Grey v Federal Commissioner of Taxation [1939] HCA 14

Grey v Federal Commissioner of Taxation [1939] HCA 14 - HCA 1939 case summary — Zoe

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bracketed words reaches after property devolving upon the exercise of a general power. But it is to my mind clear from the nature of the Act and provisions other than sec. 8 (3) (a) which it contains that it means to include in the tax only property which is affected by an exercise of the general power. Now in the case of a contingent power property is not affected by its exercise until the contingency happens. When a testator devises his own property upon contingent limitations the limitations are, under our present law, effective to create interests which are assignable and descendible. Although contingent interests and not vested estates, they are property which will pass by death, bankruptcy or alienation. I do not say that an equitable assignment may not be made of the expectation of an appointee under a contingent power, but so can an equitable assign- ment of the spes successionis of a next of kin or legatee of a living person. The difference is that one is present property and the other the expectation of future property. When a contingent power is given the' power has no operation until the contingency occurs. The fact that the donee of the power may, according to the construc- tion of the instrument, exercise it in advance of the contingency means no more than that the donor has determined that his proleptic judgment or indication of intention shall suffice when the contingency occurs. If the contingency does not occur the donee of the power continues to be a stranger to the estate. His death is then an irrelevancy, and the property passes under another person's testamen- tary or other disposition. I do not think that we ought to construe the words of the bracketed words of sec. 8 (3) (a) as extending to a case where at the death of the deceased whose estate is under assessment it is completely uncertain whether his present exercise of a future contingent power will ever produce any effect on the passing of the property, or will turn out to be merely an irrelevancy.

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With this principle as a foundation for his claim, the commissioner says that the case falls within the literal words of sec. 8 (3) (a); that is to say, the lands are real property over which the testator had a general power of appointment exercised by his will. It is plain, however, that unless and until the testator's brother who survives him dies without issue, the appointment said to be made by the residuary devise contained in the testator's will can have no operation. In other words, the exercise of the power has no effect in passing any estate or interest in the land unless and until a contingent event occurs. Upon the facts of the case the occurrence of the event seems not unlikely; but the decision of the question must be the same whether the contingency upon which the power depends is so unlikely to occur that it is almost certain that no interest will pass or, at the other extreme, is so imminent as to make it almost certain that an estate will pass under the exercise of the power. It may be conceded that if a testator possesses a power to appoint in any manner he may think proper in the event of a contingency which has not happened at his death, and if a clause is found in his will capable of operating as an exercise of the power, it may be described not incorrectly as a general power of appointment exercised by his will. But the question which we have to determine is whether it is intended by the enactment that property subject to such a contingent power should be brought under liability to estate duty as part of the estate of the deceased person. Does the statute mean to bring about that result by saying that the estate is to include real property over which he had a general power of appointment exercised by his will? It is quite clear why it was thought proper to include in the dutiable estate property over which a testator had exercised a general testamentary power of appointment. It is because the donee of a general power of appoint- ment has a right of disposition which is in many respects the equiva- lent of property. The power enables him to appoint to himself or his executors. It enables him to devise or bequeath the property subject to the power as freely and effectually as if it were his own. That property becomes subject to his debts as if it were his own

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estate. He may release the power instead of exercising it. Further, all these things he may do for valuable consideration. A general power immediately arising, therefore, has many practical results which ordinarily flow from the ownership of property. At the same time, in point of law, property subject to a general testamentary power forms no part of the property or assets of the donee of the power and the instrument exercising the power, though in form a will operates rather as the completion of a conveyance than as a testament (In the Goods of Tomlinson (1) ; O'Grady v. Wilmot (2) ). But in the ordinary case of an absolute power the property devolves or passes upon the death of a testator. In the very special and unusual case of a power contingent upon events taking place, if at all, after the death of the testator who is donee of the power, - the property passes only on the occurrence of the contingent event. Until that event happens the property is unaffected by the testator's dispository act, the appointment made in exercise of the power. The Estate Duty Assessment Act 1914-1928 requires the assessment of the duty as at the testator's death and contains no provision for the re-opening of the assessment at a future date, so that, on the occurrence of the contingency, the property might be included. If the frame of the Act had been such as to take into account future events in virtue of which property either accrued to the estate or fell within some description making it dutiable, it might be right to construe the references in sec. 8 (3) to general powers of appoint- ment as including powers the operation of which to pass any estate or interest depends on some future uncertain event. But, as the Act is framed, I think a more limited meaning and application should be given to the words. They should be limited to powers under which property must pass according to the dispositions contained in the instrument exercising the power in the events specified in that instrument. The words should not be understood as extending to property upon which the will may or may not operate. Considerations justifying and requiring this interpretation, in my opinion, appear upon the face of the statute. In the first place, what is made dutiable by the material part of sec. 8 (3) is not the interest, whether vested or contingent, conferred by the

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Thus, if a testator possessing a general power over an estate in fee simple chose to exercise it by appointing only a life estate or a future contingent interest, the whole fee simple would be included in the dutiable estate, not merely the life estate or the future contingent interest. If the sub-section were construed as including property over which the testator had a contingent general power of appoint- ment, contingent upon events happening after his death, it would, if he exercised the power by his will, impose estate duty on the property subject to the power, notwithstanding that the contingency did not occur and that the property passed, not under the power, but under other dispositions made by the donor of the power, and was unaffected by the testator's will. Indeed, in the case of alterna- tive powers to different donees depending on a contingency according as it did or did not happen, it would follow that if each donee exercised the power in anticipation respectively of the occurrence and of the non-occurrence of the contingency, the property would be included in both of their estates. Thus, if a general power of appointment by will were given to A, if he should leave a child or children him surviving who should attain twenty-one, and, if he should not, a general power of appointment to B, events might occur which, if contingent powers depending on future events are included in sec. 8 (3), would result in the inclusion of the property subject to the power both in the dutiable estate of A and in the dutiable estate of B. For example, A might die leaving children all under twenty-one. Before any of them attain twenty-one B might die. Both the will of A and that of B might contain general residuary dispositions amounting to exercises of their respective powers. According to the construction contended for by the commissioner in the case both of A and of B the conditions would be satisfied upon which the property must be included in his estate. And this would be so whether in the event any of the children did or did not attain twenty-one. The whole value of the property would be liable to duty in both estates, although the property could pass under one only of the two wills.

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death or which, but for an alienation or a form of ownership struck at by sub-see. 4, would have so devolved. This purpose appears to be fundamental to the operation of many provisions. A clear example - is supplied by sec. 8 (6). That sub-section reduces the rate of duty when the beneficiaries are the widow, children, or grandchildren of - the deceased, but it is expressed as reducing the rate in respect of so much of the estate as passes to such beneficiaries by the will, intestacy, gift inter vivos or settlement. Secs. 34 and 35 deal with the burden of the duty. As they stood in the original Act of 1914 their meaning and effect are discussed in In the Will of Harper ; Harper v. Harper (1): Cf. In the Will of Davidson; Perpetual - Executors and Trustees Association of Australia Ltd. vy. Davidson (2). Sec. 34 has been amended in an important manner, and the amendments give strong support to the inference I would draw from - the original section. That inference is that the Act contemplates the imposition of duty upon property an interest in which passes on the testator's death, or would have passed but for an alienation inter vivos. Under sec. 34, as amended, provision is made for the ' case of there being no person administering the estate. A person receiving property forming part of the estate is in that case made { liable to so much of the total duty as is proportionate with the value of the property received. Under sec. 35, which has not been amended, in the absence of a contrary direction in the will, the duty is to be apportioned among all the beneficiaries in proportion with - the value of their interests. If property over which the testator - has and has exercised a general testamentary power of appointment arising on a future contingent event is included in the estate, how is it possible to apply the provisions relating to the reduction of duty in favour of widow, children, and grandchildren, in relation to estates without an administrator, and the provisions relating to the distribution of the burden of the duty among beneficiaries ? Suppose the power is exercised in favour of a widow. Unless and until the contingency happens no property passes to her. In whoseso- ever favour the power may be exercised, until that event there is no person who receives property subject to the power in virtue

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Judgment (87 paragraphs)