WA Trustee Executor & Agency Co Ltd v Commissioner of State Taxation

In an assessment made under the Death Duty Assessment Act, 1973 W.A. as amended ("the Act"), the Commissioner of State Taxation assessed the duty payable on the residuary estate by determining the value of the assets comprised therein and deducting the actuarial value of the life interest of the widow, and by charging duty on the balance. The appellant contended that no duty should be assessed on the residuary estate and appealed to the Supreme Court of Western Australia against the assessment. Wickham J. allowed the appeal [1] , but an appeal brought from his decision to the Full Court of the Supreme Court was allowed and the assessment was confirmed [2] . A further appeal has been brought to this Court.

1. (1979) 10 A.T.R. 387; 79 A.T.C. 4615. 2. (1980) 10 A.T.R. 883; 80 A.T.C. 4316.

The question at issue depends on the true meaning and effect of ss. 22 and 5 (3) of the Act. Section 22 is now in the following form:

Where property comprised in the estate of a deceased person for the purposes of this Act passes to the widow or widower of the deceased person -

(a) no duty shall be assessable or payable in respect of that property; and

(b) the Commissioner shall deduct an amount of fifty thousand dollars from the final balance of the estate for the purpose of, and before, assessing the duty payable in respect of any property comprised in the estate that passes to any person to whom Table 1 of the Schedule to the Death Duty Act, 1973, applies.

Section 5 (3) is in the following terms: Without limiting the generality of the term "passes", where used in this Act in relation to property that forms part of the estate of a deceased person for the purposes of this Act, that term, unless the contrary intention appears, includes the taking of a limited interest in that property under any will or non-testamentary disposition.

The appellant submits that the effect of s. 5 (3) is that since the widow took a limited interest in all the property (or, in other words, all the assets) comprised in the residuary estate, all that property passed to her within the meaning of s. 22 and that no duty is payable in respect of it. The Commissioner, however, contends that the assets comprised in the residuary estate did not pass to the widow, that no more than a life interest in those assets passed to her, and that s. 22 exempts from duty only the value of that life interest. He submits that s. 5 (3) has the effect that the taking of a limited interest in property is a passing of that limited interest, but does not have the effect that all the assets in which the interest is taken are deemed to pass to the person who takes the limited interest.

It is clear that the real and personal property of which the residuary estate was composed did not pass to the widow within the ordinary meaning of the expression. What passed to the widow, in the natural sense of the words as well as in law, was a life interest. If s. 22 stood alone there could be no doubt that if that section had any application to the case in which a widow took a life interest, it would exempt from duty only the interest which the widow took and not the property in which she took the interest. It might however have been open to question whether the section had any application to such a case, for it might have been doubtful whether property could be said to pass to a widow when the property was given to trustees on trusts that included a life interest in favour of the widow. Section 5 (3) removed any such possible doubt. It makes s. 22 applicable, if it would not otherwise have been applicable, to the case where a widow takes a limited interest in property comprised in the estate. The question however is whether the effect of the sub-section is to render s. 22 applicable to such a case in such a way that the exemption is extended to the whole of the property in which the life interest is taken, and not merely to the interest which is taken.

The form of s. 5 (3) is such that there is no definition of "passes" whose words can be read directly into s. 22. However, the sub-section says that "passes", where used in relation to property, includes (unless the contrary intention appears) the taking of a limited interest in that property. It does not say that where a limited interest in property is taken that interest "passes". Therefore, when s. 22 uses the words "Where property passes to the widow", s. 5 (3) gives to those words a meaning which includes "Where a limited interest in property is taken by the widow". If the meaning referred to in s. 5 (3) is applied to "passes" in s. 22, that section, in so far as it refers to the taking of limited interests, will in effect read as follows:

Where a limited interest in property comprised in the estate of a deceased person is taken by the widow or widower of the deceased person -

(a) no duty shall be assessable or payable in respect of that property.

The sub-section does not alter or extend the meaning of the word "property", and it does not have any effect on the meaning of that word where it appears in par. (a) of s. 22. In particular, it does not warrant "property" in par. (a) being given the meaning of "limited interest". The literal meaning of s. 22, read in the light of s. 5 (3), is therefore, in my opinion, that the entire residuary estate is exempt from duty if the widow takes a limited interest in it.

The learned judges of the Full Court of the Supreme Court reached a different result for three different reasons. Lavan S.P.J. (5) considered that the provisions were ambiguous, and that other sections of the Act indicated that only the interest of the widow was exempt. Wallace J. held that a "contrary intention" [3] appeared, and that s. 5 (3) was accordingly inapplicable. Brinsden J. held that s. 5 (3) did apply, but had the effect that s. 22 then should be read:

Where a limited interest in property comprised in the estate of a deceased person for the purposes of this Act passes to the widow of the deceased person no duty shall be assessable or payable in respect of that limited interest in the property. [4] I shall return to consider the views of Lavan S.P.J., but can immediately say, with all respect, that I cannot agree with the reasons given by the other members of the Full Court. In my opinion, s. 5 (3) was intended to apply to the word "passes" where it appears in s. 22; the former section was intended to make it plain that the latter was applicable where a widow took only a limited interest. No "contrary intention" appears; s. 5 (3) is applicable, but the question is, with what effect? Further, in my opinion, it is not possible to construe s. 5 (3) as having the effect that "property" in par. (a) means "limited interest". Section 5 (3) provides that "passes" includes the taking of a limited interest in the property to which it refers. The expression in s. 22, "Where property comprised in the estate of a deceased person passes to the widow" must accordingly be read as including "where the widow takes a limited interest in property comprised in the estate". The meaning of "that property" in par. (a) however remains unaltered; it refers back to the property in which the widow takes a limited interest. I should add that it was common ground that the residuary estate, in which the widow took a life interest, was "property comprised in the estate" within s. 22. 1. (1980) 10 A.T.R., at p. 885; 80 A.T.C., at p. 4319. 2. (1980) 10 A.T.R., at p. 890; 80 A.T.C., at p. 4322.

I am not sure that the words of ss. 5 (3) and 22, read together, are ambiguous, but if they are it does not seem to me that the other sections of the Act resolve the ambiguity in the manner suggested by Lavan S.P.J. By s. 8 of the Act duty is to be paid "on and in relation to the final balance of the estate of every deceased person". Section 5 defines "final balance" as meaning "the final balance on which duty is to be assessed that is to say, the total value of all property comprised in the estate for the purposes of this Act (calculated by reference to the value of that property before the deduction of any amount that may be deductible from the value of that property under section 22, 23, 24 or 25) less the total amount of all deductions that are allowed under section 11 or 12". By s. 9 (1) the duty is payable by the "administrator" (a term which is defined by s. 5 to include an executor) and by every person ordered to file a statement pursuant to s. 14, which gives the court power to make such an order in certain circumstances. However, s. 9 (2) provides as follows:

Where duty is assessed on and in relation to a final balance determined pursuant to paragraph (b) of subsection (1) of section 14 and there is no administrator of the estate of the deceased person the duty shall be payable by the person or persons to whom the property comprised in that estate for the purposes of this Act passes. On behalf of the Commissioner it was argued that if the submissions of the appellant were accepted it would follow that in certain circumstances a widow who took a limited interest would be liable for duty on the whole residuary estate. That is only partially true, for although s. 5 (3) would have the effect that the entire residuary estate would pass to the widow within s. 9 (2), that residue would also pass to the persons who took interests in remainder, for the effect of s. 5 (3) is to include the special meaning in the word "passes", and not to define that term exclusively. Clearly if the widow were required to pay duty on the entire residue when she took only a limited interest, she would have a right of contribution against the other persons to whom that property passed. But of course this suggested difficulty does not now arise if the appellant is correct, for in that case no duty is payable on the residue.

An administrator is required to pay duty out of all property comprised in the estate that is vested in him (s. 35 (1)), and, subject to any special provision made by the testator, is required to deduct from every devise, bequest or legacy the amount of duty assessed in respect of the property comprised in the devise, bequest or legacy (s. 35 (4)). Section 38 contains provision for the adjustment of duty "so as to throw the burden thereof upon the respective properties in respect of which the duty has been assessed". Section 39 provides, inter alia, as follows:

Subject to any specific direction to the contrary in any will, an administrator shall, in carrying out the adjustment of the incidence of duty payable or paid by him, -

(a) charge upon and pay out of the corpus of any property in which any limited interest is taken under any will or non-testamentary disposition, all duty paid or payable in respect of that limited interest and the remainders or the reversion expectant thereon, and the corpus so diminished shall thereafter, as between the respective persons entitled thereto, be deemed to be the property in which those interests are taken.

This last-mentioned section shows that (subject to any contrary direction in the will) any duty payable on the estate in remainder will reduce the corpus out of which the income of the life tenant will be payable.

The duty to which the Act refers is imposed by the Death Duty Act, 1973 W.A., as amended. The rates of duty are declared in the Schedule, and vary not only according to the size of the final balance of the estate, but also according to the relationship, if any, between the persons to whom the final balance passes and the deceased. Table 1 of the Schedule, in its original form, applied where the final balance passed to the "widow, widower, children, grandchildren, other issue, or dependent parents of the deceased person". By the Death Duty Act Amendment Act, 1977, the words "widow, widower" were deleted from this passage. That corresponded with the amendment made to s. 22 of the Act in 1977 to which I shall shortly refer.

None of the foregoing provisions appear to me to indicate that ss. 5 (3) and 22 should be given any meaning other than that which their words naturally bear. Nor does the history of the sections lead me to any such conclusion. Section 22 as it originally appeared in the Act was in the following terms:

Where property comprised in the estate of a deceased person for the purposes of this Act passes to the widow or widower of the deceased person the Commissioner shall -

(a) deduct an amount of twenty thousand dollars from the value of that property for the purpose of, and before, assessing the duty payable in respect of that property; and

(b) deduct an amount of twenty thousand dollars from the final balance of the estate for the purpose of, and before, assessing the duty payable in respect of any property comprised in the estate that passes to any person to whom Table 1 of the Schedule to the Death Duty Act, 1973, applies.

By the Death Duty Assessment Act Amendment Act, 1976, the section was amended by substituting the word "fifty" for the word "twenty" where it occurs in the two paragraphs of the section. By the Death Duty Assessment Act Amendment Act, 1977, the section was repealed and re-enacted in its present form. A similar question of construction to that which now arises arose under s. 22 in its original form - was the deduction to be made from the residue in which the widow took a limited interest? The history of the amendments does not provide an answer to the question, although it is true, as was said on behalf of the appellant, that there has been a gradual relaxation of duty which eventually led, at a later date, to its entire abolition.

The principles of construction applicable to an Act which imposes a tax or duty are set out in Anderson v. Commissioner of Taxes (Vict.) [5] . The established rule that no tax can be imposed on a subject by an Act of Parliament without words which clearly show an intention to lay the burden upon him does not mean that the court will strive to find loopholes where none are apparent; the words of the Act must be given a fair and reasonable construction, without leaning one way or the other. However, although, if the terms of the Act plainly impose the tax they should be given effect, equally if they do not reveal a clear intention to do so the liability should not be inferred from ambiguous words. If the words in question are words of exception or exemption the same rules of construction should be applied: cf. Burt v. Commissioner of Taxation [6] .

1. (1937) 57 C.L.R. 233, at p. 243. 2. (1912) 15 C.L.R. 469, at pp. 482-487.

As I have said, it is my opinion that the words of ss. 5 (3) and 22, literally construed, exempt the whole residuary estate if the widow takes a life interest in it. If this result were absurd or irrational it would be necessary to attempt to find a different construction, at least if the words were ambiguous. But in my opinion the result cannot be described as absurd or irrational. If duty is imposed on the remainder in the residuary estate, the corpus of the residue will be diminished, as s. 39 (a) shows. That will mean that the income payable thereout to the widow will be diminished. If it was intended to exempt the widow entirely from the burden of duty, it would have been necessary to ensure not only that the limited interest which she took was not taxed, but also that the residue in which she took that interest was not reduced by reason of the deduction of duty from it. That, in my opinion, is the effect the legislature has achieved.

For these reasons I consider that the conclusion reached by Wickham J. was correct. I would allow the appeal.

The quite short point raised by this appeal concerns the interaction of s. 5 (3) of the Death Duty Assessment Act, 1973 W.A. with s. 22 (a) of that Act in the form to which it was amended by the amending Act of 1977.

The text of these statutory provisions appears in other judgments, as does an account of the relevant facts and curial history of the matter.

In my view these two provisions, when read together, provide for an exemption from duty which, when applied to the facts of this case, can be paraphrased as follows:

Where the widow of a deceased person takes under his will a limited interest in property comprised in his estate no duty shall be assessable or payable in respect of that property. In this paraphrase I have omitted from the terms of s. 22 (a) those words which are inapplicable to the present facts and have also substituted for its reference to property which "passes" a reference to the "taking of a limited interest" in property. The latter I have done in response to the terms of s. 5 (3).

So paraphrased, the exemption extends to the whole of the property in respect of which a limited interest is given to the widow: it is not confined to the widow's limited interest. This seems to me to be the effect of the interaction of the two statutory provisions. Section 5 (3) gives to "passes", in the context in which it is employed in s. 22 (a), an extended meaning so as to include "the taking of a limited interest in that property". In doing so it extends the circumstances in which the exemption conferred by s. 22 will apply. Whereas on its own s. 22 is confined to the case where property passes to a widow, it is extended by s. 5 (3) to the case where a widow takes no more than a limited interest in property.

Section 5 (3) is in no way concerned to vary the meaning of the word "property" where used in the Act, but it does have the effect of altering the operation the operation of those provisions of the Act which, like s. 22 (a), take as their criterion the concept of the passing of property. Once the meaning involved in that concept is extended to include the taking of only a limited interest in property, the same revenue consequence as flows from a passing of property to a particular class of person will also flow from the taking by such a person of a limited interest in property. In s. 22 (a) the revenue consequence in question is an exemption and the effect of s. 5 (3) is to extend that consequence to the case where no more than a limited interest is taken by a widow.

This is the only effect that s. 5 (3) has upon s. 22. It leaves unaffected the meaning of "that property" in par. (a) of s. 22. That meaning must, I think, be the same as that which the word "property" bears in the opening words of s. 22. It there occurs in the phrase "property comprised in the estate of a deceased person for the purpose of this Act". This is a reference back to those earlier sections of the Act which describe what is, and is not, to be comprised in a deceased's estate: e.g., real and personal estate and certain deemed notional property but not certain amounts paid under superannuation schemes and the like. If this be the sense in which "property" is used in s. 22, it has no concern with any interests which, by his will, the testator may create in respect of his estate but only with what comprises his estate for duty purposes. To read "property" in any other sense, as, for example, as including "a limited interest in property" does, I think, unnecessarily strain the language of s. 22 when neither its context nor any absurdity of operation calls for any such a departure from ordinary meaning. I may say that I detect in s. 22 neither any ambiguity nor any "contrary intention" such as might exclude it from the application of s. 5 (3).

I do not wish to add anything to what has been expressed by other members of the Court. The appeal should be allowed.

I have had the advantage of reading the reasons for judgment of the other members of the Court. I find myself in agreement with the conclusion reached by Gibbs J. and Stephen J. but I wish to add some additional observations.

The critical question is the effect of s. 5 (3) upon s. 22 (a) of the Death Duty Assessment Act, 1973 W.A., as amended by the Death Duty Assessment Act Amendment Act, 1977, ("the Act") but some reference to the general scheme of the Act and its history is necessary.

Section 8 provides that duty is to be assessed and paid on the "final balance" of the estate, an expression which is defined in s. 5 (1) as follows:

"final balance", in relation to the estate of a deceased person, means the final balance on which duty is to be assessed that is to say, the total value of all property comprised in the estate for the purposes of this Act (calculated by reference to the value of that property before the deduction of any amount that may be deductible from the value of that property under sections 22, 23, 24 or 25) less the total amount of all deductions that are allowed under section 11 or 12.

For the purposes of this Act the estate of a deceased person comprises -

(a) his real and personal property in this State; and

(b) his personal property situate outside this State if he was domiciled in this State at the time of his death.

For the purposes of subsection (1) of this section the following shall be deemed to be property of a deceased person, that is to say - and there are then set out pars. (a) to (p) being items of notional estate. Sub-sections (3) to (11) contain consequential provisions in respect of some of the items of notional estate.

Where property comprised in the estate of a deceased person for the purposes of this Act passes to the widow or widower of the deceased person -

(a) no duty shall be assessable or payable in respect of that property; and

(b) the Commissioner shall deduct an amount of fifty thousand dollars from the final balance of the estate for the purpose of, and before, assessing the duty payable in respect of any property comprised in the estate that passes to any person to whom Table 1 of the Schedule to the Death Duty Act, 1973, applies.

When s. 22 speaks of "property comprised in the estate of a deceased person for the purposes of this Act" it is referring to such of the items of property, actual and notional, as were, or were deemed to be, the property of the deceased under s. 10. It deals with the situation where that property (or some item or items thereof) "passes to the widow or widower of the deceased person". Those words are not apt to apply to partial interests in items of property which under the will or on intestacy are given to the widow. If the section stood alone it would not in my opinion apply where the widow took a life interest in the whole or part of the estate, for in such a case none of the items of property under s. 10 would pass to her. A life interest is not part of the estate, nor is it property comprised in the estate; it is an interest carved out of the estate.

On this view, par. (a) of the section would operate only in the cases where the widow took the whole estate, a proportion thereof or a pecuniary legacy, a devise of land, or a specific legacy, i.e. on property the widow took absolutely, and par. (b) would operate to provide a deduction from the value of such part of the residue as passed to persons indicated therein.

However the section is not to be construed as if it stood alone because it must be read in the light of s. 5 (3) which came into operation in 1973 at the same time as ss. 22-25.

Without limiting the generality of the term "passes", where used in this Act in relation to property that forms part of the estate of a deceased person for the purposes of this Act, that term, unless the contrary intention appears, includes the taking of a limited interest in that property under any will or non-testamentary disposition.

An examination of the Act shows the word "passes" in respect of property is used in ss. 9 (2), 10 (2) (d), 22, 23, 24 and 25. In each section it would, but for s. 5 (3), refer either to the whole or part of the property of the deceased comprising his estate under s. 10 and not to interests in such property arising under the will or on intestacy.

Section 5 (3) gives to the term "passes" an extended meaning in the absence of a contrary intention. Its insertion suggests that the draftsman recognized that ss. 9 (2), 10 (2) (d) and 22-25 would not apply to limited interests in property and sought to avoid that result, for the purpose of extending the number of persons liable to pay the duty under s. 9 (2), for the purpose of bringing in notional estate under s. 10 (2) (d) and for providing the concessions contained in ss. 22-25. I can find nothing in any of the sections referred to which indicates a contrary intention. The reference to that possibility in s. 5 (3) is no more than a familiar exercise of caution.

The view which I have expressed is confirmed by the legislative history of the Act and its predecessors. Until the passing of the Death Duty Assessment Act, 1973, the legislation dealing with that subject was contained in Pt. V of the Administration Act, 1903-1973 ("the old Act"), which, with irrelevant exceptions, was repealed by s. 3 (1) of the Act. The present Act is cast in a very different form from the old Act, although many of its provisions have their counterparts in the new legislation.

Section 101 of the old Act (inserted in 1941) dealt with what the side note called "Reduction of duty in certain special cases" and sub-s. 2 (ii) and (iii) was as follows:

(ii) when the final balance of the estate, or the aggregate value of the property disposed of by the settlement or settlements, or the value of the benefit or interest derived or arising under the non-testamentary disposition exceeds one thousand pounds, then, subject to subparagraph (iii) hereof, duty shall be calculated so as to charge one-half of the rates which but for this paragraph and section one hundred of the Act would ordinarily be payable; and

(iii) when the final balance of the estate, or the aggregate value of the property disposed of by the settlement or settlements, or the value of the benefit or interest derived or arising under the non-testamentary disposition exceeds one thousand pounds, and in so far as any beneficial interest in such estate or property passes from the deceased person to any person occupying towards the deceased person the relationship set forth in the Second Schedule to this Act, who was at the date of the death of the deceased person a bona fide resident of and domiciled in Western Australia, duty in respect of such beneficial interest shall be calculated so as to charge one-quarter of the rates which but for this paragraph and section one hundred of this Act would ordinarily be payable.

It will be seen that those provisions deal with concessions by way of reduction in the rate of duty, as did s. 100 which applies in so far as "beneficial interests pass" to persons specified in the Second Schedule to the old Act.

Section 69D of the old Act (introduced in 1970) provided as follows:

Where the whole or part of the estate of a deceased person who died on or after the first day of July, nineteen hundred and seventy, passes to the spouse of the deceased person, the Commissioner shall, for the purposes of, and before, assessing the duty payable on that whole or that part, deduct an amount of ten thousand dollars from the final balance and that amount from the whole or the part. Section 69E is expressed in the same manner. Those concessions operated by way of reduction of the final balance. The term "estate" was not defined in the old Act but in the general context it must be taken to comprise the property, actual and notional, the value of which, after the deductions prescribed are made, constituted the "final balance".

The contrast in language between s. 101 of the old Act and ss. 22 and 23 of the Act is striking, whereas s. 69D and s. 69E of the old Act are in similar form to ss. 22-25 of the Act. It appears that the draftsman of the Act when setting out to put it into a substantially new form observed the shift in language between the old Act and the amendments made to it in 1970. He adopted from the 1970 amendments the conception of property passing, rather than that of beneficial interests passing, which had been introduced in 1941. He must also have been conscious that the former language was narrower than the latter and, it seems to me, sought to bring in limited interests by inserting s. 5 (3).

Sections 22-25 of the Act brought into operation greater concessions than the old ss. 69D, 69E and 101 (ii) and (iii). Those concessions were again extended by the 1977 Act which substituted new provisions for the former ss. 22, 23 and 24 and amended s. 25.

In that context I do not think that it should be regarded as a matter of surprise that the 1977 amendments produce the result that, where the widow takes a limited interest in some or all of the property comprised in the estate, no death duty is exacted in respect of that property. Where a life interest is given the exemption from duty on the property in which that interest is given preserves the full value of the life interest, a result consistent with the policy as well as the words. Section 22 (b) still has work to do in cases where the property in which the widow takes an interest (limited or entire) is less than the whole of the property comprising the estate.

I do not wish to add anything to the views expressed by other members of the Court. The appeal must be allowed.