Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5;

Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; - HCA 1969 case summary — Zoe

[9]

"99. (1) This section applies in relation to a trust estate in

relation to a year of income only if the next succeeding section

does not apply in relation to that trust estate in relation to

that year of income.

(2) Where -

(a) there is no part of the net income of a trust estate

that is included in the assessable income of a

beneficiary in pursuance of section ninety-seven of

this Act or in respect of which the trustee is assessed

and liable to pay tax in pursuance of the last

preceding

section; or

(b) there is a part of the net income of a trust estate that

is not included in the assessable income of a beneficiary

in pursuance of section ninety-seven of this Act and

in respect of which the trustee is not assessed and is

not liable to pay tax in pursuance of the last preceding section,

the trustee shall be assessed and is liable to pay tax on that

net income or on that part of that net income, as the case

may be, as if it were the income of an individual and were not

subject to any deduction.

99A. (1) This section does not apply in relation to a trust

estate in relation to any year of income if the trust resulted

from -

(a) a will, a codicil or an order of a court that varied or

modified the provisions of a will or codicil; or

(b) an intestacy or an order of a court that varied or

modified the application, in relation to the estate of

a deceased person, of the provisions of the law relating

to the distribution of the estates of persons who die

intestate.

(2) This section does not apply in relation to a trust

estate (other than a trust estate referred to in the last preceding

sub-section) in relation to a year of income if the Commissioner

is of the opinion that it would be unreasonable that this section

should apply in relation to that trust estate in relation to

that year of income.

(3) In forming an opinion for the purposes of the last

preceding sub-section -

(a) the Commissioner shall have regard to the

circumstances

in which and the conditions, if any, upon

which, at any time, property (including money) was

acquired by or lent to the trust estate, income was

derived by the trust estate, benefits were conferred

on the trust estate or special rights or privileges

were conferred on or attached to property of the

trust estate, whether or not the rights or privileges

have been exercised;

(b) if a person who has, at any time, directly or

indirectly -

(i) transferred or lent any property (including

money) to, or conferred any benefits on, the

trust estate; or

(ii) conferred or attached any special right or

privilege, or done any act or thing, either alone

or together with another person or persons, that

has resulted in the conferring or attaching of any

special right or privilege, on or to property of

the trust estate, whether or not the right or

privilege has been exercised,

has not, at any time, directly or indirectly -

(iii) transferred or lent any property (including

money) to, or conferred any benefits on, another

trust estate, not being a trust estate referred to

in sub-section (1) of this section; or

(iv) conferred or attached any special right or

privilege, or done any act or thing, either alone

or together with another person or persons, that

has resulted in the conferring or attaching of any

special right or privilege, on or to property of

another trust estate, not being a trust estate

referred to in sub-section (1) of this section,

whether or not the right or privilege has been

exercised,

the Commissioner shall have regard to that fact; and

(c) the Commissioner shall have regard to such other

matters, if any, as he thinks fit.

(4) Subject to the next succeeding sub-section, where -

(a) there is no part of the net income of a trust estate

that is included in the assessable income of a

beneficiary in pursuance of section ninety-seven of

this Act or in respect of which the trustee is assessed

and liable to pay tax in pursuance of section

ninety-eight

of this Act: or

(b) there is a part of the net income of a trust estate that

is not included in the assessable income of a beneficiary

in pursuance of section ninety-seven of this Act and

in respect of which the trustee is not assessed and is

not liable to pay tax in pursuance of section

ninety-eight

of this Act,

the trustee shall be assessed and is liable to pay tax on that

net income or on that part of that net income, as the case

may be, at the rate declared by the Parliament for the purposes

of this section.

(5) Where a body, association or fund referred to in

paragraph (d), (e), (ea), (eb), (f), (g), (h), (i), or (j) of section

twenty-three of this Act, or an organization that is prescribed

for the purposes of paragraph (x) of that section, has a vested

interest, being an indefeasible interest, in the income or in

part of the income of a trust estate, the net income or the

part of the net income of the trust estate upon which the

trustee is liable to be assessed and to pay tax as provided by

the last preceding sub-section does not include so much of

that net income or of that part of that net income as, in the

opinion of the Commissioner, relates to the income or the part

of the income of the trust estate in which that body, association,

fund or organization has such a vested interest." (at p370)

[13]

5. It would also follow from my interpretation of the section that the Commissioner is in substance able to choose whether the trust income will be taxed at one rate rather than another, or perhaps, put more accurately, assessed under one section rather than another. He is able to make the choice in exercise of what, for want of a more precise expression, I shall call a legislative discretion: he can apply one section rather than the other if he thinks it unreasonable to apply the latter of them. I have been unable to find any content for the word "unreasonable" in the context of the two sections except considerations of a kind upon which a legislature acts in deciding whether an enactment or its particular terms are or are not unreasonable having regard to the interests of the public generally, of the citizen to be affected, of the revenue and of the requirements of those policies, political, economic and fiscal which the Parliament is prepared to sanction. Some facts are specified for the Commissioner's attention in arriving at his opinion as to unreasonableness but he is given no hint of what bearing any or all of them ought to have or may have on his judgment. In addition, he is required to have regard to any facts which he thinks appropriate to be considered in relation to the formation of his opinion. This view of the discretion gives to the Commissioner a wide charter which it might have been thought he was ill-equipped to exercise. What he is required to decide, in my opinion, is in truth a function of the legislature, rarely delegated to an official. Its repose in the Commissioner means that the citizen cannot know when disposing of his affairs what the impact upon him or them the law regarding the taxation of income will make: and unless the Commissioner is required to disclose the factual basis of his opinion as to unreasonableness, the taxpayer will not know after he is assessed upon what factual basis he was required to pay the tax imposed. But the wisdom of creating this somewhat unusual situation and the dangers inherent therein are of no concern to the Court, though they might well be to the Parliament, if the features to which I have called attention do not lead to invalidity. (at p373)

[26]

3. Section 99A is expressed not to apply if the trust resulted from a will or codicil, or from an intestacy, or from an order of a court modifying a will or codicil or the application of the law as to the distribution of intestate estates: sub-s. (1); but even if the trust arose inter vivos the section, according to its terms, does not apply if the Commissioner is of the opinion that it would be unreasonable that the section should apply in relation to the trust estate in relation to the year of income: sub-s. (2). In forming his opinion the Commissioner is to have regard to certain specified matters and "such other matters, if any, as he thinks fit": sub-s. (3). The intended operation of these provisions is clear enough. Where income of a trust estate of a kind other than those described in sub-s. (1) is not included by s. 97 in the assessable income of a beneficiary (other than one of the bodies, associations, funds or organizations above referred to), s. 99A imposes upon the trustee a liability to be assessed to tax at the special rate declared by the Parliament for the purposes of the section; but sub-s. (2) purports to make that liability defeasible upon the formation by the Commissioner of an opinion that the application of the section in relation to the estate's relevant income of the particular year is unreasonable. The intention plainly is that in each case in which a trustee is liable to be assessed under s. 99A in relation to a year of income the Commissioner shall apply his mind to the question whether it is unreasonable that in relation to that year the trustee should be so assessed rather than under s. 99. But no duty is cast upon him to form an opinion as to whether it is unreasonable or not. He may be unable to form any opinion one way or the other; and if, after final consideration of the case, he finds himself with no positive opinion that the application of s. 99A is unreasonable, the liability of the trustee under that section is to remain. (at p378)

[30]

7. The only question which seems to me worth even brief consideration is whether sub-s. (2) is invalid as an attempt by the Parliament to transfer a part of its legislative power to the Commissioner. There is no need to cite authority for the general proposition that the operation of a law with respect to taxation may validly be made to depend upon the formation of an administrative opinion or satisfaction upon a question, e.g., as to the existence of a fact or circumstance, or as to the quality (e.g., the reasonableness) of a person's conduct, or even as to the likelihood of a consequence of the operation of the law in an individual case, as in s. 265 where the question is whether the exaction of an amount of tax will entail hardship. But it may conceivably be that the position is different where a provision purports to authorize an administrative officer to exclude from the application of a law any case in which he disapproves of its application. If sub-s. (2) had the effect of setting the Commissioner free, in choosing between s. 99A and s. 99, to do what he thought fit within the limits of the powers of the Parliament, possibly it should be held invalid as an attempt to invest an officer of the executive government with part of the legislative power of the Commonwealth. If so, the question would next arise whether the rest of the section is severable from it; for since in the present case the Commissioner has not acted on the footing of an opinion that the application of s. 99A would be unreasonable we would not be concerned to hold sub-s. (2) invalid unless the consequence would be the invalidity of the whole section. But sub-s. (2) does not make the application of s. 99A depend upon the will of the Commissioner instead of the will of the Parliament. It is true, I think, that notwithstanding the specification in sub-s. (3) of s. 99A of some of the matters to which the Commissioner may have regard, the authority that is given him to have regard to such other matters, if any, as he thinks fit makes it extremely difficult for him or anyone else to know with any degree of certainty what really is the judgment that he is to form in a given case. "Unreasonable" is a word which seems peculiarly out of place in this context, and if I were the Commissioner I am not sure that I should ever be able to form an opinion that I thought would operate under sub-s. (2) to make s. 99A inapplicable. But even if the Commissioner has the same difficulty the only result will be that sub-s. (2) will never have any work to do; and to say that is very different from saying that the sub-section is invalid. It affords no ground for doubting the validity of the rest of the section. (at p380)

[47]

4. The Commissioner is to ask himself whether it would be unreasonable that s. 99A should apply to any particular trust estate. But the idea of reasonableness seems to be here amorphous. It is, of course, true that, as a measure in fact of time, space, quantity and conduct, reasonableness is a concept deeply rooted in the common law: and so, in such cases, is the power of a court to say whether a particular decision of that fact is or is not within the bounds of reason. But, in cases of that kind, the circumstances in which the question arises provide criteria for its solution. Here the Commissioner's discretion is apparently at large. It does not clearly emerge from the Act in respect of what matter - or whose interest, that of the taxpayer or of the revenue - he is to consider whether it would be reasonable or unreasonable to apply s. 99A in the case of any particular trust estate. He is to have regard to certain stated matters; but what weight or influence each is to have is not made clear. Moreover, the Act requires that he "shall have regard to such other matters, if any, as he thinks fit". However I assume that he is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. That would exclude from his consideration any matter which it would be unlawful for him to take as a criterion, such as the State of residence of a trustee or of the beneficiaries of a trust. It would also, I think, exclude all merely fanciful and prejudiced tests which were hypothetically suggested in argument, such as vocation, religion, colour of skin or hair. Nevertheless the statute seems to allow great latitude to the Commissioner in forming his opinion. That he has formulated certain considerations by which he is guided, and made them publicly known, may be important as shewing that in the exercise of his statutory discretion he acts honestly, consistently, and, as he thinks, in accordance with the legislative purpose. That purpose I take it is to enable the Commissioner to keep s. 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. But that the purpose of an enactment is understandable, would not cure its invalidity if it were invalid. (at p384)

[54]

"(2) This section does not apply in relation to a trust

estate (other than a trust estate referred to in the last preceding

sub-section) in relation to a year of income if the Commissioner

is of the opinion that it would be unreasonable that this section

should apply in relation to that trust estate in relation to that

year of income.

(3) In forming an opinion for the purposes of the last

preceding sub-section -

(a) the Commissioner shall have regard to the

circumstances

in which and the conditions, if any, upon

which, at any time, property (including money) was

acquired by or lent to the trust estate, income was

derived by the trust estate, benefits were conferred

on the trust estate or special rights or privileges

were conferred on or attached to property of the

trust estate, whether or not the rights or privileges

have been exercised;

(b) if a person who has, at any time, directly or

indirectly-

(i) transferred or lent any property (including

money) to, or conferred any benefits on, the trust

estate; or

(ii) conferred or attached any special right or

privilege, or done any act or thing, either alone

or together with another person or persons,

that has resulted in the conferring or attaching

of any special right or privilege, on or to property

of the trust estate, whether or not the right or

privilege has been exercised,

has not, at any time, directly or indirectly -

(iii) transferred or lent any property (including

money) to, or conferred any benefits on, another

trust estate, not being a trust estate referred to

in sub-section (1) of this section; or

(iv) conferred or attached any special right or

privilege, or done any act or thing, either alone

or together with another person or persons,

that has resulted in the conferring or attaching

of any special right or privilege, on or to property

of another trust estate, not being a trust estate

referred to in sub-section (1) of this section,

whether or not the right or privilege has been

exercised,

the Commissioner shall have regard to that fact;

and

(c) the Commissioner shall have regard to such other

matters, if any, as he thinks fit.

(4) Subject to the next succeeding sub-section, where -

(a) there is no part of the net income of a trust estate

that is included in the assessable income of a

beneficiary in pursuance of section ninety-seven of this

Act or in respect of which the trustee is assessed and

liable to pay tax in pursuance of section ninety-eight

of this Act; or

(b) there is a part of the net income of a trust estate

that is not included in the assessable income of a

beneficiary in pursuance of section ninety-seven of

this Act and in respect of which the trustee is not

assessed and is not liable to pay tax in pursuance of

section ninety-eight of this Act,

the trustee shall be assssed and is liable to pay tax on that

net income or on that part of that net income, as the case may

be, at the rate declared by the Parliament for the purposes

of this section."

[59]

7. The second ground upon which the validity of s. 99A is called in question is that the effect of the section is, so it was submitted, to impose what has been described as an "incontestable" tax: see Deputy Commissioner of Taxation v. Hankin [1959] HCA 2; (1959) 100 CLR 566, at pp 576, 577 , and it was rightly conceded by counsel for the Commissioner that a law which sought to prevent a taxpayer from having recourse to the courts in order to test the legality or the correctness of an assessment to tax would be beyond the power of the Parliament: see Dawson v. The Commonwealth [1946] HCA 41; (1946) 73 CLR 157, at p 182 ; Deputy Federal Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32 , per Dixon C.J. (1958) 100 CLR, at p 40 and per Williams J. (1958) 100 CLR, at p 52 ; Hughes and Vale Pty. Ltd. v. New South Wales (No. 2), per Dixon C.J., McTiernan and Webb JJ. [1955] HCA 28; (1955) 93 CLR 127, at p 165 . In support of the argument for the taxpayer, however, emphasis was placed upon the facts that under s. 99A (3) (c) the Commissioner, in considering whether he should form the opinion to which the section refers, is to have regard to such matters additional to those stated in s. 99A (3) (a) and (b) as he thinks fit and that he is under no obligation to inform the taxpayer to what "other matters", if any, he has had regard under par. (c). If he does not do so then, so the argument ran, a taxpayer assessed at the rate declared by the Parliament for the purposes of that section might find it impossible on an appeal to the courts against the assessment to show, for example, that the Commissioner had had regard to extraneous and inadmissible matters outside the scope and purposes of the Act and having no relevance to the subject of income tax. In such case, it was said, the right of appeal might be of little or no avail to the taxpayer. The argument seems to me, however, to fail sufficiently to notice the distinction between a provision which purports to prevent a taxpayer from invoking the aid of the courts to determine whether or not his liability to tax has been lawfully and correctly assessed and one which may, in some circumstances, make it difficult or impossible to exercise the right of appeal successfully because the facts necessary to success cannot be established. There is, I think, a line to be drawn between purporting to prevent appeal to the judicial power, on the one hand, and, on the other, making the application to a particular case of one taxing provision rather than another dependent upon the existence of a fact - in the present case the opinion of the Commissioner - which the taxpayer may be unable, for lack of evidence, to show was formed after taking into consideration inadmissible matters. A tax does not become an "incontestable" tax merely because the person assessed may be unable to produce the evidence necessary to support his appeal. A passage in the judgment of Dixon J. in Dawson v. The Commonwealth [1946] HCA 41; (1946) 73 CLR 157 is, I think, in point. In that case the Court was dealing with a war-time regulation made under the National Security Act which forbad the purchase of land without the consent of the Treasurer and empowered him "in his absolute discretion" to grant or refuse to grant his consent. His Honour, after saying (1946) 73 CLR, at pp 181, 182 that:

At a glance

Court

Decision date

Source

Judgment (63 paragraphs)

Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365 (5 March 1969)

Parties

Legislation Cited (4)

Cases Cited (11)