Case W26

Members:
BJ McMahon SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 13 March 1989.

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B.J. McMahon (Senior Member)

During the year ended 30 June 1986, the applicant was an active licensed bookmaker. He also had extensive real estate interests. For example, about May 1978, a partnership consisting of himself, his wife and his sister-in-law, purchased a supermarket building and developed it as a small shopping centre. The applicant was a director and employee of the family-owned real estate company that later managed that shopping centre. The applicant derived income from that activity.

2. Another company (to which I will refer as the property company), was a wholly-owned subsidiary of a third company, substantially owned by the applicant and his wife. This property company undertook a refurbishment project in 1985 and 1986. On 15 May 1985, the company entered into a contract to purchase an existing nine-storey office block for $5,100,000. A deposit of $510,000 was paid to the vendor and the purchase was completed on or about 19 or 20 August 1985.

3. In order to finance the purchase and the subsequent refurbishment of the building, the applicant, on behalf of the property company, entered into negotiations with a public finance company. He had hoped to involve that finance company as a joint venturer and gave evidence that if he had been able to pre-sell a greater proportion of the end result of the refurbished building, he believed that this could have been achieved. In the result however, the public finance company simply took a lending role in the project.

4. A formal offer was made by the public finance company to the property company on 8 August 1985 of a loan facility of $8.4m for 24 months. Included in the terms of the offer under the heading ``security'' was the requirement of a joint and several guarantee by the applicant and his wife. The applicant agreed in evidence that if he and his wife had not given the guarantee, the public finance company would, in that event, not have made the finance available. On 15 August 1985, the property company wrote to the applicant in these terms:

``In consideration of you personally guaranteeing the loan of $8.4m as required by (public finance company) we hereby agree to pay you a fee of $210,000 (two hundred and ten thousand dollars).

This is a once only fee. To indicate your agreement please sign and return the duplicate of this letter.''

5. The property company letter was signed by the applicant's wife and the acceptance (the original of which could not be found before the hearing) was signed by the applicant.

6. On or about 19 or 20 August 1985, the applicant and his wife entered into a deed annexed to a mortgage executed by the property company in favour of the finance company. The opening words of the guarantee are:

``In consideration of the mortgagee having at our request entered into the within mortgage with the within named mortgagor, we the persons whose names and addresses and descriptions are set forth in the schedule hereto hereby guarantee to the mortgagee the due and punctual payment by the mortgagor of all moneys by way of rent or otherwise which have become or may become payable pursuant to the terms of the within mortgage...''

The reference to ``rent'' was not explained but is probably of no significance.

7. In addition to providing a guarantee to the finance company, the applicant and his wife were required to lodge a deposit of $400,000 with that company and to execute a deed of charge over the deposit. That deed provided that it was to be released at the finance company's discretion for servicing cost over runs in relation to the development of the property. It was also available to the finance company if any moneys became payable pursuant to the guarantee.

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ATC 275

8. The refurbishment program was subject to some unusual risks. In an affidavit, the applicant swore:

``The purpose of (property company) in purchasing the property was to refurbish the Building and convert it to strata title selling each floor separately. However, there was an inherent risk as asbestos had been used as an insulation material in the Building. Refurbishment required removal and replacement of the asbestos. The Builder's Labourers Federation required any contractor engaged to remove asbestos to be licensed by the Government. Further, extremely rigorous removal procedures were required. At the time of purchasing the property there were only two licensed contractors who could remove asbestos in the (area). Accordingly, the original quotes received by (property company) for the removal of asbestos were in the range of approximately $500,000 per floor, that is $4,500,000 for the whole building. Taking into account the cost of actual refurbishment, the asbestos removal fee would have rendered the project uneconomical.

At the same time of entering into the Loan, the Mortgage and the Guarantee I was aware that -

• (a) there was a risk that the remaining moneys available to (property company) would be less than that required to complete the refurbishment;
• (b) if the refurbishment was not completed, (property company) would have had difficulties in selling the strata entitlements to the Building at a price sufficient to recoup the purchase price and refurbishment expenses;
• (c) if the Building was sold at a loss (property company) may have had difficulties in complying with its obligation to repay the loan to (finance company) and that accordingly (finance company) could exercise its rights under the Guarantee.''

9. The amount of the guarantee fee of $210,000 represented 2.5% of the amount of the loan. Evidence was given that this rate was the then going commercial rate charged by financial institutions such as the finance company in question for providing a guarantee. At the time the applicant entered into the guarantee fee agreement, it was not intended that he should receive payment until refurbishment of the property had been completed and all other creditors of the project had been paid. He was in fact paid when the refurbishment project was sold as a going concern to an unrelated public company. The amount was received during the financial year in question.

10. The applicant gave evidence that his reason for giving the guarantee was to ensure that he would thereby become a substantial creditor of the property company if his guarantee should be called upon. He believed that there was a risk that the project might fail and he wished to be in a position to have a marked influence on any liquidator or receiver if the appointment of one should eventuate. He also agreed, of course, that one of the reasons he gave the guarantee was because the finance company required it as a condition of making the loan available.

11. Because of changes in taxation legislation unfavourable to property investors (referred to as ``the abolition of negative gearing''), the refurbishment was not completed and pre-sales of strata units in the property were not as strong as expected. The whole undertaking was ultimately sold to an unrelated public company. Nevertheless, the property company made a profit of $176,000 from the venture.

12. The applicant also personally earned income from the venture. He was paid by the property company a project management fee of $187,500 for his day-to-day involvement in the management of the refurbishment. In addition, the property company paid the applicant's real estate company a commission on the sale of the various floors of the building. This commission was then paid to the applicant personally by the real estate company in accordance with the general industry practice.

13. The receipt of the guarantee fee of $210,000 from the property company was disclosed in the applicant's return of income. However, it was claimed that the sum was a capital amount and was not subject to tax. The claim was disallowed and the amount was included in the applicant's assessable income. His objection to the assessment was disallowed and this application has been brought to review that objection decision.

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ATC 276

14. There are three possible bases for considering the amount in question to be income of the applicant. Under sec. 25(1) of the Income Tax Assessment Act (``the Act'') the assessable income of a taxpayer includes ``the gross income derived directly or indirectly from all sources whether in or out of Australia''. The question to be decided when considering this section is whether the sum involved had the general character of income. Section 26(e) of the Act includes in a taxpayer's income ``the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to any employment of or services rendered by him, whether so allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise, not being...''. The question to be decided here is whether the sum of $210,000 is a benefit to the applicant in relation to services rendered by him. The third relevant subsection is sec. 26(h) of the Act which brings to account as taxable income ``the amount of any fee or commission received for procuring a loan of money''. The three issues considered in this application are therefore whether the sum of $210,000 should be regarded as part of the applicant's taxable income by virtue of any or all of these subsections. I will deal with the arguments in the order to which I have referred to them above.

15. The applicant's first proposition was that the amount must be regarded as capital because, had payment been made pursuant to the guarantee, such a payment would not have been deductible. It would have been regarded as capital expenditure. Authority for this characterisation of guarantee payments out can be broadly found in Cases 71, 72 and 74 reported in vol.
10 C.T.B.R. (N.S.). The principle is again illustrated by a more recent decision reported as Case V117,
88 ATC 741. The first step in the argument is to emphasise the capital nature of payments out. The second step is to contend that this nature must therefore colour payment in, i.e. consideration for giving a guarantee. The applicant explained this proposition by analogy. Ventures may be capitalised in a number of ways, it was submitted. Sometimes the capital is provided by way of share capital and sometimes by way of loan. It may also be provided, so that argument went, by way of guarantee. The loss of any of these sums must be regarded as capital losses as the amounts subscribed must be regarded as capital subscriptions. The applicant submitted that the guarantee, looked at as a whole, was a transaction on a capital account. He therefore urged that that which he obtained, by parity of reasoning, must also be capital. Where, for consideration, one exposes oneself to a risk of an outgoing on a capital account, then that consideration must be capital in nature.

16. As a general proposition, I find this impossible to accept. In
Meadowcroft v. Commr of I.R. (N.Z.) (1963) 13 A.T.D. 290 at p. 294, Haslam J. describing another, similar argument, referred to ``the dangers in this difficult terrain of walking into the ambush of analogy''. In my view, the applicant has not perceived these dangers and has confused the nature of the two payments. In most circumstances (unless in the course of carrying on a business) an amount paid pursuant to a guarantee will be a capital loss. The reason for this is that a payment to another of an amount on terms that someone else will return that amount to the payer is not deductible. It is an outlay, not an outgoing. Payment of moneys due under a guarantee results in the guarantor being then able to claim repayment of the money from the debtor. The payment out is not an outgoing since there is a right to repayment arising from subrogation to the rights of the creditor, who has received payment from the taxpayer guarantor. This is the principal reason why payments of this nature cannot be regarded as outgoings.

17. Payments made by a debtor to a guarantor as consideration for the guarantor entering into the guarantee are of an entirely different nature. Such payments are not repayable in any event. If the guarantor is called upon to pay under the guarantee, the debtor is not entitled to a credit in the subsequent subrogation situation for any fee it may have paid to the guarantor. In the hands of the guarantor, such a payment is not necessarily capital. Whether it is income or not depends upon the circumstances under which it is paid. Normally, a fee for risking a capital asset would be regarded as income just as a charter fee for a vessel would normally be regarded as income. In Case V117, 88 ATC 741, at p. 746, Mr Roach apparently assumed this in para. 21.

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ATC 277

However I agree with counsel for the applicant that his observations were not necessary to the decision and it does not appear from the report whether the question was fully argued before him.

18. There does not appear to be any direct authority in Australia on the question whether a fee received as consideration for the giving of a guarantee is taxable. The respondent relied on a number of foreign decisions. Most of them stem from the judgment of Rowlatt J. in
Ryall v. Hoare (1923) 2 K.B. 447. However, the terms of that judgment indicate the inherent risks in relying on old decisions dealing with a taxation system structured quite differently from that of this country. His Lordship was principally concerned with whether the guarantee fee received in that instance was an ``annual profit or gain''. His reasoning is principally concerned to distinguish the payment from casual profits. The fact that such a fee could be regarded as a ``profit'' was almost assumed. It does not appear to have been argued at length. There is certainly no analysis in the judgment of the concept of income and the way in which it might apply to payments of this nature. Nevertheless the judgments of this nature. Nevertheless the judgment has begotten many progeny.

19. In
Sherwin v. Barnes (1931) 16 T.C. 278 the same Judge approved of his earlier decision and in doing so, perhaps unconsciously, expanded the terms of it. At p. 281 he said:

``Earning a commission by pledging your credit was held, and considered rightly held, in Ryall v. Hoare, to be in the nature of income. There it is, and I can not get away from that.''

I cannot say that I am intimately familiar with the style of English decisions of that period but the text gives me a distinct impression that the judgment was extempore.

20. Both of these cases were followed by more recent Canadian cases without further analysis. They were simply accepted as binding authorities for the proposition that guarantee fees were in themselves taxable profits. In
Sanders v. Minister of National Revenue (1952) 6 Canadian Tax ABC 159, Mr Fordham Q.C. merely observed:

``The appellant's position is not without precedent, I find. In Ryall v. Hoare (1923) 2 KB 447 for instance, a practising solicitor, who was also a company director, gave his personal guarantee of the company's overdraft at its bank in return for a commission of 2 per cent on the amount guaranteed. Rowlatt J. held that this commission was a profit or gain of a revenue nature.''

The second Canadian case of
Beaudry v. Minister of National Revenue (1954) 11 Canadian Tax ABC 113 simply affirmed that the situation in that case was indistinguishable from that in Ryall v. Hoare which it then proceeded to follow.

21. The danger of looking for precedents in other taxation systems is illustrated by another case cited by counsel for the respondent.
H v. Commissioner of Taxes (1957) 21 S.A.F.T.C. 346 is a decision of the High Court of Rhodesia, which also followed Ryall v. Hoare. One is made aware of the relevant Rhodesian legislation only because of the fact that part of it is quoted in the terms of the judgment. Similarly, Meadowcroft (to which I have already referred) a decision of the New Zealand Supreme Court, was put forward as support for the respondent's proposition that Ryall v. Hoare was correctly decided.

22. Counsel for the applicant referred to another early English case which resulted in a decision in favour of the taxpayer, notwithstanding the principles supposedly laid down in Ryall v. Hoare. It is clear however that
Trenchard v. National United Laundries (Greater London) Limited (1933) 49 T.L.R. 226 should be confined to its own facts. The following passage from the judgment of Findlay J., makes it clear that the view he took of the sum involved was that it was consideration for the acquisition of a capital asset:

``The question is whether their finding that it constituted money or money's worth received in consideration of guaranteeing dividends and was a receipt in the nature of income can be supported. That it was money or money's worth and that, in a sense, it was received in consideration for the guaranteeing of dividends is not doubtful, but what one has got to do, I think, in a case of this sort, is to look at the facts in order to ascertain what was the real nature of the transaction. Nothing, I think, really, when the facts and the law on this

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ATC 278

matter are understood, turns upon the fact that this was an isolated transaction. This is not a case of purchase and sale and I think that the cases of Ryall v. Hoare, STC 521, and Sherwin v. Barnes 16 TC 278, clearly establish that where there is an isolated transaction of guaranteeing or anything of that sort - both the cases, I think, happen to be cases of guarantee to a bank - those cases, as I say, establish that where there is an isolated transaction of that sort and remuneration received in respect of that transaction, then that remuneration is assessable to tax under Case VI; but the question, I think, is whether, when this is looked at, that is the real nature of the transaction here at all and, in order to solve that, one has to look back at paragraph 10, where the facts are found. I read the material parts just now and I am not going to read them again, but it does appear to me that those facts show, and show quite clearly, that this was a transaction whereby the Greater London Company and the other company were acquiring a control over the Finance Company and were acquiring that control by means of the purchase of blocks of shares. What they were doing was, I think, to acquire a capital asset; it was in the line of their business so to acquire capital assets; they were a holding company; and what they were really doing was to increase their holding of shares and to increase it, obviously, in a very valuable way by acquiring shares in a company which, if not controlled by them, might, as the Case finds, have become a competitor.''

23. I found all of these decisions of little assistance. The judgment upon which they all ultimately rest did not appear to me to have examined the issues with which I am concerned. In any event, one must be circumspect in accepting foreign propositions as being of universal validity in fields as technical as income taxation.

24. The applicant relied on an alternative submission on the question whether the amount should be regarded as income in accordance with general principles. It was said that weight should be given to the reasons for the guarantee. The applicant said that he wished to be in the position of a creditor and thereby to influence events in the group if the debtor company should become insolvent. In my view, this does not account for the payment of a guarantee fee. The applicant would have been in his desired position even if he had given the guarantee gratuitously. There was no reason advanced (in terms of this argument) why the fee ought not be regarded as another sum received by the applicant, in addition to the sums that he received as project manager and real estate agent in connection with the project as a whole. The receipt of the guarantee fee can not be looked at in isolation. It is part of a chain of events and part of a series of amounts passing between the parties to a business venture. In that connection it seems to me that the words of a Full Bench of the High Court in
F.C. of T. v. The Myer Emporium Limited 87 ATC 4363 at pp. 4366-4367; (1987) 163 C.L.R. 199 at pp. 209-210 are most apposite. Their Honours there said:

``The Commissioner submits that a gain made by a taxpayer as the result of a business deal or a venture in the nature of trade is income of the taxpayer, even if the transaction that yields the gain is outside the ordinary course of business. According to the argument, the amount falls within either sec. 25(1) or the second limb of sec. 26(a). The taxpayer makes two responses to this argument:

• (1) that a gain made as the result of a business deal or a venture in the nature of trade is not income unless it is made in the ordinary course of carrying on a business; and
• (2) that the realization of a capital asset is capital, not income, the amount received by Myer representing the receipt of a capital asset.

Although it is well settled that a profit or gain made in the ordinary course of carrying on a business constitutes income, it does not follow that a profit or gain made in a transaction entered into otherwise than in the ordinary course of carrying on the taxpayer's business is not income. Because a business is carried on with a view to profit, a gain made in the ordinary course of carrying on the business is invested with the profit-making purpose, thereby stamping the profit with the character of income. But a gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction

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ATC 279

entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income. Whether it does depends very much on the circumstances of the case. Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer's business. Nor does the fact that a profit or gain is made as the result of an isolated venture or a `one-off' transaction preclude it from being properly characterised as income (
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at pp. 4036-4037, 4042; (1982) 150 C.L.R. 355 at pp. 366-367, 376). The authorities establish that a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit.''

25. I am aware that this decision has been commented on and that the breadth of its claims have been noted. For example, in
F.C. of T. v. Spedley Securities Limited 88 ATC 4126 at p. 4130 a Full Bench of the Federal Court pointed out that the decision could not mean that any receipt by a business would necessarily be of an income nature. The purpose of profit making, said their Honours, must exist in relation to the particular operation. In my view, such purpose has been established in this case. Although the giving of the guarantee for a fee was an isolated act, it was nevertheless done in the course of facilitating the provision of finance for an associated company. The provision of this finance led to the profit making enterprise, from which the applicant personally benefited, being brought to fruition. The sum of $210,000 in the applicant's hands seems to me to be characterised as income, in the light of the Myer principles, because it is an aspect of his reward in the course of a concerted business project. He may not have been in the business of giving guarantees for a consideration. However, he was personally involved in an overall commercial transaction, of which the guarantee was an integral part, the purpose of which was to create a profit.

26. This finding is sufficient, in my view, to dispose of the present application. However, detailed and helpful arguments were put in relation to the other two subsections under which the amount in question might be classified. In deference to those arguments, and in case it should be found that I am wrong in my principal finding, I will offer my views.

27. Section 26(e) requires that taxable benefits must be in relation to services rendered by the taxpayer. Counsel for the applicant argued that his client did not render services to the debtor company which paid him the money. If anybody was benefited by the fact of his giving a guarantee, it was the lender. The guarantee, he pointed out, is a contract between the guarantor and the lender. The debtor is not a party to the document. In my view, this is too narrow a reading of the subsection. There is no requirement in the text that services should be rendered to the party that grants the benefit. The use of the words ``in relation to'' instead of ``for'' or, for example, ``at the request of'', makes this clear. The giving of a guarantee is the rendering of a service. In this case, it was a very valuable service. Unless that service had been rendered, the debtor would not have been able to borrow the principal sum. In my view the fact that the debtor is not an actual party to the guarantee contract is irrelevant. There is certainly a relationship between the debtor and the guarantor if the guarantee should be called up. In that sense, a tripartite relationship is established. However, in any event, it is not necessary in order to show that the guarantor has rendered a service and that the debtor should be the recipient of that service. So long as the service is rendered to any party and moneys are paid in relation to the rendering of that service by any party, then the amount so paid is taxable in accordance with the terms of the subsection.

28. Secondly, it was argued that sec. 26(e) cannot be made to extend to payments that cannot normally be regarded as income. Counsel for the applicant argued that sec. 26(e) stands or falls with sec. 25(1). In my view, this argument must fail. Section 26(e) is not, in its terms, restricted to items in the nature of income. If it were, it would have no role to perform, in view of the overall requirements of sec. 25(1). It must refer to something outside

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ATC 280

the terms of sec. 25(1). There is no reason, in principle, why amounts that might normally be regarded as capital for accounting purposes may not also be regarded as income for taxation purposes. Premiums for the granting of leases have been treated in various ways over the years, at times being taxable, at other times not. However, I do not have to rely on first impressions. I am bound by high authority to hold that sec. 26(e) extends in its operation beyond sec. 25(1).

29. In
Smith v. D.F.C. of T. 87 ATC 4883, three judges expressed views on this question in ascending order of positive affirmation. Wilson J. considered that the matter was still an open question. At p. 4885 he said:

``The decision of Fullagar J. in
Hayes v. F.C. of T. (1956) 96 C.L.R. 47 is also, in my opinion, of little assistance to the appellant. In that case the Commissioner sought to bring to tax a gift of shares made to Hayes in 1950 by a man who had employed him as an accountant from 1939 to 1944. His Honour did not find it necessary to consider in any detail the application of sec. 26(e) because he took the view that if the receipt of the shares did not fall within the general conception of income it was not caught by sec. 26(e). The correctness of that view remains an open question.''

30. At pp. 4891-4892 Toohey J. expressed a rather stronger opinion having regard to the breadth of language used in the subsection. He said:

``Although not formally stated, there was an assumption underlying the argument of counsel for the respondent that if the sum of $570 was not assessable by reason of sec. 26(e), it was not assessable under sec. 25(1). The precise relationship between sec. 25(1) and 26(e) was therefore not fully argued. As Gibbs J. pointed out in
Reseck v. F.C. of T. 75 ATC 4213 at p. 4215; (1975) 133 C.L.R. 45 at p. 47:

• `Speaking generally, sec. 26 does not limit sec. 25 but includes as assessable income some receipts that might not ordinarily have been regarded as income.'

Whether receipts falling within sec. 26(e) are within that description is a question that has not yet been determined. Gibbs J. left the matter open in Reseck for that case was concerned with the operation of sec. 26(d). In Hayes v. F.C. of T. (1956) 96 C.L.R. 47 at p. 54 Fullagar J. said:

• `I doubt very much whether sec. 26(e) has the effect of bringing into charge any receipt which would not be brought into charge in any case either by virtue of the general conception of what constitutes income or by virtue of the definition of `income from personal exertion' in sec. 6.'

Because of the way in which this appeal has been argued, it is necessary to try to resolve the doubt raised by Fullagar J. The matter must remain open though, having regard to the breadth of language used in sec. 26(e), there are strong arguments for the conclusion that receipts that might not ordinarily be regarded as income are included.''

31. At p. 4888 Brennan J. expressed firm views on the operation of this subsection:

``The judgments in Hayes and Scott raise two related issues for consideration: first, does sec. 26(e) bring to charge only those pecuniary benefits which are `income according to general concepts'? And second, must a gift to an employee be paid in consequence of an income-producing activity on the part of the employee if it is to fall within sec. 26(e)? The first issue was left open by Gibbs J. in Reseck v. F.C. of T. 75 ATC 4213 at p. 4215; (1975) 133 C.L.R. 45 at p. 48, and in the Federal Court by Deane and Toohey JJ. and myself in
F.C. of T. v. Cooke and Sherden 80 ATC 4140 at p. 4150; (1980) 29 A.L.R. 202 at p. 214. No doubt sec. 26(e) brings within the tax net benefits which might have been thought otherwise to escape by reason of the judgment of the House of Lords in
Tennant v. Smith (1892) A.C. 150 but, as Toohey J. has shown in his judgment in this case, the operation of sec. 26(e) and its statutory predecessor was not limited to covering the problem arising from Tennant v. Smith. With great respect for the view expressed by Windeyer J., I do not find in the context of sec. 26(e) any ground for holding that the scope and effect of that provision is limited to bringing into the tax net the value of

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those benefits which are, according to general concepts, of an income nature, being benefits received in kind rather than in money. If an allowance is paid to an employee in consequence of his employment, sec. 26(e) is attracted whether or not the allowance is of an income nature.''

32. In the light of these observations, I do not feel free to accede to the argument of counsel for the applicant, even if I were minded to do so.

33. I would however agree with counsel for the applicant in his argument concerning the application of sec. 26(h). That section includes in the taxpayer's income the amount of any fee received ``for procuring a loan of money''. In Case Q56,
83 ATC 301 at p. 304 a Board of Review conceded the absence of necessary guidance in determining what amounted to procuration fees and suggested that the ordinary dictionary meaning of the words should prevail. The relevant meaning of ``procure'', given in the Shorter Oxford English Dictionary is ``to prevail upon, induce, persuade (a person) to do something''. The Macquarie Dictionary suggests: ``to obtain or get by care, effort, or the use of special means''. Whilst it is true that the finance company would not have made the loan available to the property company unless the applicant had given his guarantee, it seems to me to be stretching language too far however to say that the giving of that guarantee was in itself the procuring of a loan. A guarantee has a special legal character. The normal act of procuring loans consists of the introduction of the lender to the borrower, the presentation of the borrower's case to the lender, the negotiation of terms and the consummation of the transaction. Section 67 of the Act provides for a deduction of expenditure incurred in borrowing money when used for the purposes of producing assessable income. Such an amount could well be a procuration fee, deductible to the payer and assessable in the hands of the payee. It is different in character and purpose from a fee paid for giving a guarantee.

34. If the subsection is necessary, its purpose must be to catch casual fees paid to those whose business is not normally that of procuring loans. To extend the meaning of the section to the present circumstances would, in my view, give it an operation beyond that intended. The most that the applicant can be said to have done is to facilitate the grant of a loan by the lender to the borrower. It is not consistent with the dictionary meaning of the words to conclude that the money paid to him for this service was also paid to him for ``procuring'' the loan.

35. For these reasons, the objection decision is affirmed.