Appellant v Respondent

Supreme Court of Victoria|2011-04-14|Before: Davies J

TAXATION - Whether Fire Service Levies paid by an insured directly to the Country Fire Authority and Metropolitan Fire and Emergency Services Board are dutiable under s 179 of the Duties Act 2000 (Vic) - Construction of Part 2, Chapter 8 of the Duties Act 2000 (Vic) - Definition of "premium" and "premium paid" - Country Fire Authority Act 1958 (Vic) s 80A - (Vic) - ss 175 - 181, 184, 190 - 191 (Vic).

STATUTORY CONSTRUCTION - "premium", "premium paid" - Part 2 of Chapter 8 of the Duties Act 2000 (Vic) ss 177 - 181.

WORDS AND PHRASES - "means" and "includes", "premium", "premium paid".

The Solicitor for the Commissioner of State Revenue

**1 The respondent ("the Commissioner") has assessed the appellant ("Shell") to duty under s 179 of the Duties Act 2000 (Vic) ("the Act") on amounts that Shell paid to the Country Fire Authority ("CFA") and the Metropolitan Fire and Emergency Services Board ("MFESB") as "contributions"[1] in the income years ended 30 June 2005 and 30 June 2006 ("the income years"). Shell objected to the assessments, which the Commissioner disallowed. This proceeding is Shell's appeal against the disallowance pursuant to s 106 of the Taxation Administration Act 1997 (Vic).

2 The sole issue for determination in the appeal[2] is whether these "contributions" were "premium[s] paid" for the purposes of s 179 of the Act. Section 179 is found in Part 2 of Chapter 8 of the Act which charges duty on "premium[s]" in respect of "general insurance". Section 179 prescribes as follows:**

The amount of duty chargeable on the premium paid in relation to a contract of insurance is 10% of the amount of the premium.

**3 Shell, in the income years, had taken out insurance against the risk of fire in respect of property in Victoria. It was common ground that the statutory description of "general insurance" in Part 2 of Chapter 8[3] covered this kind of insurance. It was also common ground that Shell was liable under s 181 of the Act to pay duty on the premiums that it paid to its insurers for its fire insurance. Section 181 applied to Shell because its insurers were not "registered insurers" under the Act. Had its insurers been "registered insurers", the insurers would have been liable for the duty on those premiums under s 180.

4 A "registered insurer" for the purposes of the Act is an insurer who is a "general insurer" as defined by s 184 of the Act, namely a person who is, amongst other things, authorised under the Insurance Act 1973 (Cth) to carry on insurance business in Australia.[4] General insurers are required to be registered for duty purposes under Part 2 of Chapter 8 of the Act[5] and are liable under s 180 to pay the duty chargeable under s 179 "except as provided by section 181". Section 181 relevantly provides:**

(1) This section applies to a person who obtains, effects, or renews any general insurance as an insured person with a person who is not a registered insurer.

(2) A person to whom this section applies must....

(a) ...

(b) pay to the Commissioner as duty the amount calculated in accordance with section 179.

**5 It was common ground that Shell's insurers were not "registered insurers" because none of its insurers were "general insurer[s]". Shell's insurers did not carry on insurance business in Australia. Consequently they were not authorised, or required to be authorised, under the Insurance Act 1973 (Cth), nor registered, or required to be registered, under Part 2 of Chapter 8 of the Act. Accordingly, the exception in s 180 applied and s 181 operated to make Shell, as the insured person, liable for any duty on the "premium paid" on the fire insurance at the rate of 10% of the amount of the premium.

6 Shell was also liable under s 80A of the Country Fire Authority Act 1958 (Vic) ("CFA Act") and s 44A of the Metropolitan Fire Brigades Act 1958 (Vic) ("MFB Act") to pay amounts to the CFA and the MFSEB in relation to its fire insurance, which it paid. Both Acts imposed levies on Shell as "contributions"[6] to the fire authorities in amounts calculated in accordance with the statutory formulas provided for in s 80A of the CFA Act and s 44A of the MFB Act respectively. The levies payable were calculated by reference, amongst other things, to the premiums that Shell paid for its fire insurance in respect of its Victorian property.[7] Under both the CFA Act and the MFB Act, the levy was payable by Shell as the owner of the insured property by reason that its insurers did not carry on insurance business in Victoria.[8] If Shell's insurers had carried on insurance business in Victoria, the insurers, not Shell, would have been liable under both Acts to pay the contributions to the respective fire authorities.[9]

7 Shell sought and obtained advice from its solicitors to the effect that it was not liable to pay duty on the contributions to the fire authorities. Shell therefore paid duty on its insurance premiums but did not pay duty on the contributions. The Commissioner took a different view and assessed Shell to pay duty on the contributions. Whether Shell is liable to pay this duty depends on whether the contributions were "premium[s] paid" by Shell in the income years. This is a question of construction of Part 2 of Chapter 8.

8 The expressions "premium" and "premium paid" are defined expressions.

9 The expression "premium paid" is defined in s 178 as follows:**

(1) A premium, or an instalment of a premium, is paid for the purposes of this Chapter when the first of the following events occurs -

(a) the premium or instalment is received by the insurer; or

(b) an account of the insurer is credited with the amount of the premium or instalment.

**(2) A premium or instalment of a premium (apart from the case where the premium or instalment is received directly by an insurer) is taken to have been received by an insurer if it is received by another person on the insurer's behalf.

10 The expression "premium", in turn, is defined in s 177 as follows:**

(1) Premium, in relation to general insurance, means the total consideration given to an insurer or an insurance intermediary by or on behalf of the insured person to effect insurance without deductions for any amounts paid or payable, or allowed or allowable, by way of commission to the insurance intermediary.

(2) Premium includes a fire service levy paid or payable in connection with insurance by an insurer or any other person.

(2A) Premium also includes any amount in respect of GST on the supply to which the insurance relates.

(3) Premium does not include -

(a) an amount paid to an insurance intermediary by the insured person as a fee, provided that the amount can be clearly identified as a fee; or

(b) an amount of duty under this or a corresponding Act.

(4) It is immaterial where the amount is paid or where the insurance is effected.

**11 Shell accepted that the contributions to the fire authorities were fire services levies ("FSL") within the definition of "premium" in s 177(2). Shell's primary submission was that the FSL was not chargeable with duty because the FSL was not "paid" to its insurers within the meaning of the expression "premium paid" in s 178. It was submitted that Shell's insurers did not receive the FSL either directly or through an agent, nor was any account of Shell's insurers credited with the amounts of the FSL. Shell also advanced a construction of s 177 that s 177(2) should be read subject to s 177(1). On that construction, a FSL would constitute a "premium" under s 177(2) only in so far as the consideration given to an insurer included the FSL.

12 The Commissioner's argument, shortly stated, was that s 178(1) does not prescribe that a premium is "paid" for the purposes of s 179 only if the events contained in s 178(1) and (2) occur. According to the Commissioner, s 178 ensures that the insurer's liability under s 180 to pay the duty arises only at a time when the receipt of the premium is within the knowledge of the insurer. The Commissioner submitted that this construction was consistent with the intention of Part 2 of Chapter 8 to impose duty on FSLs, whether paid by the insurer or by an insured directly to the fire authorities. It was also argued that this construction is consistent with, and gives effect, to s 177(2) of the Act which encapsulates the position under the CFA Act and the MFB Act that an insured has the liability to pay the FSL in given circumstances. It was submitted that if Shell's argument was correct, s 177(2) would otherwise be ineffectual in relation to an insured, because it would mean that the FSL would only be subject to duty if it was received by the insurer. Thus it would have no operation where the insured owes the liability directly to the fire authorities. Finally, it was argued that the trigger for payment of the duty on the FSL is the payment of the premium to which the FSL relates.

13 Both parties placed reliance on the predecessor provisions in the Stamps Act 1958 (Vic) ("Stamps Act") in support of their constructions. The Commissioner argued that his construction was consistent with the treatment of FSLs under the predecessor provisions in the Stamps Act introduced by the Stamps (Amendment) Act 1999 (Vic). The Commissioner relied on the Treasurer's second reading speech introducing the amendment bill. In the second reading speech the Treasurer had stated that:**

The bill provides that duty will apply on the insurance premium including the fire service levy, whether it is paid through insurance companies or directly to the fire authorities.[10]

14 Shell submitted that the provisions in the Stamps Act did not have the legal effect contended for by the Commissioner but that rather on the proper construction of those provisions the FSL payable by Shell would not have been subject to duty under the Stamps Act. Shell also argued that the provisions in the Duties Act were consistent with, and intended to be consistent with, the provisions under the Stamps Act that the Duties Act repealed.

**15 The Court must construe the relevant provisions in their context[11] and that context may include consideration of the legislative history of a provision to assist in determining the intended meaning.[12] However I did not find the reliance of the Commissioner or Shell on the predecessor provisions in the Stamps Act useful in construing Part 2 of Chapter 8 as the relevant provisions in the Stamps Act had not been the subject of judicial consideration. In the absence of judicial authority, the Court should not resort to the Treasurer's speech to conclude that the legislation actually applied as the Treasurer said. The second reading speech may have been helpful as an aid to construction of that legislation,[13] but that legislation would still need to be construed. It is not useful in this case to undertake the task of resolving competing arguments about the proper construction of the predecessor provisions in the Stamps Act in order to ascertain the meaning of the legislation under the Duties Act.[14] The task here is to construe the legislation in Part 2 of Chapter 8 of the Act, not the predecessor provisions of the Stamps Act.

16 The starting point in determining the meaning of the legislation is the consideration of the text of the legislation itself[15] and where there is ambiguity the Court must adopt a construction that would promote the object and purpose underlying the legislation.[16]

17 Sections 177 and 178 are definitional sections. It is well understood in statutory construction that the function of a definition section is not to enact substantive law. Rather, its function is to indicate that when a defined term is found in the substantive part of the statute under consideration, the term is to be understood in the defined sense.[17] In other words, the definitions in s 177 and s 178 have no operation independent of the substantive provisions of Part 2 of Chapter 8. The construction of the definitions therefore should be considered with reference to the text of the operative provisions in Part 2 of Chapter 8 in which those expressions appear.

18 Part 1 of Chapter 8 contains an introduction and overview. Section 175 provides, relevantly, as follows:**

(2) Part 2 charges duty on the amount of the premium paid in relation to a contract of insurance that effects general insurance (whether or not it also effects other kinds of insurance).

(3) The amount of duty is required to be paid each time a premium is paid in relation to a contract of insurance that effects general insurance.

**It is evident from a consideration of Part 2 of Chapter 8 read as a whole that the legislative scheme has been designed to facilitate the collection of duty payable on premiums, including duty payable on FSLs. This is apparent from the requirements placed on insurers and the insured with respect to the payment of duty.

19 General insurers must register with the Commissioner[18] and on registration must submit a monthly return detailing the total amount of premiums "paid" to them for general insurance during the preceding month, and pay the appropriate amount of duty as determined in accordance with s 179 when submitting the return.[19] The legal burden to pay the duty is thus imposed on the general insurer which receives the premium upon which the liability to pay the duty depends. In this situation the liability to pay the duty falls on the insurer once the insurer has been "paid" the premium according to the requirements in s 178. A general insurer is then empowered to recover the duty payable from the person who contracts with the insurer for insurance by requiring the insured to pay to the insurer an amount equal to the duty chargeable.[20] Section 191 expressly provides that if the amount equal to the duty chargeable is not paid by the insured, the insurer may recover that amount "as a debt".[21] The provision necessarily contemplates the imposition of the economic burden of the tax on the insured and not on the general insurer, although the general insurer must pay the duty to the Commissioner.

20 Where insurance is taken out with an unregistered insurer, namely an insurer that does not carry on insurance business in Australia, the collection of duty is facilitated by imposing the liability directly on the insured person.[22] For that purpose, the insured must maintain records of that insurance and the amounts of premiums paid. The insured is also required to lodge a return with the Commissioner within 21 days after the end of the month in which the premium relating to the insurance is paid to the unregistered insurer or insurance intermediary. The return is to contain the relevant details and information about the premium and the insurance that the Commissioner requires. The insured must then pay to the Commissioner, as duty, the amount calculated in accordance with s 179.[23] The legal burden of the tax is thus placed on the insured, conterminously with the economic burden.

21 Relevantly, an insured is subject to the same tax as an insurer on "premium[s] paid". Section 181 requires an insured to pay the amount calculated in accordance with s 179. This is the same as the liability imposed on the general insurer under s 180. Both sections require either the insurer or the insured to pay, as duty, the amount calculated in accordance with s 179, being 10% of the amount of the premium. Sections 180 and 181 make it evident, in my view, that the liabilities are commensurate with respect to the payment of duty determined under s 179.

22 Section 179 read in conjunction with ss 180 and 181 thus inform the proper construction of s 177 and s 178. The context makes it clear that Parliament intended the word "premium" to encompass an FSL paid or payable in connection with insurance, whether by the insurer or by the insured directly to the insurer. In this regard the natural reading of s 177(2) sits conformably with, and gives recognition to, the position under both the CFA Act and the MFB Act that the legal responsibility for payment of FSLs to the fire authorities is imposed on both the insurer and the insured. In my opinion also, it is evident that Parliament intended by the definition of "premium paid" in s 178 to make a FSL, "paid or payable in connection with insurance by an insurer or any other person",[24] chargeable with duty when the first of the prescribed events in s 178 occurs.

23 Shell's construction failed to give due regard to the use of "means" in s 177(1) and "includes" in s 177(2) and s 177(2A). These words must be assigned some function. Generally that function is to indicate that the definition is intended to be an exhaustive explanation[25] of the meaning of the term that is defined, as extended by its inclusionary meaning.[26] When a definition is said to "mean" a particular form of words, that is the meaning that is assigned to the definition. When a definition is said to "include" a particular form of words, the definition operates to bring those words within the scope of the definition.[27]

24 The function of the verb "includes" in s 177(2) is to extend the exhaustive definition of "premium" in subsection (1) to include FSLs but not to assign to the FSL a separate definition of "premium". Furthermore, the function is not to "include" a FSL as a "premium" only in so far as the consideration given to an insurer includes the FSL. Such a construction would not give effect to the natural meaning of the words nor promote the legislative scheme of Part 2 of Chapter 8, which recognises commensurate obligations on both the insurer and the insured with respect to the payment of duty determined on the "premium paid" under s 179.

25 The definition of "premium", construed as including, but not as denoting, a FSL, fits conformably with the other provisions in Part 2 of Chapter 8, including s 178. The FSL, whether paid or payable, is taken to be part of the "premium" on which duty is chargeable for the purposes of Part 2 of Chapter 8. That premium, in turn, is taken to be "paid" within the meaning of s 178 for the purposes of Part 2 of Chapter 8 when the first of the prescribed events in s 178 occurs. Neither s 177 nor s 178 makes it a requirement that the FSL be paid to the insurer. It is the occurrence of the events in s 178 that triggers the operative provisions under Part 2 of Chapter 8.

26 According to Shell's construction of Chapter 2 of Part 8, an FSL would not be dutiable unless the FSL was paid to the insurer. That would mean that an insured on whom the liability to pay the FSL to the fire authorities falls under the CFA Act or the MFB Act would not have to pay any duty on the FSL. It is also a logical extension of Shell's construction that an insurer would not have to pay any duty on the FSL, unless the FSL had been "paid" to the insurer in accordance with s 178. In my view the text of s 177 and s 178 and the provisions with which they interrelate do not evince an intention by the legislation to make dutiable only FSLs "paid" to the insurer in accordance with s 178.

27 Accordingly, I conclude that Shell's construction should not be accepted and that the assessments should be affirmed with respect to the primary tax.**

[2] Shell was assessed to duty on other amounts as well but these other amounts are not the subject of this appeal. Shell was also assessed to penalty tax in respect of the duty on the FSL for each of the income years, which Shell contested. At the hearing of the appeal, the Commissioner agreed that the penalty tax on the duty referable to the FSL should be reduced to nil and that the Court should make orders accordingly.

[10] Victoria, Parliamentary Debates, General Assembly, 22 April 1999, 601-602 (Tim Stockdale, Treasurer).

[11] CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384; Mills v Meeking [1990] HCA 6; (1990) 169 CLR 214;

[12] Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; (2005) 220 CLR 592.

[13] Saeed v Minister for Immigration and Citizenship [2010] HCA 23; (2010) 241 CLR 252, 264-5.

[14] Project Blue Sky Inc and Others v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, 366-8 (Brennan CJ).

[15] Saeed v Minister for Immigration and Citizenship [2010] HCA 23; (2010) 241 CLR 252, 264-5.

[17] Gibb v Federal Commissioner of Taxation [1966] HCA 74; (1966) 118 CLR 628, 635 (Barwick CJ, McTiernan, Taylor JJ); Kelly v R [2004] HCA 12; (2004) 218 CLR 216, 253 (McHugh J).

[25] Dennis Pearce and Robert Geddes, Statutory Interpretation in Australia (6th ed, 2006) 239-44.

[26] Dilworth v The Commissioner of Stamps [1899] AC 99, 105-106; YZ Finance Co Pty Ltd v Cummings [1964] HCA 12; (1964) 109 CLR 395, 401-2; Batchelor & Co. Pty. Ltd. v. Websdale [1963] SR (NSW) 49, 52-3.

[27] Dilworth v The Commissioner of Stamps [1899] AC 99, 105-6.