Hill and Another v. Federal Commissioner of Taxation.

Members:
Barwick CJ
McTiernan J
Kitto J
Menzies J
Windeyer J

Tribunal:
High Court (Full Court)

Decision date: Judgment handed down 28 February 1969.

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Barwick C.J.: The appellants are the executors of the will and trustees of the Estate of Douglas Roland Hill (deceased), who died on 14 October 1964. In assessing that Estate to duty under the Estate Duty Assessment Act, 1914-1963 (the Act) the respondent Commissioner included in the notional estate the whole of the monies payable under a policy of insurance issued by the Australian Mutual Provident Society on 10 January 1956 on the life of the deceased. Those proceeds totalled $23,856: and the consequence of including this sum in the computation of the Estate of the deceased is that the Estate Duty otherwise payable is increased by $8,481. The appellants duly objected to the assessment, the respondent disallowed the objection and the appellants being dissatisfied with the respondent's decision have now appealed to this Court.

The policy by Clause 6 was declared to have been effected by the deceased in pursuance of sec. 94 of the Life Insurance Act, 1945 (the Life Insurance Act) for ``the benefit of his wife, Shirley Hilda Hill, should she be living at the date when the sum assured becomes due''; and the deceased thereby appointed Shirley Hilda Hill trustee of the monies payable under the policy. The deceased paid all premiums due and payable in respect of the policy until and including 30 July 1964. On that date the deceased executed a deed whereby in consideration of the sum of £ 525 he released and renounced in favour of his wife ``all that the right title benefit and interest to the Life Assured in to and under the said policy and in and to the monies payable thereunder to the intent that henceforth the said Policy shall be read and construed as if the words `should he/she be living at the date when the sum assured shall become due' or any other words in or to the like effect in the said Policy had been deleted therefrom''. The deceased also thereby requested the Australian Mutual Provident Society to endorse a notification of the effect of the deed on the policy. The Society did make such an endorsement on 30 September 1964. The endorsement in the substantial parts reads ``By deed dated 30 July 1964, the Life Assured released and renounced all his right title benefit and interest in this policy and in the monies payable thereunder in favour of the beneficiary named therein to the intent that thenceforth the policy should be read and construed as if the words `should he/she be living at the date when the sum assured shall become due' or any other words to the like effect had been deleted therefrom.'' The deceased's wife paid him the sum of £ 525 which amount was the valuation of the deceased's interest in the policy made actually by the Society, having regard to the ages of the parties but not having regard to the state of health of either of them. It is agreed that the consideration thus paid by the wife was not less than the full value of the deceased's interest in the policy. No premiums fell due between the date of this deed and the date of the deceased's death. Upon his death the sum of $23,856 was paid to Shirley Hilda Hill, who was then the widow of the deceased.

No question arises as to the ownership of the proceeds of the policy. By its terms they belong beneficially to the appellant, Shirley Hilda Hill, and sec. 94 of the Life Insurance Act ensures that the policy monies themselves are not available for the payment of any debt of the deceased or, in my opinion, of his Estate. But the appellants claim that an amount equal to those proceeds ought not to be included in the notional Estate of deceased because they do not fall within the provisions of sec. 8(4)(f) of the Act properly construed. The appellants' argument is that the proceeds of a policy or the rateable proportion of them according to the terms of sec. 8 (4) (f) of the Act only come within the sub-section if those monies were by the terms of the policy payable to the recipient in her character of widow. This position would only result, according to the appellants' counsel, if in the policy itself the monies were expressed to be paid to her as the widow or if the monies were only payable to her on the condition that she, remaining his wife, should survive her husband and thus become his widow. If that proposition be accepted, the appellants say that the appellant Shirley Hilda Hill was specifically named in the policy, there described as the wife and not the widow of the assured and that by the terms of the policy she need not survive the life assured as his widow to be entitled to the proceeds and that after the execution of the deed of 30 July 1964 she need not survive him at all.

On the other hand, the Commissioner claims that upon its true construction the sub-section authorises the inclusion in the notional estate of a deceased of an amount equal to the policy monies or the appropriate

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proportion thereof in any case where upon his death the proceeds of a policy on his life of which the deceased has paid the premiums in whole or in part are payable to a person who in fact at that time satisfies the description of ``widow'', etc. The Commissioner thus relies upon a literal application of the sub-section and by so doing challenges the decision of the Court in
Thurn v. Federal Commissioner of Taxation (1965) 112 C.L.R. 432 in so far as it would otherwise interpret and apply sec. 8 (4) (f).

I do not think there is any validity in the proposition that the person for whose benefit the proceeds of the policy are to be held must be described in the policy, as widow, child, grandchild, etc. if sec. 8 (4) (f) is to apply. It is only in the case of the widow or widower that a new description of the person becomes available on the death of the life assured. In relation to all the other classes of relations the question raised by the appellants' some-what narrow submission can scarce arise. In my opinion, there is no substance in the submission that because the appellant Shirley Hilda Hill is not described in the policy as widow, the sub-section does not apply. Indeed, it would be odd to describe that beneficiary in the policy as the ``widow'', both the life assured and the beneficiary being then alive and married. On the other hand, it would not be inaccurate to describe the beneficiary as at the moment of death which is the time at which the policy matures, as the wife of the life assured. Where a policy is expressed to be issued pursuant to the provisions of sec. 94 of the Life Insurance Act, as was done in this case, it could scarce matter that a beneficiary named in the policy who in fact was related to the life assured as wife or husband or in one of the classes of other relations mentioned in that section, was not described as wife, widow, or other relation as the case may be. Section 94 itself requires that the beneficiary be chosen because of the existence of one of the specified relationships. It may be different in the case of a policy not so issued if it cannot be otherwise derived from the terms or the circumstances of the policy and its issue that the named beneficiary has been so chosen, for as will appear from what follows, in my opinion, the relevant relationship actual or perhaps projected of the beneficiary of the proceeds must have been and appear to have been the reason for his or her selection by the life assured for the role of beneficiary and must receive the proceeds at maturity as such a relation of the deceased. In this case, the policy was not only expressed to be issued in pursuance of sec. 94 of the Life Insurance Act but the beneficiary was described as the wife of the assured for whose benefit it was issued. It seems to me that nothing turns in this case on that section of the Life Insurance Act.

It may be thought strange that the inducement to make secure provision for close relatives by means of life policies which the Life Insurance Act in sec. 94 offers should be so substantially whittled down by the provisions of sec. 8 (4) (f) of the Act, but the two provisions are not inconsistent. The latter provision is based, in my opinion, upon the policy of bringing into the computation of a deceased estate amounts disbursed in his lifetime by way of gift. Premiums paid on a policy of which the proceeds will not come into the deceased's actual estate constitute in substance a gift at least of the amount of the premiums paid. But as well the premiums paid are in the nature of an investment. Thus the sub-section seeks to bring to account in computing estate duty the benefit of that investment; hence the provision for the whole or a proportion of the proceeds of the policy to be included in the notional estate, the proportion being determined upon the basis that each unit of premium paid produces the same proportion of the proceeds as it bears to the total premiums paid.

The real question and the difficulty in the case, it seems to me, if one is not prepared to accept a literal application of sec. 8 (4) (f), as I am not, is to decide and to express what precisely are the limitations which ought to be made upon a literal application of the section. I should say that, to my mind, an application of the section in its literal terms would clearly embrace situations which the legislature could not possibly have intended to make the occasion for the imposition of estate duty. A number of illustrations were given during the argument of the appeal which indicated the lengths to which such an application would logically extend. But it seems to me that the facts of Thurn's case ( supra ) suffice in this connection. There the policy was not issued in pursuance of sec. 94 of the Life Insurance Act or for the benefit of the wife of the life assured. It was a policy of which the proceeds were payable to the

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executors of the life assured. Had there been no change, those proceeds would not have been caught by sec. 8(4)(f) but have been included in the actual estate of the deceased policy holder by virute of earlier parts of that section. But the policy was assigned for its full value to the wife of the life assured who became the policy holder and thereafter paid the premiums thereon. The proceeds on maturity were paid to her as policy holder, though in fact she was at that time the widow of the life assured. I can find no reason connected with estate duty and its assessment why the amount of these proceeds, none of which was derived in any sense from the deceased, should affect the amount of duty which his estate should pay. But, literally, the proceeds of the policy on the life of the deceased were in fact paid to the widow. The illustration to my mind and with respect to those who may hold a contrary view negatives the possibility of applying sec. 8(4)(f) literally and indicates that some qualifications related to the policy clearly lying behind such provisions in an estate duty act as sec. 8(4)(f) must be found and expressed.

It seems to me the execution of the deed of 30 July 1964 has no real bearing upon the resolution of the problem which the appeal presents. It was not an assignment of the policy and did not substitute the wife for the husband as the contracting party. It did not affect any change in the terms of the policy as between the deceased and the Society. What it did was to transfer to the wife the contingent interest which the husband had in the policy in the event that she should predecease him. Certainly after the execution of the deed, the representatives of Shirley Hilda Hill would have been entitled to the proceeds of the policy had she predeceased him. Apart from the deed and by reason of the precise terms of the policy in order to be entitled to those proceeds she did not need to survive the life assured as his widow.

My brother Kitto in Thurn's case ( supra ) in relation to the circumstances of and for the purpose of resolving the particular problem of that case expressed the limitation upon a literal application of sec. 8(4)(f) as follows: ``... the force of the whole expression `money payable to, or to any person in trust for, the widow... of the deceased under a policy of assurance on the life of the deceased' requires, as it seems to me, that the widow's beneficial title to the money shall accrue to her in virtue of her status as the widow of the deceased.'' In Thurn's case ( supra ), as I have indicated, a policy not taken out for the benefit of a wife had been assigned to her upon payment of its full value: see page 437 of the report from which I quoted. The emphasis there was upon the contrast of the receipt of the proceeds of the policy by the widow as such and the receipt by a policy holder as such though in fact the widow. It was the capacity in which the recipient received the money which in that case sufficed to determine the matter if one accepted the view that the section could in any event refer to such a policy on which, in substance, having regard to the consideration paid for the assignment, the deceased had paid no premiums. I would respectfully agree with what my brother Kitto said in relation to the circumstances of Thurn's case ( supra ) on the footing that the section otherwise would extend to cover the proceeds of that particular policy. But I would also respectfully agree with the reasoning of my brother Taylor that as in truth no money of the deceased remained invested by way of premiums paid under the policy or in its proceeds the section did not apply at all to that policy. By expanding the concept of ``status'' as used by my brother Kitto in the circumstances of that case to involve the terms of the policy itself as affecting that status, his Honour's limitation could, in my opinion, suffice to determine this case in favour of the respondent Commissioner. The beneficiary would not only need to have the status of widow but the status of wife must have been the basis of her selection as beneficiary under the policy. However, I would wish for myself to express the limitation which I think the nature and evident policy of the legislation impose upon a literal application of the sub-section as proposed by the respondent Commissioner.

It seems to me that in order that the sub-section should apply the recipient or intended recipient of the proceeds of the policy must stand at the date of the death of the life assured in the stated relationship to the deceased, e.g. in this case, in that of wife, becoming at that time, widow and that that relationship was the basis upon which the policy monies were by its terms or by its evident circumstances made payable to the recipient. That is to say, in my opinion, the section is not to be applied literally so as to

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embrace every case where the proceeds of a policy on the life of the deceased are for any reason payable to a person who at the date of death stands in one of the stated relationships to him but its application is limited to those cases where such monies are by the policy made payable to or for the benefit of such a person because as appears from the terms or circumstances of the policy, that relationship, e.g. that of wife, exists at the date of the policy or, perhaps, will before maturity exist.

Here, it is quite true that after the execution of the deed, and solely because of it, had the appellant Shirley Hilda Hill predeceased her husband, her executors would have received the whole of the proceeds of the policy and the husband none of them, but that event did not happen. The appellant remained the wife of the deceased till his death and at that moment became his widow. It is abundantly clear from the terms of the policy that it was in her position as his wife which was the reason for making the proceeds of the policy payable for her benefit. That to become entitled she need not have survived the life assured and that had she not survived him, he would not have received any part of the proceeds of the policy are facts equally irrelevant, in my opinion, to the factual situation which existed at the date of the death of the deceased and to the applicability of the section to that situation.

In my opinion, an amount equal to the proceeds of the policy was rightly included in the notional estate of the deceased by virtue of sec. 8(4)(f) of the Act. The appeal should be dismissed.