Executor Trustee and Agency Company of South Australia Limited v Deputy Federal Commissioner of Taxation (SA) [1940] HCA 24

OF AUSTRALIA.

[HIGH COURT OF AUSTRALIA.)

OR TRUSTEE AND AGENCY COM- : Y OF SOUTH AUSTRALIA taMrrep } tt

AND

DEPUTY FEDERAL COMMISSIONER

)F TAXATION (SOUTH AUSTRALIA) . } Restosnesr.

(Oth.)—Asssessment—Deduction—Annuity, whether charged on land— u Saba 'out of income from trust property including land—Unqualified . onal gift over of corpus and income—Land Tax Assessment Act 097 (Wo, 22 of 1910—No. 5 of 1937), sec. 34%.

ction—Annuities—Payable out of income—Test of whether annuities d on trust property.

'A will of a testator who died before Ist July 1910 provided that » number

ties be paid out of the income of certain trust property, including real 'and, that, in the event of a deficiency in income in any year to pay the ole of the annuities, certain of them should abate. The will then provided at, on the death of the final annuitant, there was to be an immediate, itional and unqualified distribution of the corpus and income of the

that the annuities were neither a continuing charge on the income nor ye on corpus; consequently the annuities were not charged on land d the trustee was not, for the purposes of land tax, entitled to any deduction et of the annuities as provided for in sec. 34 of the Land Tax Assess- Act 1910-1937,

ind Trustees Ltd. v. Deputy Federal Commissioner of Land Tax (Q.), 9) 26 C.L.R, 485, distinguished,

of the Land Tax Assessment soecnig to the prescribed tables for 0-1937 provides: 'Where the calculation of values ; and (b) there

nent made before the first shall be deducted from the unimproved value of the land a sum which bears the same proportion to the value of the annuity as the unimproved value of the land bears to its improved

H. ©. or A.

1940. at

MELBouRNE, March 28.

ADELAIDE, Sept. 20.

Dixon J.

414 HIGH COURT

H.C. or A. Re Boulcott's Settlement, (1911) 104 L.T. 204, In re Boden; Boden v, 1940. (1907) 1 Ch, 132, and Foster v. Smith, (1845) 1 Ph. 629, applied. ae Principles of construction stated by Romer L.J. in In re Coller's Deed 71 'TRUSTEE Coller v. Coller, (1939) Ch. 277, at p. 280, approved and applied. AND AGENCY

Co. or APPEALS from the Federal Commissioner of Land Tax. : Sourn The Executor Trustee and Agency Co. of South Australia Lt ee was the trustee under the will of David Bower, late of Wood v% South Australia, deceased, who died on 14th July 1898, and i See appealed to the High Court from an assessment made by the Deputy Comaus- Federal Commissioner of Taxes for the financial year beginning Ist Tosanoe July 1938 in respect of land held on the trusts of the will. (S.4.). trustee claimed certain deductions under sec. 38 (7) of the Land Tax "Assessment Act 1910-1937 in respect of the individual interests h

by the beneficiaries in the estate, but the deputy commissio:

Court, the opinion of the Full Court was sought on a case stated as to whether the deductions were properly allowable: the court that they were not (Executor Trustee and Agency Co. of South Aus Ltd. v. Deputy Federal Commissioner of Taxes (S.A.) (1) ). the course of the argument, however, it was suggested that deduetic might be claimed under sec. 34 of the Land Tax Assessment Act 1910-1937, and when the opinion of the Full Court was returned to Dixon J., who stated the case, it was argued on behalf of the trustee that deductions should be made under sec. 34 as suggested. Objec- tion was taken on behalf of the deputy commissioner that the notice of objection given by the trustee did not raise the point. It

was agreed, however, that Dixon J. should decide the point, and, ' in order that any difficulty raised by the notice of objection should be overcome, Dixon J. reserved his judgment for such period of

time as to allow the trustee to be assessed for the financial year beginning Ist July 1939 and to file a notice of objection properly and clearly raising the point as to whether deductions were allow-

able under sec. 34. Dixon J. then proceeded to give judgment i in

the two appeals.

The facts are set out in the judgment hereunder.

Ligertwood K.C. and McEwin, for the appellant.

Mayo K.C. and Brebner, for the respondent. Cur. adv. vult.

(1) (1939) 62 C.L.R. 545.

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fhe following written judgment was delivered :— ixon J. These are two appeals from assessments for Federal 'The first appeal is from an assessment for the financial r ing Ist July 1938 and the second for that beginning Ist 1939. The appellant is the trustee under the will of David sr, deceased, who died on 14th July 1898. in the first appeal the parties joined in preparing a case for the n of the Full Court, which, at their request, I stated under (8) of the Land Tax Assessment Act 1910-1937. he | of the case stated was to obtain the determination the question whether the appellant was entitled, for the purpose e assessment, to six deductions of £5,000 each from the unim- value of the lands which it held as trustee of the estate of | Bower, deceased, or to one such deduction only. will contains directions to pay certain annuities out of the e of the residuary estate and a discretionary trust to accumulate income and to apply the accumulations in the like manner e, namely, by distributing the same to the persons for the entitled to the income of the estate. Two orders were

and the other declaring the effect produced by the operation Thellusson Act after the expiration of twenty-one years from testator's death. As a combined result of the terms of the will the orders, a discretion arose in the appellant as trustee to among the annuitants the income of the residuary estate after the payment of the annuities, and this was done. material dates there were six annuitants surviving, all of were relatives of the testator. The appellant claimed that, equence, under the will, the beneficial interest in the income the lands forming part of the residuary estate was, for the , shared among these six beneficiaries in such a way that e taxable as joint owners and that each of them had an iginal share ; and on that ground the appellant claimed six deduc- of £5,000 each under sub-secs. 7 and 8 of sec. 38 of the Land ssment Act, For many years six deductions had in been allowed by the Commissioner of Taxation, but in the sment for the financial year beginning Ist July 1938 he d the appellant's claim and allowed but one deduction. The urt upheld his disallowance of six deductions and decided that nt was entitled to one deduction only of £5,000 (Executor ee and Agency Co. of South Australia Ltd. v. Deputy Federal sioner of Taxes (S.A.) (1)). (1) (1939) 62 C.L.R. 545.

H.C. or A

1940, ~ Executor TRUSTEE AND AGENCY Co. oF Sour AUSTRALIA Lap. v. Derury FEDERAL Commis- SIONER OF TAXATION (S.A).

Sept. 20,

H. C. or A.

1940. —

Execuror TRUSTEE 'AND AGENcy Co. oF Soura AUSTRALIA Lip.

v. Deputy FEpErat Comans- SIONER OF TAXATION (S.A)

Dixon J.

HIGH COURT {940

In the course of the argument in the Full Court a question asked whether the commissioner had considered the possible of the appellant under sec. 34 to deduct the value of the annuit

placed its case on sec. 38 (7) and (8). In his reasons for jud, the Chief Justice said that, as for many years the commissioner ha allowed several deductions of £5,000 and as it was now held

The appeal from the assessment for the financial year beet 1st July 1938 was then brought on again before me for heai It was stated that the commissioner had in the meantime consi

charged with the annuities. this conclusion and claimed to be entitled under the notice of obj tion to contend that the assessment should be reduced by allow deductions in respect of the value of the annuities. The notice ol objection begins with the simple ground that the assessment is excessive, and, according to the appellant, that ground is enot for the purpose. It was said also that, having regard to what had occurred before the Full Court, the question was thrown open independently of the objections. At length, however, it was agreed that, in order to raise the question unembarrassed by difficulties of procedure, steps should be taken to bring before me an appeal in respect of the ensuing financial year, the year beginning Ist Jul 1939, and that, when that had been done, I should give judgment upon both appeals without a second argument. The question substance was argued, and I reserved judgment to enable the arrange- ment to be carried out. 4

The materials upon which both appeals are to be determined consist of the assessments, objections and transmissions, the case stated in the first appeal for opinion of the Full Court, the order ob the Full Court, and two agreed statements of fact.

In the circumstances I shall not decide whether, in the first appeal, it is open to the appellant to claim deductions under sec. 34 on account of the value of the annuities. For, in my opinion, that claim finds no foundation in the provisions of David Bower's will. Omitting an immaterial proviso, sec. 34 is as follows: "Where: under a settlement made before the first day of July, one thousand.

(1) (1919) 26 C.L.R. 485.

The appellant then sought to cone

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, land is charged with an annuity—(a) the value of the shall be calculated according to the prescribed tables for ulation of values; and (b) there shall be deducted from the ed value of the land a sum which bears the same proportion » value of the annuity as the unimproved value of the land

its improved value." The testator did of course die before

still on foot.

ume that it is a consequence of Sendall v. Federal Commis- of Land Tax (1) that, notwithstanding sec. 33 (1), when a is assessed to land tax in respect of land held upon the trusts a deduction must be allowed under sec. 34 on account of y which the will creates and charges upon the land. But usts of the will in the present case contain no charge upon the There are two sets of annuities arising under the will. The given by the earlier part of the will have now all terminated, six annuities upon which the appellant's present claim ds are to be provided out of what is in effect the income of After making a number of specific gifts and bequeathing y legacies long since paid and the set of annuities now ter- |, the will directs the trustees to stand possessed of the however constituted (scil., of real and personal property), it, after providing for outgoings, " to pay the income arising 'from as under," viz., to two named annuitants, each £250 per , and, to seven named annuitants, each £400 per annum.

tioned seven annuities of £400 per annum each in full, uld be reduced equally, but gives the trustees a discretionary to make up the reductions from time to time when they the income will warrant it. The annuity of any of the

for his or her children, if any, and, if none, is to fall into the personal estate. Upon the death of all the annuitants, y estate (real and personal) is to be converted and the

then living of the annuitants. These provisions amount tion to apply the income of a trust of realty and personalty g specified annual sums until the death of the last surviving tant and then to distribute corpus. There is no continuing arrears on income in the case of any of the annuities, and

(1) (1911) 12 G.L.R. 653,

d beneficiaries dying is, until the period of distribution, to be

ed and ten, or under the will of a testator who died before 4. ©. or A.

1940. Ww

Executor Trustee AND AcEncy Co. oF Sovrn AUSTRALIA Lev.

v Deputy FeperaL Commas. SIONER OF TAXATION (S.A.).

Dixon J.

AUSTRALIA

Sourn

Lr. v Deputy

FEDERAL

SIONER OF Commis-

ATION

Dixon J.

HIGH COURT

When the last life drops, all claims to answer the annuities out of future income end, and in no event is there any recourse to corp It will be seen that it is not a bequest of an annuity independently

or provided for before the corpus of residue is ascertained. annuity so bequeathed is considered to be a charge on corpus because it must be answered out of the general estate and until it is so answered there can be no final ascertainment of residue. Furthe this consequence is not met by a mere direction to pay the annuity out of the income, or to set aside a fund to answer the annuity, it is no more than a superadded direction or an appropriation of a fund or of income to secure the annuity and it is not the sole exp sion of the gift of the annuity : See In re Mason ; Mason v. Robins (1) and Carmichael v. Gee (2).

Again, notwithstanding that the gift of the annuity is contained. in a direction to apply income to the purpose or to set aside a fund and pay a specified amount of the income thereof to the annuitant, yet, if the gift of the corpus on the annuitant's death is made subject to the satisfaction of the annuity, then arrears of the annuity will, be payable out of future income, and this may amount to a continuing » charge upon income. Thus, in In re Mason (3) Jessel M.R. says :— "Now there are two classes of cases between which I think a dis- tinction should be made. The first is a class of cases of which Baker v. Baker (4) is an instance, in which the testator has not given the annuity at all, but has directed a sum of money to be set apart which shall be sufficient to pay an annual sum, and then directs the income of the sum so set apart to be paid to a person for life. That is not a gift to an annuitant of a sum of money specifically mentioned, but it is a direction to set apart a capital sum, and what is given, and what the person to whom the income is to be paid takes. is the income of that capital sum which accrues due during his life, and nothing else. That is the true explanation of the decision in Baker v. Baker (4). There is another class of case of which Booth v. Coulton (5) is one, in which there is not a gift of an annuity simpliciter, but a fund is directed to be invested, or there is an existing investment, or an existing estate producing income, and the testator directs that out of the income of the sum to be invested, or of the existing investment, or out of the rents of the existing estate,

(1) (1878) 8 Ch. D. 411. (3) (1878) 8 Ch. D., at p. 414. (2) (1880) 5 App. Cas, 588 (HL); (4) (1858) 6 HLC. 616 [10 BR. — (1878) 9 Ch, D. 151 (C.A.). 1436).

(5) (1870) 5 Ch. App. 684.

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elsewhere. That class of cases has been held to mean this, here being no direction that the annuity is to be paid out of me to accrue during the life of the annuitant, the annuity is urge upon the income even beyond the life of the annuitant, so tno one can take the income till the arrears of the annuity are fied." In Birch v. Sherratt (1), which is a case of the latter 'Rolt LJ. said :—'" If an annuity is given out of rents and or dividends and interest, and the capital, or corpus, is 'intact, from and after the annuitant's death, to another, the 'equivalent to the case of a life interest with remainder over. the capital is given over, not 'from and after the annuitant's but, 'from and after the satisfaction of the annuity and to the annuity,' then I think the case is equivalent to the case y and a residuary bequest, especially if the gift of the lity itself admits of a construction charging it on the capital

nthe death of the annuitant or because the gift over is so expressed

t is made subject to the full satisfaction of the annuity, the conclusion is that there is a continuing charge on income beyond the life of the annuitant, that charge may amount oncorpus. But whether this is always so or depends upon

: See, e.g., per Cozens Hardy M.R. in In re Howarth ; Howarth (2); per Parker J. in In re Young; Brown v. Hodgson Greene M.R. in In re Coller's Deed Trusts ; Coller v. Coller

tra, per Fletcher Moulton L.J. in In re Boden; Boden v. (5); Law Quarterly Review, vol. 31, pp. 424-428. In Queens- Ltd. v. Deputy Federal Commissioner of Land Tax this court held that the provisions of a will charging an upon realty amounted to a continuing charge upon but not upon corpus: See the provisions as abstracted Teport (7) and discussed (8) and the conclusion (9). nuing charge for the satisfaction of annual payments over a limited period must, of course, be distinguished an indefinite charge upon the income of property, that charge of annual sums accruing indefinitely. But in my the provisions of the will in the present case do not subject

) 2Cch. p64, at p. 649, (5) (1907) L Ch, 132, at p. 153. ) (1909) 2Ch. 19, at p. 21, ve (6) (L919) 26 OLE, 185,

) (1912) 2 Ch, aon a pp. 482, 487. (7) (1919) 26 C.L.R., at p. 486. (1939) Ch. 277, at p. 279. (8) (1919) 26 C.L.R., at p. 491.

(9) (919) 26 CLLR, at\p. 492.

isn ity is to be paid, and subject thereto the fund or estate is "- ©. oF A.

1940. Ww

Executor Trustee AND Agency Co. oF Soura AUSTRALIA Lev.

Pi Dervry FEDERAL Comamrs- SIONER OF TAXATION (S.A.).

Dixon J.

H.C. or A.

1940. Ww

Exzcuror TRUSTEE AND AGENcy Co. oF Sourn AUSTRALIA Lr.

g Derrury FEDERAL Comms. SIONER OF Taxation (S.A.).

Dixon J.

HIGH COURT

the income to a continuing charge. In In re Coller's Deed 7) (1), in the course of a full and clear exposition of the princi of construction involved, Romer L.J. conceded that, in the ¢ of a trust to pay an annuity out of the income of a trust fund without on the one hand, any subsequent indication being given that the annuity is in any case to be paid in full or, on the other, without any express words confining the annuity for one year to the inco of that year, the income is prima facie a continuing charge upon the income of the fund and the personal representatives of annuitant would be entitled prima facie to have the income accrui after his death impounded until all arrears of the annuity are But he also pointed out that provisions inconsistent with the ri which flow from a continuing charge are enough to rebut prima-facie conclusion and to show that there is no continuing charge It has always been held that an unqualified or unconditional over of the corpus and income of the fund to some other benefici upon the death of the annuitant is inconsistent with a contim charge upon income after that event: See Re Boulcott's Settlement ; Wood v. Boulcott (2), In re Boden (3) and Foster v. Smith (4). Under David Bower's will the annuities in question terminate the death of the last surviving annuitant and there is an imme trust as from that time for the distribution of the corpus and incol of the residuary fund. There is therefore no continuing charge, a there can be no charge on corpus. Although it has been held Queensland Trustees Ltd. v. Deputy Federal Commissioner of Land Tax (Q.) (5) that sec. 34 of the Land Tax Assessment Act covers not only a charge on corpus but a continuing charge on income arising from land, the reasons of the court, to which I have already referred, necessarily imply that the section is not satisfied by a mere d to apply income in paying specified annual sums during a life or lives. In my opinion such a direction does not amount to a charge on the land within the meaning of sec. 34.

Appeals dismissed with costs, including costs of the case stated. i

Solicitors for the appellant, Baker, McEwin, Ligertwood & Be house.

Solicitor for the respondent, H. F. E. Whitlam, Commonwea Crown Solicitor.

0.5. G.

(1) (1939) Ch. 277, at p. 281. (3) (1907) 1 Ch, 132. (2) (1911) 104 LT, 205. (4) (1845) 1 Ph. 629 (41 E.R. 772] (5) (1919) 26 C.L.R. 485. 2