The establishment of charitable funds for tax deduction purposes requires genuine public financial participation, not merely permission for public contributions in the trust deed.
Later decisions that cite Bray v Federal Commissioner of Taxation
Decisions cited by Bray v Federal Commissioner of Taxation
BRAY v. FEDERAL COMMISSIONER OF TAXATION [1978] HCA 18; (1978) 140 CLR 560
Income Tax (Cth)
High Court of Australia
Barwick C.J.(1), Stephen(2), Mason(3), Jacobs(4) and Aickin(5) JJ.
CATCHWORDS
Income Tax (Cth) - Deductions - Gift to public fund - Fund established and maintained under instrument of trust exclusively for purpose of providing money, property or benefits to or for certain funds, authorities or institutions - Income Tax Assessment Act 1936 (Cth), s. 78 (1) (a).
HEARING
Sydney, 1977, October 6, 7.DECISION
1978, May 19.2. The resolution of this appeal by a taxpayer against the refusal of the Commissioner of Taxation to allow him a deduction of gifts made by him to a fund established under an instrument of trust which in terms satisfied the requirements of the Act depends, in my opinion, upon the answer to the question whether the fund so established is a public fund within the meaning and operation of s. 78. (at p564)
3. The deed is set out in full in the reasons for judgment prepared in the appeal by my brother Jacobs, which I have had the privilege of reading. In those reasons there will also be found the detailed circumstances under which the gifts to the fund were made by the appellant and of the manner in which the fund was operated by its trustees of whom the appellant was the chairman. (at p564)
4. The critical facts, in my opinion, in the resolution of this question are that the fund was set up on the sole initiative of the appellant and, though the deed setting it up allowed of contributions being received from members of the public, at all material times the appellant was the only contributor to the fund although the appellant claimed to have made an endeavour to obtain subscriptions from the public. In this connexion, it may be said that this endeavour was of a minimal nature, if indeed there could really be said to have been any effective endeavour at all. (at p564)
5. There is no definition of a public fund provided by the Act: this is perhaps understandable because the circumstances which may warrant the conclusion that a fund is a public fund are likely to be various and quite disparate. But at least, in order for a fund to be a public fund, it must, in my opinion, either originate in a public initiative or attract public financial participation to a substantial degree. Given one of these conditions, there may yet be other circumstances which must be present to warrant the conclusion that the fund is of a public nature. In any case, a fund cannot obtain its public character from the nature of the purposes for which the fund may be used. The Act requires both that the fund should be a public fund and that it be devoted to the specified purposes. Thus, in this case, the fact that the deed complies with the requirements of the Act affords no reason for the conclusion that the fund constituted under it is a public fund. (at p564)
6. The idea of the need for a fund no doubt springs from the fact that individual contributors might be unable directly to make substantial contributions to one or more of the specified objects, whereas when contributions by a number are aggregated, worthwhile assistance might be given. (at p564)
7. The evident purpose of s. 78 is to encourage the support by the public of the objects specified in the sub-paragraph of that section by contribution of sums of varying amounts to a fund which, by aggregating them, can significantly assist one or more of the specified objects. The provision of the deduction is for the implementation of that policy and in no sense as due in equity to the taxpayer in order justly to arrive at the net advantage to him of the receipt of assessable income. Deductions conforming to the terms of s. 56 are of this latter order. (at p565)
8. Whilst I do not think an exhaustive statement of the circumstances which would designate a fund as a public fund for the purposes of the Act is possible, the decision of that question in any case must be against a background of this policy of the Act. (at p565)
9. Here, the only effect of the deed and of the appellant's gifts to the fund it creates is to provide the appellant with a deduction from his assessable income. The fund cannot be said to exist as a means of producing assistance for a specified object. The appellant, minded to assist any of those objects, could have done so directly. The amount of his second gift was substantial and, in any case, was not augmented by the amount of any other gift. It was not a case of the necessity for a fund to enable contributions, relatively insubstantial in their amount, to be aggregated so as to permit of their useful deployment in aid of one or more of these objects. The fund existed at material times solely as a vehicle for the justification of the deduction by the appellant. (at p565)
10. Of course, if the fund were in truth a public fund, the fact that a taxpayer made a gift to it solely to obtain the deduction could not justify a refusal to allow the deduction. Nor would it matter that the taxpayer, having regard to the amount of the gift, might as easily make his gift directly to a specified object. In any such case, the fund being a public fund, the policy of the Act would have been achieved in that it existed conformably to the Act and encouraged the making of contributions, albeit from a purely self-benefiting motive, which through the fund would become available for use under the terms of the trust for one or more of the specified objects. (at p565)
11. My conclusion is that the fund established under the deed of trust in this case was not at any relevant time a public fund. Beyond the possibility of public contributions it had no public element. In reaching that conclusion I have not placed any reliance on the manner in which the funds of the trust were dealt with by the trustees; nor have I found it necessary to impugn the bona fides of the appellant. I have done so because there are, in fact, no public elements whatsoever in the establishment or maintenance of the fund under the deed of trust. There was no public initiative in its establishment and no public participation in its maintenance. Nor do I by my conclusion rule out the possibility that the fund could yet become a public fund by the participation of the public in it to a substantial degree. Whether it does so or not must remain a question to be decided in the circumstances which then exist. Neither the fact that the appellant himself initiated the fund, nor the fact that he did so as a means of perpetuating the memory of his parents, militates in my opinion against the conclusion that, if all other necessary elements were present, the fund had become a public fund. (at p566)
12. I agree with the reasons given by my brother Jacobs for this conclusion. For the reasons I have expressed and those in the same sense expressed by my brother Jacobs, I would dismiss the appeal. (at p566)
STEPHEN J. I would dismiss this appeal upon the ground that at no material time was the fund which the taxpayer caused to be established a "public fund" within the meaning of s. 78 (1) (a) of the Income Tax Assessment Act 1936 (Cth). (at p566)
2. I have had the advantage of reading the reasons for judgment of Jacobs J. and I agree with all that he says concerning both the meaning of "public fund" and also the failure of the present fund to answer the description of "public fund". At first instance Menhennitt J. likewise concluded that the fund was not a "public fund" for the purposes of s. 78 (1) (a) [1977] VicRp 45; (1977) 7 ATR 309; 77 ATC 4121 and in his reasons for that conclusion I would also concur. (at p566)
3. The failure of the fund to satisfy the description of a "public fund" is enough to determine the outcome of this appeal. I would dismiss this appeal accordingly. (at p566)
MASON J. The fund established by the appellant under the trust deed which he executed was not in my opinion at any relevant time a public fund within the meaning of s. 78 (1) (a) of the Income Tax Assessment Act 1936 (Cth), as amended. It is not a sufficient qualification of a fund as a public fund that it is to be applied for public purposes. By insisting that the funds to which it refers shall be "public" and at the same time specifying their purposes in such a way as to demonstrate that those purposes are to be public purposes the sub-section requires that a fund in order to fall within the section shall have a public character distinct from the purposes for which it may be applied. See especially pars. (iii), (v), (viii) and (xxxi) of s. 78 (1) (a). In these circumstances it is not possible to treat the adjective "public" as mere surplusage. In Ashfield Municipal Council v. Joyce (1978) AC 122 where it was held that there was an element of tautology in the words "public charity", it was pointed out that the two words were synonymous (1978) AC, at p 140 . (at p567)
2. That the fund is open for subscription by the public is unquestionably an essential, though not in my opinion a sufficient, manifestation of its public character. It must also appear that the public participates in the fund by making contributions to it. No doubt the public character of the fund will be advanced by the participation of the public in its formation and in its administration but I cannot think that this is enough in itself without participation by the public in the making of contributions to the fund so as to constitute it as a public fund. (at p567)
3. In some cases it may be a nice question to determine whether the public has contributed to a fund. If the fund is, according to the terms of the instrument which constitutes it, open to subscription by the public then a comparatively few contributions by persons not associated with the settlor or promoter may be enough to satisfy the requirement of public participation, more particularly if the administration of the fund involves public participation. However, the present case is not a marginal case. The appellant was the sole contributor and the trustees were his friends and associates. (at p567)
4. Accordingly, in my judgment the fund was not at any relevant time a public fund and on this ground the appeal should be dismissed. (at p567)
JACOBS J. The appellant in respect of the year of income ending 30th June 1974 claimed a deduction under s. 78 (1) (a) of the Income Tax Assessment Act 1936 (Cth) in the sum of $44,207 of which the sum of $44,107 was the value of certain shares given to a fund claimed to be constituted by a deed of trust executed on 12th June 1974. It was claimed that there was a gift of the shares, which were purchased by the appellant within twelve months immediately preceding the making of the gift, to a public fund established and maintained under an instrument of trust exclusively for the purpose of providing money, property or benefits to or for funds, authorities or institutions referred to, and for the purposes (if any) referred to, in the sub-paragraphs of s. 78 (1) (a) and for the establishment of such funds, authorities and institutions. (at p568)
2. The appellant who is a solicitor had income from his share in the partnership of Feez Ruthning & Co., solicitors, of Brisbane, for the income year in question of $49,821 and further income which brought the total to $57,514 before allowable deductions. Allowable deductions, apart from gifts to the fund amounted to $24,831. With the deduction of the gifts to the fund the taxable income was nil. Without the deduction the taxable income was $32,683. The Commissioner disallowed the gifts to the fund as deductions. An objection was lodged in respect of the disallowance of a deduction of $44,107 but was disallowed. The appellant appealed to the Supreme Court of Victoria (Menhennitt J.) but his appeal was dismissed [1977] VicRp 45; (1977) 7 ATR 309; 77 ATC 4121 . He then appealed to the Federal Court of Australia where his appeal was dismissed by majority (1977) 17 ALR 328; 7 ATR 780; 77 ATC 4339 . He now appeals from that decision to this Court. (at p568)
3. The questions which arise on this appeal are whether the fund was a public fund, and, if so, whether it was established and maintained under the instrument of trust exclusively for the purpose set out above in the section and which I have referred to. In order to appreciate how these questions arise it is necessary to refer at some length to the facts. Between Christmas 1973 and Easter 1974 the appellant decided to create a fund to which he would make substantial donations of a kind which could be tax deductible and to carry out a series of transactions in connexion therewith. A trust deed was prepared and in April 1974 the appellant approached three of his friends in Brisbane - Mr. J. E. Gallagher (a barrister), Mr. W. A. Gorry (an accountant) and Mr. K. P. Prior (a solicitor) - and asked each of them if he would act as trustee, with the appellant, under the trust deed the draft of which he showed to them. Each of them agreed to act. (at p568)
4. The trust deed contained the following recitals and clauses related to the
questions raised by the appeal:
"THIS TRUST DEED is made the twelfth day of June 1974 BETWEEN PETER
WILLIAM BRAY of 64 Eastment Street, Rainworth, Brisbane
in the State of
Queensland, Solicitor (hereinafter called 'the founder') of the one part AND
the said PETER WILLIAM BRAY, JOHN EDWARD
GALLAGHER of 85 Windermere Road,
Hamilton, Brisbane, Barrister-at-Law, WILLIAM ALLAN GORRY of Lot 67, Peverell
Street, Brownsleigh,
Brisbane, Public Accountant and KERRY PATRICK PRIOR of 6
Langside Road, Hamilton, Brisbane, Solicitor (hereinafter called 'the
trustees')
of the other part.
WHEREAS:purposes of providing money, property or benefits to or for funds, authorities and institutions referred to and for purposes referred to in any of the sub-paragraphs of Section 78 (1) (a) of the Income Tax Assessment Act of the Commonwealth of Australia and for the establishment of any such funds, authorities and institutions.
A. The founder wishes to establish a public fund exclusively for the
C. The trustees have consented to act as trustees hereof.($100.00) to be held by the trustees as the first contribution to be held by the trustees upon the trusts hereof.
D. The founder has paid to the trustees the sum of One hundred dollars
. . .the trustees shall stand possessed of the Fund upon the trusts and with and subject to the powers set forth in this Deed.
2. The founder hereby directs and declares and it is hereby agreed that
. . .generally hereunder or in relation to any matter event or thing touching or concerning the provisions of this Deed:
7. In exercising and discharging their rights and obligations and acting
(iii) The trustees will conduct the fund separately from any other fund;exclusively for the purposes of the trust into which all monies received by the trustees for the purposes of the trust shall be deposited; and
(iv) The trustees will open and conduct a separate bank account
. . .under this Deed shall vest in the trustees as they from time to time think fit but such power shall not permit any variation which would prejudice any concession allowed to the trust or to any donor to the trust or beneficiary of the trust under the provisions of the Income Tax Assessment Act.
8. The power of declaring further and other trusts and powers of and
5. When the trust deed was executed on 12th June 1974 the sum of $100
referred to therein was not paid as it was recited in the
deed to have been.
It was paid at the time of the first meeting of trustees on 19th June 1974 to
which I shall come shortly. (at
p571)
6. The day following the execution of the trust deed the appellant went to Melbourne and purchased the shares, the value of which is claimed as a gift. They consisted of 22,620 shares of $2 each in M.B.J. Constructions Pty. Ltd. The price was $45,466.20. All except one of these shares were transferred to the taxpayer. The remaining share was transferred to Trumper Finance Pty. Ltd. The latter was one of a number of companies, the shares in which were owned or controlled by the taxpayer. There was Trumper Pty. Ltd. which, together with Trumper Finance Pty. Ltd., carried on the activities of investment and trading in shares. Trumper Nominees Pty. Ltd. was director of some of the other Trumper companies and acted as trustee of a superannuation fund. Trumper Mining Pty. Ltd. had originally carried on the activity of investing in new issues of shares in mining exploration companies but it had ceased to do so by the time of the events in question. After so ceasing it had been used for the borrowing and lending of money on an interest-free basis. (at p572)
7. The assets of M.B.J. Constructions Pty. Ltd. consisted of money in the bank amounting to $45,240 and there were no liabilities. (at p572)
8. After the transfer of the shares the appellant and Trumper Finance Pty. Ltd. were appointed directors of M.B.J. Constructions Pty. Ltd. and the previous directors then resigned. (at p572)
9. At the first meeting of the trustees of the Foundation on 19th June 1974 all the trustees were present and the taxpayer was appointed chairman of the trustees and president of the Foundation. It was resolved that except where specifically permitted by the decision of all trustees any resolution of the trustees should be unanimously adopted by them in order to be binding. Lastly, there was noted the wish of the appellant to make a donation to the foundation of the 22,619 $2 shares in M.B.J. Constructions Pty. Ltd. There was a resolution by the trustees to accept that donation and to execute the transfer of the shares. A valuation of the shares was submitted in which the total value was shown to be $44,107, the amount claimed by the appellant as a deduction and the amount which has been disallowed. The taxpayer informed the meeting of trustees that he would see to the best of his ability that reasonable dividends would be forthcoming from the shares as income to the foundation for distribution to charitable bodies. (at p572)
10. The appellant and Trumper Finance Pty. Ltd. remained the only directors of M.B.J. Constructions Pty. Ltd. On 22nd July 1974 M.B.J. Constructions Pty. Ltd. invested $45,000 by subscribing for and having allotted to it at par 45,000 "A" non-cumulative preference shares in Trumper Pty. Ltd. These shares were redeemable at the option of Trumper Pty. Ltd. They carried with them the right to receive a fixed non-cumulative preferential dividend at the rate of five per cent in each financial year out of profits of such year available for dividend or at a rate less than five per cent but not less than one per cent if the directors should so declare or a rate in excess of five per cent if the directors should so declare, but not exceeding the rate payable in the same financial year in respect of any "B" five per cent redeemable preference shares if the articles prescribed a maximum permissible dividend of ten per cent. (at p573)
11. Thus Trumper Pty. Ltd. received the $45,000. It used it to repay some of its creditors and to make a loan to Trumper Mining Pty. Ltd. It will be recalled that Trumper Mining Pty. Ltd. was at that time carrying on the activity of borrowing money interest-free and lending it interest-free to or at the direction of the taxpayer. In fact that is what was done with the instant moneys. They were lent to the taxpayer in order to pay income tax, the income tax which he became liable to pay as a result of the disallowance of the deduction by the Commissioner. This was, however, a use of the money that the appellant did not contemplate at the time of the purchase of the shares. It does not appear to me to matter whether the appellant contemplated that he would personally use the money or whether he contemplated that it would be otherwise used in transactions by one or another of the companies which he alone controlled. (at p573)
12. Menhennitt J. summarized the effect of these happenings as follows (1977)
VR, at p 375; (1977) 7 ATR, at p 314; 77 ATC, at p
4125 :
"The effect of all of the foregoing may be stated as follows. A
significant part of the $45,240 in the bank account of M.B.J.
Constructions
has been indirectly made available to and used by Trumper, a company
controlled by the taxpayer, to repay its creditors
which facilitated its
activities of lending money to Trumper Mining and investing and trading in
shares. The money was so made available
by subscribing in cash for the 5%
redeemable preference shares. Another significant part of the $45,240 in the
bank account of M.B.J.
Constructions has been indirectly made available to the
taxpayer interest free and used by him for personal purposes. This has been
done through M.B.J. Constructions subscribing for the redeemable 5% preference
shares in Trumper and Trumper lending part of the
subscription money interest
free to Trumper Mining which lent part at least of that money interest free to
the taxpayer who used
it to pay personal taxation."
Menhennitt J. also found that the appellant did not reveal to the trustees his
intention to deal with the funds of the company whose
shares were the subject
matter of the gift in a manner which would put those funds at the disposal of
companies owned by and controlled
by the taxpayer, if not of the taxpayer
personally. He also found that at the time the shares were given the appellant
contemplated
that the company's assets would be made available to companies
which were controlled by him. (at p574)
13. In the financial year 1974 and in the financial year 1975 the appellant, to use his own words, "repeated the exercise" by purchasing shares in other companies whose only assets consisted of cash and by making gifts of those shares to the trustees. (at p574)
14. On 25th June 1975 and 30th April 1976 Trumper Pty. Ltd. paid cheques for $1400 and $1800 respectively to M.B.J. Constructions Pty. Ltd. These cheques were said to be by way of dividends on the shares held in Trumper Pty. Ltd. by M.B.J. Constructions Pty. Ltd. On 25th June 1975 M.B.J. Constructions Pty. Ltd. paid to the fund $1400 and on 30th April 1976 a further $1800. (at p574)
15. On 25th June 1975 the trustees of the Foundation paid $400 to each of four public charities which were among the categories of funds, authorities and institutions specified in s. 78 (1) (a) and on 24th June 1976 the trustees of the foundation paid to eight such charities $200 and to a ninth $300. (at p574)
16. On these facts the first question is whether at the time of the gift of the shares in M.B.J. Constructions Pty. Ltd. the fund established under the trust deed was a public fund. (at p574)
17. It is first to be noted that it is not sufficient that the fund is one contributions to which are held in trust for funds, authorities or institutions or for purposes which wholly fall within s. 78 (1) (a). Such a fund may be established and maintained by a single contribution or a number of contributions from a private person. That is not a public fund. The reason why the fund must be a public fund emerges from a consideration of s. 78 (1) (a) as a whole. A gift to an authority or institution effectively disposes of the subject matter of the gift to that authority or institution so that it may immediately be enjoyed by it either for its general purposes or for a purpose described in s. 78 (1) (a). That is to be sufficient. However, it is in the nature of a fund that the objects thereof will not, or at least will not necessarily, benefit immediately from the gift of the subject matter to the fund. It was not the legislative intention that a private person could establish a fund by making gifts of money or property to trustees for the prescribed purposes and thereby claim a deduction under s. 78 (1) (a). Such a private person could if he wished make deductible gifts directly to any of the prescribed authorities or institutions. However, in certain cases a provision for deducting gifts made to established authorities or institutions would be inadequate to cover the field sought to be covered by the legislation. There might be need to raise a fund to which contributions could be made for the establishment of a hospital or a university or a war memorial or a school building. Further there need to be funds collected for the welfare of members of the Services or the provision of marriage guidance. And there was recognized to be a need for funds to be collected for the provision of benefits generally to objects falling within s. 78 (1) (a). The need for such funds, contributions to which would not necessarily be immediately available to any of the named authorities or institutions, could be reconciled with the general intention disclosed in s. 78 (1) (a) that no mere setting aside or appropriation of money or property would be sufficient to qualify for a deduction by providing that only a gift made to a public fund should be deductible. The implicit distinction is between a public fund and a private fund. A private fund as much as a public fund may as a result of the trusts created be irrevocably devoted to the required purposes; but that was not to be sufficient. (at p575)
18. A consideration of these circumstances leads me to conclude that the principal distinguishing characteristic of a public fund is that contributions thereto are sought from the public or a significant section of the public. If a member of the public contributes to such a fund as a result of an invitation or request so to do, that, it seems to me is positive, and probably irrefutable, evidence that the fund to which he contributes is a public fund and, if the purposes of the fund fall within s. 78 (1) (a), the contribution will be deductible. (at p575)
19. But what of the initial establishment of a public fund where the establishment is by an individual or a number of individuals? At that stage there is no contribution by a member of the public and perhaps no invitation to the public to contribute. Is it then necessary to examine the circumstances of the establishment of the fund or is it sufficient simply to examine the terms of the instrument under which the fund is established in order to ensure that contributions may be made to the fund by members of the public? If the latter be the correct view, then this fund qualifies as a public fund. If it is not correct, then it is necessary to determine what are the relevant circumstances. (at p575)
20. In my opinion it is not sufficient that the public under the terms of its establishment may contribute to the fund. That being so, it appears to me that it must be the intention of the promoters or of the founder or founders (if any) that the public will contribute so that in the case of a fund established by an initial gift from an individual or a few individuals what is born of the contribution from an individual or from individuals will blossom into a fund to which the public in fact subscribe. A fund is a public fund when the purpose of its establishment is the raising of funds from the public or a significant section of the public so that the objects will benefit to an extent greater than the benefit which a founder (if any) confers by his own contribution. The question is one of fact in each case and the conclusion would not be lightly reached that promoters or founders did not have the requisite intention or purpose. The fact that members of the public unassociated with the promoters or founders did in fact contribute in response to an invitation or request extended to them would no doubt be very strong evidence that the promoters or founders had extended the invitation to the public with the purpose intention and expectation that that result would follow. (at p576)
21. The converse, it should be made clear, is not necessarily true; but in my
opinion the findings of fact made by Menhennitt J.
establish quite clearly
that there was no purpose intention or expectation in the appellant as founder
that the public or any section
of the public would contribute to the fund
established under the trust deed. The only invitations extended to the public
were the
extraordinary advertisements published twice in the Cairns Post,
Daily Mercury (Mackay), North West Star (Mt. Isa), and Townsville
Daily
Bulletin in the following form:
"DONATIONS INVITED FROM THE GENERAL PUBLICcharities).
to THE SPORTSMENS & BUSINESSMENS BENEVOLENT FOUNDATION
P.O. BOX 306, NORTH BRISBANE, 4000.
(a managed charitable fund devoted to assisting other Queensland
Sanctioned under 'The Collections Act of 1966.'"Understandably there was no response from any member of the public offering any contribution. Menhennitt J. stated (1977) VR, at p 380; (1977) 7 ATR, at p 319; 77 ATC, at p 4129 : "I am compelled to conclude that the advertisements were inserted not really in the hope of evoking donations but with a view to endeavouring to have some evidence from which it might be contended that the fund was a public fund." That conclusion was fully justified. Moreover, the fact that the form of advertisement appears to have been designed to discourage rather than to encourage contribution and the fact that no other invitation was extended to the public, coupled with the fact that the scheme was patently designed to secure the taxation advantage of deductible gifts without the full measure of pecuniary disadvantage which a donor to deserving causes expects as the price of his generosity - a scheme which would be complicated by a measure of public involvement - lead fairly to the inference that the appellant had no purpose or intention or expectation that the fund would be augmented beyond his own contribution by public contribution. That being so, the fund that was established was not in my opinion a public fund within the meaning of those words in s. 78 (1) (a). (at p577)
22. Although my conclusion that the fund was not at the relevant time a public fund is sufficient to dispose of the appeal, I also am of opinion that the value of the shares was not deductible because at the relevant time the fund was not established and maintained exclusively for the purpose of providing money, property or other benefits to or for the prescribed funds, authorities or institutions or for the prescribed purposes or for the establishment of such funds, authorities or institutions. The purpose here referred to must, I think, be one which appears from the terms of the instrument of trust as they operate or take effect in the circumstances of the case. An extrinsic purpose of the founder or of a donor, which may be described as a motive for the foundation or gift, is not material. Nevertheless the distinction is not simply between motive on the one hand and beneficial objects of the trust on the other hand. Although the trust can be described as a "purpose" trust it does not follow that the purpose referred to in s. 78 (1) (a) can be exhaustively found in the declared beneficial objects. It is necessary also to take into account the powers conferred or duties imposed upon the trustees in order to see whether in the circumstances of the case the instrument in its form and its manner of operation as a result of decisions by the trustees discloses that what might ordinarily be an administrative power operates in fact as a purpose of the maintenance of the fund in the manner in which it is in fact maintained. What is apparently and ordinarily a power may be seen to operate as a purpose if it has an operation other than ancillary to the conferring of benefits upon the objects of the trust. One example will suffice. Assume an instrument of trust which gives power to employ a manager irrespective of the size of the fund to be managed. If the affairs of the trust are so conducted by the trustees under the instrument of trust that the income of the fund is absorbed by the salary of the manager the conclusion would be open that the fund maintained under the instrument of trust was not being maintained exclusively for the purpose of providing benefits to the objects. That conclusion would the more easily be drawn if the exercise of the power by the trustees was not wholly motivated by a wish to promote the best interests of the beneficial objects of the trust. (at p578)
23. In the circumstances of the present case the particular power which invites attention is the power to retain property in the same form in which it was originally received without being obliged to sell the same or convert it into money. That power, in the manner of its exercise, was the lynchpin of the appellant taxpayer's scheme. For, if the shares were sold, the proceeds would need to be either applied for the benefit of the expressed beneficial objects of the trust or to be invested in trustee securities. That would have been fatal to the scheme of having control of the company and consequently of the liquid funds which were the only assets of that company whose shares were the subject matter of the gift. The question is whether the inclusion of the power to retain property followed by the exercise of that power in the manner in which it was exercised shows that the fund was established or maintained with a purpose that the shares given to the fund by the founder would be retained in the form in which they were received whether or not the trustees were of the opinion that the retention of the shares was the best way of achieving a purpose of providing money, property or benefits to or for the specified beneficial objects. (at p578)
24. The only trustee who had a knowledge of the facts which would enable a decision to be made on the manner in which the power to retain the shares would be exercised was the appellant. There is nothing in the evidence to suggest that the other trustees at any stage applied their independent judgment to the question. Clearly they at all times intended to do, and in fact did, what the appellant thought fit to do. The factors influencing the appellant as a trustee in determining whether or not to exercise the power to accept the transfer of the shares from himself to the trustees (including himself) and thereafter to retain the shares were therefore factors which can properly be attributed to the trustees as a body. (at p578)
25. If it be correct that the fund was established upon the gift of the shares, then the decision of the trustees to exercise the power to accept the transfer of shares and to exercise the power to retain them for reasons other than the exclusive benefit of the objects of the trust means that the trustees exercised their powers in such a way as to achieve a result or effect other than that of exclusively providing benefits to the declared objects of the trust. On the other hand, if the fund was established by the gift of $100, then that decision of the trustees to accept the shares and to retain them had the same result, namely, that the trustees exercised their powers in such a way as to achieve a result or effect other than that of exclusively providing benefits to the declared objects of the trust. In either case the result is the same, namely, that the fund at the time of the acceptance of the transfer of the shares was not being maintained exclusively for the purpose required by s. 78 (1) (a). (at p579)
26. For these reasons I am of the opinion that the appellant fails and that the appeal should be dismissed with costs. (at p579)
AICKIN J. The facts relating to this appeal are set out in the judgment of my brother Jacobs and I do not need to repeat them here. (at p579)
2. I find myself in substantial agreement with the judgment of Deane J. in the Full Court of the Federal Court, both in his discussion of the facts and of the law (1977) 17 ALR, at pp 356-366; 7 ATR, at pp 804-812; 77 ATC, at pp 4359-4365 . I make the minor and in the end irrelevant exception that I do not think it is possible to say one way or the other whether the appellant's cheque had been drawn either on or before 12th June 1974 and held by him as a trustee pending the first meeting and the decision to open a bank account. There does not appear to me to be any evidence one way or the other on that point. I do not think however that it is necessary to advert to that question to conclude that there were two separate and successive gifts, the earlier of money and the later of shares, even though the separation in time was insignificant. Each was complete in the sense that the trustees were put into the position in which they could themselves take such steps as might be necessary to complete the transfer of the property to themselves, though no doubt the legal title to the shares must have been dependent upon the approval of the directors of M.B.J. Constructions Pty. Ltd. The fund may properly be regarded as "established" by the gift of $100, it being clear that the mere execution of a trust deed without there being any trust property could not of itself establish the fund - see Compton v. Federal Commissioner of Taxation [1966] HCA 1; (1966) 116 CLR 233, at p 246 . (at p580)
3. The two critical questions are whether this was a "public fund" and whether it was "established and maintained under a will or instrument of trust exclusively for the purpose of providing money etc." for the specified purposes. As to the first of those questions, I am of opinion that the word "public" in the phrase "public fund" is used in the sense of being open to the public to make contributions to it. It is by way of contrast with "private funds" which are open only to subscriptions by specified groups and not by the public generally. An appeal to the congregation of a particular church for subscriptions to a trust fund for the repair of the church, or a pension for a minister of that church, though charitable in the technical sense, would not be an appeal to the public or for a public fund. Similarly an appeal to former pupils of a particular school or to graduates of a particular university for subscriptions to a fund to be used for the benefit of the school or university would not be a public appeal, nor the fund resulting therefrom a "public fund". This adjectival use of the word "public" is analogous to its use in such expressions as "public libraries", "public transport", "public art gallery" or "public park". A "public appeal" or a "public fund" is one which is addressed to or open to members of the public generally to respond or subscribe. Upon such view it is not material whether the public or members of the public do in fact subscribe. It also follows that public involvement in the formation, establishment or launching of the fund is not a requirement. Indeed, such a requirement is necessarily excluded by the provision of the section which shows that "public funds" may be established and maintained under a will or an instrument of trust. A fund established under a will is necessarily one established by the action of an individual person acting wholly on his own. It is important also to notice that the expression "established and maintained" applies equally to funds under a will as to those established by an "instrument of trust", an expression which must mean a deed poll or an instrument inter vivos. There is no basis for construing the expression "established under . . . an instrument of trust" in a manner which excludes such establishment by a single individual as donor or both donor and trustee. The word "maintained" in this context must mean maintained in accordance with the terms of the will or the instrument of trust as the case may be. (at p580)
4. The second question is: what is the significance in the present case of the requirement that the fund be maintained exclusively for the purpose of providing money etc. for the specified purposes, i.e. the funds, authorities and institutions listed in sub-pars. (i) to (xliv)? It appears to me to be clear that for the fund to be "established" for those purposes the trusts of the relevant instrument must provide only for the provision of money, property or benefits to or for such specified funds, authorities or institutions, and for no other purpose or institution. For such a public fund to be "maintained" under a will or instrument of trust it must, in my opinion, continue to be subject to the trust for those purposes. If "maintained" means "in fact administered", there is a practical problem in this section because it is obvious that, in the case of a fund which is open to subscriptions from the public generally, members of the public will have neither actual knowledge nor any means of obtaining knowledge that such a fund is in fact being so administered or that there have been no breaches of trust by the trustees either in the past or current at the time of the donation. Nor would there be any means of ascertaining whether such breaches are deliberate or accidental, in the sense that part of the fund or its income may have been used to provide money for that which was believed by the trustees to be a fund, authority or institution specified in the sub-section, but which, in fact and in law, was not such a fund or institution. It does not seem a likely intention to attribute to the legislature that, in its evident policy of encouraging donations to the institutions and for the purposes specified, those taxpayers who are so encouraged or induced should gain or lose the tax benefit held out to them by reference to facts not ascertainable by them. The requirement of the legislature is that the fund should be of that character and to have that character at the time of the donation. It is at least clear that subsequent breaches of trust by application of the funds in an unauthorized manner, or failure properly to keep the investments under review, could not affect the deductibility of the donation. However it is not in the present case necessary to decide what would be the effect of breaches of trust prior to or current at the date of the gift, for there were none at the relevant time. (at p581)
5. The purposes for which such a fund is established and maintained are in my opinion to be derived from the terms of the will or instrument of trust and not from the subjective intentions or motives of the founder or of other donors, nor of the trustees. There is clear authority for this proposition in relation to charitable trusts (see e.g. Hoare v. Osborne (1866) LR 1 Eq 585 and Keren Kayemeth Le Jisroel Ltd. v. Commissioners of Inland Revenue (1932) AC 650, at pp 657, 661 ) and that view is in my opinion equally applicable to the determination of whether a fund is a "public fund" and is "established and maintained" for the prescribed purposes. (at p582)
6. In the present case we are concerned only with the donation of property in the year of income ended 30th June 1974. I am satisfied that, at the time of the handing over of the instrument of transfer of these shares and, presumably the necessary share certificate, there was an established fund which was of the necessary character. At that time, and indeed for the balance of that financial year, there was no suggestion of any breach of trust by the trustees, either active or passive. I say "passive" because there could be a breach of trust if the trustees did not review from time to time the manner in which the trust funds were invested, so as to ensure that the fund is so far as possible preserved from loss through failure of companies in which the trustees hold shares, whether by unwise investment by the directors of such companies, or otherwise. However nothing occurred in the relevant financial year which would have called for action and there was no reason for the trustees as such to fear that any unusual risks attached to the nature of the property which had been the subject of the donation. It is true it was a proprietary company which had liquid funds and no other assets and of which one of the number was in effect the controlling director. It would have been clear to them that M.B.J. Constructions Pty. Ltd. would have to put the funds to use by an investment of some kind in order to earn income. At that moment there was no reason why they should question the taxpayer's undertaking that he would do his best to see that there was a proper return in the form of dividends and that of course would depend upon the success or wisdom of the investment or use to which the M.B.J. Constructions put the funds at its disposal. They were not a party to the taxpayer's plan that the funds should be used in other companies controlled by him, rather than used in some business conducted by M.B.J. Constructions itself. The findings make it clear that they were unaware of those plans of the taxpayer and also make it clear that at the time of the donation the taxpayer had no plan or intention to divert the funds for his personal benefit. (at p582)
7. No doubt there are cases in which subsequent events may cast light on earlier events and intentions, but it is a mode of reasoning to be used with some caution and in the present case it cannot be used to suggest that the trustees were, whether at the time of the foundation of the fund or during the balance of that financial year, actuated by improper intentions or by an intention that the fund should be applied in the manner likely to involve losses by reason of substantial reduction in the value of the shares which were the subject of the donation, or an intention to put the actual use of funds out of the reach of the company in which the trustees held shares. (at p583)
8. For those reasons I am of opinion that this appeal should be allowed. (at p583)
ORDER
Appeal dismissed with costs.