Robertson v Deputy Federal Commissioner of Land Tax [1941] HCA 40; (1941) 65 CLR 338 (8 December 1941)

Robertson and Others Appellants; and The Deputy Federal Commissioner of Land Tax Respondent.

This case was stated pursuant to sec. 44 (m) of the Land Tax Assessment Act 1910-1940 in an appeal by the appellants—the "executor-trustees" of the will of the late J. O. Mayne—against an assessment under the Land Tax Assessment Act 1910-1937 on land belonging to the testator. The appellants in their return for the financial year 1940 claimed exemption for certain parcels of the land on the ground that they were "owned by or in trust for" the University of Queensland on 30th June 1939 (Land Tax Assessment Act 1910-1937, sec. 13 (e)). The university is incorporated under the provisions of the University of Queensland Act 1909, and "is a charitable or educational institution carried on solely for charitable or educational purposes and not for pecuniary gain." The commissioner disallowed the claim for exemption, whereupon the appellants appealed, and this case was stated on the hearing of the appeal.

The answers to the questions submitted in the case depend mainly upon the proper interpretation of the will, the material clauses of which are in effect these:—After a devise and bequest of all his real and personal estate "unto and to the use of my trustees hereinafter named" (in the last clause they are named and appointed executors) the testator made a bequest of personalty to his sister, and then proceeds to deal with his real estate and residuary personalty. In clauses 2 and 3 provision is made for conversion (with power to postpone) and out of the moneys from any such sale or conversion of his residuary estate and the net rents, profits and annual income arising therefrom pending sale to pay his funeral and testamentary expenses and debts, including amounts, if any, due or owing on mortgage on any part of his estate. Clause 6 creates a fund of income—as soon as his estate should be free of all debts, including debts under mortgages executed by him, upon trust to constitute from the net rents, profits and annual income arising from his residuary estate and from the net proceeds of any sale or realization thereof, if all or any part of it be sold, a fund, and to pay the same to the University of Queensland for ever for the maintenance and upkeep of the medical school within that university. By clause 6 the testator declared that moneys owing by him at his death on mortgages and moneys raised by his trustees under the power to mortgage in his will should not be a debt or debts within the meaning of clause 4, but in the computation of the net rents, profits and annual income in such clause there should be first deducted from the gross income such a sum or sums as should be sufficient to pay and satisfy the interest accruing during the period in which such rents profits and annual income arose, and also such further sum as should be sufficient to pay and satisfy such mortgage or mortgages in equal annual instalments over the period or unexpired period of such mortgage or mortgages.

At the crucial date—30th June 1939—the amount owing on the mortgages existing at the date of the testator's death over portion of the testator's residuary real estate had been reduced by payments out of the "income fund" constituted by clause 4 of the will. Apart, however, from the mortgage debts, there were other outstanding debts—those mentioned in par. 12 of the case, and unascertained liabilities of the estate to the Federal and State duties referred to in par. 13. In these circumstances, having regard to the express provisions of clause 4, the university was not entitled to any payment out of the "income fund," as its right only arises when these out-standing debts and liabilities (other than the mortgages) are paid and discharged. Moreover, the general principle is applicable that until the administration of an estate is complete and the ultimate residue ascertained the only right of a beneficiary is to have the estate administered. During administration a beneficiary is not specifically entitled to any asset in the estate, and the income is not the beneficiary's income, but the executors' income: Cf. Lord Sudeley v. Attorney-General[1]; Barnardo's Homes v. Special Income Tax Commissioners[2]; Corbett v. Inland Revenue Commissioners[3].

Questions 1 and 2 should be answered: No, and question 3: Yes. Costs—costs in the appeal.

The question is whether certain lands, in respect of which the appellants have been assessed to land tax pursuant to the provisions of the Land Tax Assessment Act 1910-1937, are exempt from such tax.

By the Act, sec. 13 (e), all land owned by or in trust for a charitable or educational institution, however formed or constituted, carried on solely for charitable or educational purposes and not for pecuniary profit, is exempt from taxation under the Act. One James O'Neil Mayne, of Queensland, by his will gave, devised, and bequeathed all his real and personal estate and effects unto and to the use of his trustees upon certain trusts. The trusts are set forth in the case, but those material to this appeal are as follows:—As to his residuary estate (which included some lands specifically mentioned) in trust to sell and convert and out of the moneys so arising and the annual income arising therefrom pending sale and conversion to pay his funeral and testamentary expenses and debts and as soon after his death as his estate should be free of debts to constitute from the net rents, profits and annual income arising from his residuary estate and from the net rents, profits and annual income of the net proceeds of the sale and realization thereof, should all or any part of it be sold, a fund, and to pay the same to the University of Queensland for ever to be applied for the maintenance and upkeep of the medical school. The will contained power to postpone the sale and conversion of the residuary estate, but expressed a desire that none of his Brisbane properties (part of his residuary estate) should be sold unless absolutely necessary or more beneficial to the objects of the trust than the retention of the property.

The appellants are the trustees and executors under the will of James O'Neil Mayne, and made a return of all lands held by them under the will at midnight on 30th June 1939. The lands included in the residuary estate of the testator were included in this return.

In Queensland, it appears that the legal estate in real property does not, as in other States, vest in the executor or administrator of a deceased person by virtue of his office. An owner of real estate in Queensland may, however, dispose of it by his will, and the devisee derives title and estate from the will itself. In the present case it was contended that the legal estate in the residuary real property of the testator was vested in the University of Queensland by force of the terms of the will, which thus became the owner both at law and in equity of the lands forming part of the residuary estate of the testator. This contention cannot be sustained. The provisions of the Succession Act 1867 of Queensland, sec. 60, the terms of the devise "unto and to the use of my trustees ... upon the trusts," and the active duties imposed upon the trustees by the will, make it clear, I think, that the devise to the trustees vests in them the legal estate in fee simple in the residuary real estate devised by the testator (Jarman on Wills, 6th ed. (1910), pp. 1806-1808, 1811-1815; Theobald on Wills, 6th ed. (1905), pp. 415-419)—Cf. Van Grutten v. Foxwell[4]. Consequently the trustees, and not the University of Queensland, are the owners at law of the lands forming part of the residuary estate of the testator within the meaning of the Land Tax Assessment Act 1910-1937, sec. 13 (e), coupled with the definition of in sec. 3.

Next it was contended that the university was the beneficial owner of the lands, or at least entitled to receive the rents and profits of the land, and so within the exemption contained in sec. 13 (e), coupled with the definitions in sec. 3. This contention is disposed of by the reasoning of such cases as Lord Sudeley v. Attorney-General[5]; Barnardo's Homes v. Special Income Tax Commissioners[6]; Glenn v. Federal Commissioner of Land Tax[7]—Cf. Executor Trustee and Agency Co. of South Australia Ltd. v. Deputy Federal Commissioner of Taxes (S.A.)[8]. The gift to the university is contained in the direction to constitute a fund so soon as the testator's estate is free of debts, and until the estate is cleared the university has no right to the enjoyment of the residuary real estate or the rents and profits therefrom.

James O'Neil Mayne died at Brisbane on 31st January 1939. By his will he devised and bequeathed his real and residuary personal estate unto and to the use of his trustees, the appellants, upon trust for conversion with power to postpone conversion, and (clause 4) out of the moneys arising therefrom and the net rents, profits and annual income arising therefrom pending conversion to pay his funeral and testamentary expenses and debts including amounts if any due or owing on mortgage on any part of his estate, and as soon after his death as his estate should be free of all debts (including debts due or owing under mortgages executed by him) to constitute from the net rents, profits and annual income arising from his estate (other than Moorlands, in which he gave his sister a life estate) and from the net rents, profits and annual income of the net proceeds of sale and realization thereof should all or any part of it be sold a fund, and to pay the same to the University of Queensland for ever to be applied as therein mentioned. By clause 6 he declared that any moneys owing which should be owing by him at the time of his death on mortgage and also any moneys raised by his trustees in exercise of the power to mortgage contained in the will should not be a debt or debts within the meaning of the provisions of clause 4; but, in the computation of the net rents, profits and annual income mentioned in such clause, there should be deducted from the gross income such a sum or sums as should be sufficient to pay and satisfy the interest accruing during the period in which such rents, profits and annual income arose, and also such further sum as should be sufficient to pay and satisfy such mortgage or mortgages in equal annual instalments over the period or unexpired period of such mortgage or mortgages.

The University of Queensland is a body corporate with perpetual succession and a common seal incorporated under the University of Queensland Act of 1909 and is an educational institution carried on solely for educational purposes and not for pecuniary profit.

At the date of the death of the testator some of the residuary real estate was subject to mortgages totalling £48,000, repayable on 1st April 1943. Since the death, the appellants have used the rents and profits to reduce this debt, which on 30th June 1939 stood at £45,500. On the last-mentioned date, there were also outstanding debts of the testator for Queensland State income tax, which had not been assessed but was subsequently assessed and paid, medical expenses amounting to £177 7s., the claim for which was then disputed but was subsequently admitted and paid, solicitors' costs and corpus commission, while the Federal estate duty and the Queensland succession and probate duties had not been assessed, although an interim payment of £1,000 on account of the Queensland duties had been made.

The appellants made a return under the Land Tax Assessment Act 1910-1937 for the year ended 30th June 1940 in respect of the lands held by them as trustees of the estate of the testator on 30th June 1939, in which they claimed exemption for the real estate other than Moorlands under sec. 13 (e) of the Act; but the commissioner assessed them on the basis that these lands were subject to tax, and the question for determination on this appeal is whether the commissioner was right or wrong.

Under the law of Queensland real estate does not vest in the executors by statute, but by the will of the testator the legal estate is devised to the appellants upon trust to pay debts. Moreover, the will directs that the debts must be discharged before the fund of income is constituted which is payable to the university in perpetuity. Clause 6, however, provides in effect that the fund will commence to be payable as soon as the debts other than any mortgage debts created by the testator or by the trustees have been discharged, and that the fund will consist of the balance of the income after deducting an amount necessary to pay the interest on these mortgage debts and to provide a sinking fund sufficient, by annual instalments, to discharge them at maturity. What effect this provision for payment of mortgage debts will have upon the rights of the university to claim exemption under sec. 13 (e) in subsequent years does not arise on this appeal; because, on 30th June 1939, there were other debts still unpaid, so that the right of the university to receive the fund was not then a right in possession. In order to obtain exemption in any year it is necessary that the university should be able to claim that on the preceding 30th June it had a present right to the beneficial enjoyment of the land or of the rents and profits thereof, whether accompanied by actual physical possession or not (Glenn v. Federal Commissioner of Land Tax[9]; Adams v. Federal Commissioner of Land Tax[10]; Cooper v. Federal Commissioner of Land Tax[11]). As the income of the fund only became payable to the university when the estate had been cleared of debts other than mortgage debts, the will itself created similar conditions to those which existed in cases like Barnardo's Homes v. Special Income Tax Commissioners[12] and Corbett v. Inland Revenue Commissioners[13]—See also Skinner v. Attorney-General[14], where the right of the residuary beneficiary or beneficiaries to the income of the residuary estate or the estate itself only became immediate after the residue had been ascertained in due course of administration, although the right would not necessarily be postponed by the existence of mortgage debts (Inland Revenue Commissioners v. Smith[15]).

The first two questions asked should be answered in the negative and the third in the affirmative.

Questions 1 and 2 answered: No, and question 3: Yes. Costs, costs in the appeal.

Solicitors for the appellants, Thynne & Macartney, Brisbane, by Norton, Smith & Co.

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

[1] (1897) A.C. 11.

[2] (1921) 2 A.C. 1.

[3] (1938) 1 K.B. 567.

[4] (1897) A.C. 658, at p. 683.

[5] (1897) A.C. 11.

[6] (1921) 2 A.C. 1.

[7] [1915] HCA 57; (1915) 20 C.L.R. 490.

[8] [1939] HCA 35; (1939) 62 C.L.R. 545, at p. 566.

[9] [1915] HCA 57; (1915) 20 C.L.R. 490.

[10] [1919] HCA 42; (1919) 26 C.L R. 341, at p. 347.

[11] Ante, p. 320.

[12] (1921) 2 A.C. 1.

[13] (1938) 1 K.B. 567.

[14] (1940) A.C. 350, at p. 358.

[15] (1930) 1 K.B. 713.

High Court of Australia

Robertson v Deputy Federal Commissioner of Land Tax [1941] HCA 40; (1941) 65 CLR 338 (8 December 1941)

HIGH COURT OF AUSTRALIA