Commissioner of State Revenue v Bogong Ski Club Inc [2000] VSC 520

Supreme Court of Victoria|2000-12-06|Before: Hansen J

The applicant issued land tax assessments in respect of 1990 and 1991.[2] There followed a series of objections, decisions and a review, as a result of which assessments were withdrawn and new assessments issued. It is not necessary to go into detail. Suffice it to say that the current assessments in respect of 1990 and 1991 are dated 21 April 1997, the current notice of objection 18 June 1997, and the current notice of decision 7 December 1999.

While not part of the facts as such, it is convenient to mention a factual scenario that was presented both to the Tribunal and to me. In the scenario, the respondent makes available to its members accommodation at the respondent's ski lodge, say 10 nights per member per year. Rather than using the accommodation themselves, the members pass it on to others for a fee. Considerable argument was addressed to whether the accommodation rights in this scenario would constitute a dividend which remained unprohibited.

Section 51(1) of the Associations Incorporation Act provides that an incorporated association "shall not ... secure pecuniary profit for its members". This prohibition is qualified by s. 3(2), which sets out various circumstances by reason of any one or more of which an incorporated association shall not be deemed to secure pecuniary profit for members. Some of them are:

"(a) that the association or incorporated association itself makes a pecuniary profit, unless that profit or any part of it is divided among or received by the members or some of them;

(d) that the members of the association or incorporated association are entitled to divide its assets among them on its dissolution;

(h) that the members of the association or incorporated association derive pecuniary profit through enjoyment of facilities or services provided by the association for social, recreational, educational or other like purposes".

The only rule of the respondent that is relevant for current purposes is Rule 34, which provides that any surplus upon winding up shall be paid to the Victorian Ski Association for promoting the sport of skiing, or to a body having similar objects to the respondent.

In Department of Premier and Cabinet v Hulls,[5] Phillips JA set out guidelines for determining whether to grant leave to appeal under s. 148 of the Victorian Civil and Administrative Tribunal Act. While emphasising that they are guidelines only, his Honour summarised them thus:

" When leave is sought to appeal under s. 148, it will be necessary for the applicant to identify a question of law which is relevant to the granting of the relief sought on appeal. The importance of the question, either generally or to the would-be appellant in the particular case, will probably be relevant. The applicant must show that there is a real or significant argument to be put on that question of law at least to this extent: that there is sufficient doubt about it to justify the grant of leave. Moreover, it may have to be shown that to allow the error to go uncorrected would impose substantial injustice, although, where the order below is final, that injustice will often be more readily discernible." [6]

I mention in passing that his Honour rejected the view that Chapter II Rule 4.09 sets out a test or criteria for granting or denying leave. Rather, Rule 4.09 merely confers a power on the master to refuse leave in certain circumstances.[7] I agree.

In favour of granting leave, Mr Gobbo QC submitted that the interpretation of s. 9(1)(g) could have revenue implications; the exemption is potentially applicable not only to an incorporated association like the respondent but also to "any body corporate or unincorporate". Accordingly it would be unsatisfactory to leave the matter unresolved.

Mr Osborne for the respondent argued against granting leave because it could not be said that the case is of importance to the applicant specifically given the amount of the assessment involved. Further, he argued that the actual question in this case is not the interpretation of s. 9(1)(g) generally, but rather whether s. 51(1) operates to satisfy the exemption in s. 9(1)(g) in the particular circumstances of this case; this question can not be described as a matter of general public importance, since the number of incorporated associations falling within the ambit of the exemption appears small.

In relation to this last point, I have no way of knowing the number of incorporated associations, or taxpayers more generally, to which s. 9(1)(g) may apply. I comment that, while it is appears that s. 9(1)(g) has not been litigated before, there are plenty of examples in other jurisdictions of land tax disputes relating to "non-profit" societies, clubs or associations.[8] The current type of case is not unique.

I am disposed to grant leave, guided by the comments of Phillips JA. The question is attended by sufficient doubt. I do not provide separate reasons for granting leave[9] and now turn to the appeal itself.

The general nature of the question in this case is apparent from the provisions I have mentioned above. It is whether a prohibition on "[securing] pecuniary profit for its members" is at least as broad as a prohibition on "payment of any dividends to members". These expressions can only be given meaning in the specific legislative contexts in which they respectively arise. Thus it is perhaps more prudent to state the question as a sequence of questions:

1. What is the meaning of the exemption in s. 9(1)(g) of the Land Tax Act, and specifically of the word dividends, in the context of that Act?

2. What is the meaning of the prohibition of an incorporated association "[securing] pecuniary profit" in s. 51(1) of the Associations Incorporation Act in the context of that Act?

3. Is the prohibition in s. 51(1) at least as broad as the criteria for the exemption in s. 9(1)(g)?

I do not set out the Tribunal's reasons, but comment that the way they were expressed carried the danger of mixing the two contexts. I prefer to proceed on the basis of the questions I have set out.

Section 9(1)(g): dividends v profits

The central word in s. 9(1)(g) for current purposes is dividends. It is a word that can have various meanings depending on its context.[10] In Slingsby v Westminster Bank Ltd,[11] Finlay J described two senses in the context there in question: the narrower sense was "that part of the profits of a company divisible among its shareholders" and the broader sense was "that which is to be divided".[12]

Counsel for the appellant pointed to the reference in s. 9(1)(g) to profits, which it was said in the written outline meant, in substance, net gain over a defined period of time.[13] He submitted that if dividends was read in the narrower sense just mentioned, it would be equated to profits. However, it was submitted, in light of the principle of interpretation that no words in a statute are to be treated as surplusage,[14] and by logical extension that Parliament is taken to have intended different meanings when it has used different words, it would be appropriate to read dividends in the broader sense of "that which is to be divided". This could include a wide range of benefits, including benefits allocated other than out of profits. In the case of an incorporated association, dividends paid otherwise than out of profits might include a payment in the form of a benefit to members such as accommodation rights (as mentioned earlier in the scenario), rights to the property of the association, or a distribution from a gift to the association.

I think this submission is somewhat misguided. It is based on the premise that the two senses described by Finlay J are the only senses in which the word dividends may be used, and that if the narrower sense is not the relevant meaning, then it must be the broader sense. In fact, it is clear from his Honour's use of the comparative adjectives (narrower and broader) that he intended a spectrum of meanings. Moreover, it is clear that his Honour was not trying to produce exhaustive definitions, and the senses he gave were mere examples in the context he was considering. He was concerned in the case before him with the broader sense, which he held included interest on government stock, and did not need to consider the narrower sense. Ultimately, therefore, the two senses he referred to are not directly applicable to the current situation. It is more relevant in the current case to proceed from first principles.

A useful starting point in determining the meaning of dividends is the Oxford Dictionary. The relevant sense of the definition of dividend (singular) reads:

" A portion or share of anything divided; esp. the share (of anything divided among a number of persons) that falls to each to receive or pay."

The ordinary subject matter to be divided is profits, and it is safe to say that the ordinary legal meaning of dividends is "a share of profits",[15] although this relates specifically to companies; under the Corporations Law, dividends may only be paid out of profits,[16] and this was also the position in previous companies legislation and at common law.[17]

As far as I am aware, there has been no prior consideration of the meaning of dividends specifically in relation to associations, but I do not see any reason why it should differ from the meaning in relation to companies. The latter is a context in which the word has wide circulation, and I think it is not possible to take the view that Parliament was unaware of it when it created the current form of the exemption in 1970.[18]

Certainly, it did not at that time intend dividends to have a meaning deduced from the Associations Incorporation Act, since this was enacted in 1981 and was the first legislation in Victoria specifically relating to incorporation of associations.[19] It is to be remembered that the exemption in s. 9(1)(g) can apply to "any body corporate or unincorporate": if by well-established usage dividends must mean "a share of profits" in relation to companies, why should it be supposed that the same word would have a different meaning in the same paragraph in relation to other bodies? I can find nothing in the exemption or its context to distinguish between companies and any other bodies corporate or unincorporate.

If I am wrong in this conclusion, for instance because the word any in the expression "payment of any dividends" requires that the broadest possible meaning be given to dividends, I would not attempt an exhaustive definition of the word. I would merely say that I do not think s. 9(1)(g) can be read so that it does not apply to an incorporated association which carries on the ordinary activities contemplated by the Associations Incorporation Act. Counsel for the appellant conceded as much. I refer at [35] below to the ordinary activities contemplated by the Associations Incorporation Act. I add in relation to the scenario that if the granting of accommodation rights are part of the ordinary activities of an association such as a ski club when the members use the accommodation themselves, I do not think those accommodation rights can change their character and become dividends because the members happen to pass them on to others for value.

Subject to the previous paragraph, I do not think the presence of profits earlier in s. 9(1)(g) necessitates a departure from the meaning of dividends as "a share of profits". The two words are not synonymous. It is a consistent use of language in my view to speak first of profits being applied to the promotion of the objects and then to speak of dividends not being paid to members. The different words merely acknowledge the reality that it is not as profits as such, but rather as the result of an allocation process, that a dividend is paid to members.

Furthermore, if the intention of Parliament was that the expression "payment of any dividends" include the conferring of any benefit upon members, that could easily have been achieved by adding after "any dividends to" the words "or confer any benefit on". But this was not done and it is a significant omission in my view.

Section 9(1)(g): dividends and payment

Counsel for the appellant also submitted that the word payment in the expression "payment of any dividends" in s. 9(1)(g) gave dividends a broader meaning. Payment, he said, does not necessarily imply payment in cash out of profits. Something can be paid whenever it is capable of being expressed in terms of money, whatever means may be adopted for the passing of the consideration between the transacting parties. In terms of the scenario, the accommodation rights could constitute a payment.

Elmdene Estates Ltd v White[20] was relied upon. In that case, the appellants granted the respondent a tenancy. In a separate transaction, the respondent and his wife conveyed the freehold of their house, the fair market value of which was acknowledged to be between £2,300 and £2,400, to a company related to the appellants for the sum of £1,800. Rent control legislation at the time prohibited requiring "the payment of any premium in addition to the rent" as a condition of the grant of a tenancy. Premium was defined to include "any other pecuniary consideration in addition to rent". One question in the appeal was whether forgoing £500 or £600 amounted to payment of a pecuniary consideration within the meaning of the legislation. Lord Radcliffe said:

" Judging by the context of the Act, there is, I think, a pecuniary consideration whenever the benefit obtained by the landlord or the detriment suffered by the tenant is expressed in terms of money. If it is so expressed, the particular means adopted of passing the consideration from giver to taker is not significant." [21]

Later, his Lordship said in relation to the facts before him:

' The transaction was in all respects equivalent to what would have taken place if [the respondent and his wife] had sold [their house] at its agreed and fair market value of £2,300/£2,400 and handed back £500 to the purchaser. If that had been done, £500 would have been paid in cash at and to the order of the landlords. Although we must take the words of the statute as we find them, and we are not to treat "pecuniary consideration" as a mere synonym for any consideration whatsoever, I do not think that the distinction between what is and what is not "pecuniary" depends upon purely formal differences in the method of transferring the stipulated amount.' [22]

The submission for the appellant in this case must fail given my conclusion about the ordinary meaning of dividends, since payment is dependent on dividends in s. 9(1)(g): even if payment is interpreted broadly, it is limited in context to the payment "of any dividends". Further, I find the submission unpersuasive in itself. I do not think that their Lordships in Elmdene intended to lay down a broad principle that in all circumstances anything that is capable of being expressed in money constitutes a payment and that the word payment must be construed accordingly. I am concerned with a particular statutory context and I do not think the reasoning in Elmdene requires that a broad meaning be given to dividends as that word is used in s. 9(1)(g).

Section 9(1)(g): history

It was in dispute whether it was permissible in interpreting s. 9(1)(g) to refer to the corresponding exemption in place before 1970, when the current s. 9(1) replaced the former s. 9(1) in its entirety. The former s. 9(1)(k) exempted from land tax land used exclusively for the purposes of an athletic recreational club:

" if in the opinion of the Governor-in-Council the revenue of such club is applied solely in or towards the promotion of the objects of the club and is not applied by way of profit to the individual members of the club".

Thus, in 1970, what had to be prohibited to qualify for the exemption changed from "[application] by way of profit" to "payment of any dividends". In concluding its reasons, the Tribunal considered this change and concluded that the exemption in s. 9(1)(g) should be taken as being at least as broad as that in the former s. 9(1)(k).

Before me, counsel for the appellant submitted that s. 9(1)(g) could not be construed by reference to the prior s. 9(1)(k). It was submitted that it was not permissible to refer to and rely on the previous form of the exemption to determine the meaning of s. 9(1)(g), unless the language of s. 9(1)(g) was unclear on its face or would produce a capricious outcome.[23] However, the weight of authority seems to permit reference to prior enactments[24] and it would not, I think, be prevented by s. 35 of the Interpretation of Legislation Act 1984. However, I do not resolve this case one way or the other by reference to the previous form of the legislation or the second reading speech referred to in the Tribunal's reasons. I have reached a clear conclusion on the proper interpretation of s. 9(1)(g) and that interpretation is not affected by the former s. 9(1)(k) or the other materials mentioned.

As mentioned at [12] above, s. 51(1) prohibits an association from securing pecuniary profit for its members. The section is to be read in conjunction with s. 3(2) which sets out certain exceptions: the association may itself make a profit,[25] which presumably is to be used to further the objects of the association; the members may divide the association's assets among themselves upon dissolution;[26] and the members may themselves derive pecuniary profit through enjoyment of the association's facilities or services.[27] This last exception might be considered to permit expressly the payments to members in the scenario. This supports the view, which I would otherwise hold anyway, that the kind of activity in the scenario is part of the ordinary process of an association providing benefits of various descriptions to its members.

The effect of the constraining words "unless that profit ... is divided among ... the members ..." in s. 3(2)(a) is to set out an example of what does constitute securing pecuniary profits and is therefore prohibited. In other words, it is prohibited to pay what are, in the ordinary meaning of the word, dividends.

Section 9(1)(g) requires that, in order to qualify for the exemption, a body "[prohibit] the payment of any dividends to members". I have concluded that either dividends means "a share of profits" or it is no broader than the type of benefits that can be distributed to members under the Associations Incorporation Act.

If the former is the case, division of profits among members is prevented as I have described at [36] above. If the latter is the case, I would merely say that the situation in the scenario is either expressly permitted by s. 3(2)(h) of the Associations Incorporation Act or is so much within the ordinary activities of the respondent that it should not prevent it from qualifying for the s. 9(1)(g) exemption.

I conclude that the prohibition in s. 51(1) of the Associations Incorporation Act is at least co-extensive with what is required to qualify for the exemption in s. 9(1)(g).

Finally, I mention the well-known principle in the interpretation of exemption provisions to taxing statutes: if there is ambiguity or doubt about the meaning of the exemption, it ought not be given a narrow application.[28] I am strengthened in the view I have reached in light of that principle, although I do not need to rely on it since I do not consider that ambiguity exists in this case.

I have reached the same conclusion as the Tribunal, although by a somewhat different path. In the result, I grant leave to appeal, dismiss the appeal and affirm the order of the Tribunal. For completeness of the Court file, I direct that the draft notice of appeal, which was Exhibit GP4 to the affidavit of Gary Pertile sworn 21 September 2000, be placed and remain on the file. Subject to any submissions of counsel, I will order that the appellant pay the respondent's costs of the application for leave to appeal and the appeal, including reserved costs. For the sake of regularity, I will direct that the proceeding be transferred to the Commercial and Equity Division.

[1] The initial assessments of land tax were made by the Commissioner of Land Tax, a predecessor of the applicant Commissioner of State Revenue. For convenience, I refer to both Commissioners, and any persons acting under their authority, collectively as "the applicant".

[2] Under s. 8(1) of the Land Tax Act, land tax is assessed in respect of any calendar year as at 31 December of the previous year. It is in relation to this date that the applicability of the exemption is considered.

[3] See Crows Nest Club Ltd v Commissioner of Land Tax (NSW) (1978) 1 NSWLR 523 at 526-7.

[4] Under s. 21(4) of the Associations Incorporation Act, "a rule of an incorporated association is of no effect if it is inconsistent with this Act".

[8] Theosophical Foundation Pty Ltd v Commissioner of Land Tax (1966) 67 SR(NSW) 70; [1966] 1 NSWR 696; Crows Nest Club Ltd v Commissioner of Land Tax (NSW) (1978) 1 NSWLR 523; Pro-Campo Ltd v Commissioner of Land Tax (NSW) (1981) 81 ATC 4270; Gosford RSL Club Co-operative Ltd v Commissioner of Land Tax (NSW) (1982) 82 ATC 4505; Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616; Chinese Youth League of Australia Inc v Chief Commissioner of Land Tax (NSW) (1993) 93 ATC 4526; 26 ATR 102; Needham & Holdway v Commissioner of Land Tax [1998] QCA 347; [1999] 2 QdR 611.

[9] See Department of Human Services v Thwaites [1999] VSC 163; BC 9903177 where Beach J refers to Leighton Contractors Pty Ltd v Kilpatrick Green Pty Ltd [1992] VicRp 83; [1992] 2 VR 505 at 514.

[10] See Henry v Great Northern Railway (1857) 27 LJ Ch 1 at 18.

[13] Fletcher, The Law Relating to Non-Profit Associations in Australia and New Zealand (1986) at 33. See also Re Spanish Prospecting Company Ltd [1911] 1 Ch 92 at 98; adopted (in general terms) in Federal Commissioner of Taxation v Slater Holdings Ltd [1984] HCA 78; (1984) 156 CLR 447 at 460.

[14] Pearce & Geddes, Statutory Interpretation in Australia: Fourth Edition (1996) at [2.12].

[15] See Halsbury's Laws of Australia at [120-5295].

[16] Section 254T. The result of Federal Commissioner of Taxation v Slater Holdings Ltd [1984] HCA 78; (1984) 156 CLR 447 is that profits can include gifts received: there the unchallenged expert evidence was that the gift was a profit of a capital nature. Dividends may be paid in specie, but this does not affect the fact that the distribution must be out of profits.

[17] See Halsbury's Laws of Australia at [120-5295].

[18] In relation to legislative history, see [[-] below.

19] Fletcher, The Law Relating to Non-Profit Associations in Australia and New Zealand (1986) at Chapter 12.

[23] Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 319-23.

[24] Pearce & Geddes, Statutory Interpretation in Australia: Fourth Edition (1996) at [3.16].

[26] Section 3(2)(d). In the respondent's case, Rule 34 prevents such a division upon dissolution.

[28] See Pearce & Geddes, Statutory Interpretation in Australia: Fourth Edition at [9.32] and cases cited therein, and also Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616 at 622.

Application for leave to appeal from VCAT - Victorian Civil and Administrative Tribunal Act, s. 148 - Department of Premier and Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331 - Application allowed, appeal dismissed.

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