Terry v Federal Commissioner of Taxation [1920] HCA 31; (1920) 27 CLR 429 (13 May 1920)

HIGH COURT OF AUSTRALIA

Terry and Another Appellants; and The Federal Commissioner of Taxation Respondent.

H C of A

13 May 1920

Knox C.J., Gavan Duffy, Rich and Starke JJ.

Hayes, for the appellants.

Pigott, for the respondent,

Knox C.J.

This is a special case stated on an appeal from an assessment to land tax by the trustees of Albert Terry deceased. The questions raised by the special case are whether the appellants are entitled to seven deductions of £5,000 each or, alternatively, to four deductions of £5,000 each or to one deduction only of £5,000. The questions raised turn on the application of sec. 38 (7) of the Land Tax Assessment Act 1910-1916. There is no statement in the case now submitted to the Court, as there was in Hoysted v. Federal Commissioner of Taxation[1], which we decided recently, that the taxpayers had been assessed as joint owners. It appears that the assessment, as far as we can gather from the case, was made on the appellants in their representative character as trustees of the estate of Albert Terry deceased.

The relevant dispositions by the will are, briefly, that this land, which formed part of the residuary estate of the testator, was devised to the trustees in trust for seven children of the testator in certain specified unequal shares, with a proviso that the shares of the sons should not vest until they were forty years of age, and that the shares of the daughters should not vest until they attained the age of forty years or married under that age. The will further provided that maintenance might be allowed to each beneficiary out of the income of his or her share during the period proceeding the absolute vesting of the shares, and that so much of the income as was not so applied should be accumulated and treated as an accretion to the share from which that income was derived. In these circumstances the first question is whether the beneficiaries can bring themselves within the first part of sub-sec. 7 of sec. 38. If they cannot, it is unnecessary for us to consider whether they are owners of original shares in the land within the later words of the sub-section. The first part of the sub-section runs thus: "Where, under a settlement made before the first day of July one thousand nine hundred and ten, or under the will of a testator who died before that day, the beneficial interest in any land or in the income therefrom is for the time being shared among a number of persons, all of whom are relatives of the settlor or testator by blood, marriage, or adoption, in such a way that they are taxable as joint owners under this Act"; then the consequences provided in the later part of the sub-section follow. Now, it is quite clear in the present case that the only persons who have any beneficial interest in the land or in the income therefrom are persons who are relatives of the testator by blood. But that is not enough to bring the sub-section into operation. The sub-section requires that those persons shall not only be relatives of the testator but that they shall hold the beneficial interest given by the will in such a way that they are taxable as joint owners under the Act. It therefore becomes necessary to inquire what is requisite to enable persons having interests in land to be taxed as joint owners under the Act. For that purpose we turn to the definition in sec. 3 of the term "joint owners," and so far as it is relevant it is in these words: "Joint owners means persons who own land jointly or in common, whether as partners or otherwise." To understand that definition, it is necessary to look at the definition in the same section of the word "owner," which is: "Owner, in relation to land, includes every person who jointly or severally, whether at law or in equity—(a) is entitled to the land for any estate of freehold in possession; or (b) is entitled to receive, or in receipt of, ... the rents and profits thereof," &c. In Hoysted v. Federal Commissioner of Taxation[2] my brother Starke and I dealt with the suggestion made in that case that owners of a contingent estate in remainder might, on the arguments put forward in that case, be rendered liable to land tax although they had no present interest in the income from the land. We said this[3]: "It was suggested in argument that the result of our opinion would be to render liable to taxation persons having contingent interests but having no present interest in or right to receive the profits of the land; but in our opinion this is not so, for a person in that position would clearly not come within the definition of owner contained in sec. 3, not being either entitled to the land for an estate of freehold in possession, or entitled to receive, or in receipt of the rents and profits thereof," and we referred to Glenn v. Federal Commissioner of Land Tax[4]. In my opinion, in order to render a person liable to taxation as an owner of land under the Land Tax Assessment Act, it is necessary that he shall either be entitled to the land for an estate of freehold in possession or be entitled to receive or in receipt of the rents and profits thereof, and, in order to render a number of persons liable to taxation as joint owners, it is necessary that they should jointly occupy the same position with regard to the land or the rents and profits thereof as an individual owner would occupy in his own person. Now, in the present case it is quite clear that until the absolute vesting of the estate, that is, until each son attains the age of forty years and each daughter attains that age or marries earlier, they have no present interest enforceable at law or in equity in the land or in the rents and profits of it. There is power in the trustees in their discretion to allow maintenance out of the rents and profits and advancement out of the corpus, but this power is discretionary only, and gives no enforceable right except a right to compel the trustees to exercise their discretion. Otherwise the beneficiaries have no present interest in the land or in the rents and profits thereof.

For these reasons I think it is clear that the beneficiaries do not come within the requirements of the first part of sub-sec. 7 of sec. 38, not being taxable as joint owners under this Act.

The further questions on the later part of the sub-section do not arise, and therefore it is not necessary to express an opinion upon the question whether the estates of the beneficiaries are vested or contingent. Whatever they are, the beneficiaries are clearly under the will not entitled to the land for an estate of freehold in possession, or entitled to receive or in receipt of the rents and profits of the land.

I am, therefore, of opinion that the questions should be answered: (1) No; (2) No; (3) Yes.

Gavan Duffy J.

I concur.

Rich J.

I consider that the case under appeal is a fortiori to Glenn v. Federal Commissioner of Land Tax[5], the decision in which is binding upon me. I therefore concur.

Starke J.

I concur.

Questions answered: (1) No; (2) No; (3) Yes.

Solicitors for the appellants, Snowden, Neave & Demaine.

Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth.