Adams v Federal Commissioner of Land Tax

[1919] HCA 42

26 CLR 341

THE FEDERAL COMMISSIONER OF LAND

RESPONDENT. TAX Land TaxAssessment-Equitable life tenant-Annuitants- Owner Joint

owners " - Land Tax Assessment Act 1910-1911 (No. 22 of 1910-No. 12 of 1911), secs. 3, 34, 35, 38.

By his will a testator who died before 1st July 1910 devised certain land and premises to trustees upon trust to carry on the business in which he was engaged at the time of his death, and he directed them out of the net profits of the business and the rents of the properties to pay certain " annuities or yearly sums of money" to certain persons for their lives, and 'subject to the pay- ment of the aforesaid annuities or yearly sums " to pay the net profits annually to the appellant, his nephew.

Held, that the appellant was the "owner " of the properties within the definition of that word in sec. 3 of the Land Tax Assessment Act 1910-1911, and that the annuitants were not "joint owners with him of those pro- perties, and, therefore, that the appellant was properly assessed as the owner of an equitable estate for life in the whole of the land, a deduction from the unimproved value thereof being made under sec. 34 of a sum which bore the same proportion to the value of the annuities as the unimproved value of the land bore to its improved value.

Cochrane v. Federal Commissioner of Land Tax, 21 C.L.R., 422, followed.

CASE STATED.

On an appeal by William Joseph Adams to the High Court from an assessment of him for Federal land tax for the year 1911-1912, Barton J. stated the following case for the opinion of the Full Court :

26 CLR 342

1. George Adams formerly of Hobart in the State of Tasmania, now deceased, was at the date of his death hereinafter mentioned the owner of (inter alia) land and personalty situated in the States of Tasmania and New South Wales.

2. The said George Adams duly made his last will and testament on 16th March 1901.

3. The said George Adams died on 23rd September 1904, without having altered his said will in manner material to be stated for the purposes of this appeal.

4. Probate of the said will and a certain codicil thereto was in the month of November 1904 duly granted by the Supreme Court of Tasmania to the executors therein named, and such probate was on 30th March 1905 duly resealed by the Supreme Court of New South Wales. The legal estate in the said lands of the testator is vested in the said executors (the trustees hereinafter referred to).

5. The provisions of the said will material to this appeal are as follows -The testator gave, devised and bequeathed all his real and personal estate other than in the State of Tasmania to his trustees, as to the properties situated in Pitt Street and George Street, Sydney, with the hotel, theatre and other buildings thereon erected, and also the electric lighting plant used in connection with the lighting (inter alia) of the said buildings, and all the stock-in- trade, furniture, plate, linen, china, goods, chattels and effects of every kind and description whatsoever belonging to him and being in the said buildings, upon trust with the full and absolute power of owners to carry on the business or businesses which he should be carrying on at the time of his decease upon or about the said buildings, and to let and manage all the other buildings on the said properties, SO long as any of the annuities thereinafter declared to be payable out of the profits arising from such carrying on, letting and management should be payable or until capitalization under the powers and provisions for that purpose thereinafter contained of such of the said annuities as for the time being might remain payable. Testator directed his trustees, out of the net profits arising from the carrying on of his said business or businesses and from the letting and management of the said other buildings as aforesaid, to pay the following annuities or yearly sums of money to the

26 CLR 343

following persons for their lives: To Charles Adams, £500 a year; to Mrs. G. J. Barry, £250 a year; to Phil Glenister, £200 a year to George Loseby (named George Lowsby in the will), £100 a year; to Emily Hayden, £100 a year; to Mrs. William Adams, £200 a year; and, from and after the death of Mrs. William Adams, £200 a year equally between the children of one Mary O'Regan (then deceased) and the survivors and survivor for the time being of such children during their respective lives. The testator also directed his trustees thereout to pay to his wife Louie Adams, if they in their absolute and uncontrolled discretion should think fit, during her life or during any shorter period or periods any sum or sums of money not exceeding in the whole £250 in any one year.

The said Mrs. William Adams predeceased the testator, and Charles Adams and George Loseby died on 19th October 1906 and 12th May 1908 respectively. The children of the said Mary O'Regan are the following: E. M. O'Regan, R. O'Regan, B. Chapman, L. G. I. O'Regan.

Subject to the payment of the aforesaid annuities or yearly sums and to the payment and satisfaction of any mortgages, charges and other encumbrances existing at his death on the aforesaid properties situate in Pitt Street and George Street, Sydney, testator directed his trustees to pay the said net profits annually to his nephew William Joseph Adams, the appellant (in the said will named William James Adams).

6. The net income received by the trustees from the said lands in the year ending 30th June 1911 available for the said annuitants and the appellant was £4,875, of which £1,000 was paid as follows: To Mrs. Louie Adams, £250; to Mrs. G. J. Barry, £250; to Phil Glenister, £200; to Emily Hayden (then Emily Wall), £100; to E. M. O'Regan, £50; to R. O'Regan, £50; to B. Chapman, £50 to L. G. I. O'Brien, £50-being certain of the said annuitants and £3,875 was paid to the appellant. None of the said annuities have been capitalized, and the said lands are subject to a mortgage carrying interest paid out of gross income thereof.

7. The appellant duly for the financial year 1911-1912 furnished return to the respondent for the purposes of assessment and levy of land tax on land owned by him.

26 CLR 344

8. In the said return the value of the appellant's interest in the Pitt Street and George Street properties (herein called the said lands) was arrived at by taking as the value of such interest such part of the value of the said lands as bore to the remainder of the value of the said lands the same proportion as the said income of the appellant bore to the total amount of the said annuities, the appellant contending that he and the said annuitants are to be treated for the purposes of land tax as the joint owners of the said lands in proportion to the respective amounts of income they are entitled to receive therefrom.

9. The respondent has assessed the appellant for the said year on the basis of the appellant being the sole equitable owner of the said lands, making a deduction in respect of annuities under sec. 34 of the Act.

10. The appellant has lodged objections to such assessment claiming: 1 that the said assessment was excessive 2 that he had been assessed as sole equitable owner instead of as one of the joint owners of the property in question; (3) that his assessable interest in the said property should have been computed on the basis of that proportional part only of the whole income from the said property paid to him.

11. The respondent disallowed the said objections, whereupon the appellant requested the respondent to treat the said objections as a notice of appeal. The respondent did so, and this appeal was instituted accordingly.

12. The appellant and the respondent are desirous of having the following questions determined by the Court :-

1Whether the appellant should be assessed on the basis mentioned in par. 8 hereof. 2In the event of question 1 being answered in the negative, on what basis should the appellant be assessed ? Campbell K.C. (with him Weston), for the appellant. The appel- lant and the other persons entitled to the income of the properties are "joint owners' within the definition in sec. 3 of the Income Tax Assessment Act 1910-1911. Although the gifts to those other persons are stated to be of annuities or yearly sums, they are gifts 26 CLR 345

of the income of the property, and therefore are gifts of shares of the income, just as the gift to the appellant is a gift of a share of the income. It cannot make any difference that some of the gifts are of specific sums and one of them is of what remains after those sums are paid. The gifts of the specified sums are not charged on the land, and therefore the case does not fall within sec. 34, which does not apply to a gift of the whole income from property among several beneficiaries. What is given to the persons other than the appellant is a part of the estate. The contention of the Commissioner would allow the property to escape taxation if the payment of the specified sums absorbed all the income. The case of Cochrane v. Federal Commissioner of Land Tax 1 does not touch this case, because in that case there was a direction to pay annuities without reference to the land. That case leaves open the question whether several annuitants can be joint owners. If in point of fact the annuitants are entitled to shares of the rents and profits, they are joint owners with the appellant.

[ISAACS J. referred to Garfitt v. Allen 2 and Evans v. Walker 3.] There is no reason for making a distinction between gifts of sums payable out of income and gifts of income.

Leverrier K.C. (with him McTague), for the respondent. In the definition of the term "joint owners," share means some aliquot share, that is, some defined proportion of the income. The gift of a fixed sum out of income is not a gift of a share of the income. To the appellant is given the whole of the rents and profits of the properties subject to the yearly payment of certain fixed sums. That being so, he comes within the definition of "owner." The annuities are not interests in the land, but are legacies charged upon the land.

[Counsel was stopped. Campbell K.C. in reply.

BARTON J. This question need not be dealt with at any length. The testator, as to his properties in Pitt and George

121 C.L.R., 422. 237 Ch. D., 48. 33 Ch. D., 211. 26 CLR 346

Streets, left them to the trustees on trust to carry on the business

in which he was engaged at the time of his death. He directed his trustees out of the net profits of the business and rents of the properties to pay certain "annuities or yearly sums of money" to named persons for their lives. Then followed a clause by which, "subject to the payment of the aforesaid annuities or yearly sums," he directed his trustees to pay the net profits annually to his nephew, the present appellant.

Now, it seems to me that subject to the payment of the annuities the appellant was to receive the whole of the rents and profits. In my opinion the appellant therefore came within the definition of "owner" in sec. 3. It is claimed that he and the annuitants are joint owners. For that to happen the annuitants must also fall within the definition of " owner." I cannot see any clause of it under which they can come. They are not entitled to the land for any estate of freehold in possession, nor are they entitled to receive, or in receipt of, or if the land were let to a tenant would they be entitled to receive, the rents and profits thereof. The terms of the will are against that contention. Nor do the annuitants come within the definition of "joint owners," because joint owners must be persons who " own " land jointly or in common, whether as partners or otherwise, or persons who have a life or greater interest in shares of the income from the land. The annuities given to them are not "shares" in the estate or in its income. There is not a vestige of any designation by which they can come within the definition. If we were to allow the claim of the appellant we should in my view be overruling Cochrane v. Federal Commissioner of Land Tax 1. Not only do Ispeak with sole reference to the point actually decided in that case, for the reasoning of Griffith C.J., with which it was my lot to concur, seems to me to be decisive to show that annuitants for life, under circumstances sufficiently similar to these for the purpose of comparison, are not "owners." I see nothing in what Mr. Campbell has SO strenuously and SO carefully urged to differentiate that case from this. I am therefore of opinion that the appellant is the beneficial owner of the land and that the annuitants are not owners, and therefore cannot be joint owners with him, or he with them.

121 C.L.R., 422. 26 CLR 347

26 C.L.R.]

OF AUSTRALIA.

I am of opinion that the questions should be answered: 1 "No"; H. C. (2) On the basis adopted by the Commissioner."

ISAACS J. I agree, and wish to add only a few words. On the construction of the will the appellant is the equitable life tenant and he has that interest subject to the payment of the annuities. Those annuities do not constitute the takers of them owners of the land either within the meaning of the Act or apart from it. On two grounds I hold that that is SO: first, because Cochrane v. Federal Commissioner of Land Tax (1) is decisive-this is an à fortiori case and, secondly, because even apart from that case I arrive at the conclusion that the takers of the annuities, who on the construction of the will receive a gift not of an interest in the land or its rents and profits, but of an annuity out of the rents and profits, are not

owners " within the meaning of the Act.

RICH J. I agree, and I have arrived at the same opinion as my brethren apart from the decision in the case which has been cited, basing my judgment solely upon the ground that the gifts to the annuitants are pecuniary legacies charged on the land and are not devises or interests in the land.

Questions answered as follows: (1) No; (2) On

the basis adopted by the Commissioner. Solicitors for the appellant, Sly &Russell. Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth.

121 C.L.R., 422