Ryland v Federal Commissioner of Taxation

[1973] HCA 33

HIGH COURT OF AUSTRALIA

. Barwick C.J., McTiernan and Menzies JJ.

RYLAND v. FEDERAL COMMISSIONER OF TAXATION.

(1973) 128 CLR 404

30 August 1973

Estate Duty (Cth)

Estate Duty (Cth)—Exemptions—Fund for purpose of providing money for the relief of persons in necessitous circumstances in Australia—Gift to unincorporated association—Object of association to relieve distress—Whether gift in trust for object or gift to members—Gift for relief of members of naval military or air forces of the Commonwealth or their dependants—Whether confined to members or dependants in Australia—Predominant purpose of fund to provide for relief of persons in Australia—Whether benefit of exemption lost where fund could be used for relief of persons not in Australia—Estate Duty Assessment Act 1914-1970 (Cth), s. 8 (5).

Decisions

August 30.
The following written judgments were delivered:-
BARWICK C.J. The appellant is the sole executrix to whom probate of the last will of her mother, Jane Rhodes, of Ballan in the State of Victoria, who died on 11th March 1960, has been granted. She appeals against an order of the Supreme Court of Victoria dismissing in part her appeal against an assessment of estate duty made by the respondent Commissioner in respect of the estate of the above-mentioned deceased under the provisions of the Estate Duty Assessment Act 1914-1970 (the Act). (at p407)

2. The testatrix included in a number of legacies which she gave, a legacy of $6,000 "To the Totally and Permanently Disabled Soldiers Association of Victoria" (the Association). (at p407)

3. Her residuary gift was "upon trust that my trustees shall pay the income of my residuary trust funds to my said daughter during her life and from and after her decease my trustees shall stand possessed of the capital and future income of my residuary trusts (sic) funds as to one moiety of such capital and future income in trust for the Australian Red Cross Society and as to the remaining moiety thereof in trust for the Totally and Permanently Disabled Soldiers' Association of Victoria or if that last mentioned association shall not be in existence at the death of the survivor of myself and my said daughter then in trust for the Returned Sailors' Soldiers' and Airmen's Imperial League of Australia to be applied for the relief assistance or support of former officers and members of the naval military or air forces of the Commonwealth who are sick wounded disabled or out of employment or for the relief assistance or support of their dependants or of the dependants of officers and members who have lost their lives directly or indirectly in or in connection with any war in which His Majesty has been or may hereafter be engaged." (at p407)

4. Section 8 (5) of the Act provides that "duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed or passes by gift inter vivos or settlement ... (c) for the establishment and maintenance of a fund, or to a fund established and maintained - (i) for the purpose of providing money for the benefit of an institution referred to in the last preceding paragraph; or (ii) for the purpose of providing money for the relief of persons in necessitous circumstances in Australia." (at p407)

5. The respondent Commissioner took the view that neither of these gifts by the testatrix to the Association satisfied the terms of s. 8 (5) and, accordingly, did not exclude the sum of $6,000 or the value of the moiety of the residuary trust funds from the computation of the estate duty payable by the appellant as executrix of the deceased estate. (at p407)

6. On appeal, the Supreme Court of Victoria (Nelson J.) held that the gift of $6,000 satisfied the terms of the section and ordered that the assessment of estate duty be varied by the exclusion of that sum from the computation of estate duty but otherwise dismissed the appeal against the assessment. His Honour's reason for considering that the gift of a moiety of residue did not qualify for exclusion from duty was that the use of the property the subject of the gift was not at all times necessarily confined to the relief of necessitous persons in Australia. (at p408)

7. In an order made upon originating summons heard concurrently with the above-mentioned appeal, the Supreme Court (Nelson J.) in answering a number of questions held that the sum of $6,000 was held on trust for the purpose of alleviating cases of distress amongst the members of the Association; that it was not a gift to those who were members of the Association at the date of the death of the testatrix but a gift to the Association itself, and that the gift was a good charitable gift to be paid to the trustees of the trust fund bank account referred to in article 3 of the constitution of the said Association. (at p408)

8. The Supreme Court further held that the moiety of the residuary trust funds other than that given to the Australian Red Cross Society would be held after the death of the appellant upon trust for the purpose of alleviating cases of distress amongst members of the said Association, if the said Association be in existence at the date of death of the executrix; that it was not a gift to the members for the time being of the said Association at and after the death of the appellant and that it was a good charitable gift. (at p408)

9. The Court did not decide what should be done with that moiety in the event that at the date of death of the executrix the Association should not be in existence. (at p408)

10. No appeal has been brought against this decretal order. (at p408)

11. As appears from the reasons for judgment of the Supreme Court, the Association is an unincorporated association with a fluctuating membership. At the date of the death of the testatrix eligibility for membership of the Association was limited by the constitution to persons who, during any war, had served with any Australian, British or Dominion Force, whether naval, military or air, and, as a result thereof, were classified under the first paragraph of the 2nd Sch. of the Australian Soldiers' Repatriation Act 1917, as amended (Cth), as "totally and permanently incapacitated" and were in receipt of the maximum amount under the 2nd Sch. (at p408)

12. The statutory qualification for the maximum amount of pension under the appropriate schedule of the Australian Soldiers' Repatriation Act 1917, as amended, is that, having been a member of the Australian forces, the applicant for the pension is totally and permanently incapacitated for life to such an extent as to be prevented from earning other than a negligible percentage of a living wage. Thus, as the Supreme Court found, the membership of the Association will predominantly be comprized "of those whose only substantial income will be the pension provided under the Repatriation Act". The Supreme Court further held that, though the continued existence of the Association will be possible only so long as persons eligible for membership still survive, as eligibility results from service in any war, the Association may continue indefinitely into the future. (at p409)

13. The Supreme Court examined the constitution and articles of the Association in considerable detail. I have done likewise and find myself in agreement with the conclusions to which the Supreme Court came, namely that moneys paid into a trust fund bank account for which cl. 3 of the Association's constitution provides would be disbursed by the trustees of the trust for the alleviation of financial distress amongst the members of the Association and that the testatrix's gifts, not being gifts to the members, but to the Association, must be payable into the trust fund bank account. (at p409)

14. Clause 3 of the Association's constitution is in the following terms:

"3. To raise funds by appeals, donations, etc., such funds so raised to be paid into a Trust Fund Bank Account and to be utilised for the purpose of alleviating cases of distress." (at p409)

15. There is no need for me to set out any other of the provisions of of the constitution or discuss any of them which lead to these conclusions. Suffice it to say I agree entirely with the Supreme Court, for its reasons, in deciding that this gift was not only charitable but within the meaning of the Act was to a fund established and maintained for the purpose of providing money for the relief of persons in necessitous circumstances. (at p409)

16. The Supreme Court found that members of the Association who could be regarded as in financial distress were or would be persons in necessitous circumstances in Australia. The Court held that the gift of $6,000 to the Association did qualify for exemption from estate duty. I agree with the construction of the constitution of the Association which leads to this conclusion and accept the Supreme Court's other reasons for reaching it. (at p409)

17. I would, therefore, reject the cross appeal of the respondent. (at p409)

18. There remains the question whether the Supreme Court was right in holding that the gift of a moiety of residue did not come within the terms of s. 8 (5) because it could not be said that the fund into which the property the subject of the gift might ultimately go would necessarily be used exclusively for the relief of persons in necessitous circumstances in Australia. (at p410)

19. It is quite clear upon the findings of the Supreme Court which I have affirmed that the gift of the moiety of residue to the Association itself would qualify under the section. It was also held, and I think rightly, that "the Association may continue indefinitely into the future". However, the testatrix provided that in the event that on the death of the life tenant the Association should have ceased to exist, the moiety of the residue be held "in trust for the Returned Sailors' Soldiers' &Airmen's Imperial League of Australia to be applied for the relief assistance or support of former officers and members of the naval military or air forces of the Commonwealth who are sick wounded disabled or out of employment or for the relief assistance or support of their dependants or of the dependants of officers and members who have lost their lives directly or indirectly in or in connexion with any war in which His Majesty has been or may hereafter be engaged." The question, answered in the negative in the Supreme Court is whether, bearing in mind this alternative, the gift to the Association can be said, as at the date of the death of the testatrix, to fall within the provisions of s. 8 (5). (at p410)

20. The duty of course must be assessed as at that date. The gift therefore must then fall within the terms of the exemption. It is nothing to the point that, though it may not do so as at that date, it may do so later or that though it then falls within the terms of the section, for reasons other than the terms of the gift it may not do so at the date when the gift becomes effective in possession. (at p410)

21. The Supreme Court construed what for convenience I shall refer to as the alternative gift as being limited to the relief of persons in necessitous circumstances whether they be former members of the Commonwealth forces, or dependants of members or of deceased members. With this construction I agree. It is to my mind evident that the testatrix so intended and that she used phrases quite capable of effecting that intention. But as I have indicated, the Supreme Court thought that the language of the alternative gift could not be construed so as to confine the use of the fund in the hands of the Returned Services League to assisting persons in Australia. (at p410)

22. Now, whilst I agree that the gift of the moiety of the residue must qualify under the section as to all its provisions as at the date of death, I do not think it proper to treat the relevant terms of the will as containing two entirely independent gifts. Further, I do not read the statutory provisions as requiring the gift to be necessarily expressed so as to be exclusively confined to the relief of persons in Australia. I do not regard anything decided in Public Trustee (N.S.W.) v. Federal Commissioner of Taxation (1934) 51 CLR 75 or in Ballarat Trustees Executors and Agency Co. Ltd. v. Federal Commissioner of Taxation (1950) 80 CLR 350 as lending support to that proposition. Nor in my opinion does the decision in Downing v. Federal Commissioner of Taxation (1970) VR 795; 17 FLR 39 , if the facts of the case with which it deals are borne in mind. If the expressions of opinion, obiter, by members of this Court on appeal in that case intended otherwise, with due respect I could not accept them. See Downing v. Federal Commissioner of Taxation (1971) 125 CLR 185 . Kitto J. in Ballarat Trustees etc. v. Federal Commissioner of Taxation (1950) 80 CLR, at p 353 appeared to be satisfied to read the section as if the word "exclusively" or perhaps "chiefly" appeared after the words "established and maintained". Certainly the Parliament in enacting a section to assist the relief of poverty could not have intended that a fund established predominantly for that purpose should fail to qualify for exemption from duty if it could be seen that under the terms of its establishment there could possibly be occasions when some persons not in Australia could be considered eligible for assistance. The section speaks of a fund established and maintained for the purpose of providing money for the relief of persons in necessitous circumstances in Australia. It seems to me that such a purpose may be found though the verbiage in which the gift is expressed does not exclude the possibility that some beneficiary of the fund when established may be out of Australia when the benefaction is made; nor in my opinion need that verbiage insist that every such beneficiary be in Australia. But, quite clearly, the necessary purpose will be absent if by the language of the gift it can be seen that beneficiaries out of Australia are intended to be included in the ambit of the fund. (at p411)

23. Thus I find no need to insert either the word "exclusively" or "chiefly" into the section in order to effect the legislative intention. Charity being involved, generosity rather than pedantry is called for in the construction of the section; so long as the predominant purpose of the fund is to afford relief to persons in Australia and there is no specific intention to include persons out of Australia within the scope of the gift, the fact that consistently with the language of the gift, relief might possibly be given out of the fund to persons not in Australia, will not in my opinion prevent the gift from qualifying for exemption from duty. (at p411)

24. In the present case the Supreme Court was of opinion, and, in my opinion, correctly, that there would in any case be only a "very small proportion" of those who might qualify to benefit under the alternative gift who would not be in Australia at the time of the benefaction under the trust. Of these, some may be residents of Australia, though residing temporarily out of it. (at p412)

25. In choosing the Returned Services League as the trustee and in specifying the objects of its disbursements, it ought not to be held that the testatrix intended to vary the nature of the gift of the moiety of residue, except to replace the Association and its members, on the disappearance of the Association. Having held that the gift to the Association qualified under the section by attributing to the testatrix an understanding that totally and permanently disabled pensioners would be persons in Australia it would not be right, in my opinion, to attribute to her an intention to authorize the use by the Returned Services League of the fund to benefit persons not in Australia. As has been held, the persons to be benefited must, according to the proper construction of the gift, be in necessitous circumstances, a fact which having regard to the other qualifications for benefit tends in my view to make it more than unlikely that the intention of the testatrix was to set up a fund for the purpose of providing assistance for people out of Australia. But, though I would not dissent from the view that upon the true construction of the language of the alternative gift it could not be said that the benefaction of a person not in Australia would be a breach of trust, I could not attribute to the testatrix an intention by her gift to contribute to or set up a fund which did not have as its purpose the assistance of persons in need in Australia. Nothing in the terms of the gift would, in my opinion, require a contrary conclusion. Thus, there was not, in my opinion, any departure by the terms of the alternative gift from the evident intention of the testatrix in choosing the Association as donee of the moiety of the residue to contribute to a fund having the required purpose. (at p412)

26. Though the question must be dealt with as one of construction, it is worth noting that the disappearance of the Association is very unlikely and that the proportion of persons out of Australia qualifying for benefaction from the fund must in any case be extremely small. The combination of these circumstances does make the Crown's submissions appear more theoretical than real. (at p412)

27. Taking the gift of the moiety of the residue as a whole, the purpose of the fund into which the moiety of residue is to go, that controlled by the Association and that to be administered by the Returned Services League in my opinion was to benefit people in necessitous circumstances in Australia. I would therefore allow the appeal. (at p412)

McTIERNAN J. In my opinion the appeal should be allowed. I agree substantially with the reasons of the Chief Justice. (at p413)

MENZIES J. Jane Rhodes by her will gave a legacy of $6,000 to the Totally and Permanently Disabled Soldiers' Association of Victoria and directed that after a life estate in favour of her daughter her trustees should stand possessed of a moiety of the residuary trust funds of the estate in trust for the same Association. There was a gift over to the Returned Sailors' Soldiers' and Airmen's Imperial League of Australia in the event of the Association not being in existence at the death of the daughter. This gift over was to be applied "for the relief assistance or support of former officers and members of the naval military or air forces of the Commonwealth who are sick wounded disabled or out of employment or for the relief assistance or support of their dependants or of the dependants of officers and members who have lost their lives directly or indirectly in or in connexion with any war in which His Majesty has been or may hereafter be engaged". The questions for this Court are whether Nelson J. was right in deciding (1) that estate duty should not have been assessed upon the $6,000 passing by the legacy aforesaid, and (2) that duty was rightly assessed upon the moiety subject to the aforesaid trust. (at p413)

2. The relevant statutory provision is s. 8 (5) (c) (ii) of the Estate Duty Assessment Act 1914-1970 (Cth) which provides as follows:

"(5) Duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed or passes by gift inter vivos or settlement ... (c) for the establishment and maintenance of a fund, or to a fund established and maintained ... (ii) for the purpose of providing money for the relief of persons in necessitous circumstances in Australia." (at p413)

3. His Honour regarded the legacy as a gift to the Association, and not its individual members, to be held in trust by the Association for the purpose of alleviating cases of distress. This conclusion rested principally upon a provision in the constitution of the Association stating one of its objects as follows:

"To raise funds by appeals, donations, etc. such funds so raised to be paid into a Trust Fund Bank Account and to be utilised for the purpose of alleviating cases of distress."

His Honour held this was a donation to which this object applied, and added:

"It was not contested by the Commissioner that if the gift in the legacy were for the relief of persons in necessitous circumstances, such persons were in Australia." (at p414)

4. Accordingly, it was held that the legacy of $6,000 fell within the terms of s. 8 (5) (c) (ii). (at p414)

5. It was because his Honour held that the trust covering the moiety did not confine the testator's bounty to persons in necessitous circumstances in Australia that he decided that the property subject to the trust fell outside the terms of exemption from estate duty. This decision depended upon the provision in the gift over to the Returned Sailors' Soldiers' and Airmen's Imperial League of Australia which I have already stated. As to this provision his Honour said:

"The gift is not in terms limited to the relief of persons who are in Australia when the occasion for relief arises, nor do I find anything in its terms which would warrant its being construed as so limited." (at p414)

6. It was, I consider, a correct conclusion from the terms of the will and the constitution of the Association that the Association would be bound to pay any moneys received from the estate into a trust fund bank account to be used to alleviate cases of distress. I say no more about this aspect of the case. Furthermore, I consider that the provision of money to alleviate cases of distress does not go beyond the provision of money for the relief of persons in go beyond the provision of money for the relief of persons in necessitous circumstances. The only distress that money can alleviate is distress arising from the lack of money, and those who are in distress through the lack of money are persons in necessitous circumstances. On this matter too I agree with the learned judge of the Supreme Court. Accordingly, I would dismiss the Commissioner's cross-appeal. (at p414)

7. The fate of the executor's appeal depends upon a decision whether the words of s. 8 (5) (c) (ii) of the Act are satisfied when a gift is made for a fund which, although it could lawfully be used to relieve the necessity of persons outside Australia, the circumstances are such that the use of any part of the fund to do so would be unusual and unlikely. Is such a fund nevertheless one for the purpose stated in the section? (at p414)

8. The strength of the case for the Commissioner is in the words "the purpose" which do suggest an exclusive purpose. I have, however, reached the conclusion that there may be a fund for the purpose stated notwithstanding that it would not be in breach of trust to use moneys from the fund in such a way as, if looked at by itself, would not be for the relief of persons in necessitous circumstances in Australia. It seems to me that the question "What is the purpose of the fund?" falls to be determined by a test different to that to be applied in determining whether a particular application of the fund would be a breach of trust. Parliament's language is not that of an equity lawyer. The legislative provision is dealing with a broad category and it is, I think, legitimate to seek the essential purpose for the establishment of the fund. If, upon the broad general view, it was to provide relief for needy persons in Australia, that would be enough, notwithstanding that without breach of trust a payment could be made to a person outside Australia. It was, I consider, by taking such a view of the section that Taylor J. decided Union Trustee Co. of Australia Ltd. v. Federal Commissioner of Taxation (1962) 108 CLR 451 . To give this meaning to the words "for the purpose" is not, I think, to depart from common usage. For instance, there could be a fund properly described as for the purpose of assisting the children of a testator notwithstanding a provision enabling the giving of assistance to the spouse of a deceased child. The trust would still essentially be for the purpose of assisting the children of the testator. (at p415)

9. Nelson J. was, as he said, disposed to come to the conclusion which I have just stated but he regarded himself as constrained by authority to decide as he did. He said:

"I think however that I am bound by authority to hold that the exemption from duty which is conferred by section 8 (5) (c) (ii) is limited to cases where the only persons who may be relieved by the provision of money from the fund are persons in Australia."

The authority his Honour had in mind was Downing v. Federal Commissioner of Taxation (1971) 125 CLR 185 which he regarded as consistent only with the view that "to gain exemption under the relevant provision the fund must be established and maintained exclusively for the exempt purpose". I have re-examined the judgment of Walsh J. - with which I expressed my concurrence - and with respect I do not think the decision of the Court went as far as the learned judge thought. In relation to the matter now in issue the Court did agree with Anderson J. in the Supreme Court that the words "in Victoria" or "in Australia" should not be read into a gift providing for "the amelioration of the condition of the dependents of any member or ex member of Her Majesty's Naval Military of Air Forces or the Naval Military or Air Forces of the Commonwealth". It was, I think, rightly taken for granted that without such a limitation a gift for the purpose set out could not be described as one for the purpose of "the relief of persons in necessitous circumstances in Australia". I still think, having regard to the terms of the will, that this was so. It seems to me, however, that the gift here under consideration, related as it is to Australia by virtue of the constitution and character of the donee, the League, is entirely different from a gift which in terms made it clear that the objects of the testator's bounty went beyond persons connected with Australia. I do not think that what was either said or taken for granted in the judgment in that case requires the conclusion that the purpose of the fund of the League into which the moiety would go in the event of the Association having ceased to exist is not properly described as for the relief of persons in necessitous circumstances in Australia. (at p416)

10. I would therefore allow the appeal. (at p416)

Orders

Appeal allowed with costs. In lieu of the orders made
by the Supreme Court order that appeal to that
Court be allowed with costs and the amended
assessment be remitted to the Commissioner to be
amended in conformity with the reasons of
this Court.