The National Mutual Life Association of Australasia Ltd v. FC of T
102 CLR 29(Judgment by: TAYLOR J)
Between: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LTD
And: FEDERAL COMMISSIONER OF TAXATION
Judges:
Dixon CJ
McTiernan J
Kitto J
Taylor JWindeyer J
Subject References:
Taxation and revenue
Assessable income
Deduction
Life assurance policies
Meaning of 'policies'
Meaning of 'life assurance'
Legislative References:
Income Tax Assessment Act 1936 (No 27) - s 111
Judgment date: 27 February 1959
MELBOURNE
Judgment by:
TAYLOR J
The question in this case is whether the respondent Commissioner is entitled to treat an amount of PD3,293 as assessable income of the respondent for the income year which ended on 30th September 1947. This sum represents part of the premiums received by the appellant pursuant to policies of insurance of the four classes specified in par. 4 of the case stated and the appellant's contention is that the whole amount of its premium receipts attributable to such policies answers the description of "premiums received in respect of policies of life assurance" and, therefore, that no part of those premiums should be included in its assessable income (Income Tax Assessment Act 1936-1947, s. 111).
A brief reference to par. 4 is sufficient to reveal that some, at least, of the policies in question are, in form, designed to secure to the assured additional benefits of a character which, considered alone, are foreign to the concept of life assurance. But, principally at least, the policies are policies of life insurance and it may well be thought that the additional benefits provided are properly so described. Nevertheless, it will be necessary to consider the characteristics of each class of policy and to determine whether all, or any, of the policies in question answer the description contained in s. 111.
As already appears the additional amount which the respondent has included in the appellant's assessable income is the sum of PD3,293 and it is not without interest to note how this sum was ascertained for the purpose of the assessment under appeal. In the first place it should be observed that each form of policy in question specifies a single premium payable in respect of the whole of the benefits secured by the policy. Accordingly examination of the policy provisions necessarily fails to reveal any separate and identifiable consideration for the so-called additional benefits and it is, therefore, impossible, upon consideration of the policies alone, to attribute any part of the premium to any particular benefit or benefits secured thereby. But the assessment under review does not depend upon the application of any such process; it depends for its ascertainment of the appellant's assessable income upon extraneous matters. On 20th September 1945, the acting Deputy Commissioner of Taxation wrote to the appellant with reference to "policies which combine ordinary life assurance benefits with accident or disability benefits". This letter informed the appellant that "the question of liability to taxation in connection with such policies was referred to the Commissioner of Taxation, Canberra, who has decided that the portion of the premiums payable on such policies as is attributable to benefits in the event of death as a result of accident, bodily injury or disablement as a result of accident, or temporary disablement due to sickness is assessable income". The letter thereupon intimated that the appellant's future returns should, therefore, include as assessable income "the premiums relevant to the benefits referred to as above." Thereafter, on 10th May 1948, the appellant lodged its return of income for the relevant year and, by the letter which accompanied the return, it informed the respondent that "Benefits premiums not taxed in the country in which they are derived and included in the total of premiums shown in our return is PD3,111 (PDA3,293)." This information was said to be furnished under protest since the appellant claimed that the amount in question was not assessable income.
The way in which this figure was arrived at is disclosed by the case stated. It is said that in respect of policies falling within classes (1), (2) and (3) specified in par. 4 of the case the premiums charged by the appellant were computed by adding to the premium which in accordance with the appellant's scale of premiums was the premium appropriate for a simple policy of life assurance on the relevant life a further amount calculated by reference to the risk involved to provide disability benefits and/or accident benefits of the particular character desired. In the case of policies of the fourth and final class a somewhat different approach was made. It is said the appellant's practice on issuing a "similar policy" which did not provide for any payment upon the life assured becoming "totally disabled" was to charge a premium which was five per cent less than the premium payable on a policy within class (4). The result was that in each case the premium specified in the policy was insignificantly higher than that which would have been charged if no provision had been made for the so-called additional benefits. Needless to say the amount of PD3,293 is the sum of the differential components included in the premiums payable to and received by the appellant during the relevant year pursuant to policies of the character in question.
It will be seen that a number of arguments might have been raised before us. The contention was open that notwithstanding the provision of additional benefits the policies, or at least some of them, were essentially policies of life assurance, that in each case there was a single policy and a single premium was specified as the consideration for the total benefits secured and that, therefore, in some, if not in all, cases, the premiums received by the appellant were, in the language of s. 111, "premiums received in respect of policies of life assurance". On the other hand it might have been urged that the provision of so-called additional benefits made it impossible to contend successfully that any of the policies were policies of life assurance; at the most, it may perhaps have been said, they were policies which provided a combination of life, accident and sickness benefits and so were not appropriately described by the words of s. 111. But this second contention was not raised. Instead the course which the respondent's argument took was an intermediate one. It was urged that the expression "premiums" in s. 111 means the amounts payable in consideration of a promise to pay a stated sum upon death or, alternatively, upon the attaining of a stated age or earlier death, and that other amounts could not properly be described as premiums received in respect of policies of life assurance. Then, it was said, it is clear that in the case of any policy of the character now in question an "additional" sum was payable for the additional benefits. So much, it is claimed, is clear from the evidence relating to the manner in which the premiums were computed and also from the fact that at least three types of the policies in question make provision for the reduction of the premium upon the attainment by the assured of the age of sixty or sixty-five years or, earlier, upon an appropriate request being made by the assured for this to be done. In each of these particular cases the premium is reducible "by the amount charged for the Permanent Total Disability Benefit" or "for the Accident Benefit". But if this means that upon the true construction of each of the policies in question it follows that separate amounts were payable for life assurance and for the additional benefits I find myself unable to agree.
As between the appellant and each policy-holder only one premium was payable as the consideration for all the benefits which each separate policy provided and, in my view, it is erroneous, as a matter of contract at least, to say that part of the premium was paid or received in respect of disability or accident benefits and part in respect of other benefits provided. In each case the premium was expressed as a single sum payable periodically and it is expressed to be the consideration for the aggregate benefits provided by the policy. Accordingly, if it be correct to say that each of the policies in question may properly be described as a policy of life insurance, I feel bound to hold that the whole of the amount received by the appellant as premiums thereunder fell within the description of "premiums received in respect of policies of life assurance". On the other hand, if the fact that additional benefits were provided makes it impossible to conclude that the policies were policies of life insurance, then the whole of the appellant's premium receipts thereunder constituted assessable income.
It becomes necessary, therefore, to examine the characteristics of each class of policy and to consider whether all or any of them fall within the description "policies of life insurance" in the sense in which that term is used in s. 111. Class (1): This form of policy assures to the assured (or his executors, administrators or assigns) payment of a specified sum of money upon death or upon the attainment of a specified age or earlier death. Accordingly, if no other feature presented itself, there could be no doubt that policies in this class should be classified as policies of life assurance. But the stipulation with respect to the specified annual premium contains the proviso that "if Permanent Total Disability of the life assured ... shall begin before the sixtieth birthday of the life assured payment of any annual premium falling due during such disability shall be waived" and as already appears the annual premium is loaded against this contingency. It is this circumstance which is seized upon to found the assertion that the policy assures "additional benefits" to the assured and to preclude the conclusion that policies of this character are policies of life assurance. In my view, this contention is unsound. I see no reason why a premium initially selected and reserved by a policy of life assurance should not be variable according to the circumstances or condition of the assured without transforming the essential character of the policy itself. In my opinion the fact that under policies of this character the obligation to pay the specified premium ceases upon permanent total disability does not mean that the policy is not a policy of life assurance in the conventional sense. Class (2): This form of policy assures to the assured (or his executors etc.) payment of a specified sum upon death or upon attainment of a specified age or earlier death but it further provides that if the policy matures "through death which is the result of accident" a further specified sum shall also be payable. No doubt there is abundant authority for the proposition that a contract simply to pay a sum of money to the assured in the event of his death as the result of accident would now find its place in the category of insurance known as personal accident insurance where so frequently undertakings of this character are found associated with stipulations for periodical payments in the event of disablement resulting from the like cause. But according to Bunyon, The Law of Life Assurance 4th ed. (1904), p. 142 "Insurance against accidents are in principle strictly life insurances, with a condition that the claim shall only arise in the event of death or injury occurring in a particular way" though it is clear that the more recent development of the category of personal accident insurance would now preclude this conclusion as to its conventional character. In the present case, however, the form of policy in question does not merely embody a contract to pay a sum of money upon the contingency of accidental death; it evidences a contract to pay a sum of money upon the death of the assured with the added provision that if the death results from a particular cause an additional amount shall be paid. I am unable to see why this circumstance should be held to preclude the conclusion that this form of policy is truly a policy of life assurance. In substance the only reason against this conclusion is that insurance merely against death by accident has, together with contracts to pay periodical sums upon disablement resulting from the same cause, found its way into the conventional category of personal accident insurance. But this form of policy assures payment of a sum upon death from any cause. Further the contract, unlike a personal accident policy, subsists indefinitely and a single premium is payable as the consideration for the aggregate cover provided. It is true that a further sum is payable if death results from a particular cause but this does not, in my opinion, mean that the policy is not a payment of life assurance. However, if I were otherwise in doubt on this point the considerations which have finally resolved my views in relation to policies falling within classes (3) and (4) would, in my view, determine the matter. Classes (3) and (4): Policies in class (3) are similar to those in class (1) except that they provide for the payment of a "monthly income" to the assured in the event of permanent total disablement before his sixtieth birthday, whilst those which fall within class (4) are designed for issue to trustees of staff superannuation funds and assure to them payment of a specified sum upon the death of the life assured before a stated date or upon the life assured becoming totally disabled. The two additional features to be found in these policies are quite different from any feature presented by policies falling within classes (1) and (2) and, it may be said, these are features which are peculiar to personal accident policies. But in each case, there is one policy only and it would be wrong to regard each policy as a personal accident policy. On the contrary I have reached the conclusion, though not without some doubt that consideration of the whole of the provisions of the policies falling within classes (3) and (4) leads to the conclusion that they should be regarded as policies of life assurance within the meaning of s. 111. Their principal and fundamental purpose is to provide what may properly be called life insurance and the so-called additional benefits appear as minor and incidental. I have been assisted in reaching this conclusion by the definition in the Life Insurance Act 1945-1958 of the expression "life policy" which is defined to mean "a policy insuring payment of money on death (not being death by accident or specified sickness only) or on the happening of any contingency dependent on the termination or continuance of human life (either with or without provision for a benefit under a continuous disability insurance contract)". This, of course, is not a definition of the expression "life assurance policy" for the purposes of the Income Tax Assessment Act but it is, at the least, some indication that, conventionally, policies of this character, if they must be assigned to a category, ought to be assigned to the category of life assurance.
It follows that the whole of the premiums received in respect of these policies answer the description contained in s. 111. Accordingly the amount in question formed no part of the assessable income of the appellant unless that section should be understood in such a way as to require, as was contended, an apportionment or dissection-based upon material extraneous to the policy itself-of the premium paid in each case even though each premium is expressed as a single and indivisible consideration. But no such intention is, in my opinion, to be found in the section. Nor, in my view can any such conclusion be reached by an examination of the remaining provisions of Div. 8 of Pt. III of the Act. Possibly, some rationalization of s. 111 is desirable to meet the circumstances of cases such as the present but this is not a process which is open to us upon the language of the section.
For the reasons given the first question raised by the case stated should be answered "Wholly" and upon this view it becomes unnecessary to answer the second question.