Todd v Todd

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
In the Estate of TODD (DECEASED)
TODD v TODD & ORS
[2021] SASC 36
Judgment of the Honourable Justice Bampton

SUCCESSION - CONSTRUCTION AND EFFECT OF TESTAMENTARY DISPOSITIONS - CONSTRUCTION GENERALLY - PRINCIPLES OR RULES OF CONSTRUCTION - READING WILL AS A WHOLE
Application for advice or directions – where deceased is survived by four children each of whom received a gift of real property under the deceased’s will – construction of the will where the general scheme of the will is to divide the real estate assets in the deceased’s estate equally between the four children – where clause 8 of the will provides for division of the property the subject of the gift in clause 8 “in such a manner so as to ensure that as at the finalisation of the administration of my estate all of my said children have received an equal value of bequests” – whether the latent capital gains tax liability in respect of the gifts of real property to the children should be taken into account in determining the value of the individual bequests under clause 8.
HELD: Latent capital gains tax liability in respect of the properties is not to be taken into account in determining the value of the individual bequests under clause 8 of the will.
Administration and Probate Act 1919 (SA) s 69; Income Tax Assessment Act 1997 (Cth) s 118.110, Div 104; Family Law Act 1975 (Cth) s 79, referred to.
Perrin v Morgan [1943] AC 399; Spencer v The Commonwealth of Australia (1907) 5 CLR 418; Perpetual Trustee v Valuer-General (No 2) (2007) 99 SASR 251; Rosati v Rosati [1998] FamCA 38; Commissioner of Taxes (Tas) v Perpetual Trustees Executors & Agency Company of Tasmania Ltd (1969) 118 CLR 325; Fell v Fell (1922) CLR 268; King v Perpetual Trustee Co Ltd (1955) 94 CLR 70; Marley v Rawlings [2014] 2 WLR 213; Re Ferling [1972] Qd R 160; In re Jodrell; Jodrell v Seale (1890) 44 ChD 590; In re Laidlaw [1930] 2 Ch 392, considered.

In the Estate of TODD (DECEASED)
TODD v TODD & ORS
[2021] SASC 36
Civil: Application
BAMPTON J.
Background

Joan Pearl Todd (“Joan”) died, a widow, on 2 April 2018, leaving a will dated 11 September 2006 (“Joan’s will”). Joan’s will appoints her four children, Alexander Todd (“Alexander”), Wendy Holloway (“Wendy”), Bronwyn Andrews (“Bronwyn”), and Yvonne Todd (“Yvonne”) her executors (“the executors”).
Probate of Joan’s will was granted to the executors on 7 November 2018.
Joan’s real estate assets
Joan’s estate relevantly includes the following real estate assets:
(1)A property at Clarence Gardens (“the Clarence Gardens property”);
(2)A property at Hawthorn (“the Hawthorn property”);
(3)A property at Goolwa Beach (“the Goolwa property”); and
(4)A property at Millswood (“the Millswood property”).
Joan’s will
Under clause 5 of Joan’s will there is a devise of the Clarence Gardens property to Wendy.
Under clause 6 there is a devise of the Hawthorn property to Yvonne.
Under clause 7 there is a devise of the Goolwa property to Bronwyn and Alexander as tenants in common.
Clause 8 is a devise of the Millswood property to Alexander, Wendy, Bronwyn, and Yvonne, providing for a means of “equalisation” or “adjustment” regarding the gifts of real property as follows:
I GIVE DEVISE AND BEQUEATH my property situate at and known as 7 Regent Street Millswood 5034 in the said State to my children the said ALEXANDER GEORGE TODD, the said WENDY JOAN HOLLOWAY, the said BRONWYN BEATRICE ANDREWS and the said YVONNE HELEAN TODD to be divided between them in such a manner so as to ensure that as at the finalisation of the administration of my estate all of my said children have received an equal value of bequests under this my Will PROVIDED HOWEVER that such beneficiaries shall have survived me for a period of twenty eight days from and after the date of my death.
Clause 10 provides that Joan’s residuary estate is to be distributed equally amongst her grandchildren and clause 11(1) of the will relevantly provides:
… that all benefits given by this my Will and any Codicil shall be paid delivered or retained free from all duties whatsoever which (whether presently or presumptively or prospectively payable) shall be paid out of my estate in the same manner as my funeral and testamentary expenses and debts shall be payable so that there shall be no subsequent adjustment or apportionment thereof as between any of the beneficiaries of this my Will.
The proceedings
These proceedings were commenced by Yvonne in her capacity as executor, seeking the transfer of the Hawthorn property under clause 6 of Joan’s will. Rather than issue a summons under r 206 of the Supreme Court Civil Rules 2006 (SA),[1] the executors have made application seeking advice or directions pursuant to s 69 of the Administration and ProbateAct 1919 (SA) in these proceedings (“the application”). They seek advice or direction regarding their disagreement concerning the administration of Joan’s estate pursuant to clause 8 and clause 11(1) of her will.
[1] FDN 10 was filed before the commencement of the Uniform Civil Rules on 18 May 2020. Rule 206 provides for the making of final and binding declarations of right which will bind both executors and beneficiaries. As such all who may be affected by the issues of construction need to be represented in the proceedings. As all parties who may be affected in this matter are before the court it was determined unnecessary to issue separate proceedings
The application seeks advice or direction in respect of the proper construction of clause 8 of Joan’s will, particularly with respect to the following issues (“the application”):
2.1Whether the accumulated capital gains tax liability attached to each of the properties referred to in clauses 5 to 8 of the Will should be apportioned to each of the parties in their capacity as beneficiaries (the Beneficiaries) in light of [clause 8], or alternatively under clause 11 of the Will;
2.2.Whether the income and expenses relating to each of the properties referred to in clauses 5 to 8 should be apportioned to the Beneficiary that is to receive the property, and if so from what date, and;
2.3Whether the net amount of the income and expenses relating to each property should be adjusted pursuant to the Adjustment Clause or alternatively under clause 11 of the Will.
During the hearing of the application on 17 December 2020, I was informed that issues 2.2 and 2.3 had been agreed between the parties. Issue 2.1, concerning the treatment of latent capital gains tax (“CGT”) liability as prescribed by the Income Tax Assessment Act 1997 (Cth) (“the ITAA”), remains in dispute.
The issue for determination
Yvonne, who was represented by counsel in her capacity as a beneficiary of Joan’s estate on the hearing of the application, submitted that issue 2.1 of the application does not correctly formulate the issue of construction which arises under clause 8. She stated that the issue for consideration is the meaning of the phrase “an equal value of bequests under this my will” in clause 8 and how that equal value is to be calculated in the circumstances. Put another way, the question is whether the latent CGT liability in respect of the Clarence Gardens property, the Hawthorn property and the Goolwa property (“the three properties”)[2] should be taken into account in determining the value of the individual bequests under clause 8.
[2] The three properties are CGT assets as defined by the ITAA.
Counsel for the executors provided written submissions supplemented by oral submissions on the hearing of the application, not as a contradictor but on the basis it may assist the Court. Wendy and Bronwyn, who are interested parties to the application in their capacities as beneficiaries, relied on written submissions prepared by their counsel and did not seek to be further heard on the application. Alexander’s solicitor informed my chambers that he will abide the orders of the Court.
Construction of Joan’s will
In construing Joan’s will, it is my task to discover Joan’s intentions and the scheme she conceived for her will. Joan’s intentions and the scheme are to be ascertained from an examination of the language of the will viewed as a whole.[3] This involves identifying the natural and ordinary meaning of words and sentences used in the will in the context of all provisions in the will. In this task, I can be aided only by “such facts as existed and were known to the testator at the date of the will” which are admissible in interpreting the language of the will, but subjective evidence of Joan’s intentions cannot be taken into account.[4]
[3] Fell v Fell (1922) CLR 268.
[4] King v Perpetual Trustee Co Ltd (1955) 94 CLR 70 at 78; Marley v Rawlings [2014] 2 WLR 213 at [18]-[19].
As Viscount Simon said in Perrin v Morgan:[5]
… [t]he fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case – what are the “expressed intentions” of the testator.
Further Lord Romer stated:[6]
I take it to be a cardinal rule of construction that a will should be so construed as to give effect to the intention of the testator, such intention being gathered from the language of the will read in the light of the circumstances in which the will was made.
[5] [1943] AC 399 at 406.
[6] [1943] AC 399 at 420.
The general scheme of the will
The parties broadly agree that the general scheme of Joan’s will is to divide the real estate assets in Joan’s estate equally between Joan’s four children and the residue between the grandchildren. It is further agreed that Joan’s intent was for there to be a division of the Millswood property so that, after such division, the children receive an equal value of bequests.
The parties, however, diverge as to their interpretation of clauses 8 and 11(1) of the will and hence, the way the general scheme of the will should operate.
The disposal of the Millswood property
The Millswood property was sold by the executors for $1,425,000 in March 2020. The net proceeds of the sale is $1,395,802. As the Millswood property was Joan’s main residence throughout her ownership of it, pursuant to s 118.110 of the ITAA, it is exempt from CGT.
Clause 8 of Joan’s will
The parties agree clause 8 is to operate as at the finalisation of Joan’s estate, being the date at which the executors are in a position to distribute the residuary estate to the residuary beneficiaries entitled under clause 10 of Joan’s will, and divide the fund that was the Millswood property amongst Yvonne, Alexander, Wendy, and Bronwyn. The operative word in clause 8, about which the parties differ, is “value”.
It is reasonable to infer that Joan knew at the time she made her will the three properties she was gifting to her children had different values when, for example, she received the Valuer-General’s valuations recorded in the council rates notices for each property. Accordingly, she must have intended by clause 8 to deal with the Millswood property in a way that would address that disparity by equalising the value of the gift to each child.
Clause 11 of Joan’s will
Clause 11(1) directs that benefits given under Joan’s will shall be paid, delivered or retained free from all duties whatsoever which (whether presently or presumptively or prospectively payable) shall be paid out of Joan’s estate in such manner as her funeral expenses and testamentary expenses.
The executors submitted that “duties” in clause 11(1) is to be construed as incorporating future potential CGT liabilities payable by each beneficiary.
The executors contended that each gift of property is subject to a CGT cost base and therefore a latent liability of the transferee to pay CGT on ultimate disposal of the property.
The executors submitted that the “value” of the three properties should account for an amount representative of the likely ultimate incidence of tax payable by the beneficiary to whom those properties are bequeathed.
It was argued it would be uncommercial not to assess the CGT and against Joan’s wishes. It was submitted that whilst it is a calculation with some uncertainties, there is a prospect of doing it which is consistent with Joan’s expressed intent that there be equality of benefit.
The executors submitted an obvious mechanism to bring CGT to account is to calculate the CGT liability on the premise that the properties were sold at the date of death; in other words, CGT crystallises at that time, and then for the beneficiaries to disclose, privately if necessary, their personal taxation return for that year, and then the amount could be calculated with almost complete certainty.
Wendy and Bronwyn (in their capacity as beneficiaries) submitted that the advice and contentions of the executors should be accepted given:
·Joan’s clear scheme for ensuring that all four children received bequests of equal value from her estate, which included both CGT and post CGT assets;
·The natural and ordinary meaning of clause 8, describing a clear intended outcome of equality of “value received” and using language of the broadest scope to try to achieve that outcome;
·The words of the other provisions in the will including clause 11, which it was submitted are words of the widest import, further evidence Joan’s scheme for ensuring all children receive equal value from her estate, including taking into account duties not merely “presently” payable but also “presumptively” or “prospectively payable”.
Wendy and Bronwyn argued that the approach of “value received” is commonly applied in the Family Court in substantially identical circumstances where property which is subject to CGT is distributed to one spouse under a property settlement. Furthermore, they submitted that the same approach to valuing assets is commonly undertaken in commercial cases.
Yvonne argued the submission that clause 11(1) provides for potential CGT liabilities to be taken into account is misguided and would result in the finalisation of the estate being delayed, potentially indefinitely. Yvonne contended the value of bequests made to an individual beneficiary should not account for a potential capital gain or loss which the devisee of the property may incur upon a later disposal of such property. She submitted that the disposal of the property is a hypothetical future event and therefore should have no bearing on the “value” of a bequest made under Joan’s will.
Yvonne contended if “duties” under clause 11 encompassed CGT liabilities on the gifts of the three properties it would create enormous difficulties as taxation is not payable until there has been disposal of property. Further, as clause 11(1) directs that duties must be paid in the same manner as funeral and testamentary expenses, the administration of the estate cannot finalise until clause 11(1) is given effect. If clause 11(1) were construed as to include CGT liabilities, by necessity the distribution of the residuary estate may be postponed for an indefinite and unknown period because:
(1)clause 10 provides that the residuary beneficiaries benefit crystallises after “payment thereout of my funeral and testamentary expenses and just debts…”; and
(2)clause 11 provides “that all benefits given under this my will and any codicil shall be paid and delivered or retained free from all duties whatsoever (whether presently, or presumptively or prospectively payable) shall be out of my estate in the same manner as my funeral and testamentary expenses and debts shall be payable …”.
The value of land
Before considering the authorities referred to by the parties, it is first necessary to establish the ordinary meaning of “value”.
As Yvonne submitted, value means “capital value”, which is the equivalent of “market value”.[7] In Spencer v the Commonwealth of Australia,[8] the High Court considered the ordinary meaning of “market value”. Griffith CJ held:
In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring “What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?”
Isaacs J added:
To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.
[7] Perpetual Trustee v Valuer-General (No 2) (2007) 99 SASR 251.
[8] (1907) 5 CLR 418.
Accordingly, the principles of determining market value explained in Spencer revolve around a hypothetical transaction between a willing but not anxious purchaser and vendor, who are both aware of the circumstances affecting the value of the land and current market conditions. Importantly, the Spencer market value definition does not consider the particular circumstances of an individual purchaser or vendor in placing a valuation on a particular asset.
Value and CGT
The meaning of value contended for by the executors, Wendy and Bronwyn differs from that prescribed by Spencer, in that it imports the concept of accounting for the latent CGT liability potentially payable in respect of an asset.
Section 79 of the Family Law Act 1975
Wendy and Bronwyn referred to general principles regarding potential CGT liabilities laid down by the Full Court of the Family Court in Rosati v Rosati[9] in the context of alterations of property interests following a relationship breakdown under s 79 of the Family Law Act 1975 (“the Family Law Act”). The Full Court in Rosati said:
6.36It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s.79 of the Act in relation to the effect of potential CGT, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:-
(1)     Whether the incidence of CGT should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2)     If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any CGT payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3)     If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the CGT payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4)     There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of CGT into account in valuing that asset. In such a case, it may be appropriate to take the CGT into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.
[9] [1998] FamCA 38.

Wendy and Bronwyn contended that Rosati has been applied in over 100 reported cases. On closer examination of those cases, it is apparent that the circumstances in which allowance for a potential future capital gain is made are rare.
Yvonne referred to many instances where the Family Court declined to make an allowance for CGT, as there was no evidence that the CGT asset in question was to be sold immediately and no evidence of what the potential CGT payable may equate to. Likewise, in this matter, there is no evidence that any of Joan’s beneficiaries intend to dispose of the property given to them under Joan’ will thereby giving rise to a CGT event[10] and, no evidence as to any beneficiaries likely taxable income for the present financial year.[11]
[10] As described in Division 104 of the ITAA
[11] It would also be relevant to know, inter alia, whether each party has carry forward capital losses or other capital assets which they intend to dispose of in the same financial year as the property bequeathed to them.
Yvonne pointed out that in a family law context, where there is evidence before the Family Court as to:
·whether an asset would be realised or not,
·whether a party to a marriage intends to retain or sell an asset, or
·whether the court in fact orders that an asset be sold,
the Court could make an educated finding of fact as to whether a particular asset would be realised, giving rise CGT liability.
The Family Court’s role in the division of property in such circumstances is a different task to my task in construing clause 8 of Joan’s will. The mere possibility that Joan’s beneficiaries may dispose of their devise of property in the future giving rise to a CGT event cannot be taken into account in ascribing the equal value of bequests under clause 8 of Joan’s will.
Commercial cases
Wendy and Bronwyn argued that the approach of “value received” accounting for future CGT liability is applied in commercial cases. They refer to Re Ferling,[12] where the Full Court of the Supreme Court of Queensland was tasked, inter alia, with valuing a testator’s partnership interest for the purpose of succession duty. Relevantly, the partnership had made elections under ITAA that postponed the ultimate liability for income tax.
[12] [1972] Qd R 160.
As to the application of that postponed tax liability on the valuation of the partnership, the trial Judge, whose decision was affirmed on appeal, first adopted the Spencer meaning of market value, stating:[13]
It is next necessary to consider the basis of the valuation of the testator’s share in the partnership of G. Ferling and Sons. In dealing with this aspect it is important to bear in mind what is to be valued, namely a share in the partnership. In determining the value it is also as well to bear in mind that it is the value to the owner which is to be ascertained and in arriving at this value the conventional test is to have regard to the willing but not over anxious buyer and the willing seller who is not forced to sell; (Spencer v. The Commonwealth (1906) 5 C.L.R. 418); also that the hypothetical buyer must be regarded as being fully conversant with all its potentialities which must include the factors which affect the value both favourable and adverse (cp. Commissioner of Inland Revenue v. Glasgow & South-Western Railway Co. [1887] 12 A.C. 315, per Lord Halsbury at p. 321; Fraser v. City of Fraserville [1917] A.C. 187, at p. 194.).
[13] At 174 (Hoare J).
In regard to the impact of future taxation liabilities on valuation, the trial Judge made the following observations:
Now there is no doubt that if the terms of a partnership deed provide that one partner has an enforceable option to buy the share of another partner at a price which may be less than it would otherwise be, the existence of the option affects the value (Perpetual Executors & Trustees Association of Australia Limited v. Federal Commissioner of Taxation; Thomas’ case (1955) 94 C.L.R. 1; Tait v. The Commissioner of Taxation (1967) 116 C.L.R. 620). On the other hand, it is clear that income tax, being, as it were, a personal tax, may in some circumstances operate to reduce the amount received by a successor yet nevertheless is irrelevant in determining the value of the interest in respect of which the succession has occurred (Cp. The Commissioner of Taxes v. The Perpetual Trustees Executors and Agency Co. Ltd. (1969) 118 C.L.R. 325). Thus if A owns a property in respect of which there is, as it were, a contingent liability to pay income tax which crystalises on certain events including A’s death, then in that event, generally speaking the property will be valued at what the willing but not anxious purchaser is prepared to pay at that time even though, because of the tax liability, the amount of money received by A’s executors or the devisees of the property, will be less than the sale price.
(Emphasis added)
In my view, the trial Judge’s observations in ReFerling do not support Wendy and Bronwyn’s argument. The trial Judge makes clear that the general position is that property should be valued according to Spencer, being what a willing but not anxious purchaser is prepared to pay, notwithstanding the fact that on eventual disposal of said property the net proceeds may be less than market value. In that regard, the decision of Re Ferling is strictly limited to its particular facts, which the trial Judge cautioned by stating:
In this case it seems to me to be very important to emphasise what was the asset in respect of which the succession has occurred. It was not an aliquot share of the respective physical assets of the partnership. It was a share in the whole of the partnership property i.e. the whole enterprise. Also it is of course important to bear in mind that one must have regard to this particular partnership and not partnerships in general.
The High Court’s decision in Commissioner of Taxes (Tas) v Perpetual Trustees Executors & Agency Company of Tasmania Ltd[14] concerns an appeal in relation to s 16A(1)(c) of the Deceased Persons’ Estate Duties Act (Tas), which provided:
(1)For the purpose of ascertaining the value of the estate of a deceased person for the purposes of this Act the following provisions apply in any case where the Commissioner is of the opinion that they should so apply, that is to say:-
…
(c) Where the estate includes any shares or stock in a company the shares of which are not, or the stock of which is not, quoted on the official list of a stock exchange, the Commissioner may, in his discretion, notwithstanding anything contained in paragraphs (a) and (b) of this subsection, adopt as the value of any such shares or stock such sum as the holder thereof would receive in the event of the company being voluntarily wound up on the death of the deceased person, notwithstanding that no such winding up is intended or contemplated.
[14] (1969) 118 CLR 325.
The question for the High Court was:
whether for the purpose of the calculation under s.16A(1)(c) a deduction should be made of income tax to which the holder of the shares would be liable in respect of that part of the dividend received by him in the notional liquidation which is attributable to undistributed profits of the company.
The High Court held:
The value of those shares is “such sum as the holder thereof would receive in the event of the company being voluntarily wound up on the death of the deceased person”, that is to say if the distribution to shareholders on the winding up took place on that day
…
It is immaterial whether the sum in the hands of the recipient would or would not constitute part of his assessable income or at what rate such person would be taxed. It would be virtually impossible to bring the considerations we have just mentioned into account in determining the value of shares in accordance with s 16A(1)(c) and that provision does not require the Commissioner to attempt such an undertaking. It is concerned simply with the sum which the holder of the shares would receive from the liquidator upon a distribution in the hypothetical liquidation.
…
It proceeds upon a limited hypothesis and it would, we think, be an error to attempt to apply it upon the footing that there had been an actual distribution and that income tax or any other liability has become payable by some person or other by reason of the distribution.
Perpetual Trustees suggests that in the context of an inquiry as to notional “value received” where no disposal of property has taken place, it would be erroneous to account for any liability (as to taxation or otherwise) that may have arisen had an actual disposal taken place or that may arise on a future disposal.
Valuation and hypotheticals generally
Wendy and Bronwyn submitted that “the valuation of assets and liabilities often take into account future events that may or may not happen”. They argued that “accountants do this every day of the week when preparing financial accounts”. It was further submitted that such valuations are based on what the property would sell for, being a hypothetical event, and there is no guarantee that monetary value will ever be received. In that vein, they argued that a valuer placing a value on a property is no different to a valuer placing a value on a contingent tax liability.
Of course, valuing land may prove difficult to value in many places where there is no active market and it has long been accepted that “valuation is an art, not a science”.[15] However, it cannot be said the three properties bequeathed under Joan’s will are incapable of valuation as they have previously been professionally valued. Whilst it is true that, due to a great number of factors, any of the properties may later be sold for an amount lesser or greater than a market value prescribed to it by a professional valuer, that fact does not detract from the market value ascribed to it based upon relevant factors,[16] at a given point in time.
[15] Such as its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood.
Furthermore, as to the accounting or “valuation” of future tax liabilities by accountants, whilst it is not necessary to delve too deeply into this topic since there is no evidence of the kind before me, I make the following brief observations. First, it is commonplace, if not mandatory, for a corporate taxpayer to prepare financial accounts including inter alia a statement of financial position, whereas it would be uncommon for an individual to prepare such accounts. Secondly, a corporate taxpayer has a fixed rate of taxation meaning that a deferred tax liability or “latent CGT liability” may be more readily estimated. For example, a corporate taxpayer with a tax rate of 30 per cent, that owns an asset worth $500,000 and with a cost base of $300,000, may impute a deferred tax liability of $60,000 on its statement of financial position. That methodology cannot be applied to the circumstances of an individual who has a progressive rate of taxation such that a deferred tax liability cannot be accounted for in the same way.
The methodology proposed by the executors to estimate the latent CGT liability by assuming the three properties were sold at the date of Joan’s death, and then to seek the cooperation of the beneficiaries in disclosing their personal taxation return for that year is problematic. Even if I am to accept the executors Wendy’s and Bronwyn’s submissions as to the meaning of “value”, the taxation returns of the children for the year in which Joan died are, strictly speaking, irrelevant to the enquiry of value as at the finalisation of the administration of Joan’s estate. In any event, I am of the view that it would be inappropriate to require any of the children to reveal their taxation affairs in the circumstances.
Conclusion
The executors, Wendy and Bronwyn were not able to refer to any authority in the context of the interpretation of a will in support of their argument that “value” should notionally bring potential future CGT liabilities to account. Having considered the authorities in related contexts it is apparent that such a submission may only be sustained in truly exceptional circumstances. There is no evidence before me that suggests the present case involves such exceptional circumstances. “Value” in clause 8 is to be interpreted as market value as explained in Spencer, being the price agreed between a willing but not anxious purchaser and vendor, both of whom are aware of the circumstances affecting the value of the land and current market conditions.
Joan’s children acquired the properties devised to them under Joan’s will upon her death. The three properties, for the purposes of the ITAA, are CGT assets which passed to the children under the will. CGT did not apply to the properties at the time the children acquired the properties, as the transfer in ownership on Joan’s death in the circumstances of her estate is not a CGT event on which CGT is payable.
The value of the three properties bequeathed under Joan’s will should not depend on the tax affairs of the person to whom they are bequeathed, nor is there any taxing event that arises upon such bequests. It is incorrect to say that a property bequeathed to a person in the highest bracket of income tax payable for a given year would have a higher value had it been bequeathed to a person who had nil taxable income. Such a proposition ignores the fact that CGT liability in respect of a property shall only arise when (and if) that property is disposed of, and only then will the resultant tax payable (if any) be able to be determined. As such, to value property on the basis proposed by the executors, Wendy and Bronwyn would present a nearly impossible task, as it would involve hypothesising the implications of an event which involves too many variables (including, of course, the fact that the likelihood of such event occurring cannot be discerned on the evidence).
As was stated by Lord Halsbury in Re Jodrell:[17]
That there are particular phrases and particular sets of phrases to which the law would attach a particular meaning is true; and when unqualified and unexplained by anything else those words are found in an instrument, of course you must give to those words or to those phrases the meaning which the law has attached to them, and it would be unreasonable if you did not; because you must suppose, in the absence of any other explanation, that the person who has used those phrases, or used the particular word, has used the phrase or the word in the sense which has hitherto been attached to it by the law, and there is no reason to go out of what you might call the ordinary and primâ facie meaning of such an expression.
[17] In re Jodrell; Jodrell v Seale (1890) 44 ChD 590 at 606.
The meaning of value in clause 8 imports the ordinary meaning of value as described in Spencer. That is, each property is valued, as at the finalisation of Joan’s estate, at what a person desiring to buy the property would have had to pay to a vendor willing to sell it for a fair price but not desirous to sell.
On the natural and ordinary meaning of the words in Joan’s will, latent CGT liability in respect of the three properties is not to be taken into account in determining the value of the individual bequests under clause 8.
Clause 11(1) is not engaged in the process of equalising the value of the gift to each of Joan’s children. To construe the process of equalising the value of the gifts provided for in clause 8 as requiring latent CGT liability to be accounted for, necessarily engages clause 11 by interpreting “duties” in clause 11(1) as encompassing CGT liabilities on future disposal of land given under Joan’s will. Such a construction could lead to the untenable situation where the gift of residuary estate under clause 10 and finalisation of the estate would necessarily be suspended for an unknown and unascertainable future time.[18]
[18] In re Laidlaw [1930] 2 Ch 392.
Having regard to the will as a whole, I glean no intention indicating that the process of ascertaining the equal value of bequests requires the taking into account of taxation liability. There is no evidence suggesting any of the three properties is to be sold imminently. The executors just do not know if or when any of the three properties might be sold and what the CGT might be. The CGT consequences, are unknown and cannot reasonably be taken into account in the process of valuation pursuant to clause 8. CGT liability can only be calculated if an immediate sale is contemplated, and if no sale is contemplated then CGT cannot be reasonably calculated.
It is possible that Joan’s children may devise the property received by them under Joan’s will in their own wills. If that did occur the disposal of the properties giving rise to a CGT event may not occur for many years. It is not impossible to suppose that one or more of the properties may be inherited by many generations before they may be disposed of.
The words “presently or presumptively or prospectively” in clause 11 must be construed narrowly. The phrase has no work to do in respect of CGT liabilities as on my construction “duties” in clause 11(1) does not include latent CGT liabilities which crystallise only upon disposal of property. On the facts of this case, where there is no evidence of immediate sale, CGT liabilities on the three properties are unknowable and unascertainable.
What valuation should be used?
Yvonne submitted that the values of the three properties should be determined by reference to the Valuer-General’s value at the date of Joan’s death. Wendy and Bronwyn argued that valuations should be obtained which reflect the actual market values of the three properties. The executors suggested it was preferable to use specific valuations agreed to by parties as executors and not objected to as beneficiaries.
In my view, it is necessary for a valuation of the properties to take place proximate to the finalisation of the Joan’s estate, being the date at which the executors are in a position to distribute the residuary estate to the residuary beneficiaries and divide the fund that was the Millswood property amongst Yvonne, Alexander, Wendy, and Bronwyn.
I advise that latent CGT liability in respect of the three properties is not to be taken into account in determining the value of the individual bequests under clause 8 of Joan’s will. I further advise that valuation of the three properties is to take place just prior to the finalisation of the Joan’s estate or as the parties may otherwise agree.

[2021] SASC 36

13 April 2021