Archer v Federal Commissioner of Land Tax [1912] HCA 5; (1912) 13 CLR 557 (23 February 1912)

HIGH COURT OF AUSTRALIA

Archer and Another Appellants; and The Federal Commissioner of Land Tax Respondent.

H C of A

23 February 1912

Griffith C.J., Barton and Isaacs JJ.

Waterhouse, for the appellants.

Sir Elliott Lewis, for the respondent, the Commissioner of Land Tax.

Waterhouse, in reply.

Griffith C.J.

The appellants in this case are trustees. Two points are raised on the appeal, both arising upon sec. 33 of the Land Tax Assessment Act 1910. One raises a question of general principles, and the other relates to the application of the Act to the terms of the particular trust. The land held by the trustees is held by them under the trusts of the will and codicil of Mrs. Brooke, who died before 1st June 1910. By the codicil, which was made in execution of a power conferred upon her by her marriage settlement, she appointed that the trustees should stand possessed of the moneys to arise from the sale of the land now in question under a trust for sale contained in the settlement upon trust for her children living at her decease, except her daughter Mrs. Adams, and for two named children of Mrs. Adams in substitution for their mother, and such of the issue then living of her (the testatrix's) children dying in her lifetime as being sons should attain the age of 21 years or being daughters should attain that age or marry, as tenants in common in a course of distribution according to the stocks, the children of Mrs. Adams taking one share between them. She then directed that the share of each child in the moneys to arise from such sale should be retained and held by the trustees upon trust to invest the same and to pay the annual income of such share into the hands of the child entitled thereto as a strictly personal provision, and, on the death of such child, upon trust for the children of such child as such child should appoint, and in default of appointment for such children as being sons as should attain 21 years or being daughters attain that age or marry in equal shares. In the case of Edyvean v. Archer[1] it was decided by McIntyre J. that the attempted delegation by the testatrix to the children of the power of appointment was invalid, so that, as the trusts are to be read, they are for the children of the testatrix living at her decease, except Mrs. Adams, and those of Mrs. Adams (the latter taking one share between them), and after their deaths for their children who should attain 21 years as tenants in common.

When the testatrix died she left seven children, three of whom died unmarried, so that there remained four stocks. One of the children, Mrs. Cumberland, is still living, and has a life estate. Another, Mrs. Adams, left the two children mentioned in the codicil, who are still alive and have attained 21 years. Another daughter, Mrs. Mayne, left six children, all of whom are still living and have attained 21 years. The fourth daughter, Mrs. Grane, left one child, who is still living and has attained 21 years. The unimproved value of the land is assessed at £30,377. The question is what deductions, if any, should be allowed in respect of that value?

The first point made by the Commissioner is that the trustees are not entitled to any deduction except one of £5,000, which is to be allowed in respect of the whole estate.

Sec. 33 of the Land Tax Assessment Act 1910 provides that:

(1) Any person in whom land is vested as a trustee shall be assessed and liable in respect of land tax as if he were beneficially entitled to the land.

...

Provided ... that, in the case of land vested in a trustee, under a settlement made before the first day of July, One thousand nine hundred and ten, or under the will of a testator who died before that day, upon trust to stand possessed thereof for the benefit of a number of persons who are relatives of the settlor or testator, then, for the purpose of ascertaining the taxable value of the land owned by him as such trustee, there may be deducted from the unimproved value of the land, instead of the sum of Five thousand pounds as provided by paragraph (b) of sub-section (2) of section eleven of this Act, the aggregate of the following sums, namely:—

In respect of each share into which the land is in the first instance distributed under the settlement or will amongst such beneficiaries, the sum of Five thousand pounds or the unimproved value of his share, whichever is the less.

The contention of the Commissioner is that as this land was given to the trustees upon trust to sell and distribute the proceeds, it is not a case in which trustees stand possessed of land for the benefit of a number of persons. As a matter of fact, the codicil contains a power of postponement of sale, and expressly declares that until the land is sold it is to be held in trust for the persons entitled to the proceeds. But even without such a declaration it is clear that, when land is given to trustees for sale, the persons entitled to the proceeds have until sale an equitable interest in the land itself. The definition of in sec. 3 of the Act includes in that term every person who is entitled to receive the rents and profits thereof as beneficial owner. Clearly the beneficial owners of this land of which the appellants are the legal owners are the persons designated in the will and codicil of the testatrix. This is therefore a case in which land is vested in trustees under an instrument taking effect before 1st July 1910 upon trust to stand possessed thereof for the benefit of a number of persons who are relatives of the testatrix. That is the main contention of the Commissioner and it fails.

The other question is how many deductions are to be made. With respect to Mrs. Cumberland, who is still living, sec. 25 provides that she is to be deemed to be the owner of the feesimple to the exclusion of any person entitled in reversion or remainder. Her interest has been valued under the rule prescribed by that section at £1,329, and under sec. 33 that amount, being less than £5,000, goes out altogether.

As to the one-fourth share held for the only child of Mrs. Grane, the value of that share is one-fourth of the whole value, i.e., £7,594, from which a deduction of £5,000 must be made.

As to the Adams shares the question is whether they are shares into which the land was "in the first instance distributed under the will." The gift in the codicil is "upon trust for ... and for my grandchildren Jessie Harriett Adams and John Garibaldi Marriott Adams in place of and in substitution for their mother," in a course of distribution according to the stocks.

That is a direct gift by the codicil to them of what in the events that have happened has turned out to be one-eighth each, which is of less value than £5,000. Each of these children is therefore entitled to a deduction of the whole amount of the unimproved value of her share. Those shares consequently disappear from the assessment.

In the case of Mrs. Mayne, she left six children. They take under the codicil in default of appointment, the gift being to their mother for life with remainder to her children living at the death of the testatrix who being sons should attain 21 years or being daughters should attain that age or be married. Six children have attained 21 years and they were all alive during the lifetime of the testatrix, so that the question is whether those six shares which those children now have are shares into which the land was in the first instance distributed by the codicil. The division takes place purely by virtue of the codicil and of nothing subsequent to it. Each of the children therefore takes his share directly under the terms of the codicil. Those shares therefore fall within the terms of sec. 33, and a deduction, which turns out to be the full amount of each share, should be made in respect of each share. The result is that the only amount taxable is the difference between the value of the share of Grane and £5,000.

A suggestion was made that there is a difference between giving the income of proceeds and giving the income of property. I think it is impossible to maintain such a distinction. If, as I have already pointed out, a person is entitled to the proceeds of property directed to be sold, until it is sold he has an equitable estate in the land itself. I should add that it is clear that for fiscal purposes the State takes property as it finds it, and has nothing to do with the doctrine of notional conversion, which only applies between those who are interested in the land or the proceeds of the sale of the land. That is clearly established by In re de Lancey's Succession[2].

The first question should therefore be answered by saying that the appellants are entitled to ten deductions in all, of the amounts which I have stated.

Barton J. read the following judgment.

I am of the same opinion. As to the number of deductions I will only add that at first I had some hesitation as to the meaning of the words "in the first instance" in the concluding paragraph of sec. 33 (1), but further consideration has convinced me that we cannot hold them, as against the taxpayer, to mean that the deduction can only be made in respect of the life estates. The words are not clear enough to have that effect, while it would have been easy for the legislature, had that been its intention, to express it clearly and briefly. I think we must hold "in the first instance" to refer to the instrument primarily constituting the trusts, and from which the beneficiary's title comes, apart from the intervention of any later instrument. The best position in which the matter can stand for the Commissioner is that there is an ambiguity, and one which he is not entitled to have resolved in favour of the Crown, there being no context to make the matter clear in his favour.

Isaacs J.

The first question argued by Sir Elliott Lewis was that the proviso to sec. 33 is wholly inapplicable because the trustees are not trustees of the land for these beneficiaries. It has been pointed out that there are words in the instrument itself which declare that until sale the trustees shall be trustees of the land subject to the same or the like trusts and provisions as were appointed concerning the moneys to arise from sale. But it is clear, in my opinion, that independently of that clause, the argument cannot be supported. The proviso refers to the case of land vested in trustees. So far this case falls within it. Then the date of the instrument is applicable. The statutory proviso then goes on "for the benefit of a number of persons who are relatives of the ... testator." The question is whether the land was vested in the trustees for the benefit of a number of persons. I think there is no doubt it was. The whole proviso introduces the equitable interest of persons who are to derive benefit under the trusts. The words "trustees" and "beneficiaries" are well known terms in equity and the sole question then which comes to be determined is whether from an equitable standpoint these persons are entitled to be considered as owners of the land. I will just read from two or three cases which show, I think, that this matter is not reasonably open to any doubt whatever. In Attorney-General v. Harley[3], Sir John Leach V.-C. said:—"That money to arise from the sale of land is an interest in land admits of no doubt." Sir William Grant M.R., in Pearson v. Lane[4], was of the same opinion. Then Lord Cairns, in Brook v. Badley[5], said:—"... if a testator devises his land to be sold, and the proceeds given, not to one person, but to four persons in shares, and if one of those four persons afterwards makes his will, and gives either his share of the proceeds or all his property to charity, the position of that second testator with regard to the estate which is to be sold is in substance that of a person who has a direct and distinct interest in land. The estate is in the hands of trustees, not for the benefit of those trustees, but for the benefit of the four persons between whom the proceeds of the estate are to be divided when the sale takes place. It may very well be that no one of those four persons could insist upon entering on the land, or taking the land, or enjoying the land quâ land, and it may very well be that the only method for each of them to make his enjoyment of the land productive, is by coming to the Court and applying to have the sale carried into execution, but nevertheless the interest of each one of them is, in my opinion, an interest in land; and it would be right to say in equity that the land does not belong to the trustees, but to the four persons between whom the proceeds are to be divided." The last case was referred to with approval in Ashworth v. Munn[6] and In re Watts; Cornford v. Elliott[7], and seems to put the matter beyond any possibility of doubt.

Then as to the meaning of the words "in the first instance" in sec. 33, I agree with what has been said about that. In my opinion they mean that the beneficiary for whose benefit the land is held at the time the question arises derives the title to his share directly from the instrument itself and independently of any intermediate transaction operating on a share derived directly from the instrument.

On the facts of this case the shares of the beneficiaries are derived immediately from the codicil, and from that alone. Therefore, I think the first question should be answered as the learned Chief Justice has indicated.

Questions answered accordingly.

Solicitors, for the appellants, Walker, Wolfhagen & Walsh, for Ritchie & Parker, Launceston.

Solicitor, for the respondent, C. Powers, Crown Solicitor for the Commonwealth.

[1] (1892) unreported.

[2] L.R. 5 Ex., 102.

[3] 5 Mad., 321, at p. 227.

[4] 17 Ves. 101, at p. 104.

[5] L.R. 3 Ch., 672, at p. 674.

[6] 15 Ch. D., 363.

[7] 29 Ch. D., 947.