Executor Trustee & Agency Co of South Australia Ltd v Federal Commissioner of Taxation
48 CLR 261932 - 0804A - HCA
(Judgment by: Evatt J)
Between: Executor Trustee & Agency Co of South Australia Ltd
And: Federal Commissioner of Taxation
Judges:
Gavan Duffy CJ
Rich J
Starke J
Dixon J
Evatt JMcTiernan J
Subject References:
Taxation and revenue
Income tax
Trustee
Will
Life tenant and remainderman
Direction that premium be treated as rent
Whether trustee liable for tax for any part of the premium
Legislative References:
Income Tax Assessment Act 1922 (Cth) No 37 - s 13; s 31
Judgment date: 4 August 1932
Sydney
Judgment by:
Evatt J
This appeal concerns income derived by the appellant trustee in the year ending June 30th, 1928. The trust estate consisted of six equal parts which had been settled in trust upon the six daughters of Margaret Pearson for life and then over to their respective children. In the relevant income year three life tenants still survived, and the three remaining parts of the estate were being held in trust for the remaindermen-the issue of the three deceased daughters.
Part of the trust estate consisted of licensed freehold premises. During the income year the trustee leased the premises for a term of seven years from April 19th, 1928, in consideration of the immediate payment of PD3,300 by way of premium and a weekly rental of PD6. The PD3,300 was paid to the trustees between March 28th, 1928, and May 14th, 1928. None of it was paid to any of the beneficiaries during the income year.
The Board of Review dismissed the trustee's appeal and confirmed the assessment. In my opinion they were right.
The first question is whether the premium of PD3,300 was "income" of the trust estate. Section 16 (d) of the Income Tax Assessment Act 1922-1928 treats as included in the "assessable income of any person," premiums demanded and given "in connection with" leasehold estates. It was not always clear whether a premium received by the owner of a freehold for granting a leasehold interest therein should be regarded as being in the nature of income or of capital or as a receipt partaking of the nature of both and apportionable between income and capital. But in the case of the statute under consideration, the knot was cut and not unravelled. All of the PD3,300 must be regarded as income of the trust estate, for there can be adduced no satisfactory reason for excluding from the operation of s. 31 the general rule laid down in s. 16 (d).
The next question is whether the separate assessment against the trustee of the PD3,300 is justified by s. 31 (2) (b) of the Act.
How much of the PD3,300 was "part of the income of the trust estate," "to which no other person is presently entitled and in actual receipt thereof and liable as a taxpayer in respect thereof."
All of the PD3,300 was part of the income of the trust estate. The three remaindermen, all being sui juris became "entitled" to receive one-half of it-PD1,650 in all-so soon as it was paid, and, no doubt, the three surviving life tenants became "entitled" to receive some payment in respect of it before the expiry of the income year. But there was no actual receipt of any part of the premium by any one of the beneficiaries during the income year. Why, then, is the assessment of the whole sum of PD3,300 against the trustee erroneous?
The answer suggested is that, as to one-half of the premium at least, the beneficiaries became "presently entitled" and were liable as taxpayers in respect thereof, and that the Commissioner cannot affirm of such half at least that no other person was (a) presently entitled and (b) liable as a taxpayer in respect of it. All that the Commissioner does say about it is that "no other person" was "in actual receipt thereof." Unless the legislation is redrafted by the Court, that statement is, I think, sufficient.
In my view the plain meaning of s. 31 (2) (b) is that the adjectival phrases "presently entitled," "in actual receipt," "liable as a taxpayer," all qualify the word "person." It is not enough to show that a person became presently entitled to the disputed part of the income of the trust estate, unless that person actually received it and became liable as a taxpayer in respect thereof. The sub-section, as framed, deliberately rejects the notion that the mere proof that some person or another is entitled to receive, and is also liable to pay taxation in respect of, part of the income of the trust estate, enables the trustee to escape liability for such part of the income. The trustee's liability comes into being for all parts of the trust income if it is shown that there is no other person who answers to the threefold description already mentioned. It is said that this view gives rise to double taxation, but the question whether it does so, does not fall for present determination, and, in any event, the words used cannot yield to the policy suggested by the criticism.
It is interesting to observe that the Income Tax Assessment Act 1922 was amended in 1923, 1924, 1925, 1927 and 1928, and it is with the Act 1922-1928 that the present controversy is concerned. But s. 31 (2) (b) ran the gauntlet unscathed throughout these years. It is not very convincing therefore to construe the relevant sentence as though the word "and" were read to mean "or". The repeated use of the conjunctive form of expression can hardly be regarded as accidental.
A reference to s. 13 makes it clear that the second question should be answered No.
In my opinion the questions should be answered: (1) Yes, all of the said sum; (2) No.