Grubb v Commissioner of Taxes (Tas)

[1948] HCA 42

79 CLR 412

GRUBB AND OTHERS

APPELLANTS;

THE COMMISSIONER OF TAXES (TAS.)

RESPONDENT. Estate Duty (Tas.)-Notional estate-Life insurance policies-Proceeds-Policies -

effected on life of deceased by wife-Premiums paid wholly or in part by wife- Policy effected by deceased and fully paid up-Transfer thereafter to wife- HOBART,

Deceased Persons Estates Duties Act 1931-1942 (Tas.) (26 Geo. v. No. 81-6 Nov. 3, 4.

Geo. VI. No. 36), SS. 5 (2) X., XI.* SYDNEY,

Three life insurance policies were effected by his wife upon the life of the deceased, who died in October 1943. Premiums were wholly paid by the deceased in respect of two of such policies and in respect of the third were paid partly by the deceased and partly by his wife.

Held (i) that, for the purposes of S. 5 (2) XI. of the Deceased Persons Estates Duties Act 1931-1942 (Tas.), a beneficial interest accrued to the wife on the death of the deceased to the extent of the difference between the surrender value of the policies and the moneys received under the policies; (ii) that where the deceased paid the whole of the premiums the whole of that difference was dutiable; (iii) that where the deceased paid part of the premiums, an amount of that difference in proportion to the premiums paid by the deceased

A life insurance policy, effected by the deceased on his life in 1897, was fully paid up by him in 1904 and assigned by way of gift to his wife in 1923. *Section 5 (2) of the Deceased Per-

himself alone or in concert or by sons Estates Act 1931-1942 (Tas.) pro-

arrangement with any other person, vides :-" In relation to any person

to the extent of the beneficial interest dying after the commencement of the

accruing or arising by survivorship or Act, all real and personal estate -

otherwise on the death of the deceased, X. Which consists of moneys payable

and in proportion to the amount, if upon the death of such person in

any, provided or contributed by such respect of any policy of insurance

person for the purchase or provision effected by him, and kept in force

of such annuity or interest; wholly or partially by him and assigned

shall be deemed to be part of the estate by him by way of gift;

of such person and shall be liable to Any annuity or interest purchased or

duty under this Act." provided by such person, either by

79 CLR 413

Held, (i) that, notwithstanding that no premiums had been paid to keep the policy in force after its assignment, the policy had been effected by the deceased and kept in force by him within the meaning of S. 5 (2) X. of the accruing to the wife was liable to duty accordingly (ii) that the beneficial interest SO accruing was the difference between the surrender value of the policy and the moneys paid under the policy.

Decision of the Supreme Court of Tasmania (Clark J.) reversed.

APPEAL from the Supreme Court of Tasmania.

Percival Beaumont Grubb died on 7th October 1943. During his life, his wife, Winifred Mary Grubb, had taken out certain life policies on his life with the National Mutual Life Association of Australasia Ltd. These policies were as follows :-(1) Policy No. 248854 for £2,000 payable on death. This policy was issued on 5th July 1923 and provided, inter alia, that if upon the death of the life assured the association should not have notice of anything in any way affecting the assured's (that is, the wife's) absolute owner- ship of the policy, the policy moneys might be applied in payment of duty payable on the issue of probate of the will of the life assured (that is, the husband). On 23rd June 1926, this policy was, by arrangement with the association, converted into a fully-paid policy for £144. The husband paid all the premiums on the policy. The association, on the husband's death, paid £309 14s. under the policy. (2) Policy No. 249049 for £2,000 payable on death. This policy was issued on 25th February 1924 and contained a provision with respect to payment of probate duty which was identical with that contained by policy No. 248854. The husband premiums in respect of this policy, including £251 5s. which was paid during the period of three years immediately preceding his death. The proceeds of the policy were £2,900 19s The appellants conceded that duty was payable under S. 5 (2) II. of the Deceased Persons Estates Duties Act 1931-1942 (Tas.) in respect of the sum of £251 5s. (3) Policy No. 249104 for £2,000, payable on death. This policy was issued on 25th February 1924 and contained no provision as to probate duty. The husband paid all the premiums until 1931, amounting to £562 17s. 5d. Between 1931 and the death of the husband, the premiums (amounting to £1,675) were paid by the wife. The proceeds of the policy were £2,900 16s.

The three policies were taken out by the wife by arrangement with her husband. She gave security over the policies for the purpose of paying off a debt upon a property owned by her. The amount of the debt was reduced from time to time and was ultimately

79 CLR 414

discharged by a payment of £1,000 made to a mortgagee of the policies out of the proceeds of the policies after the death of the husband.

A life insurance policy for the sum of £250 had been taken out by the deceased in 1897 with the Australian Mutual Provident Society

TAXES (TAS.). (policy No. 300597) and was fully paid up in 1904. This policy

was assigned by the deceased in 1923 by way of gift. The proceeds of this policy were £654 2s. They were paid to a person to whom the policy had been assigned by the wife by way of security.

The Commissioner of Taxes for the State of Tasmania included in the dutiable estate of the deceased-(1) the whole of the proceeds of policy No. 248854 (£309 14s.); (2) the whole of the proceeds of policy No. 249049 (£2,900 19s.); (3) the proportion of the proceeds of policy No. 249104 attributable to the premiums paid by the husband, viz. the sum of £974 16s.; and (4) the whole of the proceeds of the Australian Mutual Provident Society policy No. 300597 (£654 2s.).

The appellants, the executors of the will of the deceased, con- tended that none of the moneys, except the sum of £251 5s., should have been assessed to duty.

On appeal from the assessment, Clark J. held that, as to the policies taken out by the wife, the deceased had provided an interest therein by paying premiums and that to the extent of the beneficial interest which accrued or arose on the death of the deceased the interest in the policies was part of the dutiable estate of the deceased. His Honour held that that beneficial interest was represented by the whole of the policy moneys, but in proportion only to the amount of premiums provided or contributed by the deceased. Accordingly his Honour held that, in the cases of policies Nos. 248854 and 249049 the whole of the proceeds were dutiable and, in the case of policy No. 249104, a proportionate amount, viz. £974 16s., was dutiable as representing the extent of the beneficial interest which arose. He also held that the whole of the proceeds of the policy taken out by the deceased and assigned to his wife by way of gift were dutiable under S. 5 (2) X. of the Deceased Persons Estates Duties Act, 1931-1942.

From this decision, the executors appealed to the High Court. S. C. Burbury, for the appellants. The judgment appealed from was wrong in treating the proceeds of the policy as constituting a beneficial interest apart from the policy itself. The proceeds should not be treated as something different from the policy; and, if that is so, no beneficial interest arose or accrued on death. Before

79 CLR 415

79 C.L.R.]

OF AUSTRALIA. the section can operate the beneficial interest must accrue or arise by survivorship or some settlement or agreement operating on the interest referred to in the section. [Counsel referred to Griffiths V. Fleming 1 Tennant v. Lord Advocate 2; Adamson v. Attorney- General 3,; Attorney-General v. Lloyds Bank Ltd. 4; Westminster Bank Limited v. Attorney-General 5 Attorney-General v. Robinson TAXES (TAS.). 6 Attorney-General v. Hawkins 7 Lethbridge v. Attorney- General 8; In re Reynolds; Reynolds v. Commissioner of Taxes (Vic.) 9; Union Trustee Co. of Aust. Ltd. v. Federal Commissioner of Taxation 10; Trustees Executors &Agency Co. Ltd. v. Federal Commissioner of Taxation 11.] With regard to the A.M.P. Policy no premiums were paid after the assignment. The policy is not covered by the section. The section does not commence to operate until assignment. It applies only to policies kept in force by the donor after assignment. [Counsel referred to Lord Advocate V. Fleming 12; Barclay's Bank Ltd. v. Attorney-General 13; Lord Advocate v. Inzrevar Estates 14.]

M. P. Crisp (with him M. G. Everett), for the respondent. M. P. Crisp-The policy taken out in 1897 and assigned to the wife of the deceased in 1923 is taxable either under par. X. or par. XI. of S. 5 (2) of the Deceased Persons Estates Duties Act. On its true construction, par. X. is not related solely to the period after the donee comes into existence. The position under the Tasmanian statute is distinguishable from that in England. [Counsel referred to Lord Advocate v. Fleming (12); Lord Advocate v. Inzrevar Estates (14); Barclay's Bank Ltd. v. Attorney-General (13).] Paragraph XI. of the 1931 Act applies to all three policies taken out by the wife. The words beneficial interest " mean "benefit." The taxable property is the "interest provided by the deceased." An interest in the form of a chose in action was purchased by the deceased in concert with his wife. That interest is taxable because it was pro- vided by the deceased. It is taxable to the amount of the benefit to the wife. [Counsel referred to Attorney-General v. Robinson (6); Attorney-General v. Murray 15 Attorney-General v. Pearson 16

1(1909) 1 K.B. 805. 2(1939) A.C. 207. 3(1933) A.C. 257. 4(1935) A.C. 382. 5(1939) Ch. 610. 6(1901) 2 I.R. Q.B. 67. 7(1901) 1 K.B. 285. 8(1907) A.C. 19. 9(1931) V.L.R. 254. 10(1941) 65 C.L.R. 29. 11(1944) 69 C.L.R. 270. 12(1897) A.C. 145. 13(1944) A.C. 372. 14(1938) A.C. 402. 15(1904) 1 K.B. 165. 16(1924) 2 K.B. 375. 79 CLR 416

A. Commissioner of Stamp Duties v. Russell 1 Attorney-General V.

Dobree 2; Lethbridge v. Attorney-General 3 Scotts' Trustees V. I.R.C. 4; Westminster Bank v. Attorney-General 5.]

M. G. Everett. Alternatively, the presumption of advancement

TAXES (TAS.). is rebutted and there is a presumption of a resulting trust in favour

of the deceased's estate. The whole tenor of the transactions indicates the intention was that the husband should have the beneficial interest.

Cur. adv. vult.

LATHAM C.J. The Deceased Persons Estates Duties Act 1931-1942 (Tas.), S. 5 2, includes within the estate of a deceased person upon which duty is payable under the Act as " notional estate -

'XI. Any annuity or interest purchased or provided by such person, either by himself alone or in concert or by arrangement with any other person, to the extent of the beneficial interest accruing or arising by survivorship or otherwise on the death of the deceased, and in proportion to the amount, if any, provided or contributed by such person for the purchase or provision of such annuity or interest." The Commissioner of Taxes has included in the dutiable estate of Percival Beaumont Grubb deceased the proceeds in whole or in part of certain life policies upon his life. Three of the policies were taken out by his wife with the National Mutual Life Association of Australasia Ltd. They were :-

1Policy No. 248854 for £2,000 payable on death, with a pro- vision that if upon the death of the life assured the association should not have notice of anything in any way affecting the assured's (that is the wife's) absolute ownership of the policy, the policy moneys might be applied in payment of duty payable on the issue of probate of the will of the life assured (the husband). This policy was taken out on 5th July 1923 and by arrangement with the association was converted into a fully-paid policy for £144 on 23rd June 1926. The husband paid all the premiums on the policy. The insurance company paid upon his death £309 14s. under the policy. The whole of this sum has been included by the commis- sioner in the dutiable estate. 2Policy No. 249049 for £2,000 payable on death. This policy contained the same provision as that already mentioned with respect to the payment of probate duty. The husband paid all the 3(1907) A.C. 19. 4(1918) S.C. 720. 5(1939) Ch. 610. 2(1900) 1 Q.B. 443. 79 CLR 417

premiums on this policy, including a sum of £251 5s. paid during the three years immediately preceding his death. It is conceded by the appellants that duty is payable in respect of this sum of £251 5s. under S. 5 (2) II. of the Act. The commissioner has assessed all the proceeds of the policy to duty.

(3) Policy No. 249104 for £2,000, payable on death-with no condition as to probate duty. The husband paid all the premiums on this policy up till 1931, amounting to £562 17s. 5d. Subse- quently the wife paid £1,675 in premiums. The proceeds of the policy were £2,900 16s. and the proportion of the amount attri- butable to the premiums paid by the husband, namely £974 16s., has been included by the commissioner in the dutiable estate.

The evidence shows that the policies were taken out by the wife by arrangement with her husband. She gave security over the policies for the purpose of paying off a debt upon a property owned by her. The amount of the debt was reduced from time to time and ultimately was discharged by a payment of £1,000 made to a mortgagee of the policies out of the proceeds of the policies after the death of her husband.

The appellants contend that none of the said moneys except the sum of £251 5s. should have been assessed to duty.

Upon appeal from the assessment Clark J. held that, though the policies were taken out by the wife and she was the owner of them, the deceased had provided an interest therein by paying premiums, and that to the extent of the beneficial interest which accrued or arose on the death of the deceased the interest in the policies was part of the dutiable estate of the deceased. That beneficial interest was held to be represented by the whole of the policy moneys, but in proportion only to the amount of premiums provided or contri- buted by the deceased. His Honour applied what Palles C.B. said in Attorney-General v. Robinson 1 with reference to S. 2 (1) (d) of the Finance Act 1894 (Imp.) (which, except for the final words of the Tasmanian provision referring to the proportion of the amount provided or contributed by the deceased, is in the same terms, with an immaterial verbal variation, as the Tasmanian provision)

the words 'accruing or arising the transfer upon death to another of something which the deceased or some other person had before or at the death, but the springing up, upon the death, and then vesting in another of property which previously had not been existing in anyone. This is an exact description of money secured by a policy of insurance." Accord- ingly his Honour held that the deceased in concert with his wife

1(1901) 2 I.R. Q.B. 67. 79 CLR 418

provided a beneficial interest which arose upon his death and to the extent to which he provided that interest (determined by the proportion of premiums which he paid) the interest formed part of his dutiable estate. In the case of policies 248854 and 249049, the result was that the whole amounts of the policy moneys were held (TAS.). to be dutiable, and in the case of the third policy, a proportionate

amount, namely £974 16s., represented the extent of the beneficial interest which SO arose.

The case of Attorney-General v. Robinson 1 has been followed and applied in England: see Attorney-General v. Murray 2; Attorney-General v. Pearson 3 and see Tennant v. Lord Advocate 4 approving Attorney-General v. Pearson (3).

The principal argument submitted for the appellants was that the wife took out all these policies in her own name and became the absolute owner of the policies. Accordingly, when her husband died nothing more happened than that rights, which had belonged to her for many years, became enforceable. Therefore, it was con- tended, no beneficial interest accrued or arose to her or to anyone else on the death of the husband. In my opinion there is great force in this argument, but it is not possible to adopt it in face of the decisions in Attorney-General v. Robinson (1) and the other cases already mentioned. In support of those decisions it may be observed that the statute applies specifically to cases where some interest has already been provided by the deceased person in his lifetime, and where afterwards, upon his death, a beneficial interest arises or accrues to some other person. Whenever that beneficial interest arises or accrues by virtue of the terms of the original provision made it could be argued that no added interest had been acquired by any person, but that events had happened which, by reason of the anterior provision, changed a contingent interest into a vested interest, or entitled some person to enjoyment or possession of property. Therefore it could be said that no new beneficial interest was created upon the death of the person who had made the provision. But upon such a construction it would be difficult to find any case to which this part of the statute would apply. Upon the authorities it must be held that in this case the deceased provided in whole or in part an interest in the policy moneys and to the extent of the beneficial interest which arose therein on the death of the deceased that interest is to be included in the dutiable estate in proportion to the amount contributed by the deceased.

1(1901) 2 I.R. Q.B. 67. 2(1904) 1 K.B. 165. 3(1924) 2 K.B. 375. 4(1939) A.C. 207, at p. 213. 79 CLR 419

But that which is to be included is only the beneficial interest which arose or accrued. The wife completely owned the policies before the death of her husband. What then was the extent of the benefit which arose or accrued to her upon his death ? This question was decided by the House of Lords in the case of Adamson V. Attorney-General 1 with reference to S. 2 (1) (d) of the Finance Act TAXES (TAS.). 1894 (Imp.), which, as already stated, contains the same relevant provision as that now under consideration. This was a case where the death of the person who provided the interest had the effect of changing an expectant beneficial interest into an actual interest in possession of a share in a trust fund. Lord Warrington said:

In the present case the interest of each child was unquestionably provided by the deceased, and is therefore to be deemed to be included in the expression property passing on the death of the deceased,' but only to the extent of the beneficial interest accruing or arising on the death of the deceased. Before his death each child had a beneficial interest, but one that might be destroyed either by an exercise of the power of appointment or by the death of the child in the lifetime of the deceased on his death without exercising his power the beneficial interest of each child became absolute and indefeasible. The value of this beneficial interest, of course, exceeded the value if any of that interest to which the child was entitled previously to the death of the deceased, and to the extent of that excess such beneficial interest is, in my opinion, to be deemed to be property passing on the death and would under S. 2

1(d) be charged with duty accordingly" 2. Thus that which was held to be dutiable was the difference in value between the interest which existed before the death of the deceased person and the interest which accrued upon his death. The same rule was applied in Attorney-General v. Lloyds Bank Ltd. 3. In Great Britain the Finance Act 1894 was amended in order to meet this position. (The case of Attorney-General v. Lloyds Bank Ltd. (3) was decided upon the law as it existed before this amendment, the decision of the Court of Appeal, which was affirmed in the House of Lords, having been given on 1st May 1934.) The Finance Act 1934 (Imp.) (12th July 1934), S. 28, altered the law as declared in Adamson V. Attorney-General 1 by providing that for the purposes of S. 2 (1) (d) of the Finance Act 1894 the extent of any beneficial interest in an interest purchased or provided by the deceased shall be ascertained, and shall be deemed always to have been ascertainable, without regard to any interest in expectancy the beneficiary may have had

2(1933) A.C., at p. 277. 3(1935) A.C. 382. 1(1933) A.C. 257. 79 CLR 420

therein before the death." There is no such provision in the Tas- manian Act. If there had been such a provision the whole of the policy moneys paid under the policy or of the proportion therein provided by the deceased would have been dutiable. But before the death of the deceased the wife had the whole interest in the

TAXES (TAS.). policies. Under the law as declared in Attorney-General v. Robin-

son 1 a beneficial interest accrued to her when her husband died. The extent of that beneficial interest, however, was measured by the difference between that which she had before the husband's death and that which she had after his death. That which she had before his death was represented by the surrender value of the policies. That which she had after his death was represented by the moneys paid under the policies. Therefore, the extent of the beneficial interest which arose on his death is represented by the difference between these sums. Accordingly, the amount which is dutiable in the case of these policies is determined by ascertaining the difference in each case between the surrender values of policies and the amounts paid under the policies. Where the husband paid the whole of the premiums the whole of the amount of that difference is dutiable. Where he paid part of the premiums a proportionate amount of the difference is dutiable.

It was argued for the commissioner that there was a resulting trust to the deceased husband in the present case because the presumption of advancement to the wife was rebutted. No attempt was made to make such a case in the Supreme Court, and no evidence was directed to this issue. There is no evidence in the facts before the court which can be effectively relied upon to rebut the presump- tion of advancement. But if the argument succeeded the only result would be that the policies would be part of the actual, as distinguished from the " notional " estate of the deceased, and the proceeds of the policies would be dutiable.

A question also arises as to another policy taken out by the husband (not by the wife) in 1897 with the Australian Mutual Provident Society. The policy was payable upon death and was for the sum of £250. The policy became fully paid-up in 1904 and on 6th November 1923 was assigned by the husband to his wife as a gift. The proceeds of the policy were £654 2s. The policy moneys were received by Percy Hart, to whom the policy had been assigned by way of security. The commissioner claimed duty upon the proceeds of this policy under the Deceased Persons Estates Duties Act 1931-1942, S. 5 (2) X. Under this provision the dutiable estate of a person includes any real or personal estate "which consists of

1(1901) 2 I.R. Q.B. 67. 79 CLR 421

moneys payable upon the death of such person in respect of any policy of insurance effected by him, and kept in force wholly or partially by him and assigned by him by way of gift but, where such policy has been only partially kept in force by such person, then such proportion only of such moneys as the premiums paid by such person bear to the total premiums paid in respect of such TAXES (TAS.). policy." The policy was fully paid-up when it was assigned by way of gift to Mrs. Grubb. It was contended for the executors that the provision quoted applied only to policies which had been kept in force after an assignment. But the section applies where a policy satisfies the description of being a policy (a) effected by a person (b) kept in force wholly or partially by him and (c) assigned by him by way of gift. This policy satisfies this description. I can see no warrant for limiting the application of the provision to cases where premiums are paid by the person who effected the policy only after the assignment of the policy. In Lord Advocate V. Fleming 1, the House of Lords considered S. 11 of the Customs and Inland Revenue Act 1889 (Imp.), under which duty was imposed upon money received under a policy of insurance effected by a person on his life where the policy is wholly kept up by him for the benefit of a donee.

It was held that a policy of insurance could not be kept up for the benefit of a donee when no donee was in existence. Accordingly, if all premiums had been paid (as in the present case) before the policy was assigned, this provision of the Act would not apply. But the Tasmanian pro- vision is different in terms from S. 11 of the English Act. There is no reference to the keeping up of a policy for a donee, and the decision in Fleming's Case (1) accordingly has no bearing upon the interpretation of the Tasmanian provision. In my opinion the learned judge rightly held that S. 5 (2) X. of the Tasmanian Act applied to the moneys received under the A.M.P. policy. But here again, in my opinion, the extent of the beneficial interest which arose upon the death is measured by the difference between the moneys paid under the policy and the surrender value.

The provisions in the policies as to the applicability of policy moneys in payment of death duties have no bearing upon the matter to be decided. They affect only the application of the policy moneys when payable, and do not either increase or diminish the extent of the beneficial interest which arises or accrues to some person on the death of the deceased. It may be observed that the statutory provision does not require that the person for whom an interest is provided must be the person to whom a beneficial interest

1(1897) A.C. 145. 79 CLR 422

accrues upon the death. That beneficial interest may accrue to any individual and if SO duty is payable in respect of the estate of the deceased person in proportion to the extent of the interest SO far as it was provided by the deceased.

If, in the present case, the wife had surrendered the policies, no

TAXES (TAS.). beneficial interest therein would have arisen or accrued to any

person upon the death of the deceased. If she had assigned them for value an assignee who obtained a benefit upon the death would have been protected against liability to duty by S. 15 of the Act. Section 15 provides that any person taking or deriving a beneficial interest in property deemed to be part of the estate of a deceased person otherwise than as a purchaser in good faith for full con- sideration in money or money's worth, shall be responsible for the duty payable thereon as part of the estate of the deceased person and may be assessed accordingly. If there had been such an assignment during the husband's life no interest would have arisen or accrued to the wife upon the death-so that no duty would be payable in that case. Here, however, the wife remained the owner of the policies until the death of the deceased and a beneficial interest therein did accrue to her. The extent of the benefit was obviously not affected by the fact that she had mortgaged the policies.

For the reasons stated, the appeal should be allowed in respect of all the policies SO that the difference between surrender values and moneys received can be calculated and duty imposed upon the total of the differences in value, the appropriate proportion only (i.e. in proportion to the amount of premiums paid by deceased) of that difference being assessed in the case of policy No. 249104. The assessment is remitted to the commissioner for amendment in accordance with the law as now declared.

The result is that the appellants have not succeeded in their contention that no duty is payable in respect of the amounts (above the sum of £251 5s.) received under the policies and that the respondent has not succeeded in his contention that duty is payable upon the total of those amounts. Each of the parties unsuccessfully contended for an extreme position, but the appellants have succeeded to a substantial extent upon a point not expressly taken in the notice of appeal. A fair order as to costs is to give the appellants the costs in the Supreme Court and to make no order as to the costs of the appeal.

RICH J. I have had the advantage of reading the judgment of the Chief Justice and on the question raised in this appeal I am in substantial agreement with the conclusion at which he has arrived.

79 CLR 423

McTIERNAN J. I agree with the judgment of his Honour the H. C. Chief Justice.

Appeal allowed. Order of Supreme Court discharged.

Declare that duty is assessable only in respect of the excess of the amount of the moneys received under a TAXES (TAS.). policy over the surrender value of the policy at the time of the death of Percival Beaumont Grubb in proportion to the amount contributed or provided by the said deceased for the provision of the policy. Costs of appellant in Supreme Court to be paid by respond- ent. No order as to costs of appeal. Solicitors for the appellants, Shields, Heritage, Stackhouse &Martin (Launceston), by Simmons, Wolfhagen, Simmons &Walch.

Solicitor for the respondent, M. P. Crisp, Crown Solicitor for Tasmania.