Commissioner of Stamp Duties (Qld) v Lansdowne

[1927] HCA 29

40 C.L.R.j

OF AUSTRALIA.

[HIGH COURT OF AUSTRALIA.]

COMMISSIONER OF STAMP

DUTIES

(QUEENSLAND)...................................

Appellant ;

AND

LANSDOWNE AND OTHERS

Respondents.

ON APPEAL FROM THE SUPREME COURT OF

QUEENSLAND.

Saccession Duty—Will—Exemption from duty—Duty on moneys applied in payment of succession duty according to trust therefor—Valuation of shares in a company —Market value—Deduction of brokerage—Succession and Probate Duties Acts 1892-1920 (Q.) (56 Viet. No. 13—10 Geo. V. No. 29), sec. 12.

The Succession and Probate Duties Acts 1892-1920 (Q.), by the proviso to see. 12, enacts that “no duty shall be payable . . . upon any moneys applied to the payment of the duty on any succession according to any trust for that purpose.”

A testator, by his will, after giving legacies to his sisters, gave to his trustees a sum of £16,000 in trust for his daughter subject to the payment thereout by his trustees of all succession duties payable in respect of his estate and every succession thereto (including successions to residue). He declared that the limitation on the beneficial interest of his daughter in the said sum should be a trust of moneys applied to the payment of the duty on any succession under and pursuant to sec. 12 of the Succession and Probate Duties Acts. The testator then made provision for his wife by creating a trust in her favour for life of certain shares in a company. He devised and bequeathed his real estate and the residue of his personal estate upon trusts in favour of his children and their issue.

Held, (1) that no succession duty was payable upon any part of the £16,000 payable for duty; (2) that the whole of that sum should be added to the rest of the estate for the purpose of determining the rate of succession duty

H. C.of A. payable on the estate ; and (3) that, for the purpose of ascertaining the value of the shares, brokerage should be deducted from the market value of the shares.

In re Philp, (1925) S.R. (Q.) 96, overruled.

Decision of the Supreme Court of Queensland (Full Court) :

In re McWhirter

(1927) S.R. (Q.) 98, in part affirmed and in part reversed.

Appeal from the Supreme Court of Queensland.

The testator, James McWhirter, who died on 21st July 1925, by his will bequeathed legacies of £100 each to his three sisters, free

of all probate, succession and estate duties.

He bequeathed £16,000

to his trustees, which sum he directed his trustees to raise by way of sale or mortgage of his real and personal estate and set aside (including therein all moneys, including bonuses, payable on death under any policy of assurance on his life) in trust for his daughter Elizabeth Dawson Muir, subject to the payment thereout of all succession duties payable in respect of his estate and every succession thereto including successions to residue payable under the law of Queensland. The testator then declared that this limitation on the beneficial interest of his daughter in the £16,000 was to be deemed a trust of moneys applied to the payment of the duty on any succession pursuant to the provisions of sec. 12 of the Succession and Probate Duties Acts 1892-1920, in terms of the last proviso to that section. He further directed his trustees to stand possessed of such part of the £16,000, as shall remain after payment of the succession duties for the use and benefit of his daughter Mrs. Muir. The testator also bequeathed to his trustees 22,000 fully paid up shares upon trust to pay the annual income free of all probate, succession and estate duties, but after payment thereout of State and Federal income tax to his wife Agnes McWhirter during her life ; and he declared that on her death the 22,000 shares should sink into and form part of his trust estate, and be subject to the same trusts and divisible among the same persons. The testator devised all his real estate and bequeathed all the rest and residue of his personal estate to his trustees upon trust to pay his debts and funeral and testamentary expenses, and subject thereto to stand possessed of his real and residuary personal estate upou

trust to be divided into seven equal shares, and to stand possessed of such shares free of succession duty as thereinbefore provided upon certain trusts in favour of his children and their issue. The personal estate of the testator included 78,700 fully paid ordinary shares in McWhirter’s Ltd. of £1 each, which were valued by the trustees at 23s. 8fd. each, being the market quotation for those shares on the date of the testator’s death less 3|d. brokerage which would be payable on the realization of such shares.

The Commissioner of Stamp Duties assessed succession duty on the whole of the assets of the testator including the sum of £16,000, at the rate applicable to that amount under the Succession and Probate Duties Acts 1892-1920.

The trustees (Oliver James Lansdowne, Duncan Forbes Maxwell and Alexander Joseph MacDonald), who were also the executors named in the will, being dissatisfied with the assessment appealed by way of petition to the Supreme Court under sec. 50 of the Succession and Probate Duties Acts 1892-1920, and the Full Court in giving its opinion declared (1) that no duty was payable in respect of so much of the sum of £16,000 as was to be applied to the payment of succession duties ; (2) that the whole of the sum of £16,000 should be added to the remainder of the estate so as to form one estate for determining the rate of succession duty payable ; (3) that no part of the sum of £16,000 forms part of the residuary bequest, Elizabeth Dawson Muir being entitled to any balance after the payment of duties ; (4) that in assessing the value of the shares, no brokerage should be deducted from such value : In re McWhirter (1).

From the first clause of those declarations the Commissioner appealed to the High Court; and the trustees cross-appealed as to the second and fourth clauses.

Henchman (with him Fahey), for the appellant. The trust in favour of Mrs. Muir was a gift of residue, and not a trust within the meaning of the proviso in sec. 12 of the Succession and Probate Duties Acts 1892-1920. The proviso would not apply where portion of the residue had been apportioned to pay the duty on the whole

(1) (1927) S.R. (Q.) 98.

of the residue {In re Philp (1) ). There was no trust, because the residuary legatee was directed to pay what by law he had to pay. [Counsel referred to In re Kennedy; Corbould v. Kennedy (2).] The whole of the estate should be taken into consideration in arriving at the rate of duty. The proviso to sec. 12 does not apply to the

rate of duty.

The value of the shares is the market price without

any deduction for brokerage.

Stumm K.C. (with him McGill), for the respondents. There was a direct trust for the payment of succession duty. Mrs. Muir suffers by whatever happens to be the amount payable for duty. The sum of £16,000 must be taken out of the estate and set aside for succession duty and for Mrs. Muir. It is to be treated as a special fund given to Mrs. Muir subject to deduction of the amount of succession duty payable on the estate ; no part of it is residuary. The case is distinguishable from In re Philp (3) : in that case the duty was payable out of a trust, the balance reverting to residue. The portion of the £16,000 required for duty cannot be taken into account in estimating the value of the estate. Realization of the shares on sale would involve brokerage charges, and the beneficial succession is reduced by the amount of those charges.

Henchman, in reply.

Cur. adv. vult.

The following written judgments were delivered :— all succession duties payable in respect of his estate and every

Isaacs A.C.J. The respondents appealed to the Supreme Court

of Queensland against the assessment of succession duty which the

present appellant made upon them as executors and trustees of the

will of James McWhirter. The testator, who died in 1925, left

property to the value of a little over £100,000. His directions, so

far as material, were as follows : (1) a legacy of £100 to each of

three sisters ; (2) to raise £16,000 in trust for his daughter Elizabeth

(1) (1925) S.R.(Q.) 96, atpp. 104,105.

(2) (1917) 1 CL 9.

(3) (1925) S.R. (Q.) 96.

succession thereto, including succession to residue—and this provision he declared to be a trust of moneys applied to the payment of the duty under sec. 12 of the Act; (3) a bequest of 22,000 shares upon trust to pay the income to his wife for life, free of all duties, remainder to form part of his trust estate ; (4) his residue (called his trust estate) to pay debts, and then upon trust to divide into seven equal shares, free of succession duties, to his children and their issue. The Commissioner’s assessment was challenged inas­ much as it (a) treated the moneys part of the sum of £16,000 and directed to be paid in respect of succession duties as themselves chargeable with duty, (b) treated those moneys as subject to be added to the remainder of the estate so as to form one estate for determining the rate of succession duty payable, (c) valued the shares at 24s. each, that is. at the full market price—disallowing a deduction of 3-|d. per share brokerage which would have to be paid for realizing the shares.

The Supreme Court by a majority held that the assessment as to the several matters mentioned was wrong as to the first, but right as to the second and third. The Court also held that what was left of the £16,000 after paying duties goes to Mrs. Muir. This last decision is unchallenged. The Commissioner has appealed against the first decision ; and the respondents have cross-appealed against the second and third.

As to the first question, I am of opinion that the decision was right. But I arrive at this result for reasons other than those expressed by the majority of the Supreme Court. The ground there relied on was that this case was distinguishable from Philp’s Case (1). If distinguishable at all (as to which I express no opinion) it is difficult to distinguish it in respect of the succession duty payable in respect of the benefaction to Mrs. Muir out of the £16,000. As I have stated, the Court held that any residue of that fund after paying the duties comes to her, and that is not now questioned. The petition does not state any facts which show that the whole of the £16,000 would be exhausted by duties, and therefore there is nothing which as to this displaces the statutory prima facie accuracy of the assessment (sec. 56a, sub-sec. 2 (i) (b) ). For that reason also, but

(1) (1925) S.R. (Q.) 96.

mainly for general reasons of importance, I prefer to test this question by construing the Act itself. Sec. 12 in its final proviso enacts that “ no duty shall be payable under this Act . . . upon any moneys applied to the payment of the duty on any succession according to any trust for that purpose.” It is perfectly evident that the Legislature in making that proviso was taking out of the liability to taxation certain moneys otherwise liable. And the only conditions stated as necessary to take the moneys out of their primary liability are (1) that they should be moneys applied to the payment of the duty on any succession, and (2) that this application should be according to any trust for that purpose, that is, for the purpose of that application. There is no requirement of separation from any fund by which a succession is given, nor is any distinction made between any classes of gifts. A provision in a will or deed which answers the description of a trust for the purpose stated, is a trust within the meaning of the proviso. That being, in my opinion, the meaning of the relevant provision in the proviso, it follows that, in my opinion, the view taken in Philp’s Case (1) by McCawley C.J. was right. It would be a serious obstacle if the provision so interpreted were unworkable ; but, as McCawley C.J. said, there is no difficulty in practically applying the construction. Suppose the most difficult case, a gift of residue, say of a value of £12,000, with a prior trust to pay succession duties on the residue. The rate is known from ascertaining the totality of the statutory “ estate.” Assume that to be 20 per cent. Then £12,000 represents succession plus duty. The duty is one-fifth of the succession. The sum of £12,000 therefore represents six-fifths of the succession, and the duty is therefore £2,000, the net benefaction being £10,000. The gift of that duty is, as will be presently shown, itself an additional legacy. Warrington L. J. said in In re Kennedy \ Corbould v. Kennedy (2), in a passage which vitally touches the question we are now considering : “ There is no residue until that legacy, as well as legacies in the ordinary sense, has been paid.'’ Applying these principles to the present case, there is no difficulty in seeing that the Muir fund of £16,000 is a trust within the meaning of the proviso, and can be mathematically worked out. The appeal

(1) (1925) S.R. (Q.) 96.

(2) (1917) 1 Ch.. at pp. 14-15.

as to this fails.

Philp’s Case (1) should, in my opinion, be regarded

as overruled.

The next question is whether the same moneys “ upon ” which “ no duty shall be payable ” are to be taken into account in estimating the “ one estate ” mentioned in sub-sec. 2 of sec. 12, so as to find the appropriate rate for every succession. Those moneys are pecuniary legacies to the beneficiaries to the extent to which their respective succession duties are paid (Farrer v. St. Catharine's College, Cambridge (2); In re Turnbull; Skipper v. Wade (3), and per Warrington L.J. in In re Kennedy (4) ). In other words, those moneys are themselves “ successions ” within the meaning of sec. 4 of the Act. The effect of the relevant words of the proviso to sec. 12 is to relieve that particular succession of the liability to pay duty, but it does not relieve other successions of the liability to pay their duty at the rate ascertained as directed by the Act. That rate is found by a process which is described in sub-sec. 2 of sec. 12, and which is incomplete without taking into account the moneys included in the trust. The cross-appeal as to this fails, in my opinion.

The last matter in dispute is whether the brokerage should be deducted from the gross selling price for the purpose of valuing the shares. In Archibald v. Commissioners of Stamps (5) I used words which I shall quote as representing my reasons for the view I take of this third question. I said :—“ Now succession duty was well known in England since 1853, and the Queensland Act was based on the English Act. Such a duty seeks out the successor and inquires what property he has received by reason of his predecessor’s death, and taxes him upon the benefit he has received: See per Pollock C.B. in Attorney-General v. Middleton (6). The same learned Judge subsequently expressed the principle in a few words : ‘ When anybody gains bv a death the State shares his benefit ’: Attorney-General v. Gell (7). Baron Wilde, in Attorney-General v. Sefton (Earl) (8), said : ‘ The object of taxation, therefore, was

(1) (1925) S.R. (Q.) 96. (5) (1909) 8 C.L.R. 739, at p. 757.

(2) (1873) L.R. 16 Eq. 19.

(6) (1858) 3 H. & N. 125, at pp. 137,

(3) (1905) 1 Ch. 726, at p. 729.

138.

(4) (1917) 1 Ch., at pp. 14-15.

(7) (1865) 3 H. & C. 615, at p. 631.

(8) (1863) 2 H. & C. 362, at p. 374.

HIGH COURT

11927.

A. the actual benefit derived by the individual and not the property itself.’ Baron Wilde’s judgment was approved by the House of Lords ” (1). On that basis the answer must be that the brokerage should be deducted from the gross price obtained by the broker —an indispensable medium—because it never reaches the succession. It was urged for the Crown that there was no trust for sale and therefore there was no need to regard the shares as sold. But the

Isaacs A.C.J.obvious answer is that the Commissioner’s valuation was itself on

the basis of a sale, and it would be patently unfair to attribute to the taxpayer the benefits of a sale without taking into account the necessary cost of obtaining those benefits. This part of the cross­ appeal should succeed.

Higgins J. It appears to me that the main portion of the order of the Full Court is substantially right, but for simpler reasons than those expressed in the reasons stated. The order is right in declaring “ that no duty ... is payable in respect of so much of the sum of £16,000 which ” (as ?) “ by the terms of clause 4 of the will . . . is to be applied to the payment of all succession duties.” The amount which is and will be required to pay all succession duties will leave of the £16,000 little or nothing of a surplus for the benefit of Mrs. Muir ; and the position becomes obvious if we, for the sake of argument, ignore the possibility of a surplus. For it is admitted that, if there should be a surplus, that surplus will be taxable in accordance with the Act; but that sum (whatever it be) which is applied to the payment of the succession duties cannot be treated as a succession at all. It is not “ property chargeable with duty under this Act” (sec. 3). No one becomes “ beneficially entitled ” to this £16,000 or the income thereof (sec. 4). The Act does not impose duty on obligations but on beneficial successions to property.

The object of the proviso at the end of sec. 12 of the Act is clearly shown in the passage quoted by the learned Judges from Mr. Layton’s book on Legacy and Succession Duties, 10th ed., p. 153 and p. 44. Prima facie, relief from the burden of the duty is a benefit to the successor to the property so burdened, and should

(1) (1864) 11 H.L.C. 257, at p. 268.

be valued as an addition to the beneficial interest taken by the successor (In re Turnbull (1) ) ; but this proviso negatives this prima facie view.

The proviso says that “ no duty shall be payable under this Act . . . upon any moneys applied to the payment of the duty on anv succession according to any trust for that purpose ” ; and here we find a trust in the will for the purpose of applying outside moneys to the payment of the duty on the successions. As Layton says (p. 44), in dealing with the earlier English Act of 36 Geo. III. c. 52 (sec. 21):—“ The bequest of a sum of money sufficient to pay the duty on any legacy given by a will would appear to be a further legacy to such a legatee, and consequently but for this section, under the general terms in which duty is imposed, be liable to duty; and as this would necessitate a further sum being taken which would also be liable to duty, this would go on ad infinitum. To prevent this inconvenience the provisions of the 21st section apply, and exempt all such sums from duty.”

If this sec. 21 of the original Act of 1796 be examined, the position becomes even clearer : “ if any direction shall be given, by any will ... for payment of the duty chargeable upon any legacy or bequest out of some other fund, so that such legacy or bequest may pass to the person or persons to whom or for whose benefit the same shall be given, free of duty, no duty shall be chargeable upon the money to be applied for the payment of such duty, notwithstanding the same may be deemed a legacy, to or for the benefit of the person or persons who would otherwise pay such duty.” This provision was re-enacted, but in other and shorter language, in the proviso to sec. 18 of the more recent English Act, 16 & 17 Viet. c. 51, which was the Act on which this Queensland Act was based, and from which the words of the proviso to sec. 12 were substantially copied. As to this English Act 16 & 17 Viet, c. 51, Layton says (p. 153) : “ No duty is payable upon any duty directed to be paid out of any estate ; for instance, when estate A is to bear the burden of the duty assessable on estate B . . . the moneys so to be raised are not to be charged with duty.”

(1) (1905) 1 Ch., at p. 729.

Such a provision, does not, as suggested, reduce the value of the whole estate by the value of all duties payable upon it, or reduce the rate and amount of such duties. The Commissioner looks at the concrete estate and the several successions, and assesses the appropriate tax for each succession; and if the appropriate tax be not paid “ in respect of every such succession ” (sec. 12) he has his remedies under sec. 11a by application for sale under sec. 43 against the successor, under sec. 46 against the trustees, &c.

It is evident that the learned Judges of the Supreme Court were embarrassed by their duty to accept the decision of that Court in Philp’s Case (1), decided in October 1924 ; and that such complexity as appears in the reasons for the judgment now under appeal is due to their successful efforts to distinguish that case. On this appeal the decision in Philp’s Case is not binding on us; and I am free to say that the reasoning of the late McCawley C.J., in his dissenting judgment, commends itself to my mind, when he says (2)“ In the present case there is a gift of residue, free of duty, but a fund is provided out of which the duty is to be paid. That fund—the proceeds of the life insurance policies—is segregated from residue, and devised in trust for the payment of duties, and it is only when these duties are deducted that there is a residue from the pohcies. ... So much of the policy moneys as is applied towards the payment of the duties never having become part of the residue does not attract succession duty.” But though I prefer the reasoning of the dissenting Judge in Philp’s Case, it is not necessary, and I do not think it desirable, to overrule that case as my brother Isaacs proposes. It turns on the language of a particular will; it is clearly distinguishable from the present case ; and as one’s mind does not apply itself with such intensity to cases which do not actually obstruct one’s path, it is inexpedient—whatever our powers—to say that such a case is finally overruled. It is enough for me to say that, in my opinion, no duty is payable in respect of so much of the sum of £16,000 as by this will is to be applied to the payment of the succession duties.

As for clause 2 of the order of the Full Court, if it means merely that the rate of duty is to be ascertained on the net estate of the

(1) (1925) S.R. (Q.) 96.

(2) (1925) S.R. (Q.), at pp. 102, 103.

settlor, before payment of the duty, the clause is, in my opinion,

right, and the appeal should not be allowed.

As for clause 4—that in assessing the value of the shares of the testator in McWhirter’s Ltd. no commission or brokerage should be deducted from such value—it is my opinion that the order is wrong. It is the net value of the succession to the successor that is to be taxed ; and the net value of the succession is what remains after deducting any necessary or proper expenses. No one denies that executors or trustees are justified in employing the Stock Exchange or brokers to sell shares of the estate ; and although there is no sale here, the value to the successor is expressed by the money which he would receive if it were sold. There seems to be no express provision in the Act on the subject ; but sec. 47 shows, at least, that in assessing the value of shares in certain contingencies the Act looks to the net receipts of the successor: “ The Commissioner may, in his discretion, adopt as the value of any shares or stock in any company or corporation such sum as, in the opinion of the Commissioner, the holder thereof would receive in the event of the company being voluntarily wound up on the date when the succession took effect.” The market value, if there is a market value, is not made by the Act the sole criterion of the value on which duty is to be assessed, although it would be the main factor in the computation of the value for the purposes of the Act: “ The value of a thing is just as much as it will bring.” Indeed, without recourse to the stock exchanges and the brokers one cannot ascertain the market value ; and the expense of recourse to them is really a necessary and legitimate deduction from the mere market value.

According to this opinion, therefore, the appeal should be dismissed as to clauses 1 and 2 of the order of the Full Court, but allowed as to clause 4.

Gavan Duffy and Rich JJ. The Commissioner’s appeal should be dismissed, because the obligation to pay duty out of the sum of £16,000 is a trust for the purpose of payment of duty within the meaning of the last proviso to sec. 12 of the Succession and Probate Duties Acts 1892-1920. In arriving at this conclusion the

HIGH COURT

f 1927.

A.

majority of the members of the Supreme Court felt it necessary to distinguish Philp’s Case (1), and we think that they have successfully done so. But in our opinion the gloss put upon the proviso in that case is not warranted by the language of the proviso.

With respect to the cross-appeal it is said that so much of the sum of £16,000 as is applied to the payment of duty is not within the proviso because it is not a succession at all within the meaning Gavan Duffy J. of secs. 3 and 4 inasmuch as it is not a beneficial interest or if a beneficial interest is not chargeable with duty. It is unnecessary to discuss these reasons because sub-sec. 2, which was passed after the decision in Blisset’s Case (2), expressly prescribes that for determining the rate of succession duty there shall be aggregated so as to form one estate the value of all property whether situated within or outside Queensland after making certain deductions of which duty is not one.

With respect to the question of brokerage the value of shares might be estimated in various ways, but if as in this case the estimate is made on the stock Exchange quotations it is clear that these quotations are subject to a deduction of brokerage for shares sold on the Exchange, and it is equally clear that the large parcel of shares in this case could not be effectively dealt with except through brokers.

Appeal dismissed. Order of Supreme Court varied by striking out from fourth declaration thereof the word “ no.” Cross-appeal other­ wise dismissed.

Solicitor for the appellant, H. J. H. Henchman, Crown Solicitor.

Solicitor for the respondents, A. H. Pace.

B. J. J.

(1) (1925) S.R. (Q.) 96.

(2) (1903) S.R. (Q.) 320.