dated 10 November 1976 a family trust was formed. The settlor was Mr

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ATC 4059

Booth's mother who settled $25 on Mr Booth as trustee. Under the trust Mr Booth had a discretion each year to pay or apply the trust income for the preceding year for such one or more of his wife, her children, grandchildren, or any company controlled by one or more of them and in such proportions as in his absolute discretion he thinks fit.

Mr Booth executed the second agreement dated 18 November 1976 both as assignor and, in his capacity as trustee for the family trust, as assignee. He purported to transfer and assign to himself as trustee 30 per cent of all rental payable in respect of the property from 18 November 1976 to 30 November 1987. In essentials the agreement was to a similar effect to the third agreement. The consideration of $200 was paid by Mr Booth's mother.

When the second agreement was made there was a lease in existence which had two months of its term to run. The basic arguments of the parties were similar to those in respect of the third agreement and I reach similar conclusions. Some of the arguments were different due to the different nature of the second agreement.

Mr Pose argued that because Mr Booth transferred to himself as trustee there had been no transfer of a right to receive income within the meaning of the section. He relied on sec. 102A(4)(a) which provides:

``(4) For the purposes of this Division -

• (a) where a person -
  • (i) declares that he holds a right to receive income from property upon trust for another person; or
  • (ii) transfers such a right to a trustee to be held upon trust for another person,

  the right shall be deemed to be transferred to that other person;''

He argued that by the second agreement Mr Booth had done neither what is referred to in subpara. (i) nor what is referred to in subpara. (ii). He submitted that there had therefore been no transfer.

There are several answers. First it was stated in cl. 1 of the second agreement that the right to receive 30 per cent of the rentals would be held by the assignee and dealt within accordance with the terms of the trust deed absolutely. Secondly the second agreement had the operation mentioned in Scott on Trusts, 3rd ed., vol. II, p. 817 para. 100 to which Mr Pose referred me:

``It sometimes happens that the owner of property executes a conveyance of the property to himself as trustee. In such a case he is of course both settlor and trustee. Technically, however, there is no transfer of the legal title to the property, since the settlor-trustee holds the legal title both before and after the creation of the trust. He is not in reality transferring property from himself individually to himself as trustee, but is merely evidencing his intention to hold in trust the property which he previously held free of trust. At any rate, the trust is effectively created, whether in form the owner of the property declares himself trustee or purports to convey the property to himself as trustee.''

Even if a trust is not expressly declared it is in those circumstances impliedly declared and sec. 102A(4)(a)(i) does not require an express declaration. Compare
J.W. Broomhead (Vic.) Pty. Ltd. (in liq.) v. J.W. Broomhead Pty. Ltd. (1985) 9 A.C.L.R. 593 at pp. 621-622. Thirdly, subsec. (4) is not making an exhaustive description of what is a transfer. It is merely including particular transactions within the concept.

Dr Buchanan submitted that the second agreement operated as an implied declaration of trust by Mr Booth. He said that he was not submitting that the second agreement stood in any different position to that of the first and third agreements. Being a declaration of trust for valuable consideration I think it does stand in the same position as the agreements for valuable consideration. The fact that the transfer was by declaration of trust instead of by contract does not make any difference for the purpose of these appeals.

For similar reasons to those given in relation to the third agreement I hold that sec. 102B does not apply to the transfer effected by the second agreement.

Section 260

The case was argued before the decisions of the High Court in the appeals of
F.C. of T. v. Gulland; Watson v. F.C. of T.; Pincus v. F.C. of T. which were delivered on 18 December 1985 [85 ATC 4765].

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ATC 4077

A number of the submissions of counsel for each party do not survive those decisions.

I state shortly my conclusions on this part of the case.

Assuming that otherwise the section would apply to the second and third agreements it does not apply in the circumstances of this case. It does not apply because of the principle of construction that a general legislative provision does not derogate from a special one. In this case there is the special provision of sec. 102B which for tax purposes disregards a transfer of a right to receive income from property where the transfer is for a period which will or may terminate in less than seven years. It is to be regarded as a special provision operating in its own field to the exclusion of sec. 260. As a matter of construction, sec. 260, the general provision negating transactions of tax avoidance, is to be read down so as to operate consistently with sec. 102B, the special provision negating tax avoidance in a particular kind of transaction. In my opinion this follows from the application of the principles established by the decisions of the High Court which I have mentioned.

Whatever differences there may be as to the limits of the field, it clearly includes any transfer to which sec. 102B(1) would apply except for the fact that it is not a transfer for a period which would or might, for reasons other than those mentioned in the subsection, terminate before the prescribed date. I have held that the relevant transfers in this case fall within that category. Section 260 is therefore inapplicable to them.

Inconsistent assessments

It is common ground that in respect of each of the relevant income years the Commissioner included the rental income in question in the assessments of both Mr and Mrs Booth.

Mr Pose argues that as a result of that each of the assessments is a provisional or tentative assessment and not an assessment as required by the Act. For this argument he relies solely on the issue of inconsistent assessments. It is put that the Commissioner has not made a definitive assessment unless he has and indicates that he has, made up his mind as between the taxpayer and his wife, whose income the rental income is.

Dr Buchanan submitted that the assessments of the taxpayer's income were definitive assessments as required by the Act. He further argued that it is not open to the taxpayer to raise this issue in these proceedings and it could only be raised in proceedings such as those initiated in
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 147 C.L.R. 360. Alternatively he argued that the successful establishment of the point in these appeals would avoid the appeals.

I do not need to pursue all these questions as I do not regard the existence of the assessments of Mrs Booth as making Mr Booth's assessments tentative or provisional in the sense used in
F.C. of T. v. Hoffnung & Co. Ltd. (1928) 42 C.L.R. 39. I do not think an implication arises from the Act that the Commissioner may not issue inconsistent assessments to two taxpayers in respect of the same income. See:
Richardson v. F.C. of T. (1931-1932) 48 C.L.R. 192. I do not consider that subsec. (5) and (6) of sec. 102B(1) of the Act imply that the procedures they provide are the only procedures available to the Commissioner in circumstances susceptible to the application of the section.

In my opinion the relevant assessments of the taxpayer's income were assessments as required by the Act.

Conclusion

For the reasons I have stated both appeals will be allowed.