TREVISAN & ANOR (TRUSTEES OF FORLI PTY LTD SUPERANNUATION FUND) v FC of TJudges:
By the Taxation Laws Amendment Act (No. 2) 1985, there was inserted into the Income Tax Assessment Act 1936 (inter alia) a new s. 121C. This section set out rules imposing a taxation detriment on certain superannuation funds which lent money to the employers who had set them up, or which otherwise invested in those employers. The second reading speech of the Minister assisting the Treasurer, made when the Bill that became the Act was before the House of Representatives, included the following statement:
``The new rules are not there for revenue-raising purposes, but are designed to protect members' benefits by encouraging superannuation funds to restrict the level of their investments in sponsoring employers.''
The section uses the expression ``employer sponsor'', defined in subs. (2), which includes an employer who contributes to a superannuation fund that confers a right on an employee to receive benefits from the fund. So far as concerns superannuation funds established before 12 March 1985, the key provision is subs. (5):
``The investment income of a superannuation fund derived during the year of income, being a superannuation fund that was established before 12 March 1985, is not exempt from income tax by virtue of section 23F or 23FB unless, at all times during the year of income, the cost of the in-house assets of the fund did not exceed -
- (a) in the case of the year of income commencing on 1 July 1994 or a preceding year of income -
- (i) the cost of the in-house assets of the fund as at 11 March 1985; or
- (ii) 10% of the cost of all the assets of the fund,
whichever is the greater; and
- (b) in any other case - 10% of the cost of all the assets of the fund.''
Two definitions fill out the meaning and application of subs. (5). It is their effect with which this appeal is concerned. One of them is the definition of ``in-house asset'', contained in subs. (1). This expression,
``unless the contrary intention appears... means an asset of the fund that consists of a loan to, or an investment in, an employer sponsor of the fund or an associate of an employer sponsor of the fund, but, in a case where an employer sponsor of the fund is a life insurance company and the contributions made by the employer sponsor are in respect of an employee, of the employer sponsor, does not include an asset consisting of a life policy on the life of that employee.''
The second definition is that of the term ``associate'' used in the former. Sub-section (1) provides, again ``unless the contrary intention appears'', that this word ``has the same meaning in relation to a person as that expression has in relation to a person in section 26AAB''.
Before I follow the statutory trail to s. 26AAB, it is convenient to state now the circumstances which have given rise to this appeal. The applicants are the trustees of the Forli Pty Ltd Superannuation Fund. The employer sponsor of that fund is Forli Pty Ltd in the capacity of trustee of the R. & V.A. Trevisan Family Trust. The members of the fund were, as at 30 June 1986, Romano Trevisan, Valerie Anne Trevisan (who is his wife) and two of their children, their sons Robert John Trevisan and Peter Francis Trevisan. Forli Pty Ltd is a company of which the only directors and shareholders are Mr and Mrs Trevisan, and the R. & V.A. Trevisan Family Trust is a trust established under a trust deed pursuant to the terms of which Mr and Mrs Trevisan and their children are the primary beneficiaries.
There also existed, at all relevant times, another trust, known as The Forli Property Trust, of which too Forli Pty Ltd was trustee. The Forli Property Trust was constituted, under a deed made 21 February 1985, as a unit trust, all the units in which were expressed to be held by the Forli Pty Ltd Superannuation Fund. The deed gave the trustee power to issue additional units to the unit holders or to issue additional units for subscription in cash, and provided:
``The Trustee shall hold the trust property UPON TRUST ABSOLUTELY for the Unit Holders for the time being and from time to time but in proportion to the units held by them.''
There was also express provision entitling unit holders holding at least three-quarters of the units to remove a trustee and appoint a new trustee, and there was a further provision that the same proportion of unit holders ``shall have the power to instruct the Trustee to terminate the Trust and the Trustee shall terminate it accordingly''. Upon termination, ``subject to the terms of any extraordinary resolution in that behalf'', the trustee was required to distribute the trust property among the unit holders in proportion to the number of their units.
During the year ended 30 June 1986, as the Administrative Appeals Tribunal has found the facts [reported at 90 ATC 537], the superannuation fund ``redeemed'' its units in some other property trust, and invested the funds in the acquisition of units in The Forli Property Trust. The amount of the cost of the units so acquired was sufficient to trigger the operation of s. 121C(5), if those units constituted ``in-house assets of the fund'' within the section. The question raised by the case is thus whether the acquisition of the units was ``an investment in an employer sponsor of the fund or an associate of an employer sponsor of the fund''.
Without differentiating between the capacity of Forli Pty Ltd as trustee of the family trust and its capacity as trustee of the property trust (cf.
Permanent Trustee Nominees (Canberra) Limited v. Chief Commissioner of Pay-roll Tax (NSW) 87 ATC 4230), the Tribunal treated the employer sponsor as being simply Forli Pty Ltd. It then asked itself whether the trustees of the superannuation fund had invested in Forli Pty Ltd when they invested in the acquisition of the units in the property trust. To that question, the answer seemed clear that they had invested in the property of the property trust, and not in the company which happened to be its trustee. The Tribunal referred to
Charles v. FC of T (1954) 10 ATD 328 at 331; (1953-1954) 90 CLR 598 at 609, where Dixon C.J., Kitto and Taylor JJ. said:
``But a unit under the trust deed before us confers a proprietary interest in all the property which for the time being is subject to the trust of the deed...''
The investment, in this case, plainly conferred no interest in any property of Forli Pty Ltd. See also
Costa & Duppe Properties Pty Ltd v. Duppe & Ors  VR 90 at 96.
The Tribunal then turned to the question whether the units in the property trust were an investment in an associate of the employer-sponsor. That required an examination of s. 26AAB.
Section 26AAB is long and complex. It is aimed specifically at leases of motor cars and station wagons, where lease charges have been allowed as a deduction from the assessable income of the lessee or some other person; the lessor has disposed of the vehicle to the lessee or an ``associate'' of the lessee has later disposed of the vehicle at a profit, which the section brings to tax as assessable income. In that context, subs. (14) includes the following:
``In this section, unless the contrary intention appears -
ATC 4419`associate', in relation to a person (in this definition referred to as the `taxpayer') means -
- (a) where the taxpayer is a natural person, other than a taxpayer in the capacity of a trustee -
- (iv) a trustee of a trust estate where the taxpayer or another person who is an associate of the taxpayer by virtue of another sub-paragraph of this paragraph benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust, either directly or through any interposed companies, partnerships or trusts; or
- (c) where the taxpayer is a trustee of a trust estate -
- (i) any person who benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust estate, either directly or through any interposed companies, partnerships or trusts;
- (ii) where a person who is an associate of the taxpayer by virtue of sub-paragraph (i) is a natural person - any person who, if that natural person were the taxpayer, would be an associate of that natural person by virtue of paragraph (a) or this paragraph; or
The Commissioner's argument on this aspect of the case, both before the Tribunal and before me, was that Forli Pty Ltd, in its capacity as trustee of the property trust, was an associate of Forli Pty Ltd in its capacity as trustee of the family trust, i.e. as employer sponsor. The steps which led to this conclusion were the following (in considering these steps, it is necessary to remember that, when s. 26AAB is made to serve the purposes of s. 121C, the word ``taxpayer'' must be read as ``employer sponsor''):
- 1. Mr Trevisan (to select one beneficiary for the sake of the argument - Mrs Trevisan or one of their sons would suit the purpose equally well) is a beneficiary of the family trust and thus, by s. 26AAB(14)(c)(i), is an associate of Forli Pty Ltd as trustee of the family trust;
- 2. Because Mr Trevisan is a natural person, s. 26AAB(14)(c)(ii) makes into an associate any person who, if Mr Trevisan were the taxpayer/employer sponsor, would be an associate of Mr Trevisan by virtue of para. (a).
- 3. Applying para. (a) on the assumption that Mr Trevisan is the taxpayer/employer sponsor, sub-para. (iv) of that paragraph makes into an associate the trustee of a trust estate where Mr Trevisan benefits or is capable of benefiting under the trust either directly or through any interposed trusts.
- 4. Mr Trevisan is in fact capable of benefiting under the property trust through the interposed superannuation trust, of which he, as a member, is a beneficiary, since the superannuation fund holds all the issued units in the property trust.
- 5. Therefore Forli Pty Ltd, in its capacity as trustee of the property trust, is an associate of Forli Pty Ltd in its capacity as trustee of the family trust.
The Tribunal answered this argument in two ways. Consistently with its earlier treatment of Forli Pty Ltd as the employer sponsor without regard to its capacity as a trustee, it assumed the question was whether Forli Pty Ltd could be an associate of itself, a question which it answered in the negative. But the Tribunal's primary point was that an investment in the units of the property trust was not, in any sense, an investment in Forli Pty Ltd. Accordingly, even if Forli Pty Ltd as trustee of the property trust was relevantly an associate, there was no investment in it, just as there was no investment in it as trustee of the family trust, in which capacity it was the employer sponsor.
It might have been expected that this reasoning would have been followed simply by an upholding of the applicants' objection. However, the Tribunal then, in four numbered paragraphs, reversed the result, as follows [at 540]:
``20. `In-house asset' as defined does not meet the circumstances of this case; but to find for the applicant would be to defeat the clear intention of the legislation. Section 15AA of the Acts Interpretation Act 1901 requires that I have regard to the purpose or object underlying an Act. The purpose or object of sec. 121C which is readily apparent from the section is to deny exemption to superannuation funds which invest or loan the funds of the superannuation fund in or to the employer or an associate of the employer, except within the limits set out in the section.
21. In the present case the investment in the unit trust controlled by the employer sponsor is clearly an in-house arrangement although not falling within the definition of `in-house asset'. It would be contrary to the clear intention of the section to find that the units in the property trust are not in-house assets. I am satisfied therefore that the contrary intention appears and that I should find that the units in the property trust are in-house assets for the purposes of sec. 121C.
22. I am aware that it is not the function of this Tribunal to remedy defects in the drafting of legislation, especially taxation legislation. However, this is a case where sec. 15AA applies and must be given effect by holding that the investment in the trust is an investment in in-house assets notwithstanding the defined meaning of `in-house assets'. The objectionable feature of the arrangement is the position of F Pty. Ltd. (Forli Pty. Ltd.) as trustee of the property trust and also as the employer sponsor.
23. The result is that sec. 121C operates to deny the applicant exemption. The objection decision under review will be affirmed.''
Section 15AA, to which the Tribunal referred, provides:
``In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.''
Section 15AA requires a court to prefer one construction to another. Such a requirement can only have meaning where two constructions are otherwise open. The section is not a warrant for redrafting legislation nearer to an assumed desire of the legislature. It is not for the courts to legislate; a meaning, though illuminated by the statutory injunction to promote the purpose or object underlying the Act, must be found in the words of Parliament. As Bowen C.J. said in
Re The News Corporation Ltd & Ors (1987) 70 ALR 419 at 428:
``A[n]... important rule in this context is that embodied in s 15AA of the Acts Interpretation Act 1901 requiring the court to lean towards the construction that will promote the purpose of the Act. In the end the task of the court is to ascertain and to enforce the actual commands of the legislature (
Scott v Cawsey [(1907) 5 CLR 132] at p 155). This will best be achieved by studying the words used and the context and the purpose or object underlying the Act.''
To similar effect, Fitzgerald J. said in
FC of T v. Walsh; FC of T v. Trustees of the Lisa Marie Walsh Trust 83 ATC 4415 at 4434; (1983) 48 ALR 253 at 278:
``[E]ven if the extrinsic material does reveal the legislative purpose, there will continue to be boundaries beyond which the words used will not stretch even where it is known that they were intended to do so.''
Repatriation Commission v Kohn (1989) 87 ALR 511 at 523-524, citing
Cooper Brookes (Wollongong) Pty Ltd v. FC of T 81 ATC 4292 at 4295-4296; (1980-1981) 147 CLR 297 at 304. I do not think I can support the Tribunal's approach in this matter. It did not ``stretch'' the language, to use the metaphor of Fitzgerald J.; it found the language inelastic, and threw it away upon the footing that a decision contrary to it would be in keeping with what the Tribunal thought to be the legislative purpose.
But the question remains, and on this the argument before me was concentrated, whether, on the true construction of the legislation, there was here an investment in an employer sponsor of the fund or an associate of an employer sponsor of the fund.
So far as any suggestion of investment in the employer sponsor is concerned, I find the
ATC 4421reasoning of Lee J. in Permanent Trustee Nominees (supra) quite compelling. It is true he was dealing with different legislation which, in some respects, raised different issues. However, his fundamental point (made clear at 4234) was the irrationality of lumping different trusts together, simply because they have, as trustee, the one trustee company.
In any case, I think the Tribunal was right to hold that an acquisition of units in the property trust was not an investment in the employer sponsor, which the parties expressly agreed, for the purposes of this matter, was ``Forli Pty Ltd as Trustee of the R. & V.A. Trevisan Family Trust''. The investment was not in Forli Pty Ltd at all, but if it was, it was certainly not in Forli Pty Ltd as trustee of the family trust.
That leaves the question whether there was an investment in an associate of the employer sponsor. Section 121C(1) gives ``associate'' the same meaning as the word has in relation to a person in s. 26AAB. This sort of drafting device is convenient, so long as its effect is borne in mind. But as Mason J. (with whom Gibbs J. agreed) made clear in
FC of T v. Sherritt Gordon Mines Limited 77 ATC 4365 at 4370; (1977) 137 CLR 612 at 623, so to pick up the effect of a different provision is to pick up language the meaning of which has been modified by the context in which, as it originally appeared, it was set. His Honour said:
``It would be very different if the statutory definition repeated the very words of the definition contained [in the other provision] for then the words would be liberated from the confining context of [the other provision].''
In the present case, the words have been left no freedom to take, even impliedly, any other meaning than their original meaning; it is expressly provided that they have ``the same meaning''.
If each link of the chain suggested by the respondent's argument holds firm, that chain leads to the conclusion that Forli Pty Ltd (being ``a trustee of a trust estate'', that is, the trustee of the property trust) is an associate of the employer sponsor (by concession of the parties, in their agreed statement of facts, Forli Pty Ltd as trustee of R. & V.A. Trevisan Family Trust). But the associate so identified is Forli Pty Ltd. That company is the trustee. An acquisition of units in the trust is, on the authority of Charles (supra), an investment in the real estate and other property the subject of the trust of the deed; it is not an investment in Forli Pty Ltd, simply because the company happens to be the trustee for the time being. This reality can, perhaps, be the more readily appreciated when it is recalled that Forli Pty Ltd can be dismissed from the trusts at any time by the trustees of the superannuation fund who hold, not merely the required 70% of the units, but the whole of them. It is not conceivable that the identity of the investment would be transformed merely by a change of trustee.
At this point, reference may usefully be made again to Sherritt Gordon Mines. For the maintenance of a clear distinction between the trustee and the trust is entirely consistent with the original context of s. 26AAB. That section is talking of disposal of a motor car or station wagon to an associate and resale by the associate at a profit. It is possible to invest in either a trustee company (by, for example, buying shares in it) or in a trust (by, for example, acquiring units in a unit trust). It is not really possible to dispose of a motor car to a trust, or for a trust to sell a motor car; it would be the trustee who would be involved in both of these actions. Accordingly, if ``associate'' is to have the ``same meaning'' in s. 121C as it has in s. 26AAB, the expression ``trustee of a trust estate'' should be understood in its natural sense, as referring to the trustee; it does not have some inexact application to the trusts or to the trust property.
It is interesting to note that, in other sections of the Income Tax Assessment Act, the draftsman has been well aware of the need, if ``associate'' is to have a special meaning for the particular section, unaffected by a context from which its definition is borrowed, to make some appropriate provision, as by adopting the course that Mason J. suggested in Sherritt Gordon Mines. Sections 78A and 82KH provide examples. In both of these, however, the provision corresponding to that here in question would, again, most naturally refer to the trustee and not to the trust or trust property. For s. 78A is concerned with the obtaining of a collateral benefit in connection with a gift by a donor or an associate of the donor, or with an undertaking to acquire property from the donor or an associate of the donor - concerns which would plainly make it sensible to regard a
ATC 4422trustee as an associate. Similarly, the definition of ``associate'' in s. 82KH looks to the actions the subject of ss. 82KJ, 82KK and 82KL, for the purposes of which the use of the word ``trustee'' in its natural meaning is entirely appropriate.
The respondent asks me to return to s. 15AA of the Acts Interpretation Act 1901. But I cannot see anything, in the purpose or object of the Taxation Laws Amendment Act (No. 2) 1985, which suggests that the respondent's construction of the section would, and that the construction I am disposed to give it would not, promote this purpose or object. The section was said by the Minister to be designed to protect the benefits of members of superannuation funds, and not for revenue-raising purposes. There was an intention to restrict the level of investments in sponsoring employers. But the legislation has drawn plain lines. Some persons would be within those lines, as associates, and some would be outside of them. Minds might differ about where the lines should be drawn. It is difficult to say that Parliament's purpose or object is to be promoted, except by adherence to the limits the language of Parliament has set. A moment's reflection will indicate that the respondent's argument would extend the boundaries of the provision very greatly. Precisely the same chain of reasoning could be applied to an investment in the largest property trust in the country, and although all concerned in its management might never have heard of the employer sponsor. In such a case, it would be just as true as it is in the present that Mr Trevisan would be capable of benefiting under that property trust through the interposed trusts of the superannuation fund, once the fund had acquired any units in the property trust. It is not really likely that Parliament intended to deter such an investment, or a repetition of such an investment.
Section 15AA does not require a court to give an unprincipled ad hoc judgment, in order to embrace a particular situation not within the language of the legislature, just because it can be seen that the instant case would have been covered, if it had been thought of, consistently with the purpose and object of the legislation. The section is rather concerned with the proper approach to an interpretation of the provision which will apply, in accordance with the will of the Parliament, in all cases. Just as an injuction to construe beneficial legislation liberally must not mislead a court into a liberality towards one litigant which will prove disastrously illiberal in its application to others, so s. 15AA should not lead a court to strain the language of an Act, in order to bring a particular case within its scope, if that strained meaning will then bring numerous other cases under the shadow of requirements never meant to extend to them. The point was eloquently made, in the context of a maxim enjoining a liberal construction in favour of a taxpayer, by Cardozo J. in Burnet,
Commissioner of Internal Revenue v. Guggenheim (1933) 288 US 280 at 286:
``There are many facets to such a maxim. One must view them all, if one would apply it wisely. The construction that is liberal to one taxpayer may be illiberal to others.''
Even if the respondent's argument had been free of the difficulties to which I have referred, it would still have entailed reading into the Act words which are not there. Unless something more is inserted, one cannot say that the acquisition of units in a unit trust is an investment in the company which is, for the time being, trustee of that trust. The pronouncement of a strong Privy Council in
BP Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of the Shire of Hastings (1977) 16 ALR 363 at 374 is in point:
``As Lord Mersey said in
Thompson v Gould & Co  AC 409 at 420: `It is a strong thing to read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do.'
It seems to their Lordships a particularly strong thing to do so when it amounts to modifying, as against the fiscal subject, words which have a plain, natural and ordinary meaning in his favour.''
It is not suggested that, if I reach this conclusion, the orders sought by the applicants would not be appropriate. Accordingly, the appeal should be allowed and the decision of the Administrative Appeals Tribunal should be set aside; in lieu thereof, the objection should be upheld and the assessment should be remitted to the Commissioner to be dealt with in accordance with these reasons; and the Commissioner should pay the applicants' costs of the appeal.
THE COURT ORDERS THAT:
1. The appeal be allowed, and the decision of the Administrative Appeals Tribunal the subject of appeal be set aside;
2. In lieu of the decision of the Administrative Appeals Tribunal, the objection be upheld and the assessment be remitted to the Commissioner to be dealt with in accordance with these reasons;
3. The Commissioner pay the applicants' costs of the appeal.