Gale v Federal Commissioner of Taxation

(1960) 102 CLR 1
33 ALJR 564
[1960] ALR 274

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(Judgment by: Fullagar J)

Between: Gale
And: Federal Commissioner of Taxation

Court:

Judges: Dixon CJ
McTiernan J

Fullagar JKitto J
Menzies J

Subject References:
Estate Duty (Cth)

Judgment date: 5 April 1960

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Judgment by:
Fullagar J

This is an appeal from a judgment of the Supreme Court of New South Wales (Walsh J.). The appellant, Raymond Arthur Gale, is the executor of the will of his brother, Leslie Ross Gale, who died on 29th July 1950. He appealed to the Supreme Court against an assessment of estate duty under the Estate Duty Assessment Act 1914-1947 (Cth), and the Commissioner's assessment was upheld by Walsh J. The point in dispute is as to a gift made by the deceased within three years of his death to a lady whom he afterwards married and who survived him. Section 8(3) of the Estate Duty Assessment Act provides that, for the purposes of the Act the estate of a deceased person comprises

(a)

his real property in Australia,

(b)

his personal property, wherever situate, if he was at the time of his death domiciled in Australia, and

(c)

his personal property in Australia, if he had at the time of his death a foreign domicile.

Section 8(4), so far as material, provides that

"Property (a) which has passed from the deceased person by any gift inter vivos... or by a settlement made... within three years before his decease... shall for the purposes of this Act be deemed to be part of the estate of the person so deceased".

The executor maintains that in the present case what is to be treated as part of the estate under s. 8(4)(a) is a sum of money (2,250 pounds). The Commissioner maintains that what is to be brought into charge under s. 8(4)(a) is an undivided one-half interest in a station property known as "Bibaringa". The value of a one-half interest in that property (which was subject to a mortgage) was at the date of death 28,271 pounds 17s. 6d. A similar question to that which now arises came before this Court in Commissioner of Stamp Duties v. Gale (1958) 101 CLR 96 .

It was there held, affirming the decision of the Supreme Court of New South Wales, that the amount to be brought into account for the purposes of s. 102(2)(b) of the Stamp Duties Act 1920-1949 (N.S.W.) was 2,250 pounds, and not the value of a one-half interest in "Bibaringa". (at p8)

Before 1947 the appellant and his deceased brother were carrying on a pastoral business in partnership on "Bibaringa". The station property was owned by Mary Gale, the wife of the deceased, and Myrtle Gale, the wife of the appellant, as tenants in common in equal shares, and was leased by them to the partners. The terms of the lease were never reduced to writing, and no rent was paid, but mortgage interest, rates, taxes and insurance premiums were paid by the partners. The marriage of the deceased and Mary Gale was dissolved on 19th December 1947, and some six months later he married a lady named Peggy Martin. (at p8)

About the middle of 1947 it was agreed between the deceased and Myrtle Gale, the wife of the appellant, that she should sell to the deceased her one-half interest in the station property for 2,250 pounds. At the same time it was agreed between the deceased and the appellant that their partnership should be dissolved. The former agreement appears to have been merely oral. Nor was any written instrument of dissolution of partnership executed. The terms agreed upon, however, were recorded in a memorandum by a solicitor who was acting for the parties. This memorandum includes the following:

"Mrs. M. C. R. to sell equity in land and buildings and household furniture for 2,250 pounds. No adjustment to be made in respect of interest on mortgages or rates and taxes. If property sold within 7 years and sale price of equity plant and machinery, motor vehicles and household furniture exceeds 23,500 pounds, net profit on sale to be divided equally between L. R. and R. A. All other necessary adjustments to be made on the basis that L.R. takes over the property on 1/7/47".

In this extract "M.C.R." is Myrtle Gale, the wife of the appellant, "L.R." is L. R. Gale, the deceased, and "R.A." is R. A. Gale, the appellant. The word "equity" is, of course, incorrect. As Dixon C.J. said in the earlier case (1958) 101 CLR, at p 110,

"It is evident enough that the sum of 2,250 pounds is half the difference between the amount of the mortgage (19,000 pounds) and the amount mentioned of 23,500 pounds." (at p9)

On 5th December 1947 two written contracts were executed. By the one Mary Gale agreed to sell to the deceased her one-half interest in "Bibaringa" for 2,250 pounds. By the other Myrtle Gale (who, it will be remembered, had some six months earlier agreed orally to sell her interest to the deceased) at the request of the deceased agreed to sell her one-half interest in "Bibaringa" to Peggy Martin for 2,250 pounds. The consent of the Treasurer to these contracts under the National Security (Land Sales Control) Regulations then in force was obtained, and transfers of the two one-half interests to the deceased and to Peggy Martin (who in the previous July had become Peggy Gale) respectively were executed and registered on or about 30th September 1948. In the meantime the partnership was wound up in accordance with the agreement for dissolution. The total sum payable under the terms of dissolution to the appellant and his wife, Myrtle Gale, was 5,570 pounds. This sum was paid by the deceased to the appellant in four instalments between December 1947 and March 1948. There was no appropriation, so far as appears, of any of these instalments, but the total must be taken to have included the 2,250 pounds payable by Peggy Martin to Myrtle Gale under the contract of 5th December 1947, and the appellant accounted for that sum to Myrtle Gale, his wife. From 1st July 1947 the deceased resided on "Bibaringa" and carried on the business formerly carried on by himself and his brother in partnership. The only other fact that need be mentioned is that about two months after the death of the deceased (government control of land sales having in the meantime ceased) "Bibaringa" was sold for 86,882 pounds. (at p10)

I have found it desirable to state for myself the facts as I understand them, because I consider the material before the Court unsatisfactory and in at least one respect ambiguous. It seems obvious that the contracts of 5th December 1947 ought to have been annexed to the statement of agreed facts. However, the Commissioner appears to have been satisfied with that statement, and it is on those "agreed facts" that the case must be decided. (at p10)

The decision in the present case does not, I think, necessarily follow from the decision of this Court in the case under the New South Wales Act, because the relevant provisions of the Commonwealth Act and of the New South Wales Act are different in terms. The immediately operative words of the New South Wales Act are:

"The estate of a deceased person shall be deemed to include... any property comprised in any gift made by the deceased within three years before his death".

Those of the Commonwealth Act are:

"Property which has passed from the deceased person by any gift inter vivos... within three years before his decease... shall... be deemed to be part of the estate of the person so deceased".

So far the difference in language between the two enactments might well be thought not to produce a different result. But the New South Wales Act contains a provision (introduced by amendment in 1939 and referred to in argument as a "proviso") that "where the property comprised in any such gift consists of money, or money is paid as aforesaid in pursuance of any such covenant or agreement the property to be included in the estate pursuant to this subparagraph shall be the actual amount of the money given or paid". No such provision occurs in the Commonwealth Act, and I agree with Walsh J. in thinking that the decision of the majority of the Court in the earlier case must be regarded as based on that provision. It is clear, I think, that the third member of the Court, Menzies J. would have reached the same conclusion in the absence of the "proviso" in the New South Wales Act, but Dixon C.J. (with whom McTiernan J. agreed) said that "a good deal turned on it", and he also said:

"... it seems clear enough that the actual operation of the proviso is to clothe a gift of money with a special characteristic, namely that of fixity, so that nothing is to be considered except the period that elapsed before the death of the donor took place. If it is less than three years from the gift, then the amount of money comprised in the gift forms part of the estate for duty, however the money may have been applied or misapplied" (1958) 101 CLR, at p 105.

Having regard to these passages I do not think that we can dispose of this case by saying simply that it is covered by the earlier decision. At the same time that earlier decision is important for present purposes, in that the members of the Court held that the gift actually made was a gift of money and not a gift of an interest in land. We are, I think, bound - or at any rate ought - to deal with the present case on that footing. (at p11)

Walsh J., in a closely reasoned judgment, considered the case on the alternative footings that the gift was a gift of money and that it was a gift of an interest in land. If it were a gift of an interest in land, the Commissioner, of course, succeeded. But, even if it were a gift of money, his Honour considered that he was bound by certain decisions of this Court to hold that duty was payable on the value of the one-half interest in Bibaringa. He was aware that the authority of those decisions might be radically affected by the recent case in the House of Lords of Sneddon v. Lord Advocate [1954] AC 257 but he thought that, until this Court had considered the effect of Sneddon's Case [1954] AC 257 he should follow and apply those decisions. I agree with Walsh J. that, if those decisions are accepted, the Commissioner is entitled to succeed in the present case. It is, therefore, necessary for us to consider whether Sneddon's Case [1954] AC 257 is inconsistent with those decisions, and, if it is, whether we should depart from those decisions. (at p11)

Statutes which impose estate or probate duties have commonly provided (subject to varying conditions and time limits) for the inclusion in the dutiable estate of property given or settled by the deceased person in his lifetime. One such statute, the Administration and Probate Act 1890 (Vict.) provided that property given with intent to evade death duties should be "deemed to form part of the estate" of the deceased. Dealing with that provision in Payne v. The Queen (1901) 26 VLR 705, Holroyd and a'Beckett JJ. (two very eminent judges) said:

"These words do not mean that the Crown has to follow the gift into its different transformations. For instance, if money were given and used by the donee in the purchase of land, and this land were vested in him at the death of the donor, the amount on which duty would be chargeable would be that of the money given, not the value of the land, which might be greater or less than the price paid for it; or if the gift were of debentures, and the debentures were stolen from the donee, or of property which the donee wasted, that on which duty would be charged would be the value of what had been given away, unaffected by any considerations as to what afterwards became of it. The later provisions of the section, giving a right against the property the subject of the gift might be resorted to where it remained in specie; but the amount of duty would be fixed by the value of that which was abstracted from the estate with intent to evade duty" (1901) 26 VLR, at p 761 (at p12)

I should have thought myself that, in the absence of some reasonably clear indication of a different intention, the view stated in the passage quoted was right, and that nice distinctions ought not be drawn between different forms of words in statutes in pari materia. For one thing, that view attributes a natural and fair intention to the legislature, and, for another thing, it avoids formidable complexities which must arise on any other view. It is not affected by the decision of the Privy Council on appeal [1902] AC 552 A similar view to that of Holroyd and a'Beckett JJ. was taken by a Full Court consisting of Irvine C.J., Cussen and Mann JJ. in Ferguson v. The King (1920) VLR 451, at p 458: this case was, I think, misunderstood by Mann C.J. in Re Grice (1937) VLR 356, at p 362, a case which, as to the gift of 638 pounds, seems to have been wrongly decided on any view. (at p12)

It is perhaps unfortunate that Payne v. The Queen (1901) 26 VLR 705 was not cited either to this Court in Commissioner of Stamp Duties (N.S.W.) v. Perpetual Trustee Co. Ltd. (Watt's Case) (1926) 38 CLR 12 , or to the Supreme Court of Victoria in Ballarat Trustees Executors and Agency Co. Ltd. v. The King (1927) VLR 415 In the former case this Court (Higgins J. dissenting) approved of the judgments delivered by the Supreme Court of New South Wales. In the latter case there was no appeal to this Court. The effect of the two decisions was that property given or settled must be valued as at the date of the death of the donor or settlor, and that such property was not dutiable unless it could be found within the territorial jurisdiction at the death. The latter of these two propositions was developed in three later cases in this Court - Trustees Executors and Agency Co. Ltd. v. Federal Commissioner of Taxation (Teare's Case) (1941) 65 C.L.R. 134 , Vicars v. Commissioner of Stamp Duties (N.S.W.) (1945) 71 CLR 309 and Moss v. Federal Commissioner of Taxation (1947) 77 CLR 184 The first and third of these cases arose under the Commonwealth Act, and the second under the New South Wales Act. All were cases in which the subject matter of the disposition was - or was treated by a majority of the Court as being- a sum or sums of money. I had occasion to attempt to state their effect in Elder's Trustee and Executor Co. Ltd. v. Federal Commissioner of Taxation (Higgins's Case) (1953) 88 CLR 200 , at pp 207-211 Before referring again to them, it will be convenient to state in general terms the position which appears to have been established by the series of cases in this Court. What we have is really, of course, a rule or rules of construction to be applied in the absence of any clear indication of a contrary intention. (at p13)

We begin with the proposition that the value of the subject matter of a disposition must be ascertained as at the death of the disponer. Subject to this, the position is as follows. The subject matter of a disposition will not be dutiable unless at the date of death we can find it in the hands of the disponee and within the territorial jurisdiction. If at that date we can find the very thing disposed of in the hands of the disponee, no difficulty arises. Its value at that date must be determined, and duty must be paid on that value. But, if we cannot find that very thing in the hands of the disponee, that is not the end of the matter. We must then see if we can "trace" it into something else which is in his hands. The position is essentially the same whether the thing disposed of by the deceased in his lifetime was money or some other kind of property. If it was money, and the money has been given away or spent ("dissipated"), so that nothing tangible has taken its place, the disposition is not dutiable. But, if the money or some of it still remains in the hands of the disponee, what is there is dutiable. It may be in his pocket or in his safe, or we may, by the application of the rule in Clayton's Case (1816) 1 Mer 572 (35 ER 781), be able to find it, or some of it, in his bank. If he has none of the money left, but has in his hands something identifiable into which it has been converted, such as land or shares or a television set, the land or the shares or the television set must be valued as at death, and duty paid on that value. If the subject matter of the disposition is something other than money, and it is found in the hands of the disponee at the death of the disponer, again no difficulty arises. If not, again we must see if we can "trace" it into something which is in existence in his hands. He may have sold it and lost the proceeds on the racecourse or by unwise investment. If so, no duty is payable.

So if it is destroyed by fire, and he has either omitted to insure it or has collected and "dissipated" the insurance moneys. Or he may have sold it and bought shares with the proceeds. If so, the shares, if still held by him, must be valued as at death, and duty paid on that value. Or he may have sold it, paid the proceeds into his bank account, and operated on that bank account only for ordinary household expenditure. If so, we apply the rule in Clayton's Case (1816) 1 Mer 572 (35 ER 781), to see if there is anything left. (at p14)

Three comments may be made at this stage on the position as stated above. The first is that the statement treats straight-out gifts and settlements as standing on the same footing. It might well be thought that different considerations ought to apply to a settlement from those which apply to a straight-out gift: see e.g. In re Payne's Declaration (1939) Ch 865, at pp 874, 875 But the relevant provision of the Commonwealth Act, like the relevant provision of the New South Wales Act, applies equally to gifts and to settlements, and I think that they must be treated as standing on the same footing, though it is obvious that some of the examples which I have taken in the above statement cannot arise, or at least are unlikely to arise, where the disponee is a trustee who takes subject to trusts. (at p14)

The second comment is this. In Higgin's Case (1953) 88 CLR 200 , I regarded myself as bound by earlier decisions, whether or not I correctly applied them. But, now that the whole matter is to some extent opened up by Sneddon's Case [1954] AC 257 , I must say that the position, as I have stated it, appears to me to be very unsatisfactory from the points of view of the revenue and of the taxpayer alike, and to be very unlikely to represent what the legislatures intended. The complexities - not to say absurdities - which can arise from it are well illustrated by Moss's Case (1947) 77 CLR 184 Another example which occurs to one as by no means far-fetched is the case of a daughter who receives from her father a gift of 1,000 pounds, which she expends in having her house painted inside and outside and some new plumbing installed. Must we institute an inquiry, as at her father's death, into the extent to which (if at all) the value of her house has been increased by her expenditure? Or has she dissipated her gift, so that no duty is payable in respect of it? (at p14)

The third comment is this. The rules as to "tracing" are sometimes spoken of as if they followed as a corollary on the rule that the valuation of the subject matter of a disposition must be made as at the date of the death of the disponer: see e.g. Re Grice (1937) VLR, at p 361 But this is clearly, in my opinion, not so, although I do think that the requirement of valuation as at death has been the root of all the trouble. I would myself agree entirely with the view of Holroyd and a'Beckett JJ. in Payne v. The Queen (1901) VLR 705, but it must be taken to be established here that the valuation must be made as at date of death, and in England the relevant statute expressly requires it to be made as at date of death: Finance Act 1894, s. 7 (5): and see Sneddon's Case [1954] AC, at pp 266, 267 (per Lord Morton of Henryton). There is, however, no inherent difficulty in valuing as at date of death an asset which is no longer in the hands of the disponee, or even an asset which has been destroyed. And the real question which arose in Teare's Case (1941) 65 CLR 134 and Sneddon's Case [1954] AC 257 , and which arises in the present case, is not: "As at what date must the valuation be made?" but: "What is it that must be valued?" (at p15)

Now, Teare's Case (1941) 65 CLR 134 involved both straight-out gifts and settlements. Two sons of the deceased applied for shares in a company which he had caused to be incorporated, and the deceased paid to the company in full the amount payable for the shares which were allotted to each son. A little later he executed three settlements for the benefit of his wife and two daughters. The settlements were of three sums of 18,000 pounds, 12,000 pounds and 12,000 pounds respectively. The trustee of the settlements very shortly afterwards invested the whole of the three sums in shares of the company. At the date of the death of the deceased the sons and the trustee still held the shares acquired by them respectively, but at that date the shares, for which 1 pound each had been paid, were worth only 18s. Rich J., with whom McTiernan J. agreed, thought that the gifts to the sons were gifts of shares. The settlements were clearly settlements of sums of money, but his Honour thought that the dutiable subject matter was "the shares into which the money had been transmogrified" (1941) 65 CLR, at p 141 Starke and Williams JJ. thought that gifts and settlements alike were of sums of money, but that in both cases it was on value at death of the shares, into which the money could be "traced, followed and identified" (1941) 65 CLR, at p 143, that duty was payable. Vicars's Case (1945) 71 CLR 309 , involved a settlement only, the question being whether that settlement fell within s. 102 (2) (b) of the Stamp Duties Act of New South Wales. For the effect of that case I refer to my summary of it in Higgins's Case (1953) 88 CLR, at p 209, but my statement that the matter was regarded by the four members of the Court other than Latham C.J., who dissented, as covered by Watt's Case (1926) 38 CLR 12 and Teare's Case (1941) 65 CLR 134 is not completely accurate.

It should have been added that Dixon J. (as he then was) found alternative grounds for his decision in specific provisions of the New South Wales Act which are not found in the Commonwealth Act. So far as the decision is based on these grounds, it is not inconsistent with the decision of the House of Lords in Sneddon's Case [1954] AC 257 The words of s. 102 (2) (b) of the New South Wales Act which were material in Vicars's Case (1945) 71 CLR 309 were "any property comprised in any gift". By s. 100 the word "gift" was defined as meaning "any disposition of property" made otherwise than for full consideration. And the term "disposition of property" was defined so as to include, inter alia, "(b) the creation of any trust" and "(e) any transaction entered into by any person with intent thereby to diminish... the value of his own estate and to increase the value of the estate of any other person". Dixon J. was of opinion, looking at par. (b) of this definition, that "property comprised" in a "trust created" should be regarded as meaning the property subject from time to time to the trust. His Honour was also of opinion, after some hesitation, that the Vicars settlement fell within par. (e) of the definition as a settlement of shares, there being in reality one entire transaction not completed, for the purposes of that paragraph, until the shares were vested in the trustees. So far as Moss's Case (1947) 77 CLR 184 is concerned, I need do no more than refer to what I said in Higgin's Case (1953) 88 CLR, at pp 210, 211 (at p16)

The facts in Sneddon's Case [1954] AC 257 , were exactly parallel, for all material purposes, with those in Teare's Case (1941) 65 CLR 134 It will suffice to take them from the headnote, which reads: -

"A voluntary trust deed, which operated as an immediate gift inter vivos, was granted in 1946 by a truster, the sum of 5,000 pounds being put in trust and the trustees being directed to hold and apply it 'or investments representing the same' for the benefit of certain limited interests. Shortly after the execution of the deed the trustees invested the sum in the purchase of certain shares which on the trustee's death in 1948 were worth 9,250 pounds".

It was held by the House of Lords (Lord Morton, Lord MacDermott and Lord Reid, Lord Keith dissenting) that the property deemed to pass on the death of the deceased was the sum of 5,000 pounds, and not the trust fund in its state of investment at death, viz. the shares, and that the assessment of estate duty should have been on that sum. (at p16)

The United Kingdom statute which was under consideration in Sneddon's Case [1954] AC 257 imposed duty on "property passing on the death of the deceased", and provided that that expression should be deemed to include property which would be required to be included in an account under s. 38 of the Customs and Inland Revenue Act 1881 (Imp.). This section required the inclusion in such an account of "property taken under" a settlement made within five years before the death of the disponer. The immediately relevant words of the United Kingdom statute and of the Commonwealth statute are thus not identical. In the former case the words are "property taken under" certain classes of disposition. In the latter case the words are "property passing from the deceased" by certain classes of disposition. But no distinction can be drawn on this basis between Sneddon's Case [1954] AC 257 and the Australian cases. If a gift or settlement is made, there must be property taken under it and property passing by it, and what passes by it must be identical with what is taken under it. Both expressions look to the immediate effect of the disposition. I can see no escape from the view that Sneddon's Case [1954] AC 257 is inconsistent with Teare's Case (1941) 65 CLR 134 and Vicars's Case (1945) 71 CLR 309 And, in the present case, if we follow Teare's Case (1941) 65 CLR 134 and Vicars's Case (1945) 71 CLR 309 , we must say that the property dutiable is the one-half interest in "Bibaringa" into which the sum of 2,250 pounds given by the deceased can be traced, whereas, if we follow Sneddon's Case [1954] AC 257 , we must say that the property dutiable is the sum of 2,250 pounds. (at p17)

Which course, then, should we follow? In my opinion we should apply Sneddon's Case [1954] AC 257 Against that course are the facts that the relevant statutes do differ in terms (although they are, in my opinion, identical in effect), that Watt's Case (1926) 38 CLR 12 was decided so long ago as 1926, and that, whereas the Parliament of New South Wales has seen fit to amend its legislation so as partially to overcome the Australian decisions, the Parliament of the Commonwealth has taken no step to amend the Estate Duty Assessment Act in any material respect. But I think there are two matters which outweigh these considerations. I find a very strong reason for applying Sneddon's Case [1954] AC 257 in the fact that (with the greatest respect) I think that it is right, and that it gives us opportunity for correction. The second reason is that, if this case, or any case raising the same question, were to go on appeal to the Privy Council, there is a high degree of probability that it would be decided in accordance with Sneddon's Case [1954] AC 257 (at p17)

I think I should add that I have not omitted to take into account what is said by Dr. H.A.J. Ford at the end of his recent article Federal Estate Duty - Gifts Inter Vivos - Transmutation of Property Given (1956) 30 ALJ 15 , at pp 23, 24 Probably the only really satisfactory solution of difficulties which ought not to exist would be found in a legislative provision that the valuation should be made as at the date of the disposition. One would suppose the date for valuation to be a matter of indifference to the revenue: what it would lose in some cases it would gain in others, as is shown by a comparison of Teare's Case (1941) 65 CLR 134 (where the shares had declined in value) with Sneddon's Case [1954] A.C. 257 (where the shares had increased in value). And the advantages in simplicity and equity of a clear legislative adoption of what was said in Payne v. The Queen (1901) 26 VLR 705 would be very great (at p18)

This appeal should, in my opinion, be allowed. (at p18)