Smith v Federal Commissioner of Taxation

[1928] HCA 5

40 C.L.R.] OF AUSTRALIA.

467

[HIGH COURT OF AUSTRALIA.]

SMITH AND ANOTHER

Ap p e l l a n t s ;

AND

THE FEDERAL COMMISSIONER OF ^

TA X A TIO N ............................................3

R espo nd en t .

Estate Duly— Property passing to relatives of testator— Reduced rate of duly— Gift

H. C. o r A.

by will— Possible intestacy— Estate Duly Assessment Act 1914-1922 (No. 22 of

1928.

1914—Ao. 34 of 1922), sec. 8 (6).*

Sy d n e y ,

Held, that the benefit of sec. 8 (6) of the Estate Duty Assessment Act 1914­ 1922 extends to all property which by force of the will or by the law as to the

A pril

12.

distribution of the estates of intestates passes directly from the testator or

Knox C.J.

intestate to a member of the selected class, provided in the case of a will that on the death of the testator it can be shown from the terms of the will and by reference to the state of his family that the property must go directly from him to persons within the class and tha t in no conceivable event can it pass from the testator to any person who is outside the class.

A testator, who left him surviving his w'idow and his unmarried daughter, by his will gave his residuary estate to trustees upon trust to pay the income to the widow and daughter during their lives and after the death of the daughter to divide the corpus thereof among the children of the daughter who should attain the age of twenty-one j'ears.

Held, that estate duty at the lower rate only was payable in respect of the whole of the residuary estate.

.Appeal from the Federal Commissioner of Taxation.

Cecil Machattie Smith died on 6th October 1926 having made his will dated 30th March 1922, and leaving him surviving his widow,

* Sec. 8 (6) of the Estate Duty Assess­childivn or grandchildren of the

ment Act 1914-1922 provides that deceased estate duty shall be assessed

“ In respct of so much of the estate and payable at two-thirds of the rate

as by will intestacy gift inter vivos or which would otherwise be payable.”

settlement passes to the widow or

468 HIGH COURT

[1928.

H.	C. or A. Dorothy Mary Smith, and his daughter, Pamela Cecil Smith, who
1928. was then eighteen years of age and unmarried. By his will the

Sm ithtestator appointed his wife and William Russell Campbell to be

V.

executors and trustees of his will.

After bequests of furniture, &c.,

F b d e b a i

Com m is­

to his wife, of an annuity to his father and of legacies to his four

s io n e r

OF

T a x a t io n .sisters, the testator gave, devised and bequeathed the residue of his

estate real and personal to his executors and trustees upon trust, if his wife so desired, to carry on his business of farming and grazing and upon further.trust to sell, call in and convert into money such parts of the estate as should not consist of money and to invest the proceeds. The will then proceeded as follows :—“ I direct that my trustees shall after providing for payment of the said annuity to my father Lancelot Noel Smith pay the whole of the net income arising from time to time from the carrying on of my said businesses or from the investment of any of my moneys or from either or both or any other source to my said wife Dorothy Mary Smith until my daughter Pamela Cecil Smith attains the age of twenty-one years she thereout maintaining and educating my said daughter during her minority according to her station in life And after my said daughter attains the age of twenty-one years I direct my trustees to pay to my said daughter an annual income of two hundred and fifty poimds per annum from her twenty-first birthday until she attains the age of twenty-five years and the balance of the said income during that period to my said wife Dorothy Mary Smith And after my said daughter Pamela Cecil Smith attains the age of twenty-five years her annual income is to be increased from the sum of two hundred and fifty pounds per annum to seven hundred and fifty pounds per annum as from the date of her twenty-fifth birthday until the death of my said wife and the balance of the said income of my estate is to be paid to my said wife Dorothy Mary Smith until her death I further direct and declare that after the death of my said wife the whole of the net income of my estate is to be paid by my trustees to my said daughter Pamela Cecil Smith freed from the debts and control of any husband with whom she may intermarry and without power of anticipation And after the death of my said daughter I direct that the whole of the corpus of my said residuary estate as well as the income thereof is

40 C.L.R.] OF AUSTRALIA.

469

to be divided amongst those of the children of my said daughter R- C- of A.

1928.

Pamela Cecil Smith who shall attain the age of twenty-one years

m such shares and proportions as my said daughter shall by her

Sm ith

V.

will or any codicil thereto appoint and in default of appointment

F e d b b a i COMMIS-

then equally between them share and share alike and if only one SIONEE

OV

then the whole to that one ” &c.

T a x a tio n .

In assessing the estate of the testator for estate duty under the Estate Duty Assessment Act 1914-1922 the Federal Commissioner of Taxation assessed the net value of the estate at £86,761, the value of the bequest to the widow at £1,174, the value of the annuity to the father at £3,110 and the value of the legacies to the four sisters at £8,000; he thus arrived at the sum of £74,477 as being the value of the residue of the estate. He then valued the interests of the widow and the daughter in the residue ditring the widow’s life at £49,334 and the interest of the daughter in the residue after the widow’s death at £15,464, leaving a balance of £9,679. The Commissioner assessed the duty payable on the whole estate at £9,715 lls., which was made up as follows ; Duty a t the full rate of 15 per cent on £20,789, namely, £3,118 7s. ; dut)^ at the rate of two-thirds of 15 per cent on £65,972, namely, £6,597 4s. The £20,789 was obtained by adding together the three sums of £3,110, £8,000 and £9,679 mentioned above; the £65,972 was obtained by adding together the three sums of £1,174, the £49,334 and the £15,464 mentioned above. The executors objected to the assessment substantially on the ground that duty should have been assessed at the lower rate on the £9,679 as well as on the £65,972, and there­ fore the duty on the whole estate should be reduced from £9,715 lls . to £9,231 12s. The objection having been disallowed, the executors appealed to the High Court and the appeal was heard by Knox C.J.

Dudley Williams, for the appellants. Whether there is or is not an intestacy by reason of there being no children of Pamela Cecil Smith who attain the age of twenty-one years, the whole of the residuary estate must go to persons mentioned in sec. 8 (6) of the Estate Duty Assessment Act, for in the event of an intestacy the interest undisposed of would go to the testator’s widow and daughter.

470

HIGH COURT

[1928,

H.	C. OF A. The appellants are, therefore, entitled to the benefit of the reduced
_̂_ ’ rate of duty in respect of the whole of the residue.

Sm ith

V.

Hooton, for the respondent.

The question of whether the estate

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CoMMlS-

8IONEB o r passes to the persons mentioned in sec. 8 (6) must be determined

T a x a tio n .as at the death of the testator {Weldon v. Union Trustee Co. of Australia Ltd. (1) ). The word “ passes ” in sec. 8 (6) means actually passes at the date of the death of the testator. At that time nothing passed to the testator’s grandchildren because there were none, and nothing passed to the widow and daughter in respect of the interest given to the grandchildren because there was not then, and there might never be, an intestacy. [Counsel also referred to Umbels v. Jaggard (2); Armytage v. Wilkinson (3).]

Dudley Williams, in reply, referred to In the Will of Davidson; Perpetual Executors and Trustees Association of Australia IM. v. Davidson (4).

K n o x C.J. The matter seems to me to be quite clear, though it is one of first impression. The provision in sec. 8 (6) of the Estate Duty Assessment Act is designed to confer on persons more or less immediately connected with the deceased a partial exemption from the duty ordinarily payable in respect of the property of a deceased person. I think that the Legislature has clearly expressed its intention that the benefit is to extend to all property which by force of the will or of the law as to the distribution of the estates of intestates passes directly from the testator or intestate to a member or members of the selected class, provided that on the death of the testator it can be shown from the terms of his will and by reference to the state of his family that the property must go directly from him to persons within that class and that in no conceivable event can it pass from the testator to any person who is outside that class. In other words I think that the section is intended to provide an exemption in the case of the devolution of property from a testator or an intestate to members of the privileged class. In the present

(1) (1925) 36 C.L.R. 165.(3) (1878) 3 App. Cas. 355, at p. 372.

(2) (1870) L.R. 9 Eq. 200.

(4) (1917) V.L.R. 748 ; 39 A.L.T. 140.

40 C.L.R.]

OF AUSTRALIA.

case of course it cannot be said, looking at the terms of the will H . C. of a .

and having regard to the facts at the date of testator’s death, that

this property will pass to the grandchildren of the testator, because

Smith

V.

they may never come into existence.

But in that case there will

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be a lapse of the gift of residue to the grandchildren and consequently sio n e r OF

an intestacy as to this property, and in that event, having regard T axation .

to the state of the testator’s family at the date of his death, the

Knox C.J.

property can only go to his widow and daughter. So that, whatever happens, the persons to whom the property passes by reason of and upon the death of the testator will be members of the exempted class—either grandchildren taking under his will or his widow and daughter taking on an intestacy. For these reasons I think that duty should be charged at the lower rate on the amount in question.

Appeal allowed with costs and assessment amended

accordinglif.

Solicitors for the appellants, Campbell & Campbell.

Solicitor for the respondent, W. H. Sharwood, Crown Solicitor for

the Commonwealth.

B. L.