Gale v Commissioner of Taxation

Gale v Commissioner of Taxation - [1960] HCA 18 - HCA 1960 case summary — Zoe

[5]

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). 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 17s. 6d. A similar question to that which now arises came before this Court in Commissioner of Stamp Duties v. Gale [1] . 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, and not the value of a one-half interest in "Bibaringa".

[10]

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" [1] . 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.

[19]

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 [2] , 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 [1] , to see if there is anything left.

[26]

Now, Teare's Case [2] 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, £12,000 and £12,000 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 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" [4] . 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" [5] , that duty was payable. Vicars's Case [6] , 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 [7] , 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 [8] and Teare's Case [2] 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 [1] . The words of s. 102 (2) (b) of the New South Wales Act which were material in Vicars's Case [2] 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 [3] is concerned, I need do no more than refer to what I said in Higgins's Case [4] .

[35]

We have here to apply a familiar provision contained in s. 8 (4) (a) of the Estate Duty Assessment Act 1914-1947 Cth, by which property which has passed from a deceased person by any gift inter vivos within three years before his death is deemed to be part of his estate for the purposes of the Act. The description of the property to which the provision intends to refer is unambiguous. It is the property of which the deceased divested himself by the transaction of gift, and not, if it is different, the property which became vested in the donee. In Commissioner of Stamp Duties v. Gale [4] , a case under s. 102 (2) (b) of the Stamp Duties Act 1920-1949 N.S.W., the Court had before it some of the facts concerning the transaction which is in question now, and on those facts it affirmed a decision of the Supreme Court of New South Wales which proceeded on the footing that the property of which the deceased divested himself by that transaction was £2,250. That was the sum which he paid to Myrtle Gale as the price of the interest in "Bibaringa" which she then transferred to Peggy Martin. The facts before the Court in the present case include some which did not appear in the previous litigation and the respondent contends for a conclusion on the material now available that before the transaction in question the deceased was entitled to an interest in "Bibaringa" under a contract of purchase and sale subsisting between himself and Myrtle Gale, and that it was that interest, and not the £2,250, which the deceased alienated by his gift to Peggy Martin. The additional facts, however, do not enable a different conclusion to be reached from that which was come to in regard to State death duty. In particular, it still does not appear that the agreement between the deceased and Myrtle Gale for the purchase and sale of the interest in "Bibaringa" was enforceable in equity. There was no writing, and in the circumstances of the case the conduct of the deceased which has been relied upon by the Commissioner as constituting part performance was not by any means solely referable to some such contract as that in question. The reasons which the Chief Justice and Menzies J. gave in the earlier case for the conclusion that the £2,250 was the property alienated from the deceased by the gift are fully applicable to the facts as we know them now.

[40]

In the present case we have to consider whether the doctrine will survive examination in the light of the speeches delivered in the House of Lords in Sneddon v. Lord Advocate [6] . That case arose on provisions of the estate duty legislation in force in the United Kingdom. The duty was imposed on property passing on the death of a deceased, and property passing on the death of a deceased was deemed to include any property taken under a voluntary disposition purporting to operate as an immediate gift inter vivos, whether by way of transfer, delivery, declaration of trust or otherwise, which should not have been bona fide made five years before the death of the deceased. There was in that legislation, as there is by implication in the Estate Duty Assessment Act, and as there is by express provision in the New South Wales Stamp Duties Act, a requirement that the value of property shall be estimated as at the death of the deceased. The expression "property taken" under a voluntary disposition might have been thought not as clear as the expression "property which has passed from the deceased person" by a gift, but their Lordships were unanimous in thinking that it meant the property which the deceased parted with by the gift. They held that that property, and no other, was the property to which the deeming provision applied, and that, as a consequence, it was that property, and no other, which had to be valued as at the death. Their Lordships were not unmindful of the difficulties that would inevitably arise in practice through events and circumstances occurring in the interval between gift and death; but they denied that on that account the deeming provision ought to be read in any qualified fashion. Lord Reid dealt with the point specifically by saying: " the Act appears to me to set two quite distinct problems, the first of which must be solved before one reaches the second. The first is to determine what was the property taken, and, once that problem has been solved, the next is how to value that property" [1] . It may be that in a case where a court of construction would regard property A as identical with property B when deciding a question of ademption (see Halsbury, Laws of England, 2nd ed., vol 34, par. 164, p. 128, and cases there cited) their Lordships would not refuse to see identity for the purposes of the estate duty legislation. But it is clear from their judgments that the words of the deeming provision which describe the property to be caught are to be applied as at the time of the gift, and that it is the property so ascertained which alone is to be valued as at the death. Their Lordships did not adopt the view which once had been put forward in Scotland, that the valuation is to be of that property considered as in a hypothetical state of preservation. They preferred the view which Lord Sands had stated in Lord Strathcona v. Inland Revenue [1] , and the Privy Council had endorsed in Attorney-General for Ontario v. National Trust Co. Ltd. [2] , namely that the property donated is to be treated just as if it had remained the property of the deceased until his death and had then passed as part of his estate. The duty, it was held, is imposed not upon the value of the gift, but upon the value of the property brought into charge, assessed with reference to the actual condition of the property at the death. But the House was unanimous in rejecting the notion that that consideration authorized the valuing of any other property than the actual subject-matter of the disposition.

[46]

I have not accepted the principle of Sneddon's Case [4] without considering what it may involve for cases like Vicars v. Commissioner of Stamp Duties [5] , both under s. 8 (4) (a) of the Estate Duty Assessment Act and under State provisions such as s. 102 (2) (b) of the Stamp Duties Act N.S.W.. It involves, I think, rejecting the view that in the case where a gift has been made by the creation of a trust the test for identifying the property to be treated as dutiable is different from that which applies in other cases. The argument in support of that view commences by pointing to the specific recognition by the statutes of the creation of a trust as a means of making a gift, and it finds in that recognition a sufficient warrant for interpreting the description of the subject-matter of a gift made by the creation of a trust in the light of a conception established in the law of trusts, namely that the trust fund is to be regarded as having an identity separate from that of the investments which compose it for the time being. In Sneddon's Case [4] the Court of Session in Scotland applied this equitable conception to the provisions of the Finance Act 1894, but the House of Lords declined to accept it. The decision was that in the case of a gift by the creation of a trust, no less than in the case of any other gift, the statute was concerned with the property which passed from the deceased, whatever might have been the property that passed to the donees; and as a consequence of that proposition (as I read the majority judgments) their Lordships denied that in such a case the property which was caught by the provision and had to be valued as at the death was something the deceased never had, namely a fund to which the equitable doctrine of continuing identity applied. If Commissioner of Stamp Duties v. Gale [6] is right, as I respectfully think that it is, in holding that par. (b) of s. 102 (2) of the New South Wales Act is to be construed as Sneddon's Case [4] decided that the United Kingdom section was to be construed, the consequence seems to be that no distinction can be drawn for the relevant purposes of that paragraph between a gift by the creation of a trust and any other gift. It may be added that there is no occasion in the present case to decide what this involves in regard to par. (d) of s. 102 (2), which brings into an estate "any property comprised in any gift made by the deceased at any time, of which bona fide possession and enjoyment has not been assumed by the donee immediately upon the gift and thenceforth retained" etc. The words there used to describe the property are identical with those used for the same purpose in par. (b), and the description can hardly have one meaning in par. (b) and a different meaning in par. (d). Yet there may be difficulty in applying Sneddon's Case [1] and at the same time giving effect to the principle of Hall's Case (Commissioner of Stamp Duties (N.S.W.) v. Perpetual Trustee Co. Ltd) [2] . It seems hardly satisfactory to say, with the learned editors of Dymond's Death Duties, 12th ed. (1955), p. 148, that in such a case the principle of Sneddon's Case [1] "breaks down". It may be in point to recall that the judgment of the Privy Council in Hall's Case [3] treats par. (d) as applying to the property which the deceased vested in the trustees, interpreting " bona fide possession and enjoyment" as meaning such beneficial possession and enjoyment of that property as, having regard to the nature of the gift and the circumstances, the objects of the deceased's bounty could have assumed and retained through the medium of the trustees [4] . But this is a question for another day.

[49]

The gift has already been the subject of litigation - Commissioner of Stamp Duties v. Gale [5] - and in the judgments in that case the facts are set out in some detail. All that it is necessary to say here is that what actually occurred was the payment of £2,250 by the deceased to M. C. R. Gale in satisfaction of the purchase price payable under a contract made on 5th December 1947 between Peggy Martin and M. C. R. Gale at the instance of the deceased for the purchase and sale of a one-half interest in "Bibaringa". It was argued for the Commissioner here that the statement of facts agreed upon by the parties for the purposes of the hearing before Walsh J. differ materially from the facts upon which the earlier case was decided, particularly in that there it was common ground that a parol contract between M. C. R. Gale and the deceased for the purchase of her "equity in land and buildings and house-hold furniture for £2,250" made prior to the contract already referred to was unenforceable and the deceased obtained no proprietary interest in "Bibaringa" thereby, whereas the agreed facts, so it is contended, give rise to an inference that the contract, although parol, was enforceable because it had been partly performed. The acts relied upon for part performance do not seem to me to point unequivocally to the existence of such a parol contract and, in any event, specific performance of the contract could not have been obtained unless and until the consent of the delegate of the Treasurer under the National Security (Land Sales Control) Regulations then in force had been obtained. Furthermore, whether the contract between the deceased and M. C. R. Gale was enforceable or not, it is clear that its subject matter was not altogether the same as the contract between M. C. R. Gale and Peggy Martin, and it must, moreover, have been determined before the making of that contract. There was not simply a novation. Upon the whole, I agree with Walsh J. that there is no material difference between the facts upon which this case is to be decided and those upon which the earlier case was decided.

[55]

The case nearest in point is Teare's Case [1] where, although the gift made by the deceased had been money which was used to buy shares, it was the value of the shares that was included as part of his estate on the basis that the subject matter of the gift of money was found in the shares into which it had been "transmogrified" (Rich J.) [5] , "transmuted" (Starke J.) [6] or which represented its "actual state of preservation" (Williams J.) [7] . It had been argued for the Commissioner that "the statute requires the assumption that the disposition was not made by the donor, but that the thing which passed from him remained part of his property. Any disposition by the donee is really immaterial" [8] . This argument, which was rejected by the Court, is right in line with what has now been decided by the House of Lords. I think that Teare's Case [1] should be reconsidered in the light of Sneddon's Case [4] and so far as it treated an acknowledged gift of money inter vivos either as a gift of the shares it was used to purchase or as something to be valued at the donor's death by reference to those shares, it ought to be overruled. The view of Rich J., with whom McTiernan J. concurred, that one of the gifts there in question was not a gift of money but was a gift of shares [9] , is a different matter, and as to that I do no more than refer to the statement of Lord Reid in Sneddon's Case [10] and my observations thereon in Commissioner of Stamp Duties v. Gale [11] . In Moss v. Federal Commissioner of Taxation [12] , Williams J. gave effect to the decision in Teare's Case [1] and held that gift moneys applied by the donees in making certain payments were to be included as part of the estate and valued as at the date of the death of the donor. His Honour said: - "In my opinion, a gift of property consisting of money must, like any other kind of property, be capable of being identified in its original or some derivative form at the date of death before it can be included in the notional estate, and must be valued in the form in which it exists at that date" [1] . The decision that the gift of money must be valued in the form in which it existed at the date of the death of the donor must fall with Teare's Case [2] . Vicars v. Commissioner of Stamp Duties (N.S.W.) [3] is another case upon which Walsh J. relied; there the Court decided that where trustees used money provided by the deceased for the purchase of shares that it was the value of shares - constituting as they did the settled fund at the testator's death - that formed part of his estate. In so far as the decision rested upon the view that what had to be valued was the property subject to the settlement at the date of the settlor's death and not the property that was settled, I do not think that what was decided can be reconciled with Sneddon's Case [4] . Vicars's Case [3] is a case like In re Payne's Declaration [5] and in saying that the latter was wrongly decided, Lord Morton of Henryton said: - "I can see no logical distinction, for the present purpose, between any of the following cases: (1) A.B. gives cash or transfers shares to C.D. for his own benefit; (2) A.B. declares that he will henceforth hold a sum of cash or a block of shares in trust for C.D. for life with remainder to other beneficiaries; (3) A.B. gives cash or transfers shares to C.D. and E.F. upon trust for G.H. for life with remainder to other beneficiaries. In each case the property taken is the cash or shares which the donor gives or transfers or whereof he declares trusts" [6] and added: - "It is noteworthy that in Payne's Case [7] Simonds J. (as he then was) appears to have felt some doubt whether the words of the statute entitled him to "isolate gifts by way of settlement from other forms of gift". I think that this doubt was well founded, and I cannot find any words in the statute which justify such isolation" [6] . These words would seem to me to apply with even greater force to an Act which requires the inclusion in the estate of a deceased person of property which passed from him by gift of the sort described.

At a glance

Court

Decision date

Before

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Judgment (57 paragraphs)

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