Union Fidelity Trustee Co. of Australia Ltd. and Another v. Federal Commissioner of Taxation.

Judges: Barwick CJ
Kitto J

Menzies J
Windeyer J

Court:
High Court (Full Court)

Judgment date: Judgment handed down 6 August 1969.

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Menzies J.: The seventeen-year-old expression of opinion by members of the Court in
F.C. of T. v. Belford (1952) 88 C.L.R. 589 , would require a negative answer to the question asked in the case stated here by Kitto J. and I am of the opinion that such an answer should now be given to it, i.e. that income derived by the trustee of a trust estate from sources outside Australia to which no beneficiary is presently entitled is not taxable under sec. 99 of the Income Tax Assessment Act 1936-1961 (Cth), notwithstanding that the trustee is resident in Australia.

The initial difficulty in interpreting the provisions of Div. 6 of Part III of the Act is to determine to what trust estates the Division applies. In its setting in the Act, I consider that its operation is confined to estates with Australian income, i.e. to estates deriving income from sources within Australia. I can see no justification for reading the Division as applying to estates merely because the trustee or a beneficiary happens to be in, or a resident of; Australia during a tax year. It is significant that the Division deals with ``total assessable income... calculated under this Act''. There must be a connection between Australia and the income of the estate to attract the Division. I would, therefore, regard an estate, which has no income except from sources outside Australia, as not within the Division. The significance of this for present purposes is that it accepts, as the criterion of the general applicability of the Division, the source of income rather than the residence of the trustee of a trust estate.

Of course my reading of Div. 6 does not mean that beneficiaries who actually receive income from a trust estate in a year of tax may not be subject to income tax in respect of that income even if it is derived from sources outside Australia. Whether the income would be assessable or not would depend upon sec. 25 and 26(b) of the Act, not upon Div. 6. Thus, for instance, by virtue of sec. 25 and 26(b) the receipt by a resident of Australia of income from a trust estate having no connection whatever with Australia would be the receipt of assessable income; so too, the receipt by a non-resident of income from a wholly Australian trust estate would be the receipt of assessable income unless tax on that income had already been paid.

Furthermore, the reading of the Division which commends itself to me would not, in conjunction with the other provisions of the Act, involve trustees or beneficiaries in double tax in respect of the income of a trust estate. If tax were to be paid by a trustee upon income of a trust estate pursuant to Div. 6, the subsequent receipt of that income by a beneficiary would, of course, give rise to no tax. Payments of tax by trustees under Div. 6 upon the income of a trust estate are properly to be regarded as payments in favour of the persons who eventually, as beneficiaries of the trust estate, receive the income already taxed. This, I think, is so notwithstanding provisions ex maior cautela such as sec. 100(2) and 102(3). The subsequent receipt by the beneficiaries would, therefore, involve no further tax.

The next difficulty in applying Div. 6 is to determine whether, in the case where there is an estate with income derived from sources in Australia - so that the Division would apply - but also with income derived from sources outside Australia, the Division applies to the whole income or only that part of the income derived from sources in Australia, even if it happens that the trustee of the estate is resident in Australia. I think the application of the Division does not extend beyond income derived from sources in Australia. In reaching this conclusion I am influenced by my impression, already stated, that the Division is essentially concerned with estates having a particular source of income rather than with the residence of the trustee of an estate and, on this point, I have found the course of reasoning of the members of the Court who, in Belford's case, discussed Div. 6, helpful. It is most unlikely that it was intended that the taxation of the income of an estate would be made to

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ATC 4092

depend upon an arbitrary matter such as the changeable residence of the trustee. Furthermore, it would be contrary to the scheme of the Act as a whole to exact income tax from a trustee because a non-resident beneficiary happens to be under a disability when, were the beneficiary capable of taking that to which he was entitled, e.g. income from a non-Australian source, there would be no tax payable either by the trustee or the beneficiary. Moreover, the trustee is not taxed as the person actually deriving the income but ``as if'' he was a person of unidentified residence deriving the income; such a person, according to the definition in sec. 6(1), would be a non-resident. Such considerations have led me to conclude that the Division is concerned only with income derived from sources in Australia and not distributed, whatever the residence of the trustee, and that the taxation of undistributed estate income derived from sources outside Australia is provided for elsewhere upon the distribution of that income.

Accordingly, the question asked should be answered ``No''.