Thurn v Federal Commissioner of Taxation

[1965] HCA 31

HIGH COURT OF AUSTRALIA

Kitto, Taylor and Menzies JJ.

THURN v. FEDERAL COMMISSIONER OF TAXATION

(1965) 112 CLR 432

30 June 1965

Estate Duty (Cth)

Estate Duty (Cth)—Dutiable estate—Policy of life assurance—Proceeds payable to executors or assigns of life assured—Premiums paid by life assured—Assignment of policy by life assured to wife in consideration of sum equal to amount of premiums paid—Subsequent premiums paid by wife—Death of life assured—Proceeds of policy not part of dutiable estate—"under a policy of assurance"—Life Insurance Act 1945-1958 (Cth), s. 87 (3)—Estate Duty Assessment Act 1914-1957 (Cth), s. 8 (4) (f)*.

Decisions

June 30.
The following written judgments were delivered: -
KITTO J. This is a case stated by Taylor J. under s. 28 of the Estate Duty Assessment Act 1914-1957 (Cth) for the opinion of the Full Court upon a question of law arising in an appeal against an assessment of estate duty under that Act. The question is whether the estate of one Francis Martin Thurn deceased comprises for the purposes of the Act any and if so what portion of a sum of 11,928 pounds which on the death of the deceased was paid to his widow as the moneys due at the maturity of a policy of assurance on his life. (at p436)

2. It is a question depending upon the construction of par. (f) of s. 8 (4) of the Act, containing one of the provisions by which the Act includes in an estate, for duty purposes, property which forms no part of the estate in fact. The paragraph comprises "money payable to, or to any person in trust for, the widow (or relatives of certain classes) of the deceased under a policy of assurance on the life of the deceased where the whole of the premiums has been paid by or on behalf of the deceased, or, where part only of the premiums has been paid by or on behalf of the deceased, such portion of any money so payable as bears to the whole of that money the same proportion as the part of the premiums paid by or on behalf of the deceased bears to the total premiums paid". (at p437)

3. The policy provided for payment of the sum assured, on the death of the deceased, to his executors, administrators or assigns. During the subsistence of the policy seven annual premiums only were paid upon it. Of these, the deceased paid the first four. Before the fifth fell due he assigned the policy to his wife Olive May Thurn, who on his death became his widow. The assignment was made in consideration of a payment equal to the total of the four premiums, and by means of a memorandum of transfer endorsed upon the policy and duly registered in accordance with s. 87 of the Life Insurance Act 1945-1958 (Cth). The result of the assignment was, by force of s. 87 (3) of the latter Act, that thenceforth the assignee had all the powers and was subject to all the liabilities of the deceased under the policy, and was entitled on his death to sue on the policy in her own name. She paid the three premiums which thereafter fell due. (at p437)

4. Taking the view that the policy money became payable to her "under" the policy notwithstanding that her title to it depended upon the assignment as well as the policy, the Commissioner treated it as included in the estate for duty purposes by force of s. 8 (4) (f). A contention submitted in support of the appeal is that the expression "under a policy", in this provision, directs attention to the terms of the policy alone, so that the paragraph applies only where the widow (or relative) is specifically pointed out by the policy as the person to whom or in trust for whom payment of the policy money is to be made. It is not easy to see why the word "under" in this context should be given the narrow meaning thus suggested, for it is a word commonly used to describe the relation between a right and the root of title from which the right is derived even if derived through intervening dispositions. The general sense of the provision favours an interpretation which would extend to a case when policy money becomes payable to a widow or relative (within the designated classes) by the combined operation of the policy and an assignment. (at p437)

5. But even if this wider interpretation be accepted, the force of the whole expression "money payable to, or to any person in trust for, the widow . . . of the deceased under a policy of assurance on the life of the deceased" requires, as it seems to me, that the widow's beneficial title to the money shall accrue to her in virtue of her status as the widow of the deceased. Similarly as to the widower and the designated classes of relatives. The operation of the paragraph is to impose duty in respect of life assurance moneys where the policy serves the same purpose as a will, but only in the limited class of cases where the benefit is provided for certain relatives of the deceased: see per Latham C.J. in Williams v. Federal Commissioner of Taxation (1950) 81 CLR 359, at p 375 The relationship (as at the death of the deceased) of the persons for whom the benefit is provided is of the essence of that similarity, between the policy and a particular kind of will, which the Legislature has thought fit to make the ground for levying estate duty. This no doubt explains why the paragraph is expressed to apply, not to money payable to or in trust for the widow, the widower, or any child, grandchild, etc., but to money payable to or in trust for the widow, the widower, or any of the classes consisting of relatives of the specified degrees. Thus the description of the persons is treated as the relevant consideration. The relationship at the death of the deceased is central to the nature of the payability upon which the application of the paragraph is expressed to depend. If the money is payable to or in trust for a person outside the specified relationships the resemblance between the policy moneys and a provision made by will is not treated by the paragraph as sufficient to attract a liability for duty. The reason doubtless is that the degree of resemblance that is thought sufficient exists only where the qualification for taking the benefit of the policy is the fulfilling, at the death of the deceased, of a description which as a rule carries with it the notion of a moral or sentimental claim to bounty. It would be inconsistent with this to impose liability for duty where, for example, a policy is vested in a trustee for the wife as persona designata, so that even if she (and her representatives if she dies) should retain the benefit of the policy until it matures the efficacy of the trust for her is not dependent upon her surviving the deceased or upon the continuance of the marriage. In such a case the benefit which arises from the payment of premiums by the deceased is in the nature of an immediate provision made at the time of each payment and made not for the widow but for a person who may or may not become the widow. (at p438)

6. The present case is even more clearly outside the purpose which par. (f) discloses on its face. On the death of the deceased the policy money became payable - under the policy, one may concede - to a person who in fact was the widow of the deceased; but the instruments by the operation of which it became so payable did not make it payable to that person as the widow. She would have been entitled to receive it even if her marriage to the deceased had been dissolved in his lifetime. The legal nature of the money which became payable upon the death of the deceased is fully stated by saying that it was money payable under the policy to the assignee of the policy. The fact that the assignee happens to be the widow is, in my view, irrelevant to the purpose and operation of par. (f); for that paragraph concerns itself with relationships in so far only as they are germane to the legal or equitable right to receive payment of the policy money. (at p439)

7. For these reasons I am of opinion that the question in the case stated should be answered: Not any part. (at p439)

TAYLOR J. The question in this case is whether by virtue of s. 8 (4) (f) of the Estate Duty Assessment Act 1914-1957 four-sevenths of the moneys payable under a policy of assurance effected by the deceased upon his own life and subsequently assigned to his wife, Olive May Thurn, some two and a half years before his death should be regarded as part of his estate for the purposes of the Act. According to the policy the moneys payable thereunder were payable upon the death of the insured to his executors, administrators or assigns but after the registration of the assignment of the policy Olive May Thurn became the absolute owner thereof and the right to recover the policy moneys at the appropriate time vested in her by virtue of the provisions of Div. 2 of Pt IV of the Life Insurance Act 1945-1958 (Cth). The assignment was made for full value in the circumstances set out in the case stated. I do not need to re-state the facts therein appearing but it should be mentioned that the deceased paid the four annual premiums which became payable before the assignment, that his wife paid the three premiums which fell due thereafter and that the consideration given by the wife for the assignment was an amount equal to the sum of the four premiums paid by the deceased. (at p439)

2. Section 8 (4) (f) is in the following terms: "(4) Property - . . . (f) being money payable to, or to any person in trust for, the widow, widower, children, grand-children, parents, brothers, sisters, nephews or nieces of the deceased under a policy of assurance on the life of the deceased where the whole of the premiums has been paid by or on behalf of the deceased, or, where part only of the premiums has been paid by or on behalf of the deceased, such portion of any money so payable as bears to the whole of that money the same proportion as the part of the premiums paid by or on behalf of the deceased bears to the total premiums paid, shall for the purposes of this Act be deemed to be part of the estate of the person so deceased". (at p440)

3. It is the contention of the appellants that the money payable under the policy was not at the date of the death of the deceased money of the character described by the section. It was not, it was said, "money payable to . . . the widow . . . under a policy of assurance" though admittedly the policy was one of assurance on the life of the deceased and he had paid some of the premiums payable thereunder. The argument was that in order to determine whether the "money" was of the specified character, it was permissible to look only at the terms of the policy and that it was not permissible to have regard to the later assignment by virtue of which the policy moneys ultimately became payable to the assignee. I doubt whether this argument is tenable on the language of the sub-section. (at p440)

4. But I agree with Kitto J. that the appellants should succeed and since I am of opinion that there is a more particular reason why they should succeed, I propose to say briefly why I have come to this conclusion. The situation which the section appears to me to contemplate is that there has been in existence a policy of insurance on the life of the deceased under which moneys are payable to, or, in trust for, some one or more of the specified classes and that the premiums payable thereunder or some of them, have, in his lifetime, been paid by the deceased. To me the phrase "where the whole of the premiums has been paid . . . or where part only of the premiums has been paid by or on behalf of the deceased" refers to the payment of premiums payable under a policy of assurance of the character already described in the paragraph, that is to say, a policy of assurance on the life of the deceased under which money is contingently payable to or in trust for some one or more members of the specified classes. Initially, and during the whole of the period during which the deceased paid premiums, the policy was not of this character; it was a policy under which moneys were contingently payable to the executors, administrators or assigns of the deceased and not to or in trust for his widow or any of the specified classes. At the best, from the respondent's point of view, no basis existed for regarding the policy as falling within this description until after the registration of the assignment and from that point of time no premiums were paid by the deceased. Accordingly I am of the opinion that no part of the policy moneys can be considered to have been property of the deceased at the time of his death. (at p440)

MENZIES J. The Estate Duty Assessment Act requires that so much of moneys payable under a policy of assurance upon the life of a deceased person as bears to the whole of the policy moneys the same proportion as so much of the premiums paid by the deceased bears to the total premiums paid, shall, if such moneys are payable to any of a specified group including his widow, be deemed to be part of his estate for the purposes of the Act (s. 8 (4) (f)), notwithstanding that the policy moneys are not payable to the deceased's personal representatives so as to constitute part of his actual estate. (at p441)

5. The Commissioner claims that by virtue of the foregoing provision a sum of 6,816 pounds, part of 11,928 pounds payable by the Australian Mutual Provident Society to the widow of F. M. Thurn deceased upon his death, is to be deemed part of the estate of the deceased. (at p441)

6. In December 1954 F. M. Thurn took out with the Society a policy upon his own life for 10,000 pounds. He paid four annual premiums of 615 pounds- in all, 2,460 pounds. In February 1959 he assigned the policy to his wife in consideration of the payment of 2,460 pounds. The assignment was completed in accordance with the provisions of the Commonwealth Life Insurance Act. Thereafter the wife paid three premiums totalling 1,845 pounds. On 10th July 1961 F. M. Thurn died, and the sum then payable under the policy (viz. 11,928 pounds) was paid by the Society to his widow. The 6,816 pounds which the Commissioner claims was correctly included in the estate of the deceased for the purposes of the assessment of estate duty, is four-sevenths of 11,928 pounds. (at p441)

7. The assessment was correct if, in the circumstances stated, the policy moneys in question were payable to the widow under a policy of assurance on the life of the deceased. (at p441)

8. When the policy in question was taken out, the policy moneys were payable to the deceased's executors, administrators or assigns. Nothing was payable under the policy to his widow. So long as this continued to be so, the deceased himself paid the premiums. When the policy was assigned to the wife in accordance with the provisions of the Commonwealth Life Insurance Act, the transferee obtained all the powers and became subject to all the liabilities of the transferor under the policy and became entitled to sue in her own name on the policy (s. 87). Thereafter the wife herself paid all the premiums. Once, however, there was a duly registered assignment, it seems to me there was a policy that would, upon the death of the assured, fall within the terms of the section - that is, one on the life of F. M. Thurn under which money was payable to his widow upon his death. The policy could, however, before the death of the assured, cease to be such a policy - for example, if the wife, during the life of the assured, were to have assigned it to a person not falling within the class enumerated in s. 8 (4) (f) of the Estate Duty Assessment Act. When the deceased died, however - and this seems to me to be the material date - the terms of s. 8 (4) (f) were literally fulfilled, for money was payable to his widow under a policy of assurance upon his life where four of the seven premiums had been paid by him. It does not seem to me to matter that the policy moneys became payable to the widow under the policy by reason of the operation of the Life Insurance Act which gave her, inter alia, the right to sue in her own name on the policy. It matters not, for the purposes of s. 8 (4) (f), how the policy moneys became payable to the widow under the policy. It is sufficient that they had become beneficially payable to her under the policy. Furthermore, I do not think that the operation of the paragraph is restricted to cases where the policy moneys become payable to a person because he or she falls within a particular description to be found in the policy; moneys payable to persons named who are, for instance, children are within the ambit of the provision notwithstanding the beneficiaries are not described as children in the policy. In my judgment, par. (f) applies whenever it happens in fact that the moneys are payable under the policy to, or in trust for, any person who, at the date of death of the policy holder, falls within the description to be found in the paragraph - not within a description to be found in the policy. (at p442)

9. I would therefore answer the question in the case stated as follows: Yes - 6,816 pounds. (at p442)

Orders

Question in the case stated answered: Not any portion. Costs of the case stated reserved for the Justice disposing of the appeal.