Union Fidelity Trustee Co (Aust) Ltd v Commissioner of Taxation - [1969] HCA 36 - HCA 1969 case summary — Zoe

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Union Fidelity Trustee Co (Aust) Ltd v Commissioner of Taxation

[1969] HCA 36

High Court of Australia|1969-07-01|Before: Windeyer JJ

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Source facts

Court

High Court of Australia

Decision date

1969-07-01

Before

Windeyer JJ

Source

Original judgment source is linked above.

Judgment (39 paragraphs)

[1]

High Court of Australia Barwick C.J. Kitto, Taylor, Menzies and Windeyer JJ. Union Fidelity Trustee Co (Aust) Ltd v Commissioner of Taxation (Cth) [1969] HCA 36

[2]

ORDER Question raised by the case stated answered - No. Costs of the case reserved for the Justice disposing of the appeal.

[3]

The case stated for the opinion of the Court by my brother Kitto discloses that the trustees of the estate of Nevil Shute Norway, deceased, one of whom is a company incorporated in the State of Victoria and the other a person residing in Australia during the relevant tax year (1960-1961) received in that tax year from sources beyond Australia income to which under the terms of the will of the deceased no person in that year was presently entitled. The trustees disclosed that income in their return of income for that year but claimed that they were not taxable in respect thereof, relying upon the decision of this Court in the Federal Commissioner of Taxation v. Belford [3] . The Commissioner assessed the trustees to tax under Pt III, Div. 6 of the Income Tax and Social Services Contribution Assessment Act 1936-1961 Cth (the Act), and in particular under s. 99. An objection to that assessment was disallowed by the Commissioner. It has now been treated at the request of the trustees as an appeal to this Court under s. 187 of the Act. The question asked in the stated case is whether the trustees are taxable in respect of the receipt of that income in that year of tax.

[21]

I turn now to the Federal Commissioner of Taxation v. Belford [1] . In that case the taxpayer received in the year of tax, from the trustees of a will, a distribution of the income of the estate. The taxpayer was an Australian resident. The source of the taxpayer's income was therefore irrelevant: the source of the trustees' income even more so. The only question was whether the income sought to be taxed was income derived by the taxpayer. Clearly it was. Section 26 (b) expressly made the receipt by the beneficiary of the money from the trustees of the will income. But the taxpayer sought to have the income treated as exempt because the source of the trustee's income was ex Australian and the trustees themselves were not residents of Australia. The taxpayer, in my opinion, clearly had no substantial ground of objection. However, some members of the Court took occasion to discuss the provisions of Div. 6. In my most respectful opinion, none of this discussion was necessary for the decision of the case and what was said as to those provisions was entirely obiter. However, I respectfully agree with the view expressed by the majority of the Court that the residence of the trustee in relation to the provisions of Div. 6 is entirely irrelevant: but I am unable to agree that the residence of the beneficiary is in any wise significant or relevant to the determination of the net income of the trust estate as defined by s. 95 or of the share of that income which has to be included in assessable income under s. 97 of the amount upon which tax has to be paid under either s. 98 or s. 99. I have already expressed my opinion that only Australian sourced income is to be brought to account in determining the total assessable income for the purposes of s. 95. Once that sum is determined in accordance with that section, it is the whole or a share, as the case may be, of that sum which is either to be brought into the assessable income of a beneficiary under s. 97 or on which the trustee must pay tax under s. 98 or s. 99. There is, in my opinion, no warrant for apportioning any part of that sum in the case of a beneficiary who is not a resident of Australia.

[30]

The process of assessment which on this analysis the Act prescribes for such a case as the present is that which Dixon C.J. supported in Federal Commissioner of Taxation v. Belford [1] though I have followed a slightly different line of reasoning from that which his Honour described. The conclusion treats the three sections, 97, 98 and 99, as giving effect to a harmonious policy, those sections together dealing with three cases: where a beneficiary has a present title in possession to a share of the income of a trust estate - not, be it noticed, to a share of the net income of a trust estate - and is not under any legal disability (s. 97); where a beneficiary has such a title but is under a legal disability (s. 98); and where no beneficiary has such a title to any part of that income or there is a part of it to which no beneficiary has such a title (s. 99). (There is a fourth case, of course, namely the case where a person, though having no present title in possession to the income of a trust estate or any part of it, has a beneficial interest in that income, such as a charge upon it; but that case is dealt with by s. 26 (b).) The operation of the three sections is only to provide for the taxation of "the net income of the trust estate", the need to do so being a consequence of the provision in s. 96 that, except as provided, a trustee shall not be liable to pay tax upon that income. Their operation is not to define the tax liability of beneficiaries in respect of distributions of estate income, for income which they receive from a trust estate is taxable in their hands by virtue of the general provisions of s. 25. If from such a distribution a beneficiary, having a present title to income, receives more than the amount of his share of "the net income of the trust estate" as calculated in accordance with the definition in s. 95, there will be an overlap between s. 97 and s. 25, just as there may be between s. 26 (b) and s. 25; but of course the inclusion of an amount in assessable income by force of two provisions is not an inclusion of it twice over. I make these observations simply in order to acknowledge that s. 99 is to be construed as part of the scheme of legislation which Div. 6 of Pt III of the Act embodies, and to show that the construction which I have placed upon that section is consonant with the scheme.

[36]

The next difficulty in applying Div. 6 is to determine whether, in the case where there is an estate with income derived from sources in Australia - so that the division would apply - but also with income derived from sources outside Australia, the division applies to the whole income or only that part of the income derived from sources in Australia, even if it happens that the trustee of the estate is resident in Australia. I think the application of the division does not extend beyond income derived from sources in Australia. In reaching this conclusion I am influenced by my impression, already stated, that the division is essentially concerned with estates having a particular source of income rather than with the residence of the trustee of an estate and, on this point, I have found the course of reasoning of the members of the Court who, in Belford's Case [1] discussed Div. 6, helpful. It is most unlikely that it was intended that the taxation of the income of an estate would be made to depend upon an arbitrary matter such as the changeable residence of the trustee. Furthermore, it would be contrary to the scheme of the Act as a whole to exact income tax from a trustee because a non-resident beneficiary happens to be under a disability when, were the beneficiary capable of taking that to which he was entitled, e.g., income from a non-Australian source, there would be no tax payable either by the trustee or the beneficiary. Moreover, the trustee is not taxed as the person actually deriving the income but "as if" he was a person of unidentified residence deriving the income; such a person, according to the definition in s. 6 (1), would be a non-resident. Such considerations have led me to conclude that the division is concerned only with income derived from sources in Australia and not distributed, whatever the residence of the trustee, and that the taxation of undistributed estate income derived from sources outside Australia is provided for elsewhere upon the distribution of that income.