Elder's Trustee & Executor Co Ltd v Federal Commissioner of Taxation [1966] HCA 73; (1966) 118 CLR 331 (29 November 1966)

HIGH COURT OF AUSTRALIA

ELDER'S TRUSTEE AND EXECUTOR CO. LTD. v. FEDERAL COMMISSIONER OF TAXATION [1966] HCA 73; (1966) 118 CLR 331

Estate Duty (Cth)

High Court of Australia
Barwick C.J.(1), Taylor(1) and Windeyer(1) JJ.

CATCHWORDS

Estate Duty (Cth) - Notional estate - Settlement - Voluntary transfer of land reserving interest to transferor and his wife for their joint lives and for the life of the survivor - Whether disposition "to take effect after the death" of transferor - Whether settlement "under" &which transferor had interest for life - Whether to be liable to duty disposition taking effect after death of disponor must be dependent on the settlement at his death - Estate Duty Assessment Act 1914-1965 (Cth), ss. 3, 8 (4) (c).

HEARING

Adelaide, 1966, October 4;
Sydney, 1966, November 29. 29:11:1966
CASE STATED pursuant to s. 28 of the Estate Duty Assessment Act 1914-1965 (Cth).

DECISION

November 29.
THE COURT delivered the following written judgment:
It appears from the case stated that on 14th November 1952 the testator by transferred to himself and to his wife Violet Alice Morphett an estate in certain land for the joint lives of himself and his said wife and for the life of the survivor of them and to his son Hurtle Cummins Morphett an estate in fee simple in remainder expectant upon the determination of the preceding life interests. The transfer was expressed to be in consideration of his natural love and affection for his wife and his son and the memorandum of transfer was duly registered under the Act. (at p335)

2. Subsequently, in 1956, portion of the land was transferred by these three parties to the United Evangelical Lutheran Church in Australia and during the year 1962 a survey was made of the balance of the land delineating approximately one and threequarter acres of the said land comprising the old family home and surrounding garden together with an appropriate right of way so that the home could be used and occupied separately from the balance of the land. The portion of one and three-quarter acres is referred to in the case stated as the "homestead area" and the portion not so delineated is referred to as the "vacant land". (at p335)

3. On 7th January 1963 the testator and his wife entered into an agreement with H.C.M. Investments Pty. Limited (the company) to sell to it the whole of their freehold estates for their joint lives and the life of the survivor in the whole of the land the subject of the survey except the homestead area and on 20th June 1963 the testator executed a memorandum of transfer to the company. The memorandum of transfer in respect of the interest of the testator's wife - she having become a protected person pursuant to the Aged and Infirm Persons' Property Act, 1940-1950 (S.A.) - was executed by her joint managers on 2nd August 1963. However, on 10th September 1963 the testator died not having received any part of the purchase money payable to him pursuant to the contract of sale. No part of the purchase price payable to the testator's wife was paid to her or her joint managers before the testator's death but, subsequently to that event, on 9th December 1963 both memoranda of transfer were duly registered. (at p336)

4. Later there were other dealings with the land by the appellant Hurtle Cummins Morphett representing himself and the company but these are not material to the problem in this case and we therefore do not refer to them. (at p336)

5. In the circumstances which we have briefly related the respondent has assessed the estate duty payable by the appellants on the basis that the estate of the testator included both the homestead area and the vacant land. This he did, holding the view that the transfer of 14th November 1952 was a "settlement" within the meaning of the Estate Duty Assessment Act 1914-1957 (Cth) and that the property in question was comprised in "a settlement made by the deceased person under which he had any interest of any kind for his life" (s. 8 (4) (c)). (at p336)

6. The first answer which was made by the appellants to these propositions requires us to examine both the definition of settlement contained in the Act and the character of the transaction in question. The term "settlement" is defined by the Act and is as follows:

"'Settlement' means a conveyance, transfer, appointment
under power, declaration of trust or other non-testamentary
disposition of property made by any person either before or
after the commencement of this Act containing trusts or
dispositions to take effect after the death of the settlor or any
other person dying after the commencement of this Act."

Substantially the appellant says that the "conveyance or transfer" did not contain "dispositions to take effect after the death of the settlor". The transfer of the property, in so far as it related to the dispositions to the widow and son, it was said, operated to transfer absolute vested interests and the dispositions took effect immediately upon the registration of the transfer. In one sense this is, of course, true but a review of the relevant cases satisfies us that the expression in the definition - "to take effect after the death of the settlor" - is not used in this sense. We refer particularly to Rosenthal v. Rosenthal (1910) 11 CLR 87 ; Commissioner of Stamp Duties (N.S.W.) v. Thomson [1927] HCA 57; (1927) 40 CLR 394; (1929) AC 450; (1929) 42 CLR 139 (sub nom Thomson v. Commissioner of Stamp Duties). ; Elder's Trustee and Executor Co. Ltd. v. Commissioner of Succession Duty (1945) SASR 34 ; and Deputy Commissioner of Taxation (S.A.) v. Simpson (1960) 33 ALJR 506 where the object of such a provision, and provisions in pari materia, is discussed and from which it clearly appears that the phrase is intended as one descriptive of dispositions taking effect in enjoyment or in possession after the death of the settlor. There is, of course some difficulty in accommodating a simple transfer to the concept of a settlement but in the case of a true settlement the same contention might be raised where the equitable interests of the parties taking under it are vested in interest. But it would be strange if the application of the definition were to be made to depend upon whether the instrument in question contained dispositions of vested or contingent interests, and, not upon whether it contained dispositions "to take effect" in possession or in enjoyment after the death of the settlor. However this may be, the constant current of authority is against the appellants' contention and, in our view, it must be rejected. (at p337)

7. The other contention is that the settlement was not one "under which he (the testator) had any interest of any kind for his life" in the property comprised in the settlement. This submission treats the word "under" as being equivalent to "expressly by force of" so that a conveyance of his fee simple by a testator in his lifetime simply to his children upon his death would be outside the paragraph. The paragraph is not a model of drafting but we think such a conclusion would be very much open to question for by the very effect of the conveyance the testator's antecedent estate in fee simple would be converted into an estate for life. However, for the purposes of the argument, we are prepared to assume that s. 8 (4) (c) would not apply to such a case. On that assumption the appellants contend that all that passed by the transfer upon registration was a life estate to the testator's wife and the remainder in fee simple after the death of the survivor of the testator and his wife, to the son. The testator was, it is said, the owner of the fee simple and all that he disposed of or parted with were these interests. This was the practical effect of the transfer and it was said that we should not be unduly oppressed by the form which the transfer took. If this broad proposition be correct it would be difficult or, perhaps, impossible, to bring any conveyance or transfer - although a settlement as defined - within the operation of s. 8 (4) (c). The argument could always be that, notwithstanding the form of the conveyance or transfer, the testator had, in fact, parted only with a limited interest or interests and so, notwithstanding that under the instrument in question he took an estate for life, that estate did not constitute an interest in the property comprised in the settlement. However, when we come to consider the instrument in this case we find that it is a transfer of interests comprising the whole fee simple; it purports to transfer to the testator and his wife an estate for their joint lives, thereafter for the survivor of them, and then the remainder in fee simple to his son. Under s. 111 of the Real Property Act, upon registration, it operated according to its tenor and, therefore, operated to vest in the testator and his wife an estate for their joint lives. Accordingly it was a settlement made by the deceased under which he "had an interest of any kind for his life". (at p338)

8. It seems to us clear that the "property comprised in the settlement" must be valued for the purposes of the Act as at the date of the testator's death (cf. Commissioner of Taxes (Vict.) v. Currie [1916] HCA 6; (1916) 21 CLR 157 ) and that, in order for s. 8 (4) (c) to operate, it is necessary that the settlement should be, so to speak, on foot at the time of the testator's death, in the sense, that the interests which are to take effect in possession upon the death are still dependent upon the instrument which is said to constitute the settlement. Here the estate in remainder created by the transfer, which is the settlement, was still so dependent. The property comprised in the settlement, which was the fee simple in the land, is therefore brought to duty by s. 8 (4) (c) whether or not the other interests in the land created by the transfer are still subsisting. It is, therefore, unnecessary to consider whether in the events that happened the testator's life interest in the vacant land was no longer subject to the "settlement" at the time of his death, or, if it was not, what were the consequences of the fact that his life interest under the settlement in the homestead area still subsisted. (at p338)

9. Accordingly we would answer the questions raised by the case stated:

(1) Yes.
(2) Yes.
(3) Unnecessary to answer. (at p338)

ORDER

Questions in the case stated answered as follows:

(1) Yes.
(2) Yes.
(3) Unnecessary to answer.