Quinlan v Federal Commissioner of Taxation [1940] HCA 34; (1940) 64 CLR 65 (26 November 1940)

On 30th June 1938 the appellant, Daniel Alphonsus O'Connor Quinlan, was the registered proprietor in severalty of a block of land at Fremantle and of undivided half shares in three blocks of land at Perth. He was a trustee of all these interests for the same beneficiaries. Three separate assessments of land tax were made under the provisions of the Federal Land Tax Assessment Act 1910-1937, sec. 38 (2), against the appellant and the other co-owners of the three blocks of land at Perth. The appellant does not complain of these assessments, which he admits were duly made under the provisions of that sub-section. A further assessment was then made against the appellant in which his legal interests in all four blocks of land were aggregated and tax assessed on that basis, allowance being made for the taxes payable by him under the earlier assessments. It is against this further assessment that the appellant has appealed. The beneficiaries were also assessed in respect of their beneficial interests in all four blocks of land together with their notional or imputed interests in certain lands owned by a company in which they were shareholders. In these last-mentioned assessments allowances were made pursuant to sec. 43 for the taxes payable by the appellant under the two earlier assessments.

Sec. 44M (3) of the Act provides that a taxpayer shall be limited on the hearing of the appeal to the grounds stated in his objection. The appellant's ground of objection is that the assessment comprises undivided interests in three different parcels of land. We understand this to mean that he complains of the aggregation of these interests in the one assessment.

He has not objected that even if his legal interests can be aggregated in this way he would only be liable to pay as much tax as the beneficiaries would have to pay if they were separately assessed under sec. 35: See Sendall and Crace v. Federal Commissioner of Land Tax[1]; Hoysted v. Federal Commissioner of Taxation[2]; Lloyd v. Federal Commissioner of Land Tax; In re Browne; Ex parte Lloyd[3]; Executor Trustee and Agency Co. of South Australia Ltd. v. Deputy Federal Commissioner of Taxes (S.A.)[4]. We do not propose, therefore, to deal with this question, as it is not covered by the grounds of objection.

Sec. 33 of the Act requires the commissioner to treat a person in whom land is vested as a trustee as if he were beneficially entitled to the land. If this is applied to sec. 38 (2), it means that the trustee of the settlement of the undivided share and the owner or owners of the other undivided share, who together make up the owners of the entirety of the land, should be assessed as primary taxpayers in respect of the entirety of the legal estate. But under sec. 38 (3) the owner of each undivided share is liable to be assessed in respect of that undivided interest together with any estates or interests of his in other lands. Sec. 38 (4) shows that such an owner is to be so assessed as a secondary taxpayer, which means that he obtains the deduction prescribed by sec. 33. But, again, under sec. 43 the trusts should be disregarded in the first instance and the trustee in that capacity should be assessed in respect of the undivided share as if he were the beneficial owner. Although the trustee is to be assessed as if he were the beneficial owner, and, in that sense, the trusts disregarded, his capacity of trustee is recognized to the extent of requiring a separate assessment upon him in respect of the trust estate; that is to say, land held in his own right is not to be mixed up with land held in autre droit.

The assessment under appeal is made on the trustee in his capacity of trustee, but it disregards the fact that he holds upon trust for beneficiaries who hold separate beneficial interests liable, or possibly liable, to taxation under sec. 35. The assessment is made in virtue of the liability imposed by sec. 38 (3) (a), (b) and (c) although this does not expressly appear on the face of the assessment. It does appear, however, clearly enough from an examination of the deductions made and from the explanatory sheet accompanying the assessment and stating how the deduction is calculated.

In Isles v. Federal Commissioner of Land Tax[5] this court decided that sec. 38 is not an overriding provision. In the present case it must be read together with sec. 33 and so as to give effect to both. The assessment complained of could only be made because the appellant was the trustee of all four blocks of land, but, if this fact brings the case within the scope of sec. 38 (3), its provisions must be given effect to even if the result is unexpected. The joint owners of the three blocks of land are the appellant as to a one-half undivided share and the other co-owners as to the other half shares (Clifford v. Deputy Federal Commissioner of Land Tax (N.S.W.)[6]). The beneficiaries, who have only equitable interests in the undivided share, are not joint owners with the other co-owners within the meaning of the Act. The commissioner was therefore bound to make the assessment. He could not assess the beneficiaries as joint owners under sub-sec. 3. Having made the assessment under sub-sec. 2, he was bound to make the further assessment under sub-sec. 3, the provisions of which are mandatory. Counsel for the appellant argued that secs. 38 and 33 cannot be read together, and that the commissioner could not make the assessment complained of because sub-sec. 3 is concerned with beneficial and not legal interests, this being shown by the fact that each joint owner in respect of his separate assessment is a secondary taxpayer. We cannot agree with this contention. The joint owner referred to in sub-sec. 3 is simply one of the joint owners, legal or equitable, identified by sub-sec. 2. The secondary taxpayer referred to in sub-sec. 4 may be a joint owner of either a legal or an equitable interest in the land.

The appellant, Daniel Alphonsus O'Connor Quinlan, is the surviving trustee under a deed of settlement dated 29th June 1915. As such trustee he, on 30th June 1938, owned or was entitled at law to three parcels of land jointly or in common with certain other persons, but the joint owners of each parcel were not identical. The appellant was entitled to an undivided half share for the same beneficial owners in respect of each parcel of land. The commissioner assessed the appellant and those owning jointly or in common with him to land tax in respect of each parcel of land as joint owners on 30th June 1938. There were three assessments; one in respect of each parcel of land. No objection has been taken to these three assessments. The commissioner also assessed the appellant separately to land tax pursuant to the provisions of sec. 38 (3), coupled with sec. 33 of the Act:—"Each joint owner of land shall in addition be separately assessed and liable in respect of—(a) his individual interest in the land (as if he were the owner of a part of the land in proportion to his interest) together with (b) any other land owned by him in severalty, (c) his individual interests in any other land": See Act, sec. 38 (3). 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: See Act, sec. 33. The appellant, as such trustee, owned or was entitled at law to certain land in severalty in addition to the parcels of land as already mentioned, which he owned jointly with others. The commissioner ascertained by his assessment half the unimproved value of the three parcels of land in which the appellant had an undivided half share and the unimproved value of the land which he had in severalty. He aggregated these sums and calculated the gross tax on that aggregate. Next he calculated the deduction to which he considered the appellant was entitled. According to the statement attached to the assessment he took half the tax charged to the joint owners in respect of each parcel of land. The deduction was based upon the provisions of secs. 43 and 38 (4) of the Act. By this means the commissioner made the separate assessment of the trustee under sec. 38 (3) of the Act. And it is this assessment that is the subject of objection.

It was argued that sec. 33 could not be operated in connection with the provision in sec. 38 (3), from which it followed that the equitable owners—the beneficiaries—were the joint owners for the purposes of the sub-section. The argument, if it were correct, would altogether exclude trustees from assessment under sec. 38 of the Act. But it is conceded that the appellant trustee in the present case was rightly assessed as one of the joint owners of the three parcels of land. And, if he be one of the joint owners, then sec. 38 (3) explicitly provides that each joint owner of land shall in addition be separately assessed. Further, the argument is opposed to the observations of this court in Isles v. Federal Commissioner of Land Tax[7] and to the definitions of and in sec. 2 and also to sec. 33 of the Act.

A further argument attacked the assessment because it included three parcels of land the subject of three separate assessments to joint owners who were not the same persons in each case. But the "joint owner" the commissioner was assessing under sec. 38 (3) was the appellant, who as to his undivided half share in each parcel of land was a trustee for the same beneficiaries. And the sub-section explicitly provides that each joint owner shall be liable in respect of (a) his individual interest in the land (as if he were the owner of a part of the land in proportion to his interest), which includes any parcel of land in any one of the three assessments of joint owners, together with (b) any other land owned by him in severalty, which includes the parcels of land which the appellant as trustee owned in severalty, and (c) his individual interests in any other land, which includes the other parcels of land in respect of which the appellant was assessed as joint owner.

Consequently in my judgment the assessment, the subject of objection, is warranted by the Act and should be affirmed. The commissioner also separately assessed the beneficiaries in respect of all lands owned by them, including their individual interests in the land included in the separate assessment of their trustee already mentioned. These assessments are not the subject of objection, and it is unnecessary and therefore undesirable to express any opinion upon the authority of the commissioner to make them.

Question in case stated answered: Yes. Case remitted to Rich A.C.J. Costs—Costs in the appeal.

Solicitors for the appellants, Northmore, Hale, Davy & Leake, Perth, by Hedderwick, Fookes & Alston.

[1] [1911] HCA 75; (1911) 12 C.L.R. 653.

[2] [1921] HCA 56; (1921) 29 C.L.R. 537.

[3] [1933] HCA 40; (1933) 49 C.L.R. 160.

[4] [1939] HCA 35; (1939) 62 C.L.R. 545.

[5] [1912] HCA 24; (1912) 14 C.L.R. 372.

[6] [1914] HCA 57; (1915) 19 C.L.R. 593.

[7] [1912] HCA 24; (1912) 14 C.L.R. 372.

High Court of Australia

Quinlan v Federal Commissioner of Taxation [1940] HCA 34; (1940) 64 CLR 65 (26 November 1940)

HIGH COURT OF AUSTRALIA