Else-Mitchell J

13 December 1973 -

Else-Mitchell, J    This is an appeal against the disallowance of an objection to an assessment to land tax pursuant to s 35 of the Land Tax Management Act 1956 (NSW) (as amended), the ground of objection being that the land is exempt from land tax under s 10(1)(g)(v) of the Act as land owned by the appellant and used or occupied by it solely as the site for a public cemetery or crematorium.

   The evidence adduced on the hearing of the appeal showed that the appellant was the owner of an area of about 25 acres of land near Ryde on which is erected a crematory used for the cremation of human remains and available for general use without discrimination of any sort; the area is landscaped and is open to public access without any charge. The conduct of the Society's activities is subject to the controls imposed by regulations under the Public Health Act 1902 (NSW), which require the approval of the Minister and the Council of the relevant Municipality to the establishment of a crematory (regs 91- 100), prescribe the conditions on which cremations may take place (regs 74- 85), regulate the conduct of the affairs of the cremation authority managing the crematory (regs 72, 87- 89), and fix the charges which may be made by that authority (reg 103).

   It was also proved that although the appellant company is a company limited by shares, the whole of its share capital is, and has since 1970 been, held by a company incorporated in the Australian Capital Territory, The Cremation Society of Australia (ACT) Ltd, whose objects include the provision, for the benefit of the public, of suitable facilities for the lawful disposal of human remains by cremation. That company is limited by guarantee and its memorandum of association contains provisions requiring that the income and property of the Society be applied solely towards its objects and prohibiting the distribution of any income or property directly or indirectly to members of the Society or relatives. It also provides that on a winding-up any surplus be given or transferred to some other institution having similar objects and which shall prohibit the distribution of income and property amongst members.

   Upon this material it was contended that the land of the appellant came within the exception in s 10(1)(g)(v) of the Act and reliance was placed on the principles enunciated in O'Connell v Council of the City of Greater Newcastle (1941) 41 SR (NSW) 190 and Girls' Public Day School Trust v Ereaut [1931] AC 12. In particular it was argued that the crematory is a public crematorium because it caters for all without distinction, its grounds, amenities and other facilities are open to all without charge; it is subject to public control under the Public Health Regulations and there is no element of private profit in the conduct by the appellant of its activities.

   The last element was the major one on which the respondent Commissioner relied for the rejection of the appellant's claim for exemption and, consistently with the decision of Meares J in an appeal by the same appellant for the year 1969 (Cremation Society of Australia Pty Ltd v Commissioner of Land Tax (15 June 1972)), it was argued that the change in the capital structure made in 1970 did not eliminate the element of private profit. The appellant company must be looked at, it was said, as a company having a share capital, conducting profitable operations and yielding profits which were capable of being distributed and which were in fact distributed as dividend in each year. It was not to the point, counsel for the Commissioner contended, that the dividends paid to the only shareholder were not capable of being applied or distributed by that shareholder for any purpose other than the provision for the benefit of the public of suitable facilities for the cremation of human remains. In other words, it was not proper to look behind the veil of corporate personality so as to attribute to the appellant's corporate activities and financial affairs the restrictions contained in the memorandum of association of its shareholder, The Cremation Society of Australia (ACT) Limited.

   On this aspect we are, I am afraid, still held in thrall by what Windeyer J has called "the unreality and formalism" of Salomon's Case (Gorton v Federal Commissioner of Taxation (1965) 113 CLR 604 at 627) in spite of the requirements of the Companies Act for the preparation of consolidated accounts of holding and subsidiary companies. Such inroads as have been made to pierce the veil of corporate personality have proceeded on the basis of agency rather than trust (cf Frank, Company Accounts, Ch III; Gower, Modern Company Law, Ch 10, (pp 202 et seq.) and it has been said that "the proposition that a company holds its property on trust for its members qua members cannot now be successfully argued" (see Gower, pp 205-6). Such attempts as have succeeded in treating restrictions attached to shares in the hands of a shareholder as influencing the character of the company, eg Abbey, Malvern Wells Ltd v Ministry of Local Government [1951] Ch 728, depend upon the incorporation of the restrictions in the constitution of the company itself and in one sense do not represent an exception to the general propositions which stem from Salomon's Case.

   In the present matter, however, what is sought is to rely on material entirely extrinsic to the appellant's memorandum and articles of association to impress its activities with the public (or non-private, profit-making) character necessary to bring it within the exempting provisions of the Act. No case has ever gone to these lengths and in spite of the practical restrictions on the appellant company which ensue from the memorandum and articles of association of the Cremation Society of Australia (ACT) Ltd I think I am really precluded by established authority and long-accepted principle from giving those restrictions the force contended for by the appellant.

   Accordingly, I have come to the conclusion that, in the absence of some provision in the memorandum or articles of association of the appellant or the declaration of some trust by it or its directors in respect of the subject land, I am unable to accept the submission that the element of private gain has been excluded. The fact that the appellant is a company with a share capital which makes profits and distributes those profits as dividend to its shareholder must, I regret to say, be regarded as predominant and the restrictions on the dividends in the hands of the shareholder must be disregarded as irrelevant.

   Accordingly, the appeal fails and the assessment under objection will be upheld. The appellant must pay the costs of the appeal. A certificate for two counsel will be refused. The exhibits may be handed out.

© Thomson Legal & Regulatory Limited ABN 64 058 914 668 trading as Australian Tax Practice