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Tuesday, 11 September 1928

Dr EARLE' PAGE (Cowper) (Treasurer) . - (By leave.) - I move -

That the bill be now read a second time.

The main purpose of this measure is to remedy certain defects in the Estate Duty Assessment Act, which are responsible for a considerable loss of revenue. As the bill is extremely technical I propose to indicate exactly upon what character of estate duty is levied, and the nature of the defects which are causing the- loss of revenue indicated.

Commonwealth Estate Duty is payable upon the estates of deceased persons in cases where the total net value of the estate, after deduction of all liabilities actual and contingent from the gross value, amounts to £ 1,000 or over. The estate which is subject to duty consists of all real and personal property wherever situated in' the case of a person who was domiciled in Australia, and of all real and personal property in Australia in the case of a person domiciled outside Australia.

The particular property falling to be taxed consists of property which was owned by the deceased at the time of his death, and which passed to other persons under his will, or by virture of the law relating to intestacy, and includes - (a) gifts inter vivos made by the deceased person within one year before his decease ; (b) property which the deceased settled upon other persons within one year before his decease; (c) property in which the deceased had a life interest which was surrendered by him within one year of his decease; and (d) property in which the deceased had a beneficial interest at the time of his decease, which beneficial interest, by virtue of a settlement or agreement made by him, passed or accrued on or after his decease to or devolved on or after his decease upon, any other person.

The terms " gift inter vivos " and " settlement " are the subjects of fairly elaborate definition in the principal act; but the definitions and the clauses describing the property which is dutiable are in terms which do not enable the department to collect duty on the following property: -

1.   Gifts inter vivos made within one year of the death of the deceased person and representing the difference between the true value of a property transferred to a relative of the deceased principally for natural love and affection and the nominal price, if any, fixed as the monetary consideration for the transfer;

2.   Property comprised in a settlement made by the deceased person under which he' had any interest of any kind for his life ; and

3.   Property which had been owned by the deceased person, but which, immediately prior to his death, formed the whole or part of property held by him and other persons as joint tenants.

4.   Property representing the whole of the property owned by a deceased person, which he had disposed of to other persons within one year prior to his death.

The three classes of property first mentioned have escaped duty because the definitions of " gift inter vivos " and " settlement " taken in conjunction with the description of certain properties to be included in the dutiable estate, have not been wide enough to make the duty payable. The last-mentioned class has escaped duty because the act applies only to property in the hands of administrators. Where a deceased person has distributed all his estate prior to his death, there is no necessity for an administrator, and therefore the whole estate escapes the duty. These cases are rare, but they exist, and are, therefore, provided for in the bill.

In regard to the first of the three other classes of property which are at present escaping duty, it may be stated that the present definition of " gift inter vivos? excludes from the dutiable class of such gifts, any conveyances or transfers of property in favour of a bona fide purchaser or encumbrancer for valuable consideration. This exception has made it impossible to include in estates any part of the value of property sold in the technical sense by a deceased person to a relative for quite inadequate amounts and principally on account of natural love and affection. For instance, a man may sell bona fide to his son for £100 a property which is worth £1,000. In such a case there has been a clear gift of value in property of £900 for natural love and affection. If the property had been transferred to the son in consideration of natural love and affection only, and the transfer were made within twelve months of the father's death, the total value of the property would form part of the dutiable estate of the father. It is considered that there is no reason why the £900 in the example mentioned should not form part of the dutiable estate of the father in such a case. The bill provides for its inclusion in future.

In regard to property comprised in a settlement made by the deceased person under which he had any interest of any kind for his life, the present position is that, if the deceased person should surrender the interest within one year prior to his death, the total value of the property forms part of his estate ; but if he should retain the interest until his death no part of the value of the property can be included in his dutiable estate. There are two anomalies here. In the ease of surrendered interests, the total capital value of the property is taxed, whereas the deceased person had only a life interest, the present value of which at the time of surrender would be very much less than the capital value of the property. The bill provides that instead of the total value of the property being taxed, the duty shall be levied in future upon the total value or amount which would have been received by the person who surrendered the interest if he had not surrendered it, calculated from the date of the surrender to the date of his death. The anomaly referred to exists in the case of life interests under settlements not made by the deceased person. The provision of the law was obviously aimed at surrenders, made prior to death, of life interests held by the deceased person under a settlement made by himself. In such cases the total value of the property rightly falls to be taxed where the life interest was surrendered by the settlee within one year of his death, but it is anomalous that no duty can be charged if the life interest was not surrendered. This anomaly is apparent when a comparison is made between such a case and that of a person who did not settle his property upon himself for life, but held it until his death when it passed to other persons in terms of his will. This latter person retains the full control and enjoyment of his property until his death. So also does the person who settles his property in trust for himself, with remainder to other persons upon his death. The only difference between these two cases is that in one, the property is devised by will to other persons who cannot deal with it until the testator's death ; and in the other, the property is appointed by the settlement to other persons, who, also, cannot deal with it until the settlee's death. It should be observed that the person who settled his property in trust for his own benefit for life generally takes care to provide either that he shall be trustee or that some other person who is trustee shall obtain his consent to any proposed change in the nature of the property or its management or control. In the one case duty is chargeable because the property passes according to will; in the other case duty cannot be charged because the property passes according to a settlement. This distinction is inequitable. It cannot be justified, and is being removed by the bill. There has been considerable loss of revenue through the inability in the past to tax property dealt with in the manner described.

In the case of joint tenancies, the act has proved ineffective because, under the law relating to joint tenancies, the property of the joint tenancy passes to the survivor upon the death of a joint tenant. This feature of the law has been extensively availed of by many persons who have created joint tenancies in connexion with various classes of property, including bank deposits, in order that the property which a deceased transferred to a joint tenancy of which he was a member, should not be included as part of his dutiable estate. Property so dealt with might be indefinitely excluded from an assessment for estate duty by the formation of successive joint tenancies in connexion with it. There has been considerable loss of revenue in the past from this weakness in the law.

The bill also contains a provision which will prevent any further loss of revenue through the lack' of proper limitation of the deduction allowable in respect of duty lawfully paid in any country outside Australia in respect of any property of the deceased person which may have been situated outside Australia. At present the full amount of the ex- Australian duty must be deducted from the total amount of Australian duty as assessed. Sometimes the ex-Australian duty is more than the part of the Australian duty which is attributable to the double-taxed property. In such cases the Commonwealth loses part of its legitimate duty on the Australian property. In other cases the ex-Australian duty exceeds the total Australian duty on the whole of the estate, so that the Commonwealth loses the whole of its duty on the Australian property. The bill provides that the deduction to eliminate double taxation shall be the amount of duty paid outside Australia when it is less than, the duty payable in Australia on the ex-Australian property, or the amount of the duty payable in Australia on the property when that duty is less than the ex- Australian duty.

It has been found necessary to re-state the provisions of the law relating to the settlements, bequests or devises of property for religious; scientific, charitable, or public educational purposes, so as to limit the exemption to bequests for such purposes in Australia, and also to express the intention of Parliament in regard to charitable bequests that the limitation shall apply only to such bequests when made to public charitable institutions in Australia. This re-statement of the law in regard to charitable bequests has been necessitated by a decision of the Privy Council over-ruling the judgment of the High Court in the appeal of the trustees of the estate of Peter Stuckey Mitchell, deceased, in respect of a bequest of the residue of the estate of the deceased upon trusts under which prizes were to be awarded to various classes of persons, military, naval and civil, and of both sexes, the merit of the candidate to be ascertained by various physical, moral and literary tests. The High Court held that this bequest is not a charitable bequest within the meaning of the act, because its character is not eleemosynary, and because the word " charitable " was, in the opinion of the court, used in the act in its popular meaning which involves the idea of assisting poverty or destitution. The Privy Council held that the four words " religious," " scientific," " charitable " and " public educational," as used in the section, are not mutually exclusive, and that the word " charitable " as used in the act must be given its technical legal meaning as used in the Elizabethan sense, namely -

Trusts for the relief of poverty.

Trusts for the advancement of educa tion (although this is already covered by the section).

Trusts for the advancement of religion (already covered by the section).

Trusts for other purposes beneficial to the community, not falling under any of the preceding heads.

When the Estate Duty Act was passed it was intended that the four terms referred to should be mutually exclusive. It is proposed to bring this about by means of the proposed amendment. The bill will also make clear the charitable purposes intended to be provided for. For this purpose it uses the language which was inserted by Parliament for the same purpose in the Income Tax Assessment Act 1927, in connexion with deductions for donations to public charitable institutions. Unnecessary loss of revenueon the one hand and lack of power tomake refunds in proper cases have been resulting from the provisions of the principal act in regard to the time limit forincreasing or reducing assessments. Thepresent act provides in section 20, subsection 1, that the Commissioner may,, within one year after the last payment on account of duty on any assessment,, make all such alterations in or additions to the assessment as he thinks necessary in order to ensure its completeness and accuracy. Unless, therefore, the assessment is actually amended within the time limit, no amendment whatever may be issued either to reduce the assessment or increase it, notwithstanding that the necessity for the amendment may have been discovered by the Commissioner within the limit of twelve months. It is proposed in the bill to authorize the amendment of an assessment if the necessity for it becomes known to the Commissioner within the period of twelve months, subject, however, to the Commissioner informing the administrator as soon as possible after the discovery of his intention to amend the assessment, and subject also to the Commissioner making the amendment and notifying it to the administrator within a further period of six months after the expiration of the first period of twelve months.

Mr Scullin - That applies to the whole of the assessment?

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