Lemm v Federal Commissioner of Taxation [1942] HCA 31; (1942) 66 CLR 399 (26 November 1942)

HIGH COURT OF AUSTRALIA

Lemm and Others Appellants; and The Federal Commissioner of Taxation Respondent.

H C of A

26 November 1942

Rich, McTiernan and Williams JJ.

Weston K.C. (with him Kerrigan), for the appellants.

Hardwick K.C. (with him E. J. Hooke), for the respondent.

The following written judgments were delivered:—

Nov. 26

Rich J.

I agree with the judgment of my brother Williams and have nothing to add to it.

McTiernan J.

I agree with the judgment of my brother Williams and that the questions should be answered: (1) No. (2) (a) No. (2) (b) No.

Williams J.

By clause 4 of his will George Pitt Wood, who died on 29th May 1941, devised to the Presbyterian Church (N.S.W.) Property Trust (which accepted the gift) No. 23 Charlotte Street, Ashfield, upon trust for the purpose of a home for aged women in straitened financial circumstances who should be required to pay towards the upkeep of the home the sum of one pound per week, to be known as "The Eva Patience Wood and George Pitt Wood Memorial Home." He bequeathed to the Trust a legacy of £500 to be applied for the upkeep and maintenance of the home and devised to it four shops upon trust to apply the income and profits arising therefrom for the same purpose. By clause 11 he devised and bequeathed to his trustees his residuary real and personal estate upon trust to stand possessed of the net income to pay certain annuities to his sisters and brother, and to pay such regular or occasional sums as his trustees in their absolute discretion should think fit for the benefit and maintenance of the Memorial Home and for the benefit and maintenance of the homes, hospitals and institutions mentioned in clause 12. By clause 12 he directed his trustees, on the death of the last survivor of the annuitants, to hold his residuary estate and any accumulations of income upon trust to apply the income and capital at such times and in such manner as they should think fit to or for the benefit in the State of New South Wales of any home, hospital or institution or any one or more of them, including the Memorial Home, established for or having as its object the relief of pain and suffering and/or physical disability and/or infirmity and/or financial distress.

Apart from statute a gift to a class of objects to be selected by the trustees of the will, some of which are charitable and some non-charitable, fails for uncertainty (Hunter v. Attorney-General[1]; Houston v. Burns[2]; Attorney-General v. National Provincial Bank[3]). But it is unnecessary to decide whether the trusts of residue in the will of the testator, apart from those relating to the annuities, are wholly charitable, because by virtue of sec. 37 of the Conveyancing Act 1919-1938 N.S.W. inserted by the Conveyancing, Trustee and Probate (Amendment) Act 1938 N.S.W., sec. 3, the trusts must be construed and given effect to in the same manner in all respects as if no application of the trust funds or any part thereof to or for any such non-charitable and invalid purpose had been or could be deemed to have been so directed or allowed. The Estate Duty Assessment Act 1914-1940, sec. 8 (5), provides:—"Estate duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed or passes by gift inter vivos or settlement for religious, scientific, or public educational purposes in Australia or to a public hospital or public benevolent institution in Australia or to a fund established and maintained for the purpose of providing money for use for such institutions or for the relief of persons in necessitous circumstances in Australia." I have italicized the words that are material to the present appeal.

The case stated raises the following questions: 1. Are the facts contained in pars. 10 to 13 admissible evidence on the appeal? 2. (a) Is estate duty assessable or payable upon so much of the estate as was devised and bequeathed to the Presbyterian Church (N.S.W.) Property Trust by clauses four, five and six of the will? (b) Is estate duty assessable or payable upon so much of the residuary estate as was devised and bequeathed to the trustees upon trust as well as to income as to capital for the purposes set forth in clauses eleven (c), eleven (d) and twelve of the will?

It was not contested that the first question should be answered in the negative, but I think that evidence that the Memorial Home, subject to renovations, alterations and additions, was capable of accommodating twenty-six inmates would have been admissible.

It is to be noted that the property comprised in the devises and bequest contained in clauses 4, 5 and 6 is to be vested in the Presbyterian Church Property Trust, while the residuary gift is to establish a fund in the hands of the trustees of the will to be applied by them for the purposes mentioned. In Public Trustee (N.S.W.) v. Federal Commissioner of Taxation[4] Gavan Duffy C.J., referring to sec. 8 (5), said: "In my opinion, the words of the sub-section extend only to devises and bequests of specific sums of money or other ascertained or defined portions of the estate to public benevolent institutions in Australia actually in existence, and to devises and bequests to a fund which has been established and is maintained for the purpose of providing money for one or other of two objects, namely, (1) for use for the prescribed institutions, and (2) for the relief of persons in necessitous circumstances in Australia." But this statement, which was obiter dictum, is not supported by any other Justice. In Teele v. Federal Commissioner of Taxation[5] Starke J. said: "The deceased ... did not by his will establish or provide for the maintenance of any such fund," from which it appears that my brother did not consider that the fund could not be established by the will itself. The dictum is in conflict with the decision of the Privy Council in Dilworth v. Commissioner of Stamps[6], where the point was not argued but could scarcely have been overlooked. It has the effect of placing too restricted a construction on the section, because it is common knowledge that testators in their wills often create the institution or fund, the activities or use of which confer similar benefits on the community to a devise or bequest to an existing institution or fund. The dictum would require a particular institution to be expressly named in every case. It seems clear that a testator could found and endow some institution or fund to effectuate a religious, scientific or public educational purpose, so that it is difficult to see why he should not be able to do the same thing in the case of a public hospital or public benevolent institution or establish and give directions for the maintenance of a fund which could only be applied by the trustees for one or more of the purposes specified. Charitable gifts often take the form of an investment of capital the income of which is to be applied in perpetuity for some charitable purpose, either from the date of death or after the cesser of a previous life or other estate, or, where the capital is initially insufficient for the purpose, after a period of accumulation, so that there would appear to be no reason for confining the sub-section to institutions or funds existing at the death. It is the character and not the pre-existence of the institution or fund, just as it is the quality of the purpose, which is important. The trusts in the will are intended to establish an institution and a fund the beneficial interests in which are not to be vested in any private person but are to belong inalienably to the public (Dilworth v. Commissioner of Stamps[7]; Girls' Public Day School Trust Ltd. v. Ereaut[8]).

In my opinion it is no objection that the public hospital, public benevolent institution or fund is established by the will itself, or that the trustees of the will are authorized to apply the fund to assist unnamed institutions, so long as their discretion does not allow them to apply it otherwise than for one or more of the purposes mentioned in the sub-section.

In the case, therefore, of the specific devises and bequest to establish and maintain the Memorial Home, the only question is whether the devise of 23 Charlotte Street, is to establish a public benevolent institution, because in this event the bequest of £500 and the devise of the four shops must be to a fund established and maintained in order to provide money for its use. The control of the institution is vested in the Church Property Trust. This body, which is incorporated by Act of Parliament, is a public body in the sense that it represents an important section of the community (Royal Masonic Institution for Boys (Trustees of) v. Parkes[9]). The benefits of the institution are available to members of the class of aged women in straitened circumstances irrespective of their religion. A home for such women, even if they are able to pay one pound per week, is an institution organized for the relief of poverty. Poverty is a relative term. There are degrees of poverty less acute than abject poverty or destitution, but poverty nevertheless (In re Clarke[10]; In re de Carteret; Forster v. de Carteret[11]). It is therefore a benevolent institution within the meaning of the sub-section (Perpetual Trustee Co. Ltd. v. Federal Commissioner of Taxation[12]). The purpose of the home is to confer benevolence upon an appreciable needy class in the community, so that it complies with the most important test of what is a public institution (Shaw v. Halifax Corporation[13]; Verge v. Somerville[14])—See the cases collected in the judgment of my brother Rich in The Little Company of Mary (S.A.) Incorporated v. The Commonwealth[15]. The conclusion is that the devise of 23 Charlotte Street is to a public benevolent institution in Australia and that the legacy of £500 is bequeathed and the four shops devised to a fund established and maintained for the purposes of providing money for its use within the meaning of the sub-section.

The devise and bequest of the residuary estate, other than the amounts required to pay the annuities, will be exempt under the sub-section if this balance is devised and bequeathed to a fund established and maintained for the purpose of providing money for public hospitals and public benevolent institutions in Australia. For the reasons already given I am of opinion that the trusts for the establishment and maintenance of the fund comply with the sub-section, so that the important question is whether the purpose of the fund is to provide money for the use of such institutions. Under the trusts payments can be made to any home, hospital, or institution having as one or more of its objects the relief of pain and suffering, physical disability, infirmity, or financial distress. These are benevolent objects within the meaning of the sub-section (Perpetual Trustee Co. Ltd. v. Federal Commissioner of Taxation[16]), so that the balance will be exempt if the will sufficiently indicates an intention that the homes, hospitals, or institutions must be public. It is plain that the testator was not contemplating private institutions whose object it is to make a profit out of providing such relief. Looking at the gift as a whole it appears to me that the testator must have had in mind homes, hospitals and institutions similar to the Memorial Home, which is specifically included in the class (In re Dudgeon; Truman v. Pope[17]), or, in other words, homes, hospitals and institutions organized to render services of a permanent eleemosynary character to appreciable deserving but needy sections of the community. Such institutions are public and not private in character. It follows, therefore, that, in my opinion, the only part of the residuary estate which is dutiable is the part devised and bequeathed to pay the annuities and that the balance is non-dutiable. No difficulty arises in separating the non-dutiable from the dutiable part of the residue for the purposes of valuation such as occurred in Baker v. Federal Commissioner of Taxation[18]. Whether the annuities should be valued on the basis that they are regularly payable in full or some allowance should be made because the trustees have a discretion as to regularity and amount does not arise on the present appeal. But the principles of valuation where an estate is devised and bequeathed to annuitants and exempt objects are explained in Perpetual Trustee Co. Ltd. v. Shelley[19].

The questions asked should, in my opinion, be answered as follows:—(1) No. (2) (a) No. (2) (b) No.

Questions in the case stated answered as follows:—(1) No. (2) (a) No. (2) (b) No. Costs costs in the appeal. Case remitted to Williams J.

Solicitors for the appellants, Salwey & Primrose.

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

[1] (1899) A.C. 309, at p. 323.

[2] (1918) A.C. 337.

[3] (1924) A.C. 262.

[4] (1934) 51 C.L.R., at p. 96.

[5] (1940) 63 C.L.R., at p. 206.

[6] (1899) A.C. 99.

[7] (1899) A.C., at p. 109.

[8] (1931) A.C. 12, at p. 35.

[9] (1912) 3 K.B. 212, at p. 217.

[10] (1923) 2 Ch. 407.

[11] (1933) Ch. 103, at pp. 108-113.

[12] [1931] HCA 20; (1931) 45 C.L.R. 224.

[13] (1915) 2 K.B. 170.

[14] (1924) A.C. 496, at p. 499.

[15] Ante, p. 368.

[16] [1931] HCA 20; (1931) 45 C.L.R. 224.

[17] (1896) 74 L.T. 613.

[18] (1932) 6 A.L.J. 111.

[19] (1921) 21 S.R. (N.S.W.) 426, at p. 444.