Bloore v Chief Commissioner of State Revenue

Supreme Court of NSW|2020-05-01|Before: Stevenson J

Solicitors: Rockliff Snelgrove Lawyers (Plaintiff) New South Wales Crown Solicitor (Defendant) File Number(s): 2019/294375

Judgment

The plaintiff is one of the three adult children of the late Dorothy Mary Mack.
Mrs Mack died on 4 March 2002, leaving a will ("the Will") dated 25 February 1997. Under the Will, Mrs Mack left her estate equally to her three children: the plaintiff, the plaintiff's brother Mr Philip Mack, and the plaintiff's sister Ms Susan Scanlon.
For convenience, and without intending any over familiarity or disrespect, I shall refer to the beneficiaries as Virginia, Philip and Susan. Philip died on 9 April 2019.

The Will also provided: "I wish it to be known that if at the date of my death I have any interest in the properties known as 8A & 8B [2/1A and 3/1A Hampden Road] Warringah Road, Mosman, New South Wales, then it is my desire that if possible that those properties and the property known as 1A Hampden Road, Mosman, New South Wales, are to be all included in a joint development to be carried out by my Executors for the benefit of the residuary beneficiaries of my Estate."
The joint development of the Hampden Road properties contemplated by Mrs Mack has not occurred. My attention was not drawn to any evidence to suggest if and when any such development will occur.

Does the transmission application qualify for concessional duty of $50 pursuant to s 63(1)(a)(iii) of the Duties Act?

Section 63(1)(a) of the Duties Act provides, under the heading "Deceased Estates": Duty of $50 is chargeable in respect of: (a) a transfer of dutiable property by the legal personal representative of a deceased person to a beneficiary, being: (i) a transfer made under and in conformity with the trusts contained in the will of the deceased person, or (ii) a transfer of property the subject of a trust for sale contained in the will of the deceased person, or (iii) an appropriation of the property of the deceased person (as referred to in section 46 of the Trustee Act 1925) in or towards satisfaction of the beneficiary's entitlement under the trusts contained in the will of the deceased person …
Section 63, by its terms refers to an appropriation of property "as referred to in s 46 of the Trustee Act 1925".
Section 46 of the Trustee Act provides, relevantly: (1) A trustee may appropriate any part of … the real or personal estate of a testator … in the actual condition or state of investment thereof in or towards satisfaction of a legacy or of any share or interest in the … estate, whether settled or not, as to the trustee may seem just and reasonable, according to the respective rights of the persons interested in the … estate …
The provisions of s 46 are expressed to be without prejudice to any other power of appropriation conferred by law or the instrument creating the Trust: s 46(15). Accordingly, s 63(1)(a)(iii) applies not only to an appropriation made under s 46 of the Trustee Act, but also to an appropriation of general law or under a power expressly conferred by the Trust instrument. [1]
To qualify for the concessional rate of duty provided for by s 63, the Transmission Application must be shown to be an "appropriation" of property from Mrs Mack's estate "in or towards satisfaction" of Virginia's "entitlement" under the Will.
At the date of the Transmission Application, the value of Ida Avenue exceeded one third of Mrs Mack's residual estate. Ida Avenue was then valued at $3,108,000.00. As the residual estate was then valued at $8,922,454.32, Ida Avenue was valued at $133,848.60 more than one third of the residual estate. It represented some 34.8% of the estate
The question in those circumstances is whether transmission to Virginia of the Ida Avenue property can be said to be an appropriation of property "in or towards satisfaction" of Virginia's interest in the estate.
The Commissioner submits that it was not because the reference in each of s 46 of the Trustee Act and s 63(1)(a)(iii) of the Duties Act to an appropriation of property "in and towards satisfaction" of a beneficiary's entitlement under the trust contained in the Will, does not apply to an appropriation of property which exceeds such an entitlement.
Two issues arise.
The first is the proper construction of s 63(1)(a)(iii).
The second is, how and when must a determination be made as to whether the requirements of s 63(1)(a)(iii) have been satisfied.

The proper construction of Section 63(1)(a)(iii)

The subsection speaks of appropriation of the property of a deceased person "in or towards satisfaction of the beneficiary's entitlement under the Trust contained in the Will".
The question is whether, as the Commissioner contends, the subsection is directed towards an "appropriation" that achieves "satisfaction" (in whole or in part) of the beneficiary's entitlement under the Will, but does not include an appropriation that achieves a result in excess of such entitlement; that is, where the beneficiary receives an amount more than his or her entitlement under the Will.
Mr Sealey, who appeared for the Commissioner, put the matter this way: "The text of s46 of the Trustee Act and the text of s 63(1)(a)(iii) of the Duties Act each refer to an appropriation of property 'in or towards satisfaction' of any share or interest in the property or estate, but not in excess of it."
The primary guide as to the meaning of provisions in the statute is the words used. [2]
In my opinion, the effect of the words actually used in the subsection is as the Commissioner contends.
Although no words such as "not in excess of it" appear in the subsection, "satisfaction" normally means "the payment of a debt or fulfilment of an obligation". [3] Normally, the "satisfaction" of a debt of obligation means paying the amount or doing the thing necessary to do so; and no more.
Although words used must take their meaning by reference to the context in which they appear, and cannot be determined merely by reference to a dictionary [4] there is no reason to think that the Parliament intended "satisfaction" to have a different meaning in the subsection.
This conclusion is consistent with the reference in s 46(1) of the Trustee Act to an appropriation being one "according to the respective rights of the persons interested in the property or estate".
This reading of s 63(1)(a)(iii) is also consistent with ss 63(1)(a) (i) and (ii). Those subsections provide for the concessional rate of duty where a transfer of property is either made in conformity with the trusts in the will (s 63(1)(a)(i)) or the property is the subject of a trust for sale contained in the will (s 63(1)(a)(ii)). In both cases the transfer of property gives effect to the provisions of the will, and no more. It would be strange if, in that context, Parliament intended that s 63(1)(a)(iii) go further, and provide for the concessional rate of duty where the transfer represented by the appropriation does more than give effect to the will and confers on the transferee something more than his or her entitlement.
In that regard, in the Second Reading Speech of the bill that introduced ss 63(1)(a)(iii) into s 63, the State Legislation Amendment Bill 2008, the Parliamentary Secretary said: "The bill makes two significant extensions to the duties concession for transfers out of a deceased estate. The first [the introduction of new s 63(1)(a)(iii)] is where the executor, administrator or trustee of the estate appropriates property to a beneficiary in satisfaction of the beneficiary's entitlement under the will. For example, the trustee might transfer a house to a beneficiary instead of paying a cash legacy. At present the duty payable varies depending on the wording of the will. The bill provides that an appropriation of estate property in satisfaction or partial satisfaction of a beneficiary's entitlement is liable to duty of $10 in all circumstances."
While this suggests that the Parliamentary intention was to extend the duties concession beyond the circumstances already provided for in ss 63(10(a)(i) and (ii), it does not suggest an intention to extend the concession beyond a circumstance whereby the beneficiary's entitlement under the will was satisfied.
I do not see this as importing a gloss on the words in the section.
This conclusion is also consistent with the observations of the learned authors of Jacob's Law of Trusts in Australia: "Where a trustee held property upon trust or with power to sell and to divide the proceeds, it was always open to the trustee to appropriate to a beneficiary, assets in specie and evaluation in complete or partial satisfaction of his interests." [5]
The leading English texts are to the same effect.
Thus in Williams on Executors it was stated: "At common law, representatives may, and if so required, must appropriate with the consent of the beneficiary any part of the residuary estate in or towards satisfaction of a vested legacy or share of residue…" [6]
In Williams on Wills it is stated: "Where the legacy is vested as immediately payable, an executor may appropriate some particular property to be taken in satisfaction of the legacy or part of it. Where this is fairly done, and the legatee receives no more than he is entitled to, the appropriation cannot be impeached." [7] (Emphasis added.)
That is also the view expressed by White J in Tay v Chief Commissioner of State Revenue at [37] (albeit in obiter) where his Honour said that where, by agreement between the beneficiaries, one received shares the value of which exceeded his interest in the residuary estate "[t]his goes beyond the exercise of a power of appropriation" referred to in s 63(1)(a)(iii).
For those reasons, I accept the Commissioner's submissions as to the proper construction of s 63(1)(a)(iii).

How and when is the relevant determination to be made?

Mr DeBuse, who appeared for Virginia, submitted that where, as here, the value of the residue had not been realised (because no steps had been taken to develop the Hampden Road properties), the question of whether an appropriation of property from the estate was "in or towards satisfaction of the beneficiary's entitlement" under the Will was a matter for the executors, provided they were acting bona fide.
Mr DeBuse submitted: "The plaintiff principally submits that the Court should accept that where the value of the residue has not been realised then whether the appropriation is 'in or towards the satisfaction of the entitlement' is a matter for the executors. They determine whether or not the apportionment 'is in or towards'. In that sense the 'satisfaction' referred to in the section is the satisfaction of the obligation of the executors in carrying out the terms of the will. Whether or not the residue has a greater or lesser value than the property appropriated is a matter that is dependent on the timing of any sale and the circumstances of such sale of the balance of the residue. It is not a matter of 'satisfaction' that the Commissioner is in a position to determine. … If there is a limitation to section 63 then it would only be on the bona fides of the act of appropriation itself ie was it an appropriation…As long as there is a bone fide reason to belief that the balance of the residue may be greater than the portion appropriated then the appropriation is in or towards the satisfaction of the entitlement"
Mr DeBuse submitted that the Transmission Application must be taken to be an appropriation "in or towards satisfaction" of Virginia's entitlement under the Will because that was what the executors decided to do.
Thus, Mr DeBuse submitted: "A trustee has power to determine the time and the occasion of conversion of estate assets where such power is generally conferred as the trustee considers beneficial to the estate. … In the present circumstances the executors have delayed the conversion of some of the assets in their commercial opinion endorsed by the intention of the testator as to the likelihood of an improved value for the Hampden St properties and have acted on the basis that the residue may increase for the benefit of all."
I do not accept this submission.
It would mean that, in effect, executors could determine whether the concessional rate of duty under s 63(1) was available simply by themselves determining that the appropriation in question was so characterised.
Further, the question of whether they were correct to do so could only be assessed once, to look at the facts here, the Hampden Road development had taken place: if that ever occurred.
The scheme of the Act suggests, strongly, that the matter is not to be determined by the executors' assessment of the situation. Rather, the assessment is to take place by examination of the monetary value of the property appropriated compared to that of the beneficiary's entitlement.
Chapter 2 of the Duties Act, within which s 63 appears, deals with transactions concerning "dutiable property".
Ida Avenue was dutiable property. The Transmission Application which caused Virginia to be registered as proprietor of Ida Avenue was, by s 63(2)(A) of the Duties Act, taken to be a "transfer of dutiable property".
Duty charged by Chapter 2 arose when the Transmission Application was first executed: (s 12(2)). That was 17 May 2018.
Virginia was obliged to lodge the Transmission Application with the Commissioner within three months, that is by 15 August 2018 (s 16(a)) and, to avoid a tax default, to pay duty "within three months after the liability to pay the duty" arose (s 17).
Subject to the concessional rate of duty of $50 provided for in s 63, duty was payable at ad valorem rates on the "dutiable value", being the greater of the consideration paid or the unencumbered value of the property (s 21).
There was thus only one date by reference to which the duty payable on the Transmission Application was to be assessed; the date of its execution, 17 May 2018.
It must follow that, for the purpose of assessing whether the "appropriation of … property" represented by the Transmission Application was "in or towards satisfaction" of Virginia's entitlement under the Will for the purpose of s 63(1)(a)(iii), that the value of the property appropriated, Ida Avenue, and of Virginia's "entitlement" under the Will, be assessed at the same date.
It also follows that that question must be capable of resolution by reference to matters as they stood at 17 May 2018.
It is true, as Mr Sealey accepted, that the result would be that, had Ida Avenue been only one dollar over the amount equal to one third of the whole residuary estate, the concessional rate referred to in s 63(1)(a) would not be available. On the other hand, on the result advocated by Mr DeBuse, the concession would be available no matter what value the appropriated value bore to the value of the transferee's entitlement under the Will; subject only to the executors acting bona fide.
For those reasons, I accept the Commissioner's submissions of this question.

Was there an agreement of the kind referred to in s 63(2) of the Duties Act and, if so, what was the consequence?

Section 63(2) of the Duties Act provides: If a transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in a will of the deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value that is referable to the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy.
Mr DeBuse submitted that if an appropriation of property of a deceased person such as the Transmission Application did not fall within the ambit of s 63(1)(a)(iii), it must necessarily fall within the ambit of s 63(2).
I do not accept that submission. Nor do I do not accept that that is what White J intended to convey in Tay v Chief Commissioner of State Revenue at [37] when his Honour said that an "arrangement" between beneficiaries whereby one received an amount in excess of his or her entitlement under the will was "intended to be covered by s 63(2)". In Tay it was clear that there was an "agreement" of the kind described in s 63(2). It was in writing and called a "Deed of Family Agreement" (see Tay at [10]).
If an appropriation falls within the ambit of s 63(1)(a)(iii) then a concessional duty of $50 is chargeable and there the matter rests.
If an appropriation does not fall within the ambit of s 63(1)(a)(iii) then the question of whether it falls within the ambit of s 63(2) must depend upon whether the requirements of that subsection are satisfied; namely, that there be an "agreement" of the kind the subsection calls for.
I turn now to that question.

Was there an agreement between the beneficiaries to vary the trusts in the Will

In order that subs 63(2) be enlivened, it must be shown that there was: …an agreement (whether or not overriding) between the beneficiary [here, Virginia] and one or more other beneficiaries [here, Susan and/or Philip] to vary the trusts contained in a will…
Mr DeBuse submitted that: "The agreement that should be found is that [Virginia] accepts the appropriation in satisfaction of her entitlement to a third interest unless the property remaining in the estate when realised exceeds two thirds of the value of the residue at the time of distribution, in which case, after equalisation of the other beneficiaries based on the amount [Virginia] had previously received through appropriation, [Virginia] will receive one third of the remaining balance."
Mr DeBuse submitted that such an agreement should be inferred from the fact of the Transmission Application and "the close relationship and role as executors".
The Transmission Application simply states: "The applicant [Virginia] being entitled as beneficiary under the will of the deceased registered proprietor…apply to be registered as proprietor of the estate or interest of the deceased registered proprietor in the abovementioned land."
I cannot see how it can be inferred from the form of the Transmission Application, and the fact that Virginia, Susan and Philip were siblings, that Virginia and Susan and/or Philip agreed to vary the trusts of the Will.
Neither Virginia nor Susan gave evidence of any conversation or other matter that would support the inference that such an agreement existed.
There could be many reasons, other than an intention to vary the Trust or the Will, why Virginia, Susan and Philip, as executors, and as beneficiaries under the Will, decided to transmit Ida Avenue to Virginia. Virginia had lived in Ida Avenue since 1992. Evidently the development of the Hampden Road properties was in contemplation. It may be that the intention of Virginia, Susan and Philip was that the transmission of Ida Avenue to Virginia to be simply on account of her one-third interest in the estate, and in the expectation or hope that, if any when the Hampden Road properties were developed, the value of Ida Avenue would turn out to be less than a third of the estate.
This seems to be the effect of the agreement for which Mr DeBuse contended.
None of this is explained.
In those circumstances I am not prepared that there was an agreement of the kind called for by subs 63(2).

Calculation of the reduction of dutiable value contemplated by s 63(2)

Assuming, contrary to my conclusion, that there was an agreement of the kind referred to in s 63(2), the question arises as to how the dutiable value of Ida Avenue should, in that event, be calculated.
Section 63(2) provides, assuming the existence of an agreement of the kind described, for a reduction the dutiable value of the property transferred.
Section 63(2) uses the expression "dutiable property" three times thus, to repeat, with emphasis: If a transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in a will of the deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value that is referable to the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy.
It is common ground, and obvious, that the first two references to "dutiable property" are references to the property being transferred: here, Ida Avenue.
The question is, whether the third reference to "dutiable property" within the description of the reduction for which the sub-section provides is also a reference to, here, Ida Avenue.
On the one hand, it would be open to attribute to Parliament the intention that the same expression, used three times in one subsection, have the same meaning each time, although "this is not a presumption of very much weight; there is no rigid rule; it all depends on context". [8]
On the other hand, the "dutiable property" here referred to is stated to be that to which the beneficiary "had an entitlement" under the will in question.
Had the legislature intended this third reference to "dutiable property" to mean, as do the first two references, the "dutiable property" that has been transferred to the beneficiary, it is hard to see the reason for the words "to which the beneficiary had an entitlement". The legislature could simply have used the words "that dutiable property".
Further, Virginia had no "entitlement" under the Will to the Ida Avenue property itself. She had an "entitlement" to one third of the residual estate
These matters suggest that this last reference to "dutiable property" is to the whole of the residual estate.
However, this does not appear to be what Parliament intended.
Thus, in the Second Reading Speech, the Parliamentary Secretary also said: "The second extension is when the beneficiaries agree to vary their entitlements under the will. For example, a beneficiary who is entitled to a one-half interest in a house might agree to buy the house from the estate for a purchase price of one-half its value. The amendment will impose duty on only the transfer of the one-half interest in the house that is in excess of the beneficiary's entitlement."
Thus, the Explanatory Note to the Bill that introduced s 63(2) into the Duties Act stated that: "…the concession will only apply to that part of the dutiable value of the property transferred which is dutiable property to which the beneficiary was entitled under the Will…"
The "concession" there referred to is, evidently, the reduction of the dutiable value of the transferred property referred to.
The Second Reading Speech and the Explanatory Note do suggest that Parliament intended that the reduction in dutiable value of the transferred property be calculated by reference to the beneficiary's entitlement to that dutiable property.
This approach has been adopted by Senior Member Currie in Alexander v Chief Commissioner of State Revenue [2017] NSWCATAD 180 at [26]: "…By its very terms, s 63(2) requires the reduction in the dutiable value of the dutiable property to be based on the proportion of the particular beneficiary's entitlement 'arising under the trusts contained in the will'. The subsection clearly does not require the value of the estate as a whole to be included in the calculation. As submitted by Counsel for the Chief Commissioner, the subsection is concerned with the 'dutiable property' which is a defined term under the Duties Act (see section 11) and the subject of the transfer in each case. In this case the dutiable property is the Property. I can see nothing which justifies the contention that the total estate value should be included in the calculation of duty."
In these circumstances, were it necessary for me to decide this question, I would favour the conclusion to which Senior Member Currie came.
This would result in duty being calculated on a dutiable value of: Value of Ida Avenue $3,108,000 Less one-third of the value of Ida Avenue $1,036,000 Dutiable value $2,072,000

Ad valorem duty on that amount would be $99,450.00.

Conclusion

For these reasons, I propose to dismiss Virginia's application to review the Commissioner's assessment. The parties should bring in short minutes to give effect to these reasons. If there is any dispute about costs, the parties should confer and agree on a timetable for short submissions. I will deal with the question on the papers.
During submissions, the question of remission of interest on duty was canvassed. In that context, Mr DeBuse informed me that Virginia had paid duty and interest in December 2019.
In those circumstances if, having regard to these reasons, Virginia wishes to press for remission of interest, the parties should again confer and agree on a timetable for short submissions. I will also deal with that question on the papers.

Endnotes

Tay v Chief Commissioner of State Revenue [2017] NSWSC 338 at [41] (White J).
See Foots v Southern Cross Mine Management Pty Ltd (2007) 204 CLR 52; [2007] HCA 56 at [96] (Gleeson CJ, Gummow, Hayne and Crennan JJ) and the cases cited therein.
Concise Oxford English Dictionary (2011, Oxford University Press).
For example, see Mason P in House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498; [2000] NSWCA 44 at [28] and see generally Lewison and Hughes, The Interpretation of Contracts in Australia at [5.03].
J D Heydon and M J Leeming MJ, Jacob's Law of Trusts in Australia (7th ed, 2006, LexisNexis Butterworths Australia) at [2069].
J R Martyn and N Caddick QC, Williams, Mortimer and Sunnucks on Executors, Administrators and Probate, (20th ed, 2013, Sweet and Maxwell) at [54]-[57] (citations omitted).
F Barlow, R Wallington, SL Meadway, J MacDougald and C Kynaston, Williams on Wills (10th ed, 2014, LexisNexis Butterworths) at [29.1] (citations omitted).
See Clyne v Deputy Federal Commissioner of Taxation (1981) 150 CLR 1; [1981] HCA 40 at 11 (Gibbs CJ); McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 144 CLR 633; [1979] HCA 19 at 643 (Gibbs J). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 May 2020

Taxation Administration Act 1986(NSW)

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