AMP LIFE LIMITED v COMMISSIONER OF STATE REVENUE (VIC)

Judges:
Hansen J

Court:
Supreme Court of Victoria

MEDIA NEUTRAL CITATION: [2003] VSC 198

Judgment date: 12 June 2003

Hansen J

The appellant, AMP Life Limited, appeals against the disallowance by the respondent Commissioner of State Revenue of objections to two assessments of stamp duty on certain insurance polices issued by the appellant. The appeals turn on the distinction between life insurance, on the one hand, and general insurance, on the other. They are dealt with in subdivisions (11) and (11A) of Division 3 of Part 2 of the Stamps Act 1958 (``the Act'').[1] The Duties Act 2000 came into operation on 1 July 2001. The Stamps Act is thereby repealed, but applies to these proceedings by virtue of s 14 of the Interpretation of Legislation Act 1984. The result of this enactment and repeal is that some questions in these proceedings are of ongoing significance, but some are not. Specifically, where the Duties Act is applicable, s 195 of that Act would resolve categorically the question of apportionment. Subdivision (11) contains ss 95-111 and is headed ``Insurance and Assurance business''; its subject matter can be described as general insurance. Subdivision (11A), containing ss 111A-111D, has the heading ``Policies of Life Insurance'' and concerns life insurance. The question in these proceedings is one of the correct treatment under the Act of certain insurance policies issued by the appellant, consisting in each case of a life insurance policy combined with additional benefits available at the policy owner's selection.

2. The proceedings are as follows.

3.  Proceeding 6975 of 2001 : On 19 November 1999, by notice of assessment A90076 the appellant was assessed by the Commissioner under s 33 of the Act to duty of $211,366.61 (including a 10 per cent penalty component), stated to be payable under s 97(2)(b) in respect of the period 1 July 1996 to 30 September 1999. On 18 January 2000 the taxpayer objected to the assessment. On 14 November 2000 the Commissioner partially allowed the objection and, as a result, refunded $42,178.07. The Commissioner otherwise rejected the objection. In essence, the Commissioner's calculations are made on the basis that certain of the optional benefits or riders attaching to policies of life insurance issued in the subject period are dutiable as separate policies of general insurance. Being dissatisfied with the decision, the appellant, pursuant to s 33B(1)(b) of the Act, requested that the Commissioner treat the objection as an appeal. The appeal was duly commenced as proceeding 6975 of 2001.

4.  Proceeding 6976 of 2001 : On 23 October 2000, by notice of assessment A108045 the appellant was assessed by the Commissioner under s 33 to duty of $7,554.99, stated to be payable under s 111D(3)(b) in respect of the period 1 July 2000 to 30 September 2000. The assessment related to the same types of life policies as assessment A90076. The appellant objected to the assessment on 14 November

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2000. By a decision on the same date the Commissioner partially allowed the objection and reduced the total duty payable to $6,257.43. The Commissioner's calculations are based on certain of the optional benefits or riders attaching to life policies being separately dutiable as policies of life insurance. Being dissatisfied with the decision, the appellant, pursuant to s 33B(1)(b), requested that the Commissioner treat the objection as an appeal. The appeal was duly commenced as proceeding 6976 of 2001.

5. The Commissioner approached the assessments on the basis set out in a ruling he issued on 31 May 1997. This is Revenue Ruling SD.076 - Stamp duty on life insurance riders. The ruling followed the decision of Malcolm CJ in the Supreme Court of Western Australia in The National Mutual Life Association of Australasia Ltd v Commr of State Taxation (WA),[2] 96 ATC 4615. and was provided as a guide as to whether rates of duty for general insurance are payable on riders contained in policies of life insurance. The ruling is:

``Ruling

In order to determine whether a particular rider attached to a life insurance policy is separately dutiable at the general insurance rate of duty, the test is whether the rider is ancillary to the life cover or can be treated a [ sic] separate policy of general insurance.

Where a rider attached to a life insurance policy provides an additional financial benefit over and above the life insurance then the rider is considered not to be ancillary to the life insurance policy, the premiums which relate to the rider is [sic] dutiable at the general insurance rate. The remainder of the policy will be dutiable at life insurance rates.

Where the rider is ancillary to the life insurance policy in that any disability benefit paid serves to reduce the sum assured in respect of the life insurance then duty will be charged at the life insurance rate. Again, the fact that no additional financial benefit is payable in relation to the riders will be significant.

A stand alone policy for disability and/or trauma cover insurance is regarded as a policy of general insurance for stamp duty purposes.''

6. Subsequently, in July 1999, following a general voluntary disclosure program the Commissioner commenced to investigate the appellant's compliance with the Act in the period 1 July 1996 to 30 June 1999. This led to the assessments under appeal.

7. In each proceeding, two affidavits were sworn by Michal Aa, an actuary employed by AMP Services Limited to act for the appellant. The affidavits, sworn on 15 and 21 August 2001 respectively, describe the relevant circumstances and exhibit a selection of policies.

8. Section 33C(1)(a) of the Act provides that upon an appeal, unless the Court otherwise orders, the appellant shall be limited to the grounds stated in the objection, and the Commissioner to the grounds upon which he disallowed the objection. During the hearing I gave leave to the appellant to rely on additional grounds of objection in the appeal in proceeding 6975 of 2001. Those grounds are set out in a statement dated 11 December 2001, and filed in the proceeding.

9. It is further provided in s 33C(1)(b) that the burden of proving that the assessment is excessive shall lie upon the objector. This means that the appellant must prove that the amount assessed in fact exceeds its true liability to duty. As Brennan J said in FC of T v Dalco,[3] 90 ATC 4088 at 4091; (1989-1990) 168 CLR 614 at 624. in relation to the like provision in the Income Tax Assessment Act 1936:

``... Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.''

Subdivisions (11) and (11A)

10. It is first necessary to set out the scheme of the two subdivisions by which the appellant was assessed to duty. A useful starting point is s 95 which contains definitions applicable to Part 2 of the Act, which includes both subdivisions.

11. ``Assurance or insurance business'' is defined in s 95 to mean:

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``the granting or issuing of any assurance or insurance policies other than policies of life assurance...''

The definition goes on to exclude some other types of insurance. There is no amplification of the meaning of the expression ``assurance or insurance policies''. Nor does s 95 define ``life assurance'', whether for the purposes of Part 2 as a whole or of subdivision (11).

12. ``Policy'' is defined broadly in s 95 to include:

``as well as any policy any instrument in the nature of a policy an open policy an insurance cover or any instrument in any manner covering any insurance or assurance.''

Subdivision (11) - General

13. The effect of subdivision (11) is that a duty of 10% must be paid on the amount of ongoing premiums for what can be described as general insurance. There are two modes of imposition of the duty whereby, in each case, returns must be lodged with the Commissioner. In one mode, where the insurer is a registered company, the returns relate to premiums on all policies between the company and its insureds. In the second mode, where the insurer is not a registered company, the returns relate to premiums on an individual policy.

Subdivision (11) - Where the insurer is registered

14. There is a general requirement in s 96 that an insurer conducting an assurance or insurance business in Victoria be registered with the Commissioner. The appellant is so registered.

15. The consequence of registration is stated in s 97(2):

``A registered company shall on or before the twenty-first day of... each calendar month after July 1985-

  • (a) lodge with the [Commissioner] a return in the prescribed form verified in the prescribed manner showing the total amount of all premiums chargeable with stamp duty under this subdivision received by that company during the last preceding calendar month; and
  • (b) pay in cash to the [Commissioner] as stamp duty on the return an amount equal to 10 per centum of the amount of all premiums chargeable with stamp duty under this subdivision received by that company, during the last preceding calendar month.''

16. Two sections give content to the expression ``premiums chargeable with stamp duty under this subdivision''. First, s 98(1)(a) provides that for the purposes of subdivision (11), a reference to premiums is a reference to the gross premiums including any commissions or fire service levies paid or payable in connection with insurance. Secondly, s 99(1) provides that:

``For the purposes of section 97, the premiums chargeable with stamp duty are all premiums for assurance or insurance business that are applicable to-

  • (a) property in Victoria; or
  • (b) a risk, contingency or event concerning an act or omission that, in the normal course of events, may occur within or partly within Victoria.''

17. Under these provisions duty is calculated by reference to the flow of monthly premiums and is paid ``on the return''.[4] Compare s 60C, which creates a system of weekly returns for brokers for on-market share transfers. That section speaks of the broker paying stamp duty ``in respect of the sales and purchases included in a return''. The return is required to be produced each month as an incident of registration. It is thus seen that duty is not charged on the policy of insurance.

18. In its prior forms s 99(1) referred to premiums for assurance or insurance business transacted in Victoria or received by an insurer operating in Victoria;[5] See s 98(1) of the Stamps Act 1946 (Act 5204); s 99(1) of the Stamps Act 1958 (Act 6375); and amendments to s 99(1) by s 2(3) of Act 6552 in 1958 and s 2 of Act 9208 in 1978. in other words, the primary concern addressed by the sub-section was territorial delineation between Victoria and other jurisdictions. The current form of s 99(1) was substituted by s 21(1) of Act 103 of 1998. The second reading speech for the amending bill says generally that a number of amendments to the Stamps Act are being introduced ``to protect the revenue and to bring the act up to date in a number of areas'', and in relation to the substitution of s 99(1) merely says:

``The bill also changes the nexus for duty levied on policies of insurance to property insured in Victoria or a risk or contingency which may occur in Victoria to ensure that there is no double taxation arising from a different nexus operating across the [sic] two states.''

[6] Hansard , Legislative Council, 12 November 1998, p 773.

19. The current form of s 99(1) has elaborated on the content of ``assurance or insurance business'' by separating out property on the one hand, and risks, contingencies or

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events on the other. Was the intention thereby to confine the scope of assurance or insurance business that is the subject of subdivision (11)? In my view, that was not the case. If that were the case, the logical place to do so would be in the definition of ``assurance or insurance business'' in s 95. Further, on a natural reading of s 99(1) in its current form, the primary concern is territorial delineation. The second reading speech does not contradict such a view; nor does it evince an intention to effect any significant change from previous forms of the provision, which did not elaborate on the content of ``assurance or insurance business''. Section 99(1) is not directed to defining, or further defining, the expression ``assurance or insurance business''. The subject matter with which it deals is premiums arising for such business, and the purpose and intendment of s 99(1) is to provide a territorial limitation in respect of them.

20. In light of that conclusion it is perhaps not necessary to go further. However, for completeness I mention a further argument concerning the interpretation of para (b) of s 99(1). In his submissions concerning crisis care insurance the appellant's counsel referred to s 99(1) and said that the suffering of a crisis would not normally be described as ``a risk, contingency or event concerning an act or omission''. It is, he said, hard to relate the normal concept of an act or omission to the suffering of a crisis of the type contemplated by the policy. By its nature the crisis condition concerned the insured person. Thus, crisis care insurance was life insurance, and not general insurance under subdivision (11).

21. The argument raised an issue as to the syntax in s 99(1)(b) which was not fully explored or identified by the appellant until its submissions in reply.

22. Two alternatives for the syntax were suggested, which can be presented as follows. On the one hand the paragraph reads:

``(a) a risk,

(b) contingency

(c) or event concerning an act or omission

that, in the normal course of events, may occur within or partly within Victoria.''

In this case it is the risk, contingency or event which may occur within or partly within Victoria. On the other hand the paragraph reads:

``(a) a risk

(b) contingency

(c) or event

concerning an act or omission that, in the normal course of events, may occur within or partly within Victoria.''

Here it is the act or omission which may occur within or partly within Victoria.

23. The appellant's submission was predicated on the latter of the approaches to the syntax set out above. The Commissioner submitted that the former interpretation was correct. The Commissioner submitted that as a matter of syntactical analysis the words ``risk'' and ``contingency'' are not controlled by the words ``concerning an act or omission''. Rather, only the word ``event'' is controlled by the words ``concerning an act or omission''. That, counsel for the Commissioner submitted, was clear from an understanding of what s 99(1)(b) was concerned with, and the historical derivation of the sub-section. The conclusion I expressed above as to the derivation and the purpose of s 99(1) accords with the Commissioner's submission.

24. To amplify the Commissioner's submission a little further, counsel submitted that s 99(1)(b) was not limited in its application to risks or contingencies that are concerned with, or in which insurance liability is based on, acts or omissions. It extended to all forms of ``assurance or insurance business'' in which liability is the consequence of a risk, contingency or event, but without the risk or contingency having to concern an act or omission. Crisis care insurance, it was submitted, provided an example as liability turned on the condition of the person without also having to concern an act or omission.

25. This analysis was criticised by counsel for the appellant. In their submissions in reply it was submitted that the Commissioner's construction lacked grammatical sense. It required the words ``risk, contingency'' to be read with ``in the normal course of events, may occur''. It was said to be ungrammatical or incorrect to speak of a risk or contingency occurring or having occurred. It was submitted that the only proper way to read s 99(1)(b) is to read the phrase ``concerning an act or omission'' as one which describes or qualifies all of the preceding words.

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26. In my view, the interpretation contended for by the Commissioner is correct. If the appellant's submission were accepted s 99(1)(b) would operate to limit or confine the scope of ``assurance or insurance business'', the premiums for which are chargeable for stamp duty under subdivision (11). That is not the function and purpose of s 99(1)(b). The function and purpose of s 99(1)(b) is to define the premiums for such business that are chargeable in terms of the territorial operation of the subdivision, but not otherwise to qualify the definition of ``assurance or insurance business'' in s 95.

27. Thus understood, the reference to a risk or contingency that in the normal course of events may occur in Victoria makes sense. Contrary to the appellant's submission, it is appropriate to speak of a risk or contingency which may occur in Victoria, the risk or contingency being the thing insured against and on the occurrence of which the insurer's liability will arise.

28. Moreover, it is not apparent as to how or in what way the interpretation contended for by the appellant would aid in the achievement of the purpose of subdivision (11) or the Act as a whole, or why Parliament would have intended by para (b) to confine the scope of ``assurance or insurance business''.

29. Finally, I note the more felicitous reference in s 11(1) (see below) to ``any assurance or insurance which relates in whole or in part to any property in Victoria or against any risk contingency or event occurring in Victoria''. It does not contain the expression ``concerning an act or omission''. This section appears in the same subdivision (11), and like s 99(1) is concerned with the duty which is payable. This section is the applicable provision where the insurer is not registered. It is thus the other side of s 97. For this reason, it may have seemed a relevant indicator of the intendment and proper interpretation of s 99(1). Hence, if it were relevant to consider it in interpreting s 99(1)(b), it may indicate that s 99(1)(b) should be read as though the words ``concerning an act or omission'' were not there. But neither counsel referred to s 11(1) on this issue of interpretation, and neither submitted that the words were redundant. In those circumstances I do not consider the effect, if any, of s 11(1) on the interpretation of s 99(1)(b).

Subdivision (11) - Where the insurer is not registered

30. Subdivision (11) also provides for the situation where the insurer is not registered under s 96. The provision is in s 11.

31. Sub-section (1) requires that, where a person who is not a registered company obtains, effects or renews, either outside Victoria or with a person who is not a registered company-

``any assurance or insurance which relates in whole or in part to any property in Victoria or against any risk contingency or event occurring in Victoria''

the person lodge a return in the prescribed form. Under subs (2) the person lodging the return must pay the relevant duty.

32. Sub-section (2) makes the return liable to duty at 10 per cent of the entire premium, with the proviso that:

``the [Commissioner] may allow a rebate of stamp duty at the rate of 10 per centum of such proportion of the said premium as is in his opinion properly attributable to the assurance or insurance of property outside Victoria or of risks, contingencies or events occurring outside Victoria.''

Again, it is the return that is liable to duty, not the policy.

33. By subs (5), the section is made inapplicable to various types of assurance and insurance (including life insurance). The types of insurance excluded are similar to those excluded from the definition of ``assurance or insurance business'' in s 95.

Subdivision (11A) - General

34. The regime under subdivision (11A) for life insurance is similar to that of subdivision (11), but noticeably less detailed. Essentially, an insurer which is declared to be an ``approved insurer'' must furnish monthly statements which state the aggregate amount of stamp duty payable in respect of policies entered into in the preceding month, and pay that amount to the Commissioner. The duty is calculated not by reference to ongoing premiums, but to the first year's premium (for temporary or term insurance) or the sum insured (for other life insurance).

35. Section 111A defines ``life insurance'' for the purposes of the subdivision to mean:

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``insurance or assurance in respect of-

  • (a) a life or lives; or
  • (b) any event or contingency relating to or depending on a life or lives-

of a person who is, or persons who are, domiciled in Victoria at the time the policy is issued, but does not include insurance against accident.''

In the same section ``insurance against accident'' is defined to mean:

``insurance under which payment is agreed to be made on the death of a person only from accident or violence or otherwise [ than] from a natural cause or as compensation for personal injury.''

[7] I have included the word ``than'', without which it is difficult to make sense of the definition and the omission of which I think is clearly an error. The definitions in s 111A, which were inserted by Act 32 of 1999, are closely modelled on the definitions of ``policy of life insurance'' and ``policy of insurance against accident'' which had remained unchanged since the insertion of subdivision (11A) by Act 7204 in 1964. The definition of ``policy of insurance against accident'' includes the word ``than'' in the relevant position. The omission has been carried over into s 198 of the Duties Act 2000.

The definitions in s 95 (see [10]-[12] above), including the definition of ``policy'', apply equally to subdivision (11A).

36. Pursuant to the general charging provision in s 17(1), the duty payable on policies of life insurance are set out in Heading XIA of the Third Schedule to the Act, subject to some exemptions which are not relevant. For a temporary or term insurance policy the duty is 5% of the first year's premium. For any other policy the rate is calculated by reference to the sum insured: 12 cents for each $200 or part thereof for the first $2,000, and 24 cents for each further $200 or part thereof. Either way, it is a ``one off'' imposition of duty.

Subdivision (11A) - Where the insurer is approved

37. Section 111B(1) requires a life insurer to make out and execute a ``duly stamped'' policy of life insurance within three months after receiving or taking credit for the premium or consideration.

38. Under s 111D(1), the Governor in Council may by Order declare any person who carries on the business of life insurance to be an ``approved insurer''. The appellant is an approved insurer. Unlike s 96 in relation to registration of a general insurer, there is no obligation on an insurer conducting life insurance business to obtain approval under s 111D(1).

39. Section 111D(2) then states:

``An approved insurer shall not be liable for the payment of stamp duty as aforesaid in respect of policies of life insurance entered into after he has been declared an approved insurer but shall be liable for the payment of stamp duty in respect of such policies of life insurance in accordance with the following provisions of this section.''

The ``aforesaid'' liability for payment of stamp duty appears to be a reference to the requirement in s 111B(1) that the policy be ``duly stamped''.

40. Section 111D(3) goes on to create a payment system, similar to that in s 97(2) referred to at [15] above, as follows:

``Every approved insurer shall-

  • (a) furnish to the [Commissioner] not later than the fourteenth day of each month a statement in duplicate in the prescribed form; and
  • (b) pay in cash to the [Commissioner] as stamp duty on that statement a sum equal to the aggregate amount of stamp duty which would have been payable in respect of all policies of life insurance entered into by him during the last preceding month if each such policy had been charged with duty under the foregoing provisions of this subdivision.''

Just as the duty is payable ``on the return'' under s 97(2)(b), under s 111D(3) the duty is payable ``on [the] statement''. However, there is a difference between the two regimes. Whereas the former duty is charged on the premiums, the latter duty is charged on the policies.

41. Section 111D(6) then provides:

``Where duty has been paid under this section in respect of any policy of life insurance such policy shall be deemed to be a duly stamped policy for the purposes of this subdivision.''

Subdivision (11A) - Where the insurer is not approved

42. The situation where the insurer is not approved is governed by s 111B (see [37] above), together with s 17(1) and Heading XIA of the Third Schedule (see [36] above). There being no return or statement, it is the policy itself which is subject to duty. It is not entirely clear from s 111B that it is the insurer who is liable for the duty - the section merely speaks of the policy being ``duly stamped'' - but this seems to be implicit in the introductory words of s 111D(2).

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The policy riders and the policies

43. The policy riders in question are as follows:

The Commissioner assessed these riders to duty as general insurance. The Commissioner also assessed firstcare policies not linked to a death benefit to duty as general insurance.

44. I now turn to the insurance policies and, in doing so, to the above riders or optional benefits offered by the appellant. The structure in most cases is that there is a principal policy, to which additional benefits can be added at the option of the policy owner.

``Traditional'' life policies

45. There are three types of policy offered by the appellant which could be described as ``traditional'' life insurance. The benefits for each type of policy are as follows.

46. For the whole of life policy and adult endowment insurance policy, the following options are available.

47. For the children's endowment insurance policy, there are fewer options available, as follows.

Term life policies

48. This type of insurance provides for payment of the sum issued upon an event or contingency dependent on the termination or continuation of human life during the term of the policy. Premium rates usually increase with the age of the life insured. There are two types of term life policy, the crisiscare insurance policy and the firstcare insurance policy.

49. For the crisiscare insurance policy, the policy owner must select at least one of the following. The benefits may apply to one or more insured persons for each of whom an individual premium is calculated.

Other benefits are entirely optional.

If a payment is made under the disablement lump sum advanced benefit, then the benefit for the crisiscare benefit, crisiscare children's benefit or top-up death benefit is reduced by the amount of the payment. Likewise, if a payment is made under the crisiscare benefit, crisiscare children's benefit or top-up death benefit, then the benefit for the disablement lump sum advanced benefit is reduced by the amount of the payment. Likewise, on payment of the terminal illness benefit the other insured benefits are reduced accordingly, the payment being applied first to any benefit payable for a crisis, and then any balance to any top-up death benefit.

50. For the firstcare insurance policy, all of the benefits are optional. The policy owner can choose from crisis cover, children's crisis cover, disablement lump sum cover or death cover, which can be described as follows.

Where there is more than one type of cover, they may be linked or stand alone. Accordingly, the policies are referred to as firstcare linked, or firstcare stand alone. In the case of firstcare linked, if an amount is paid under one type of cover then the amount of the remaining cover is reduced accordingly. Again, the benefits may apply to one or more insured persons. There is the option of having a waiver of premium benefit, as follows.

Investment life policies

51. An investment life policy is a combination of an investment policy and a protection policy. Generally speaking, there is a specified total benefit for the two parts of the combined policy, which the policy owner will receive one way or another. Under the investment policy, the insurer allocates investment units to the policy owner in accordance with the amount of premiums paid; upon the occurrence of the insurable event, the insurer will pay the current value of the units. The protection policy provides protection in the intervening period. That is by way of a stipulated death benefit. If the life insured dies before the elapse of the contract term the insurer will pay the difference, if any, between the amount then payable under the investment policy and the specified death benefit.[8] It is possible that the value of the investment units would eventually exceed the specified total benefit. In that case, there would be no payment under the protection policy. In either event, payment brings the policy to an end. The link between the benefits is emphasised by the fact that if the policy owner cashed units, the insured death benefit is reduced accordingly.

52. The appellant offers the following types of investment life policy for adults.

The policy owner may select the following optional benefits, which are components of the protection policy.

53. The appellant also offers an investment life policy for children.

There are three optional components to the protection policy.

54. In addition, the appellant offers a superannuation policy with a slightly different structure.

The four optional components of the protection policy are as follows.

The Commissioner's approach

55. The Commissioner's approach to the various optional benefits can be ascertained from a schedule prepared by the Commissioner and entitled ``Underpaid Duty Assessment''.[9] Exhibit NL AA 13 to the affidavit of Michael Aa sworn 15 August 2001. The schedule forms the basis of the assessments. In relation to each type of life insurance policy a separate schedule lists each policy issued in the period by its number and the premium paid for each policy, and in relation to each policy an actuarial apportionment of the premium to each policy benefit, the rate of duty applied by the Commissioner to each benefit, and the amount of duty thus payable for each benefit.

56. As these references indicate, the determination of the appeals involves the consideration of a number of riders which occur in a number of policies. At one point in the hearing counsel for the Commissioner provided me with a written statement of questions for determination, in an endeavour to draw from the materials, and make more apparent to me, what was in issue. It may be convenient to set those questions out. They are:

Apportionment of premiums between subdivisions (11) and (11A)

57. Let it be supposed that an insurance policy document is found to contain both life insurance and general insurance. Portions of the total premium may be expressed in the policy document to be referable to the different types of insurance. Alternatively, there may be a single figure for the overall premium. The insurer is both a ``registered company'' for the purposes of general insurance and an ``approved insurer'' for the purposes of life insurance. How does the Act treat that situation? Does the Commissioner have power to assess that which is general insurance to duty under subdivision (11) and that which is life insurance to duty under subdivision (11A)? That is, may the Commissioner apportion the premium payable under the policy to or among the different types of insurance? It is the Commissioner's case that the Act does enable him to disaggregate a policy and apportion the premium in this way. The Commissioner relies for this purpose on s 22 of the Act. For assessment A90076 he relied on s 22(a) and (c). For assessment A108045 he relied on s 22(a). In the course of his submissions, counsel for the Commissioner relied in the alternative on s 33(1), the section under which the assessments were issued. It is appropriate that I now deal with this aspect of the case. I first refer to ss 22 and 33.

Section 22

58. Section 22[10] Para (b) is omitted as both parties regarded it, correctly, as irrelevant to the case. relevantly states that:

``Except where express provision to the contrary is made by this or any other Act-

  • (a) an instrument containing or relating to several distinct matters shall be separately and distinctly charged, as if it were a separate instrument, with duty in respect of each of such matters; and
  • (b)...
  • (c) an instrument relating or giving effect to two or more transactions shall be separately and distinctly charged with duty in respect of each transaction as if it contained a duly executed instrument in respect of each transaction.''

59. The section was considered by the Court of Appeal in Rio Tinto Ltd v Commr of State Revenue (Vic).[11] 2000 ATC 4255 ; (2000) 1 VR 108. To simplify the facts: A gave an option to purchase certain shares to B or its nominee; in exercising the option, B instructed its broker to transfer the shares to C; a single share transfer, from A to C, was executed; the Commissioner sought to levy duty as if there were two transfers, from A to B and from B to C. Brooking JA, with whom Batt and Chernov JJA agreed, held that this could be done under s 22(c). His Honour concluded at [31] that the transfer was an instrument ``relating'' or ``giving effect'' to two or more transactions, and should be treated as replaced by two instruments ``each in the same form and terms as the actual instrument but varied, both as to executing parties and as to terms, so far as is necessary to make it give effect to the particular transaction under consideration. For unless this is the effect of the paragraph, I do not know what form the `duly executed instrument' conjured up by it is to be treated as taking.''

60. His Honour discussed the history of s 22(a) at [14]. He referred to the principal object rule and to the leading case on it of Limmer Asphalte Paving Co v Commissioners of Inland Revenue;[12] (1872) LR 7 Ex 211. it was subsequently found that Limmer should have been decided on the basis of the predecessor to s 22(a) then in force, and

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that the principal object rule had no life of its own but could be used in the application of the statutory rule as subservient to it.[13] Farrar v Commissioner of Stamp Duties (NSW) (1975) 5 ATR 364 , approved in Commr of Stamp Duties (NSW) v Pendal Nominees Pty Limited & Anor 89 ATC 4207 ; (1989) 167 CLR 1 . His Honour said at [14]:

``To be `distinct', as required by para (a), the matters must be different from the point of view of the Stamps Act and taxation and be such that they would have been separately and distinctly dutiable had they each been the subject of a separate instrument.''

61. In relation to s 22(c), his Honour concluded at [26]:

``I do not think the paragraph is intended merely to enable an actual instrument relating or giving effect to two more transactions between the same persons to be explained by extrinsic material which shows, for example, that it is in part a transfer on sale and in part a transfer by bare trustee to beneficial owner. There is no warrant for reading the paragraph down in this way. Moreover, it is significant that the concluding words of the paragraph require there to be imported into the actual instrument, not merely an instrument, but a duly executed instrument, in respect of each transaction. This shows that an actual instrument, for example, a transfer executed by one person as transferor, may by the operation of s 22(c) be treated as containing a transfer executed by a different person as transferor. In other words, the expression `duly executed instrument' shows that the section does not require one to work within the limits of what I might call the essentials of the actual instrument in the sense, for example, of a transfer of property from A to B, or, putting the matter more widely, an act in the law by A affecting B. Further, since para (c) requires the actual transfer to be treated as if it contained a duly executed instrument in respect of each transaction, I see no reason why in an appropriate case it should not require the actual instrument (executed, say, by A and C) to be treated as replaced by two instruments (one executed by A and B and the other by B and C) so as to supplant as opposed to supplement the actual instrument.''

Section 33

62. Section 33 provides for default assessments. Sub-section (1) provides that:

``Where-

  • (a) any person fails or neglects duly to furnish to or lodge with the [ Commissioner] any statement return or other document as and when he is required to do so by or under this Act;
  • (b) the [Commissioner] is not satisfied with any statement return or other document furnished to or lodged with the [ Commissioner];
  • (c) the [Commissioner] has reason to believe or suspect that any person is liable to pay any duty under this Act; or
  • ...

the [Commissioner] may cause an assessment to be made of the amount which, in his judgement, ought to be levied and that person shall be liable to pay that amount, less any part of the amount that has already been paid, except in so far as he establishes on objection or appeal that the assessment is excessive.''

(emphasis added)

63. The assessments did not specify the paragraph in subs (1) of s 33 on which the Commissioner relied to make the assessment. The appellant made no point of this. It was not suggested that the resolution of the appeals in any way turned on that omission, assuming it might properly be described as an omission.

64. The grounds on which the Commissioner disallowed the appellant's objection indicate that he relied on s 22 as giving him power to disaggregate the policy document and apportion the premium. That is to say, s 33 gave power to issue the assessments, but the power to disaggregate and apportion was to be found in s 22. In the appeal concerning assessment A90076, the basis on which paras (a) and (c) of s 22 were applicable was stated in the grounds of disallowance. As to para (a), it was because the rider in question provided an additional benefit or a waiver of premium upon the happening of a specified disablement or trauma, that these benefits were general insurance, additional to life insurance, and thus were distinct matters giving rise to a liability in respect of distinct heads of duty under the Act. Accordingly, the polices were separately and distinctly chargeable with duty. Paragraph (c) was applicable because the polices related or gave effect to two or more transactions. A distinction was drawn, it would seem to satisfy the requirement of two or more transactions,

ATC 4539

between the policy document and the antecedent contract which it embodied. It was stated that where a contract stipulates that it is not completed until the policy is issued, the policy can be said not only to relate to the contract, but to give effect to it. In the grounds for disallowance of the objection to assessment A108045, there is no express reference to s 22, yet it is clear, and it was accepted in argument, that the Commissioner applied para (a).

65. In its objections, the appellant contended that s 22 was not applicable. Paragraph (a) was not applicable because the relevant insurance riders were not distinct matters. Paragraph (c) was not applicable because the policy document did not relate or give effect to two or more transactions.

66. The statement of additional grounds of objection to assessment A90076, which was filed during the hearing, contained two grounds, the first of which related to s 22. The ground is that s 22 could not apply to premiums chargeable with duty under subdivision (11) as that subdivision does not impose stamp duty on any instrument.

67. The present discussion has more significance in relation to assessment A90076 than assessment A108045. That is because the issues arising under the former assessment differ in important respects from those that arise under the latter assessment. The appellant recognises that, in relation to the latter assessment, if the policy is held to contain or relate to several distinct matters of life insurance those matters can, in principle, but subject to further arguments, be separately charged to duty.

68. Essentially then, the question is whether s 22(a) or (c) enabled the Commissioner to apportion premiums between life and general assurance as he did in arriving at assessment A90076. The first step is to bear in mind the different duty regimes in subdivisions (11) and (11A). Whereas under the former it is premiums which are charged to duty, under the latter it is the policy instrument which is charged to duty. I do not consider that the schemes for payment of the duty, which provide that duty is paid on the return or statement respectively, alter this basic position. Indeed, it was the appellant's submission that the regime was as I have described it, and counsel for the Commissioner accepted that as the case. Furthermore it was not suggested that the statement under subdivision (11A) could be treated as ``an instrument'' for the purpose of s 22(a) or (c). The ``instrument'' for this purpose is the policy of insurance.

69. The immediate difficulty in the way of the Commissioner's application of s 22(a) is that subdivision (11) does not charge duty on the ``instrument'' being the policy document. In its terms s 22(a) is directed to the usual case under the Act of an instrument based duty, but subdivision (11) is an exception in that duty is charged on the premiums and not on the policy instrument. Were it otherwise, para (a) could operate so as to charge distinct matters of life and general insurance in the policy at the applicable rates of duty. Accepting this as the position, the Commissioner submitted that para (a) operated in this way. To the extent that the policy dealt with ``matters'' that were life insurance, the policy was to be charged with duty in relation to those matters at the rates applicable to life insurance. That left the remainder of the premium relating to ``matters'' of general insurance. It was submitted that it fell to be dealt with under subdivision (11). That was because that part of the premium that was referable to general insurance was a premium chargeable with duty within the meaning of s 97(2)(b). The premiums referred to in s 97(2)(b) are all premiums for assurance or insurance business (s 99(1)) which is the granting or issuing of any assurance or insurance policies other than policies of life insurance (s 95) and policy is defined (in s 95) to include any instrument in any manner covering any insurance or assurance. The present case illustrated how these provisions operated. There is a policy which provides cover in the nature of both life and general insurance. To the extent of the former, it related to a distinct matter or matters of life insurance and those several matters were chargeable to duty under s 22(a) as an instrument of life insurance. To the extent of the latter, the policy covered insurance other than life insurance and duty is payable on the related premium. Finally, if the Commissioner, following an investigation or otherwise, is satisfied that a return lodged under s 97(2)(b) fails to include ``all premiums chargeable with stamp duty under'' subdivision (11), and the relevant requirements of s 33(1) are met, the Commissioner may make an assessment under s 33 of the amount which in his judgment ought to be levied.

ATC 4540

70. It is convenient to interpolate here some comments about the applicability of para (c). Initially, counsel for the Commissioner gave para (c) little emphasis and referred to it with little enthusiasm. Doubtless because of the requirement in para (c) of two or more transactions, counsel described the case as appearing to fit more happily and naturally within para (a). He mentioned (c) only because of the breadth of the reasoning in Rio Tinto. It seemed, as counsel conceded, a strained use of the word ``transaction'' to describe the policies as relating to two or more transactions in order to fit the case within para (c). I certainly reject the logic and correctness of the basis on which the Commissioner said in his grounds of disallowance that para (c) was applicable.[14] See [64]. The general position must be that there was one policy embodying the one dealing between the appellant and its customer. Later, in his submissions concerning assessment A90076, counsel returned to para (c) contending that it, like para (a), is satisfied by the presence of matters of life insurance and general insurance. Then, however, there is the further issue that if para (c) did apply with the result that a policy of general insurance was to be regarded as existing, that policy would not be chargeable with duty under subdivision (11).

71. The above submission of the Commissioner concerning s 22 was put on the basis that s 22 was applicable, as he contended. But the appellant, in its objection and submission before me, objected that s 22 was not applicable. Lest the appellant be correct, counsel for the Commissioner addressed a submission on the assumption that s 22 has no application. Indeed he presented this submission first, and presented the submission as to the application of s 22 as an alternative. I now refer to the submission made on the assumption that s 22 has no application.

72. The submission rested on decisions in other cases, none of which arose under the Act. Nevertheless, they were relied on as indicating, in light of the policy documents, that the amounts paid as premiums for general insurance were dutiable as such under s 97(2)(b). They focussed on an identification of the obligation in the policy that gave rise to a benefit, and a determination as to whether it, and the related premium, was for life or general insurance. They showed, it was submitted, that the case was not properly to be resolved by considering, as the appellant submitted, the characterisation of the policy as a whole as life or general insurance, or whether the principal object of the policy was life insurance.

73. The first case is The National Mutual Life Association of Australasia Limited v FC of T.[15] (1959) 11 ATD 523 ; (1959) 102 CLR 29. There the question before the High Court was whether premiums received under three types of policy were received ``in respect of policies of life assurance'' within the meaning of s 111 of the Income Tax Assessment Act 1936-1947 (Cth) and thus not assessable to income tax in the hands of the insurance company. There were four policies-

In each case the premium for the entire policy (including the additional benefits) was expressed in the policy as a single sum. However, that sum was calculated by the insurer by adding to the premium for the core life insurance a further amount calculated in respect of the additional benefit, and the insurer was able (under protest) to specify the parts of the premium attributable to each component of the insurance.[16] (1959) 11 ATD 523 at 524-525; (1959) 102 CLR 29 at 36-37 per Taylor J. The company sought to exclude the full premium from its assessable income.

74. A majority (Taylor J dissenting) held that the full premium received was not, as such, received in respect of policies of life insurance, that the premium should be apportioned to the different elements in the policy, and that only so much of the premium as was the true actuarially established premium for the life insurance element should be excluded from the company's assessable income. Windeyer J, with whose judgment Dixon CJ, McTiernan and Kitto JJ agreed, discussed the nature of life

ATC 4541

insurance and its distinction from accident insurance. I return to what he said about this later. In the course of his reasons Windeyer J distinguished General Accident Assurance Corporation Ltd v Inland Revenue Commissioners[17] (1906) 8 SC 477. where the premium under an accident policy was incapable of division to a life aspect, and where the additional benefit could not have had an independent operation. He further considered that not much assistance was to be gained from stamp duty cases ``in which, for the purposes of stamp duty on instruments, it was necessary to decide whether or not a single instrument has more than one character because it embodied more than one transaction''.[18] (1959) 11 ATD 523 at 533; (1959) 102 CLR 29 at 50. He then emphasised that the Income Tax Assessment Act taxed income, not instruments, and that when the Income Tax Assessment Act spoke of ``premiums received in respect of policies of life assurance'' it was not referring to the instrument recording a contract but to the contractual obligations themselves.[19] Supra at ATD 533; CLR 50.

75. His Honour went on at ATD 533; CLR 50-51 to say, specifically in relation to s 111:

``... The total of moneys paid to keep a combined policy afoot is not, I consider, properly described as a premium in respect of a policy of life insurance. If the premium paid in consideration of a combined policy were not severable and apportionable, then in my view, the result of section 111 might well be, not that no part of the total premium should be included in the assessable income, but that all of it should be. The Commissioner does not contend that this is so. His attitude - and in my view it is correct - is that the total premium is here divisible and apportionable, and that only so much as is the true actuarially established premium for the life insurance element is within section 111.''

His Honour concluded that to the extent that the premiums were paid for the additional benefits in the policies, they were not received in respect of policies of life assurance.

76. Counsel for the Commissioner submitted that Windeyer J's reasoning is directly applicable to the present case. That case, like the present, concerned a tax, or duty, on premiums. That being the case, the question asked by the Act is not whether the premium is for a particular type or kind of policy, but what are the particular contractual obligations in respect of which it is paid? It follows that so much of the premium as is referable to general insurance should be returned as such, and bear duty accordingly, under s 97. In accordance with Windeyer J's reasoning, it can be said in this case, in terms of s 95, that the part of the premium referable to general insurance was paid for the grant or issue of an assurance or insurance policy which in any manner covered insurance other than life insurance.

77. The next case is Re Carter, deceased.[20] [1963] Qd R 45. The estate of Carter was being administered in bankruptcy. The question was whether certain policies fell within the category of ``policies of life assurance or endowment in respect of [the bankrupt's] own life'', such policies being excluded from the property divisible amongst the bankrupt's creditors under s 91(b) of the Bankruptcy Act 1924 (Cth). There were four policies. The first was not a ``mixed'' policy, being purely for bodily injury (including death) caused by a travel accident. The insurance did not cover death or disablement resulting from disease or natural causes. Gibbs J, then a judge of the Supreme Court of Queensland, referred to the judgment of Windeyer J in The National Mutual Life Association of Australasia Limited v FC of T, distinguished between life insurance and accident insurance, and concluded that a policy of accident insurance was not a policy of life assurance within s 91(b).[21] Supra at ATD 534-535; CLR 53. That was sufficient to deal with the first policy.

78. The remaining policies raised questions of greater difficulty. The second policy provided for payment of £2,500 upon Carter's death, but also an additional £2,500 if the death was the result of accident; the annual premium was £68 10s 10d, of which £3 15s was in respect of the accident benefit; the policy owner was entitled on each anniversary of the policy to cancel the additional accident benefit, in which case the premium would be reduced by £ 3 15s. Under the third policy, the insurer would pay £2,000 upon Carter's death, but also £ 2,000 in the event of bodily injury caused by accident (or £1,000 where the injury was less serious); there was some indication given, some years after the policy commenced, that £2 5s of the total £16 15s quarterly premium was for the accident benefit; the insurer had a right to terminate the accident benefit on any renewal date, but there was no express provision for reduction of the premium by £2 5s or any other amount. The fourth policy provided for

ATC 4542

payment of £5,000 upon Carter's death, the premium being £33 18s 3d payable quarterly for 42 years; an annexure provided for an extra benefit of £5,000 for death by accident in consideration of an additional quarterly premium of £3; neither insurer nor insured was able to cancel the extra benefit.

79. Referring to The National Mutual Life Association of Australasia Limited v FC of T, and the focus in that case on the character of the moneys received by the insurer as opposed to the character of the policy, his Honour said at 54:

``Although the decision in The National Mutual Life Association of Australasia Limited v FC of T was primarily as to the character of the moneys received it does not seem right to say that the court decided nothing as to the character of the policies. In that case the moneys received were indisputably premiums but it was held that although the total premium payable in respect of any of the policies there considered could not properly be described as a premium received in respect of a policy of life assurance within s 111 of the Income Tax Assessment Act, so much of the premium as was apportioned to the life insurance element of the policy could be so described. It seems to me logically to follow that the words `policy of life assurance' would describe those contractual provisions of a combined policy that embody the life insurance element although they would not describe the policy as a whole. The case shows that the words `policies of life assurance' in the context of the Income Tax Assessment Act may be applicable to some of the contractual provisions of a combined policy. It seems to me that the same words in s 91(b) of the Bankruptcy Act are capable of similar application.''

80. His Honour went on at 54 to discuss three possibilities for resolving the status of the three remaining policies:

``The policies may be regarded as basically policies of life assurance and as maintaining this character notwithstanding the presence of provisions for accident insurance. If this is the correct view, s 91(b) would protect not only the benefits payable on death but also those payable in the event of disablement. Secondly it may be said that the accident insurance element of the policies prevents them from being properly described as policies of life assurance; if this is so, the protection of s 91(b) does not extend to any part of the policies. The third possibility is that the protection of the section extends only to the life assurance element of the policies. This is the trustee's contention, and in my view it is correct.''

Having considered the form of the contract (whether the additional benefit constitutes an annexure or is contained in the body of the contract), the different types of additional benefit (death by accident alone or in combination with disablement), whether the amount of premium payable in respect of the additional benefit was specified, and different conditions as to renewability of the accident insurance component, his Honour concluded (at 55) that regardless of such differences:

``The policies are in truth combined policies, operating both as life assurance and accident insurance. In my judgment, s 91(b) applies to them only insofar as they operate as policies of life assurance. The moneys payable under the accident insurance provisions contained in the policies are not within the protection of the section.''

81. The point which the Commissioner sought to establish from Re Carter is this. The decision in Re Carter was arrived at by reference to the benefits in the policies, as distinct from reference to the premium. Of course the approach in each case is to be understood in light of the statute under consideration. But, either way, apportionment was achieved. Counsel submitted that on either approach apportionment could be achieved in the present case.

82. It is convenient now to refer to NM Superannuation Pty Ltd v Young & Anor,[22] (1993) 7 ANZ Insurance Cases ¶61-163 at 77,888-77,889; (1993) 41 FCR 182 at 203-204. a decision of the Full Court of the Federal Court. The case concerned a section in the Bankruptcy Act 1966 (Cth) which excluded from property divisible among creditors of a bankrupt policies of life assurance or endowment assurance, other than policies for pure endowment, in respect of the life of a bankrupt. The question was whether a superannuation policy under which, inter alia, amounts were payable to the bankrupt as a result of leaving the service of the employer before his retirement age, was a policy of life assurance. It was held by the Full Court that it was, and that it was not a policy of pure endowment.

ATC 4543

83. In the course of his judgment Hill J expressed the view that the correctness of the third possibility referred to by Gibbs J in the above passage must be seen in the context that in all of the policies in Re Carter the premium relevant to the accident benefits was fixed by the policy or apportionable. Hill J said that it did not follow that Gibbs J would have reached the same conclusion had that not been the case. This view would, if correct, constitute a limitation on the analysis in Carter to cases in which the premium had been apportioned in the policy or was otherwise able to be dissected. Of the other members of the Full Court, Burchett J decided the case without referring to the point, and O'Loughlin J agreed with the reasons of Burchett and Hill JJ without elaboration.

84. Hill J's observation suggests that Gibbs J would have reached a different conclusion if the premium relative to the accident benefits had not been fixed by the policy or apportionable. That was not the situation before Gibbs J, and thus Gibbs J did not have to consider that as an issue. In the end Hill J concluded, in the particular context under consideration in Young, that as the premium could not be dissected the benefit in question could not be considered on its own. The question in the present case is whether premiums received are subject to stamp duty by reason of the particular provisions in the Act.

85. Even if the view of Hill J was correct, and it was appropriate to consider it in the circumstances of this case, it does not necessarily avail the appellant. That is because, as the Commissioner submitted, the appellant has not, in that respect, shown that the premium was not apportioned by the policy or policies or able to be dissected and thus apportioned to the subject benefit.

86. Counsel for the Commissioner also referred to the decision of the Court of Appeal of New South Wales in Oceanic Life Ltd & Anor v Chief Commr of Stamp Duties (NSW).[23] 99 ATC 5217 ; (1999) 43 ATR 158. For present purposes the point of the reference is that s 17(1) of the New South Wales Stamp Duties Act 1920 was the equivalent of the Victorian s 22(a). The question was whether, as Oceanic submitted, a premium refund benefit in its sickness and accident policies was a distinct policy of life insurance independent from, and not merely ancillary to, the accident insurance. The judge at first instance resolved the matter under s 17(1). He held that the benefit was merely ancillary to the accident insurance and not a distinct matter under s 17(1). An appeal to the Court of Appeal was dismissed. However, in his judgment Sheller JA said, at [33], that he did not think that s 17(1) assisted in determining whether the benefit was life insurance. He went on to decide, on an analysis of the benefit in question, that it did not constitute life insurance. Beazley JA agreed with Sheller JA. The other member of the Court, Fitzgerald JA, made no comment on the applicability of s 17(1) for the reason that the Stamp Duties Act had been repealed, and discussion of the point was thus unnecessary. Counsel for the appellant sought to draw from this the conclusion, applicable to the Victorian Act, that s 22 has no application to a transaction based stamp duty as under subdivision (11). Expressed as an absolute proposition in those terms, I think it goes too far and may produce misunderstanding.

87. The Commissioner, by his counsel's submissions, accepts that s 22(a) cannot operate to charge an instrument of insurance containing matters of general insurance with duty under subdivision (11), simply because that duty is charged on premiums. However, the effect of the application of s 22(a) may be to operate on a policy of insurance by charging duty on matters of life insurance thereby leaving uncharged the remainder of the premium that pertains to a matter of general insurance. What Sheller JA was concerned with was the identification of the nature of a particular benefit. The final and important point to note about Oceanic is that the New South Wales legislation required companies to submit a composite return for premiums for the different classes of insurance, and to pay duty accordingly, and contained a provision (s 88C) which gave the Commissioner power, if he was not satisfied that the premiums had been properly apportioned, to determine the apportionment and reassess the duty. That meant that there was no need to resort to s 17(1) even if it were otherwise open to do so. The specific apportionment provision was sufficient for the point in issue to be raised and determined. Such an express power of apportionment is not found in the Act.

88. As is apparent, an essential element of the appellant's submissions was that s 22 had no relevant operation in relation to general insurance. In the first place that was because

ATC 4544

subdivision (11) did not charge the instrument of insurance. Secondly, there was no equivalent to s 22 in subdivision (11), and there was no other express power that permitted the Commissioner to disaggregate a policy and apportion the premium. In these circumstances the principal object rule was applicable. The object of the policies was life insurance and therefore the policy instrument should be stamped on that basis. Thirdly, and separately from the second point, the task under subdivision (11) is to identify the relevant policy in the sense of characterising it as a policy of general insurance under subdivision (11) or as a policy of life insurance under subdivision (11A). The approach of the Act was to treat policies as being one or the other, a policy could not be both. There was a strict demarcation, or mutual exclusivity, between the subdivisions. This construction of the Act was based particularly on the phrase ``other than'' in the definition of ``assurance or insurance business'' in s 95. It was submitted that those words took out of subdivision (11) all policies that can be fairly and properly characterised as policies of life insurance. Such policies are dealt with under subdivision (11A). In developing the submission counsel for the appellant made the following points. First, that the reference to polices in s 95 is to be understood as a reference to the whole document and not to parts of it. Secondly, that the words ``other than'' in s 95 mean that it is not sufficient that the instrument cover general insurance, the instrument must not have the character of a policy of life insurance. The process of characterisation was that undertaken in Commissioner of Stamp Duties (NSW) v Jones[24] (1971) 125 CLR 511. and The National Mutual Life Association of Australasia Ltd v Commr of State Taxation (WA).[25] 96 ATC 4615 ; 33 ATR 24. Thirdly, that ``premiums'' in s 99 is not apt to be read as referring to parts of premiums in the sense that that was done in The National Mutual Life Association of Australasia Limited v FC of T.[26] (1959) 11 ATD 523 ; (1959) 102 CLR 29. There the issue concerned the ascertainment of the true character of premiums in the hands of the insurer taxpayer. But here, by contrast, the Act picks up the premium as the payment for the act of granting or issuing a policy. That ``means that the premium is the whole premium... paid for the grant or issue of the policy as a whole''. Fourthly, the decisions in The National Mutual and Carter cases relied on by the Commissioner were distinguishable as they arose in different statutory contexts, none of which included the phrase ``other than policies of life assurance''.

89. In this case the Commissioner, as a result of the exercise of his powers under the Act, obtained information from the appellant which led him to issue the assessments in question under s 33. I do not agree with the Commissioner's submission that the phrase ``in his judgment'' in s 33 gave the Commissioner a discretionary power to apportion premiums between life insurance and general insurance. Those words qualify the words that follow, namely ``ought to be levied'', and in the context of the sub-section, particularly with regard to paragraphs (a)-(d), whether an assessment ``ought to be levied'' is clearly referable to some failure or reasonably suspected failure to do something under a substantive part of the Act. It would be a curious construction to read the creation of a power with regard to levying duty into an enforcement section in a division (Division 2 of Part 2) that deals essentially with procedure, enforcement and appeals. If s 33 were to be read as empowering the Commissioner as to the substance of levying duty, on its face it would be a broad power indeed; it is unlikely that Parliament's intention was to create an unfettered power in the Commissioner to levy whatever duties ``in his judgement'' ought to be levied. Moreover, if s 33 did create a general discretionary power, why would there be any power of apportionment prescribed by the Act?: see [91] below. I do not accept that s 33 in itself is sufficient to create a power of apportionment between premiums for general insurance and life insurance. However, the section is not inconsistent with there being a power to apportion in the Act.

90. It is thus seen that s 33 is a necessary and proper mechanism whereby the Commissioner may assess a taxpayer to the duty he considers ought to be levied. It is not a separate or additional charging section, it is a default assessment provision. However, the effect sought to be achieved here is that the premium is apportioned, and that is not a course of action open to the Commissioner, the appellant submitted.

91. One indication that apportionment was not intended in the situation of policies containing both life insurance and general insurance might be that, where apportionment is

ATC 4545

required in other parts of the Act, an express power is often given. For instance, the Commissioner is given power to apportion between subject matter that is within Victoria and outside Victoria in s 11(2), and a similar principle is adopted in s 137DA(2). Or where a conveyance of real property is effected by two or more instruments, the Commissioner has power to apportion the duty payable between those instruments: s 68. There are other cases of express power of apportionment in the Act.

92. However, in relation to s 99(1), quoted at [ 16] above, while the possibility of allocation between jurisdictions is clearly contemplated, no express power is given to apportion between assurance or insurance business which relates to Victoria and that which does not. Section 22 would not assist in distinguishing between the Victorian and non-Victorian portions of the policy and its premium. However, it is implicit that an apportionment must occur. In my view, the considerable flexibility afforded by the word ``applicable'' in the expression ``all premiums for assurance or insurance business that are applicable to... a risk contingency or event'' is directed to this apportionment on a territorial basis. I would add that it is not directed to some more general power of apportionment.

93. Further, the fact that the word ``apportion'' or ``proportion'' is not used does not mean that the Act does not allow apportionment of a premium to occur. So much of the appellant's argument rests on the phrase ``other than policies of life assurance'' in the definition of ``assurance or insurance business''. I do not consider it manifests the intention for which the appellant contends, in the context of both subdivisions, that the subdivisions have the suggested mutually exclusive operation. Ample reason for the use of the phrase is provided by the fact of the beneficial duty regime for policies of life insurance. In other words, by the phrase in combination with the definitions in subdivisions (11) and (11A) the Act is seeking to ensure that it is only policies of life insurance that have the benefit of the more favourable duty regime. I refer below to the meaning of the word ``policy''. The structure and intendment is that that which is life insurance as defined in s 111A, but only that, is to enjoy the beneficial regime for policies for such insurance. Whether a policy is for life insurance depends on the nature of the insurer's obligations in the policy instrument.

94. Further, beyond the phrase, and the assertion that ``policy'' means the whole instrument and not part of it, and that ``premiums'' means the whole premium, there is not an express statement in the Act that if a policy is found to contain an obligation within the meaning of ``assurance or insurance business'' and an obligation in the nature of ``life insurance'' that, if combined in the one policy document, the policy must be regarded as dutiable under one only of those subdivisions.

95. In my view, the complementary structure of the two subdivisions, one dealing with life insurance and the other excluding it for the purpose of setting the rate of duty, tends to support complementarity of dutiability between the two subdivisions, even where policies are contained in one document and the premiums referable to the two types of insurance cannot immediately be ascertained.

96. Moreover, the actual wording of the two subdivisions affords considerable flexibility. Duty is imposed in relation to premiums for policies of life insurance or premiums for policies of general insurance. That the component parts of the insurance policy are life insurance and general insurance respectively has been assumed in the current suppositious situation. But the questions remain:

In other words, the questions relate to the meaning of the words ``policy'' and ``premium for a policy''.

97. As quoted at [12] above, ``policy'' includes ``any instrument in any manner covering any insurance or assurance''. The word ``covering'' is a very general word. The relevant senses of the verb ``cover'' in the Oxford English Dictionary might be:

ATC 4546

The common factor is that the thing that covers is at least co-extensive with the thing which is covered; ``cover'' indicates inclusiveness, not exact correspondence. In my view, especially in the context of an expansively worded and inclusive definition, the words ``any instrument in any manner covering any insurance or assurance'' are broad enough to encompass an instrument, any part of which constitutes insurance or assurance. The consequence is that a single instrument can cover one component of insurance, while at the same time covering another component of insurance, and thus contain two or more ``policies''.

98. In relation to the meaning of ``premium for a policy'', the premium ``for'' a policy which constitutes only part of an instrument can, I think, only sensibly be that part of the total premium paid in respect of the instrument which is referable to that part of the instrument. If that referable part of the premium is not readily apparent from the face of the instrument, the insurer would no doubt have actuarial material as to what amount is so referable. If an apportionment cannot be made on the basis of actuarial material (for instance, because the premium has been calculated on a ``less scientific basis'': see [101] below), it could be done on some other reasonable basis which would be most obvious to the insurer. The Commissioner would then be able to assess the appropriateness of the basis for apportionment, either by examining witnesses under oath to obtain actuarial and other evidence where this power is available,[27] See s 105, which gives investigative power only in respect of duty payable under subdivision (11), but in the case of a policy containing both general insurance and life insurance components, the practical effect of s 105 would be to allow investigation under both subdivisions (11) and (11A). or by using the general enforcement powers found in Division 2 of Part 2, including s 33.

99. Regarding the scheme of the Act as a whole, and specifically the scheme of the two subdivisions, I am of the view that apportionment of a premium is possible in the suppositious situation being considered. Moreover, it accords with common sense and the legislative purpose that what is truly general insurance should be dutiable as general insurance, and that what is truly life insurance should be dutiable as life insurance. I conclude that an ability to apportion between the amount that should appear on a return for general insurance and a statement for life insurance is implicit in the Act.

What is life insurance?

100. In The National Mutual Life Association of Australasia Limited v FC of T,[28] (1959) 11 ATD 523 ; (1959) 102 CLR 29. Windeyer J discussed and identified the characteristics of life insurance which distinguish it from other types of insurance: He said at ATD 529-530; CLR 43-45:

``In Bunyon on Life Insurance it is said that `The contract of life insurance may be further defined to be that in which one party agrees to pay a given sum upon the happening of a particular event contingent upon the duration of human life in consideration of the immediate payment of a smaller sum or certain equivalent periodical payments by another'. This description covers the three forms which, historically, life insurance has taken, and which, singly or in combination, are the essence of a life insurance policy. All such policies are basically either term policies, whole of life policies or endowment policies. I put them in that order because it was in that order that they arose. A term policy is an insurance limited for a specified period, the sum insured being payable if the life insured dies within the period, but nothing being payable if he survives.... In modern times the basic form of life insurance is the whole of life policy in which the sum insured is payable at death.... Such policies may be kept afoot either by equal annual premiums until the maturity of the policy or by some modified form of premium; or more rarely they are paid by a single premium.

Endowment policies, in their original form of `pure endowments', are the exact opposite of term policies. In a term contract no payment is made unless death occurs within the stipulated term; in a pure endowment no payment is made unless the person whose life is insured survives the date when the policy matures.... But today pure endowment policies are unusual. As a rule an endowment policy at the present day provides for payment of the sum insured at some future date (either a particular date or the attainment of some selected age) called the maturity date, or earlier death.... All forms of endowment policy clearly come

ATC 4547

within Bunyon's definition; for payment is to be made upon the happening of an event contingent upon the duration of human life - in the case of a pure endowment, survival until the maturity date - in the case of a modern endowment, survival till the maturity date or earlier death.''

101. His Honour went on to list some distinctions between life insurance and other forms of insurance. At ATD 530; CLR 45 his Honour stated:

``Marine, fire, burglary, personal accident, motor vehicle, and other miscellaneous insurances indemnify the insured against loss from events which may or may not occur. Life insurance on the other hand is related to a contingency, death, which must occur. It is not a risk, it is a certainty; the only uncertainty is when it will occur.''

His Honour then described, at ATD 530; CLR 46, how life policies are completely susceptible of actuarial calculation for the purpose of valuation and determination of premium rates based on an assumed rate of interest and mortality tables, whereas in other forms of insurance the determination of probabilities would seem to have a less scientific basis. Having described how accident insurance began with insurance for passengers against the consequences of railway accidents, his Honour continued at ATD 531; CLR 46-47 (omitting references):

``... The separate and late origin of accident insurance emphasised its distinctive character, and emphasises, I think, that in a strict sense the term life policy is not appropriate for modern forms of combined insurances. Insurances against accidental death do in some ways resemble life policies; and they are within the Act of 1774. Yet ordinary accident policies providing for payment on accidental death have been held not to be life policies for the purposes of provisions in bankruptcy and similar legislation by which life policies are protected.

It has been suggested that the distinction between personal accident and life policies based upon the inevitability of death and the uncertainty of accident is unsound; since nearly all life policies except some deaths, for example by suicide or in an aeroplane; so that the contingency in respect of which they operate, it was suggested, is not inevitable. This is true, but the excepted risks are, in general, matters which the insured can voluntarily avoid, whereas the very purpose of an accident policy is to insure against injuries or illnesses which are not avoidable. The existence of excluded risks in life policies does not, in my view, at all impair the validity of the distinction between them and accident policies.''

Finally, at ATD 531; CLR 47 his Honour pointed out that accident and sickness policies differ from most life insurances in that they are ordinarily only annual contracts; they have no surrender value and the annual premium is, in effect, the consideration for the cover for the ensuing year.

102. In Re Carter, deceased[29] [1963] Qd R 45. Gibbs J referred to the judgment of Windeyer J and stated at 52-53 (omitting references):

``Life assurance (or life insurance - there is no fixed usage) is insurance against a contingency that must occur; the event insured against by accident insurance need never occur. A life policy may not be terminated by the insurer, provided that the premiums are duly paid, whereas an accident insurance ordinarily lasts only for one year, and the insurer is not bound to renew it: in the exceptional case in which there is a right of renewal of an accident insurance, the policy, unlike a life policy, has no surrender value. The premiums payable under a policy of life assurance, which normally are calculated actuarially having regard to the age and other circumstances of the insured, are fixed at the inception of the policy and may not be varied; on the renewal of an accident policy the insurer may demand an increase in the premium. An accident policy, under which a benefit is payable, inter alia, on a death caused by accident, is not a `policy of life assurance' as that term is ordinarily understood.''

Assessment A90076

103. I now deal with the riders or benefits which the Commissioner assessed to duty as matters of general insurance.

Waiver of premium

104. This benefit arises under each policy referred to in the Commissioner's schedule. The benefit is that in the event of total disablement

ATC 4548

of the life insured the insurer will waive payment of premiums falling due for payment during the disablement. Where the benefit is provided in children's policies it is called suspension of premium. For the children's suspension of premium, the event which gives rise to the benefit is the death or total disablement of the proponent before maturity. In neither case does the benefit operate to reduce a sum insured under the policy.

105. Given the way the case was presented, it is not necessary to set out, or separately deal with, the relevant clause in the various policies. I take account of what was said concerning the benefit in relation to each policy. However, even doing so, as a matter of substance, what I have said sufficiently describes the benefit and the circumstances in which it arises. The benefit is not available on its own, it is only available in conjunction with life cover. And it provides no independent benefit payable to the life insured. Rather, it provides a benefit by way of allowance or offset, the measure of which is the premium payable for the life cover which in fact or in effect is waived or suspended on or during the occurrence of the event which gives rise to the benefit.

106. The appellant submitted that the premium payable by the insured was in each case one sum, which included the consideration payable for the death benefit and the waiver of premium benefit. It was submitted that the waiver of premium benefit entirely depended on the existence of a premium otherwise payable for life insurance. I have already adverted to the fact that the appellant has not established that premiums were not separate or unascertainable for the various benefits. And with one particular exception, I have not been pressed with any argument as to the correctness of the amount of the premium allowed by the Commissioner in his schedule for the waiver of premium benefit and, as I understood it, the other benefits. It follows that I reject the submission of the appellant that there is no premium payable ``for'' the waiver of premium benefit which may be subject to subdivision (11).

107. The appellant submitted that the benefit is inextricably bound up with the principal death benefit and that it made no sense for it to be considered separately as a matter of insurance distinct from that life cover. It was properly to be understood as being part of a package of inducements designed to make the purchase of death cover attractive or competitive. Like the reduction of premiums in General Accident Assurance Corporation Ltd v Inland Revenue Commissioners,[30] (1906) 8 SC 477 at 482. the benefit is not in the nature of insurance. Alternatively, if it is insurance, it is life insurance because the waiver or suspension is contingent on a life.

108. The Commissioner submitted, in essence, that the occurrence of total disability, the event which triggered the benefit, was of the nature of accident insurance and not life insurance as defined in s 111A. Further, the benefit was an insured benefit the premium for which was thus dutiable under subdivision (11). Counsel for the Commissioner relied particularly on the analysis and conclusions of Windeyer J in The National Mutual Life Association of Australasia Limited v FC of T.[31] (1959) 11 ATD 523 ; (1959) 102 CLR 29. In that case, in relation to the life insurance policy with a waiver of premium benefit, Windeyer J concluded that the insurer's obligation under the principal life insurance policy was separate from its additional obligation in relation to the waiver of premium benefit. That was notwithstanding that the principal policy and the waiver of premium benefit were linked in the sense that the insurer would provide the waiver of premium benefit only to the purchasers of life insurance. His Honour stated at ATD 532; CLR 48:

``... To say: `I will sell article A for £10, and if you wish you can have article B as well for an additional £1; but I will not sell article B apart from article A', would not mean that an agreement for the sale of articles A and B together could, in any strict sense, be properly described as a contract for the sale of article A for £11. It is true that the benefit under the disability insurance was described as a waiver of premiums; and thus, it is said, the disability insurance was merely an incident of the life insurance contract. But I think that is specious. The amount assured during disability was measured by reference to the premium payable under the combined policy, but it was not payable except to maintain that policy.''

109. In my view the Commissioner correctly assessed the benefit to duty as a matter of general insurance under subdivision (11). The provision for the benefit constituted a policy for or in any manner covering insurance within the meaning of s 95, and the premium payable for it

ATC 4549

was a premium within the meaning of s 99(1)(b).

Firstcare stand alone

110. The issues under this head only concern a firstcare policy where the options are taken on a stand alone basis. Where the options are taken on a linked basis the Commissioner has treated them, with the sole exception of the waiver of premium benefit, as linked to the death cover element and assessed them to duty at the life insurance rate. He did that in accordance with his ruling referred to at [5]. Hence, in relation to firstcare linked policies I have dealt with the only issue arising. But, under firstcare stand alone, where even the death cover is optional, the Commissioner assessed to duty as general insurance the following options: crisis cover, children's crisis cover and disablement lump sum cover. That was because a benefit payable under those riders is received independently of, and not in diminution of, the sum payable for the death cover. In the policy it is stated that stand alone means:

``that each type of cover is completely independent of all other types of cover that apply to an insured person under this policy. If we pay under one type of cover, it does not affect the amount of any other cover for that insured person. The only times this doesn't apply is if we pay under the Terminal Illness Cover, when we reduce the amount of the Death Cover that applies to the insured person by the amount we pay.''

111. The crisis cover is sufficiently described at [50]. The disablement lump sum benefit was payable:

``• if an illness or injury which causes an insured person to become totally and permanently disabled happens while that insured person is covered by Disablement Lump Sum Cover; and

• they survive for 6 months after the date on which they stopped performing home duties, regular remunerative work or their professional occupation (or would have stopped performing) because of their illness or injury.

However, if an insured person meets the definition of disability in Part 2 of totally and permanently disabled, they only need to survive for 21 days.''

112. The appellant submitted that each benefit was life insurance as defined in s 111A. That was because the benefit was linked to a life and was contingent on the survival of the life insured. If the insured were to die immediately, that is, not survive for the required period, the benefit would not be payable.

113. If it were not for the requirement to survive there would be little doubt that the benefit, which clearly is in the nature of insurance, would be in the nature of sickness and accident insurance. That is because in each case the event that gives rise to the benefit being payable is illness or injury. Then, that event having occurred, actual payment awaits the elapse of the stipulated period. When, on the elapse of that period, the benefit is paid, it is paid for and in respect of that illness or injury. The imposition of the requirement to survive does not ipso facto mean that the insurance is life insurance for the purpose of subdivision (11A). The words used in a policy are not determinative of an issue as to the true nature of the contractual obligations contained in the policy.[32] See The National Mutual Life Association of Australasia Ltd v FC of T (1959) 11 ATD 523 ; (1959) 102 CLR 29 ; Re Carter, deceased [1963] Qd R 45 ; Oceanic Life Ltd & Anor v Chief Commr of Stamp Duties (NSW) 99 ATC 5217 ; (1999) 43 ATR 158 . Furthermore, the difference between life insurance and general insurance may sometimes turn on fine distinctions, and ultimately rest on matters of impression as to the relevant contractual obligations considered singly and in the instrument as a whole.

114. It is true that the elements in s 111A of a life or an event or contingency relating to or depending on a life might appear satisfied. But it is important to note that the definition also states that life insurance ``does not include insurance against accident''. The addition of those words is important. Doubtless they were added to ensure that that which may seem to fit within the definition of life insurance in s 111A but which on analysis is truly insurance against accident, is excluded from life insurance. But if the subject benefits in this case may seem to fit within the definition of s 111A, so also may they be within s 97(1)(b), which defines the premiums which are chargeable with duty under subdivision (11). The only reason why the benefits would not be insurance business for the purpose of s 97(1) would be if the requirement of survival had the result that the benefits were life insurance. For otherwise, the benefits do relate to a risk or contingency that may occur within Victoria.

ATC 4550

115. In my opinion the cover provided by the benefits is in the nature of sickness and accident insurance. The subject matter of the insurance is illness or injury. That is what the insurance is directed to covering and that is what it provides protection against. For the benefit to be paid, the requirement of survival must be satisfied. In my opinion the imposition of that requirement is more in the nature of a qualifying period to be satisfied before the insurer should have to pay the benefit shown, than a condition which renders as life insurance that which otherwise is insurance against sickness or accident.

116. The Commissioner's schedule reveals that in most cases the policy included a death benefit. In my opinion the presence of the death benefit did not mean that the other benefits in question, whether considered singly or as a whole, were so closely bound up with the death benefit, or were so ancillary or accessory to it, that they cannot be separated from it. The subject benefits are distinct and separate, and stand on their own. Moreover, the presence of the death benefit, which plainly is life insurance, does not mean that the subject benefits necessarily take that same character or that the policy as a whole has that character.[33] See NM Superannuation Pty Ltd v Young & Anor (1993) 7 ANZ Insurance Cases ¶61-163 at 77,877; (1993) 41 FCR 182 at 189 . In my opinion, the subject benefits are matters of insurance distinct from the death cover (where it was taken), and they did not, in their context in the policy, take the character of life insurance. Nor did the policy as a whole have that character.

117. In my opinion the Commissioner was correct to assess the premium for the subject benefits to duty under subdivision (11).

Supplementary Disablement Benefit

118. This benefit is an option in the whole of life and endowment policies. I described it briefly at [46]. It has two aspects, waiver of premium in the event of total disablement, and payment of benefit in the event of total and permanent disablement. The benefit is described in the policy as follows:

119. The benefit is comprised of two benefits. The first is waiver of premium which, for reasons already discussed in relation to that type of benefit, the Commissioner has assessed to duty as general insurance. The second is the provision for payment of the sum insured on the occurrence of total and permanent disablement. The Commissioner has proceeded on the basis that this second aspect is sufficiently connected to the life cover that it is to be treated as life insurance, and not separately charged to duty as a policy of general insurance.

120. I was informed by counsel, and I accept, that in its records the appellant has an actuarial break up for the benefit as a whole but no allocation of that benefit to the two parts of the benefit. The Commissioner has assessed the total amount of the premium so allocated to the benefit to duty under subdivision (11), without an allowance for the second part of the benefit which is not so dutiable. It was accepted that a recalculation should be made, and I understood that the parties would attend to that.

121. The sample policy provided includes both the separate waiver of premium benefit and the supplementary disablement benefit (including waiver of premium). It would thus seem that an insured may take up both options. However the Commissioner's schedules reveal that no insured did that in any of the whole of life policies, and that in the endowment policies the benefits are treated as one. But what if both options were taken with the result that there were two waiver of premium clauses? Might each be dutiable as general insurance? I note in that respect that there are differences in the

ATC 4551

terms of each clause. However, the question does not arise on the facts, and it was not raised before me. Accordingly I do not consider it.

122. The appellant did, however, submit that the waiver of premium part of the supplementary disablement benefit could not be treated as separate from the second part of the benefit. I do not consider that is so having regard to the language and terms of the benefit. There are clearly expressed to be two events for each, and for which there is a distinct and different benefit. The point on which the appellant relied was that the premium for the benefit was a single undivided sum. That being the case, it could not be said that the premium was paid for an instrument ``other than'' a policy of life insurance. I do not consider that this is sufficient reason to avoid the consequence, in terms of dutiability, of the fact that the first part of the benefit is a matter of general insurance just as if it stood separately in a policy as the waiver of premium rider does in the sample policy. In accordance with the statement of counsel, the parties will need to consider the apportionment of the premium. From what was said I do not understand the task, or a sensible resolution of the issue, to be impossible.

Assessment A108045

123. I now deal with the various benefits which the Commissioner has assessed to duty under subdivision (11A) as distinct matters of life insurance. The benefits are offered with term life policies and sometimes with whole of life and endowment policies. They are never offered on an independent basis. The appellant returned the policies themselves to duty at the appropriate rate in Heading IXA. However, in each case the Commissioner has assessed the subject benefits to duty on the basis that they are policies of term insurance. For this reason, no issue arises under this assessment concerning the term policies. With those policies - crisiscare and firstcare - the rate of duty on a term insurance policy is the applicable rate, and applying that rate to the several benefits produces the same overall amount of duty that was returned by the appellant. Hence, the present issue concerns only the subject benefits where they arise in whole of life and endowment policies.

Whole of life

124. Here duty has been paid on the sum insured at the ad valorem rate in Heading XIA in the Third Schedule.

125. The Commissioner's schedule identifies each benefit in the policy in addition to the death benefit. There is the waiver of premium and supplementary disablement benefit which the Commissioner has assessed at the general insurance rate and which benefits have been dealt with under assessment A90076. There are two further benefits, convertible protection and temporary insurance, which the Commissioner has separately assessed to duty at the temporary or term life insurance rate. I was informed that assessment on this basis accorded with an earlier agreement between the Commissioner and the life insurance industry. As such, the appellant accepts the assessment on those two items and has paid duty accordingly. Of the remaining items, two are in the issue. They are the guaranteed future insurability benefit and the crisis benefit. I referred to these at [46]. I deal with each in turn.

126. Counsel for the appellant submitted that the guaranteed future insurability benefit merely conferred an option to effect a further policy of life or endowment insurance. Being an option, the benefit was not insurance let alone life insurance as defined in s 111A. Further, the option could not stand on its own, it only made sense as part of the overall policy.

127. The question, as it seems to me, is not so much whether the benefit could stand as if it were in a separate instrument, but, more immediately, whether it is insurance. The benefit confers a right exercisable at the time stipulated to effect a policy of whole of life or endowment insurance, irrespective of the life insured's then state of health or occupation. The option provides for insurance but it does not thereby grant it, and the right which it confers may never be taken up. Properly understood, the benefit is an option and not insurance.

128. The appellant's submission did not address the rate of duty, whereas counsel for the Commissioner sought to establish why the rate for temporary or term cover was appropriate. In the absence of proper argument, and lest the appellant's concern was not with the rate, I do not consider the point.

129. Turning to the crisis benefit, the appellant submitted that its linkage to the sum

ATC 4552

insured meant that it was ancillary to the death cover and hence was not a distinct matter of insurance for the purpose of s 22(a). As pointed out at [46], payment of the crisis benefit will either be of the entire sum insured and thus bring the entire policy to an end, or of part of the sum insured in which case the crisis benefit terminates and the policy continues but with a reduced sum insured, the reduction being calculated according to a formula. It was submitted that the benefit represented a type of pre-payment of the agreed death benefit. It was submitted that the reasoning of Malcolm CJ in The National Mutual Life Association of Australasia Ltd v Commr of State Taxation (WA)[34] 96 ATC 4615 . was applicable and led to the result contended for.

130. The Commissioner arrived at the assessment in the following way. Crisis benefit provided cover for injury or illness. It was not life cover. In principle, it was general insurance as discussed earlier. It was a distinct matter of insurance. But the link with the life cover meant that it was appropriate to consider it as life insurance and, being a distinct matter, it was dutiable under subdivision (11A). The terms of the cover meant that the appropriate rate of duty was that applicable to term cover.

131. In considering these submissions I have had regard, in particular, to Bambro (No 2) Pty Ltd v Commissioner of Stamp Duties;[35] (1963) SR (NSW) 522. Commr of Stamp Duties (NSW) v Pendal Nominees Pty Limited & Anor;[36] 89 ATC 4207 ; (1989) 167 CLR 1. Rio Tinto Ltd v Commr of State Revenue (Vic);[37] 2000 ATC 4255 ; (2000) 1 VR 108. and of course to the decision of Malcolm CJ in The National Mutual Life Association of Australasia Ltd v Commr of State Taxation (WA).[38] 96 ATC 4615 .

132. The present issue, and the issue dealt with in those cases, is how to determine whether a benefit in a policy is a ``distinct matter'' under s 22(a) (or a section corresponding to it) when it has a link or connection with the primary benefit, which in this case is life cover. The first step is, as Adam J noted in Comptroller of Stamps v Martin,[39] (1967) VR 369 at 375. that to be ``distinct'' the matters ``must be different from the point of view of the Stamp Act and taxation''. And they must have been dutiable if contained in a separate instrument. Then, as Mason CJ stated in Commr of Stamp Duties (NSW) v Pendal Nominees Pty Limited & Anor at ATC 4212; CLR 12:

``Each case will depend on its particular facts, and will necessarily involve questions of impression and degree.''

133. In Pendal Nominees, a majority of the High Court held that the two matters there in question were distinct and separately dutiable. The critical finding was that neither matter was merely ancillary to the other. Each matter could stand on its own and would be dutiable if contained in a separate instrument. Deane and Dawson JJ dissented in their conclusions, although not on the applicable principle. Their Honours stated at ATC 4219; CLR 24 that:

``... A provision in an instrument will not properly be seen as a `distinct' matter for the purposes of sec 17(1) if it is merely accessory or ancillary to an operation or character of the instrument which brings it within a particular category of dutiable instruments under the Act.''

Section 17(1) corresponded to s 22(a).

134. In The National Mutual Life Association of Australasia Ltd v Commr of State Taxation (WA),[40] 96 ATC 4615 ; 33 ATR 24. the relevant policy provided for a benefit payable upon death, and supplementary cover for disablement or trauma; liability for the basic benefit was reduced by the amount of any payment made under the supplementary cover. The regime in the Stamp Act 1921 (WA) for imposing duty on life insurance and general insurance was that, as an alternative to paying duty by the stamping of individual policies, under s 96A(6) an approved insurer could lodge a periodic return and make payment together with the return of the amount of duty payable in respect of the policies to which the return related, those policies then being endorsed with the words ``WA Stamp Duty Paid''. The primary question before Malcolm CJ was whether the disablement and trauma cover should be treated for stamp duty purposes as part of one indivisible life insurance policy, or whether it should be treated as a separate policy of general insurance. The Commissioner assessed duty on the latter basis. Malcolm CJ held that the supplementary cover was not a distinct matter and, hence, that it was not separately dutiable as such. The factors that led to this conclusion were the linkage in the benefit payable, that the premium for the riders was only part of the consideration for them, and that the riders depended on payment of the premium for the life cover. Considered overall, the riders were accessory or ancillary to the life

ATC 4553

cover. Consequently, Malcolm CJ stated at 4629, ``the relevant instrument should be characterised as a policy of life insurance for the purposes of the relevant provisions of the Stamp Act'', and the supplementary cover was not a separate policy of general insurance.

135. In my view, on like reasoning, the crisis benefit is merely accessory or ancillary to the life cover. There is no additional benefit. Payment of the crisis benefit extinguishes in whole or in part the death benefit, and the premiums for the life cover and the crisis benefit are interrelated. In short, payment of the crisis benefit merely triggers early payment of the death benefit. The crisis benefit is not a distinct matter separately chargeable with duty at the term rate.

Endowment

136. Counsel said little about this, for several reasons as I understood it. One reason was that the three riders which were shown in the Commissioner's schedule as being dutiable at the term rate had not been taken out in any policy in the period under review. Nevertheless, the designation of the term rate stated the Commissioner's view.

137. The three riders are disablement lump sum cover (E3), guaranteed future insurability (G2/G4) and crisis benefit (C4). Counsel for the appellant said that if those benefits had arisen for consideration, the appellant relied on the same arguments as were made in relation to the whole of life policy. It is appropriate to proceed on the basis that what I have said concerning the whole of life benefits is applicable to endowment. That is how the parties approached the matter, subject of course to considering the matter in light of my judgment. There is also the fact that (as I have understood it) I was not asked to and I have not separately considered disablement lump sum cover under whole of life. If it be necessary, I will hear counsel on this aspect and generally in relation to endowment.

Investment

138. I described this policy at [52]-[53]. In summary, the policy is in respect of a life insured and for a specified term. The sample policy, by way of example, is for a term of 20 years. There is a single premium payable monthly and an insured death benefit; in the sample policy the premium is $75 per month and the insured death benefit is ``$100,000 as at the commencement date'', which was stated to be 30 September 1991. The insured death benefit provides a ``floor'' as counsel described it, while the value of the units increases with the passage of time to the expiration of the term. In the event of death prior to the expiration of the term, the insurer will pay the sum representing the value of the units plus the further amount, if any, necessary to bring the sum up to the amount of the insured death benefit. Clause 3.9 contains the obligation to pay a benefit on the death of the life insured and clause 5A.1 describes what the benefit is, namely, the excess of the insured death benefit over the value of the units. The insured death benefit works in this way, taking the sample policy as an example. If at the death of the life insured the value of the units was $80,000, the insured death benefit would be applied to make up a payment of $100,000. If there is no such balance or excess, no amount is payable under the death benefit. The insured death benefit, and the policy itself is then at an end. If, on the other hand, the life insured survives the maturity date, the benefit that is payable is the value of the units (cl. 3.7 in the sample policy).

139. The relationship between the investment and protection aspects of the policy is further indicated by the fact, noted at [51], that if the policy owner cashes units the insured death benefit is reduced according to a formula. Further, as noted, there is but one single premium. The premium for the death benefit cover is paid by releasing units to the required amount, which thereby reduces the investment amount.

140. The policy also provides that in addition to the premium, further amounts may be paid into the policy at any time (cl 3.1(b) in the sample policy). These payments are referred to as ``top-up'' payments.

141. The policy also includes a waiver of premium benefit (cl 5C in the sample policy) and a disablement lump sum benefit (cl 5D in the sample policy). I referred to these at [52].

142. The Commissioner has assessed the policy in the following way, as indicated in his schedule. He has treated the basic death benefit cover as whole of life. He has then treated the benefit payable on death (IDB/EDB) and the disablement lump benefit (TPD/E3) as distinct matters of term life cover, and assessed them to duty accordingly. The schedule also shows that he similarly treated a children's guaranteed

ATC 4554

future insurability benefit (G4). In fact, as appears from the schedule, no policy in the period under review included the disablement lump sum benefit or the children's guaranteed future insurability benefit. Nevertheless, the schedule indicates the Commissioner's attitude.

143. The Commissioner also decided that top-up payments go to increase the death cover and hence are dutiable at the ad valorem rate. I note that in his submissions counsel for the Commissioner stated that the Commissioner had erred in treating the basic cover as whole of life, and in consequently applying the lower rate of duty applicable to that category of life insurance. As the death benefit was only payable up to the maturity date, the death benefit was correctly to be characterised as term cover. Notwithstanding this, the Commissioner was of course bound to the assessment of the basic cover on the whole of life basis and did not seek to depart from it. However, equally, the Commissioner sought to uphold the application of the term rate of duty to the benefits in question. The essential issue concerning those benefits was whether the appropriate rate of duty was that for whole of life or that for term cover.

144. I deal first with the matter of the top-up payments. What is in question here is not the initial payment of premium, which in the sample policy mentioned was $75 per month, but payments made under the top-up clause subsequent to the policy commencement. Clause 3.1 provides, in relation to premiums, that:

``(a) Your premium is due and payable as stated in the Schedule.

(b) You may pay any further amount into this Policy at any time.

(c) Each year the Premium is increased in line with increases in the CPI.''

Clause 3.2 provides that payment of premiums ``results in AMP holding Investment Units and Initial Units which are allocated at their Allocation Price next determined after payment is received''. It further provides that ``the value of your Policy at any time is represented by'' the number of Investment and Initial Units held at their release price with a reduction for a cash value factor. Investment units will be released to pay the annual policy fee and any unpaid protection policy premiums. And, as noted earlier, units may be cashed prior to maturity or earlier termination of the policy.

145. Clause 3.7 provides that on maturity the appellant will release ``all [units] held under your Policy at the Release Price next determined and pay the cash value to you''. Clause 3.9 addresses the situation where the life insured dies before the maturity date. In that event the appellant ``will pay as a benefit the sum obtained by releasing all [units] held under your Policy at the Release Price next determined'' after receiving all relevant information. In other words, the benefit paid is the cash value of the unit. Clause 3.10 makes like provision in the event of the life insured becoming totally and permanently disabled before the maturity date.

146. Section 5 relates to the Protection Policy. That is the death benefit policy, which in the sample policy is for a sum insured of $100,000. It is described in the schedule as the insured death benefit. The benefit is increased each year by any increase in the CPI. Clause 5.2 provides that the insured death benefit is the amount shown in the schedule as varied under the policy ``and is comprised of the value of units under the Investment Policy with the balance, if any, being the Death Benefit under this Protection Policy''. Clause 5.4 relates to the protection policy premium, and provides that the premium for the protection policy is calculated and payable monthly, and that ``[t]he premium is the sum of the premiums for each current Benefit''. Section 5A relates to the benefit payable upon the death of the life insured prior to maturity of the policy. The benefit only applies if it is shown in the schedule and while it remains a current benefit under the policy. Clause 5A.1 provides that ``the Benefit payable on the death of the Life Insured is the excess of the Insured Death Benefit on the date of death over the value of all units under the Investment Policy held at the date of death calculated at the price for units next determined by AMP after all evidence... has been received... In the event that there is no such excess of Insured Death Benefit over value of units, no Death Benefit is payable under this Policy.'' Clause 5A.2 provides that the premium for the death benefit ``forms part of the Protection Policy premium''.

147. The disablement lump sum benefit is dealt with in section 5D. Clause 5D.2 provides that the premium for the benefit forms part of

ATC 4555

the protection policy premium. Clause 5D.3 provides that the benefit payable on the total and permanent disablement of the life insured is the excess of the Insured Death Benefit on the earlier of the date of the expiration of the period of six months after total disablement and admission of the claim over the value of all units under the investment policy at that date.

148. What has happened here is that top-up payments have been made in the period under review. Having identified those payments the Commissioner, on the basis that the payments constitute the purchase of extra cover, has assessed them to duty at the term rate.

149. The appellant submitted that the assessment was wrong. It was pointed out that there was no obligation to make top-up payments. The time of making any payment, and the amount thereof, lay entirely at the discretion of the policy owner.[41] See [36]. In those circumstances the imposition of duty pursuant to Heading XIA could not work. The duty payable on term insurance was 5% of ``the first year's premium on that policy''. Whether that meant the premium of $75.00 per month, either as a single payment of $75.00 or the aggregate of those monthly payments for a 12 month period, did not matter. That was because under Heading XIA the premium in respect of which duty was paid could not include a top-up payment. I did not understand it to be contested that a top-up payment was not properly to be considered as being in the nature of a premium. As I understood it, counsel's submission was, rather, that a top-up payment was not a premium within the meaning of Heading XIA. That was because any such payment was voluntary and could be made subsequent to the first year. I note that the payments in question in this case were made subsequent to the first year.

150. The Commissioner's case is that every payment produced, in effect, a new cover. But how was duty attracted? There was no new policy, merely voluntary payments under the initial and only policy, which payments had the effect of increasing cover under that existing policy. What is meant by cover in this respect? The short answer is that a top-up payment does not go to increase the insured death benefit. Such payments are applied to the acquisition of units under the investment plan. The number of units held under the investment plan may vary from time to time, both in number and value. At maturity of the policy the appellant pays the cash value of units then held. The same is true in relation to death or total and permanent disablement prior to maturity of the policy. It is only if the cash value of the units is less than the amount of the insured death benefit stated in the schedule, that an amount is paid under the protection policy, and then only to the extent of any excess of the insured death benefit over the value of the units. Hence, on analysis, top-up payments do not alter the amount of the insured death benefit. Indeed, in principle they go to reduce the amount payable under that benefit. For these reasons, I consider that the Commissioner's submission was not correct, if it was that the effect of a top-up payment was to increase the insured death benefit. It may be, because of the cryptic manner in which counsel's submission was presented, that it was meant in the sense that as the payment on death of the life insured was the cash value of the units, pursuant to cl 3.9, an increase in value as a consequence of a top-up payment was to be equated to an increase in the death benefit. It seems to me, however, that the better analysis is that that clause merely provided for an acceleration, as a result of death, of the maturity of the investment policy.

151. It is to be noted that in his submissions counsel for the Commissioner did not refer to s 22(a) on this matter of top-up payments. It was not submitted that s 22(a) somehow operated to deem, as it were, a top-up payment to be a separately dutiable instrument. Nor, as I understood it, was it submitted that the top-up clause in the policy (cl 3.1(b)) was a distinct matter of insurance which, if contained in a separate instrument, would have been dutiable.

152. Thus far I have considered the matter on the basis that the cover was in the nature of term cover. That was the Commissioner's contention focussing, I think, on the death benefit. The appellant contended that the correct characterisation was endowment. That was doubtless having regard to the several elements of the policy and their linkage. On that basis the benefit was seen to be payable at maturity or on earlier death. In my view the correct characterisation is that of endowment.

153. On the basis that endowment is the correct category, how would the ad valorem basis of duty apply? The question that arises is how duty could be calculated. Is there an ascertainable minimum or maximum amount

ATC 4556

for this purpose? In this respect counsel for the appellant referred to Ansett Transport Industries (Operations) Pty Ltd v Comptroller of Stamps (Vic).[42] 80 ATC 4323 at 4332; [1981] VR 35 at 47. A top-up payment is applied towards further units, but not necessarily exclusively as there are costs to be borne. There is not a sum insured as there is with a stipulated death cover. Possibly, as counsel for the appellant suggested, the initial payment of $75.00 might be the sum insured for this purpose. But that is in the nature of a premium and not a sum insured. In the circumstances, including, and in particular, that the Commissioner did not advance any argument on the point, I do no more than refer to the issue.

154. I conclude that the making of top up payments did not produce a liability to duty.

155. I now turn to the death benefit and disablement lump sum cover.

156. The appellant's position is that these benefits are inextricably bound up with the principal death cover, and are to be characterised as merely ancillary to that cover for the purpose of s 22(a). The argument is the same as that considered in the discussion concerning the crisis benefit. In my view, on the basis of the same principles and the like reasons as there discussed, the subject benefits are accessory or ancillary to the insured death benefit. As the Commissioner has assessed that benefit at the whole of life rate it follows that the subject benefits must be dealt with accordingly.

Superannuation

157. Although the policy is concerned with superannuation and hence is a policy under which contributions are made to a stipulated age, the policy is similar to the investment policy. There is an associated death policy to cover the possibility of death before attaining the stipulated age, usually 65, or earlier termination of the superannuation cover.

158. The basic life component is not assessed. But the policy (or plan) includes two benefits which the Commissioner has treated as distinct matters and assessed to duty at the term rate. They are an insured death benefit and a disablement lump sum benefit. Relevantly, they operate in the same way and with the same effect on the policy (or plan) as under the investment policy. Counsel for the appellant described the benefits as being ``completely interrelated with the investment policy and the superannuation benefit and... cannot be separated out and treated as a distinct matter''. I agree for the same reasons as applied in relation to the investment policy.

159. What is in contention is the rate of duty. Is it the rate applicable to whole of life or endowment on the one hand, or that applicable to term life insurance on the other hand? In my view the insurance is in the nature of endowment.

Conclusion

160. As I have understood the submissions, I have dealt with all matters raised for determination by the appeals. I will stand the proceedings over to allow the parties time to consider these reasons, to submit short minutes of order, and to address such further submissions, including submissions on costs, as they may be advised.

Footnotes

[1] The Duties Act 2000 came into operation on 1 July 2001. The Stamps Act is thereby repealed, but applies to these proceedings by virtue of s 14 of the Interpretation of Legislation Act 1984. The result of this enactment and repeal is that some questions in these proceedings are of ongoing significance, but some are not. Specifically, where the Duties Act is applicable, s 195 of that Act would resolve categorically the question of apportionment.
[2] 96 ATC 4615.
[3] 90 ATC 4088 at 4091; (1989-1990) 168 CLR 614 at 624.
[4] Compare s 60C, which creates a system of weekly returns for brokers for on-market share transfers. That section speaks of the broker paying stamp duty ``in respect of the sales and purchases included in a return''.
[5] See s 98(1) of the Stamps Act 1946 (Act 5204); s 99(1) of the Stamps Act 1958 (Act 6375); and amendments to s 99(1) by s 2(3) of Act 6552 in 1958 and s 2 of Act 9208 in 1978.
[6] Hansard , Legislative Council, 12 November 1998, p 773.
[7] I have included the word ``than'', without which it is difficult to make sense of the definition and the omission of which I think is clearly an error. The definitions in s 111A, which were inserted by Act 32 of 1999, are closely modelled on the definitions of ``policy of life insurance'' and ``policy of insurance against accident'' which had remained unchanged since the insertion of subdivision (11A) by Act 7204 in 1964. The definition of ``policy of insurance against accident'' includes the word ``than'' in the relevant position. The omission has been carried over into s 198 of the Duties Act 2000.
[8] It is possible that the value of the investment units would eventually exceed the specified total benefit. In that case, there would be no payment under the protection policy.
[9] Exhibit NL AA 13 to the affidavit of Michael Aa sworn 15 August 2001.
[10] Para (b) is omitted as both parties regarded it, correctly, as irrelevant to the case.
[11] 2000 ATC 4255 ; (2000) 1 VR 108.
[12] (1872) LR 7 Ex 211.
[13] Farrar v Commissioner of Stamp Duties (NSW) (1975) 5 ATR 364 , approved in Commr of Stamp Duties (NSW) v Pendal Nominees Pty Limited & Anor 89 ATC 4207 ; (1989) 167 CLR 1 .
[14] See [64].
[15] (1959) 11 ATD 523 ; (1959) 102 CLR 29.
[16] (1959) 11 ATD 523 at 524-525; (1959) 102 CLR 29 at 36-37 per Taylor J.
[17] (1906) 8 SC 477.
[18] (1959) 11 ATD 523 at 533; (1959) 102 CLR 29 at 50.
[19] Supra at ATD 533; CLR 50.
[20] [1963] Qd R 45.
[21] Supra at ATD 534-535; CLR 53.
[22] (1993) 7 ANZ Insurance Cases ¶61-163 at 77,888-77,889; (1993) 41 FCR 182 at 203-204.
[23] 99 ATC 5217 ; (1999) 43 ATR 158.
[24] (1971) 125 CLR 511.
[25] 96 ATC 4615 ; 33 ATR 24.
[26] (1959) 11 ATD 523 ; (1959) 102 CLR 29.
[27] See s 105, which gives investigative power only in respect of duty payable under subdivision (11), but in the case of a policy containing both general insurance and life insurance components, the practical effect of s 105 would be to allow investigation under both subdivisions (11) and (11A).
[28] (1959) 11 ATD 523 ; (1959) 102 CLR 29.
[29] [1963] Qd R 45.
[30] (1906) 8 SC 477 at 482.
[31] (1959) 11 ATD 523 ; (1959) 102 CLR 29.
[32] See The National Mutual Life Association of Australasia Ltd v FC of T (1959) 11 ATD 523 ; (1959) 102 CLR 29 ; Re Carter, deceased [1963] Qd R 45 ; Oceanic Life Ltd & Anor v Chief Commr of Stamp Duties (NSW) 99 ATC 5217 ; (1999) 43 ATR 158 .
[33] See NM Superannuation Pty Ltd v Young & Anor (1993) 7 ANZ Insurance Cases ¶61-163 at 77,877; (1993) 41 FCR 182 at 189 .
[34] 96 ATC 4615 .
[35] (1963) SR (NSW) 522.
[36] 89 ATC 4207 ; (1989) 167 CLR 1.
[37] 2000 ATC 4255 ; (2000) 1 VR 108.
[38] 96 ATC 4615 .
[39] (1967) VR 369 at 375.
[40] 96 ATC 4615 ; 33 ATR 24.
[41] See [36].
[42] 80 ATC 4323 at 4332; [1981] VR 35 at 47.

 

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