Webb v Syme - [1910] HCA 32

THOMAS PROUT WEBB (COMMISSIONER

OF TAXES OF VICTORIA)

SYME AND OTHERS

RESPONDENTS.

ON APPEAL FROM THE SUPREME COURT OF H. Income tax - Income derived from trust estate-Trade carried on by trustees-Income

from personal exertion or income the produce of property-Income Tax Act 1895 (Vict.) (No. 1374), secs. 2, 8, 9, 12-Income Tax Act 1896 (Vict.) (No. MELBOURNE,

1467), secs. 4, 12. March, 14, 15,

Under the Victorian Income Tax Acts the income tax is an impost laid upon individual persons in respect of annual incomes received by them for their own use and disposition.

Where a business is carried on by trustees under trusts which, although for the benefit of the beneficiaries, do not constitute them the owners of the business, and the beneficiaries are entitled to the income of the trust estate, the beneficiaries and not the trustees are the taxpayers in respect of the incomes of the beneficiaries, and the trustees are not taxpayers at all except

10 CLR 483

so far as they are answerable under sec. 12 of the Income Tax Act 1895 for income tax payable by the beneficiaries or except so far as they may be liable under sec. 12 (1) (d) of the Income Tax Act 1896.

A testator gave the whole of his real and personal estate to six trustees, who included his five sons, upon trusts for conversion with full power of postponement and management, but the power of conversion was not to be exer- eised as to a newspaper business, which had been carried on by the testator, until the death of the last survivor of the sons. After giving certain legacies and annuities, payable in one case out of the general income of the estate and in another out of the profits from the newspaper business, and directing certain sums to be set aside for specific purposes, he directed that, subject to these trusts, the trustees should hold his "residuary real and personal estate including " the newspaper business upon trust, until the death of the last survivor of the sons, to divide the income into five equal shares and to pay one share to each of his five sons during his life or until attempted alienation, and on further trusts which would not terminate until the death of the last survivor of the sons. He gave to the trustees the fullest powers of carrying on and managing the newspaper business, and expressed his desire that that business should remain in the possession of his five sons and the survivors and survivor till the death of the last survivor." A large part of the fund annually distributable by the trustees among the five sons consisted of profits from carrying on the newspaper business.

Held, by Griffith C.J., Barton J. and O'Connor J. (Isaacs J. dissenting) that each of the five sons was under the Income Tax Acts primarily liable to payment of income tax in respect of the income derived by him from…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1910] HCA 32
Decision Date: 18 June 1910

CaseChat Overview and Summary

The case of *Webb v Syme* concerned an appeal from the Supreme Court of Victoria to the High Court of Australia. The dispute involved the Commissioner of Taxes for Victoria and the five sons of the late David Syme, who were beneficiaries of their father's estate. The core issue was how the income received by the sons from the trust estate should be taxed under the Victorian Income Tax Acts of 1895 and 1896. Specifically, the Commissioner sought to tax the income at the higher rate applicable to "income the produce of property," while the beneficiaries argued for the lower rate applicable to "income derived from personal exertion."

The High Court was required to determine whether the income received by the beneficiaries from the trust estate, which included profits from a newspaper business carried on by the trustees, constituted income derived from personal exertion or income the produce of property. This determination hinged on the interpretation of the relevant sections of the Income Tax Acts, particularly the definitions of "income derived from personal exertion" and "income the produce of property," and the respective liabilities of beneficiaries and trustees for income tax.

A majority of the High Court, comprising Griffith C.J., Barton J., and O'Connor J., held that the beneficiaries were primarily liable for income tax in respect of the income they received from the trust estate. The Court reasoned that the income tax legislation imposed the tax on individuals in respect of income they beneficially enjoyed. While trustees had responsibilities to ensure tax was paid, their liability was secondary and contingent on the beneficiary's failure to pay. The Court concluded that the immediate source of the beneficiaries' income was the trust estate itself, not the newspaper business or other sources from which the trustees derived the income. Therefore, the income was to be taxed as income the produce of property, as it did not arise from the personal exertion of the beneficiaries. Isaacs J. dissented.

The High Court reversed the decision of the Supreme Court of Victoria in part. The Court ordered that the income derived by the five sons from the testator's estate during the year 1908 was taxable as income the produce of property.

Orders