Allen & Anor as Trustees for the Allen's Asphalt Staff Superannuation Fund v Commissioner of Taxation [2012] HCATrans 25 (10 February 2012)

Last Updated: 23 May 2012

[2012] HCATrans 025

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B50 of 2011

B e t w e e n -

BRADLEY ALLEN AND ANITA ALLEN IN THEIR CAPACITY AS TRUSTEES FOR THE ALLEN’S ASPHALT STAFF SUPERANNUATION FUND

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 10 FEBRUARY 2012, AT 12.26 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friend, MR I.S. YOUNG, for the applicant. (instructed by Robert Richards & Associates)

MR S.S.W. COUPER, QC: If the Court please, I appear with my learned friend, MS M.M. BRENNAN, for the respondent. (instructed by Australian Government Solicitor)

FRENCH CJ: Yes, Mr Walker.

MR WALKER: Your Honours, at the risk of starting in a ponderous way the meaning of the word “income” in the legislation for the taxing of income can scarcely be overstated in its importance. More particularly, as the recent decision of this Court in Bamford shows ordinary principles of statutory interpretation, calling in particular upon considerations of the collocation of words and the immediate textual context in which that word is used, will be an obvious and proper form of approach to the interpretation of that word found in critical expressions.

What this application seeks to raise, however, is highlighted by the favourable outcome for my clients in the intermediate court. The favourable outcome of course was to reverse, after vindicating the trial judge’s view of the issue, the substantive issue, her Honour’s view of how that informed in its clarity of outcome the question of penalty. We have, in our submission, a forceful and persuasive finding by the Full Court that the arguments that we put unsuccessfully below and would seek to reventilate in this Court with, it has to be said, addition of added citation of well-known authority, we have the benefit that that case argument has been held to be reasonably open.

We call upon that in this special leave application in this way in particular. This is a case of a kind that is bound not to be unique, bound to occur, where the word “income” falls to be construed, surrounded as it is by other words but significantly without a particular appended epithet, and it is impossible to understand a future in which the Tax Acts taxing income will only ever use the word “income” with one of those clarifying epithets such as “assessable”, et cetera, et cetera.

It is for those reasons that there is a perennial usefulness, in our submission, to addressing in this Court from time to time the proper way in which those advising in the face of enacted text, and we would be so bold to say as those considering new text to be enacted, as to what is the position when the word “income” is unaccompanied by one of those clarifying epithets.

There are two propositions which, in our submission, render this a case for special leave and there is the characteristic authority pointed to, that is, that character of the argument which remitted the penalty for us, which makes this an appropriate vehicle. The two propositions are these: that the Tax Act in its current manifestations, 1936 and 1997, continues to have and presumably for a long time will continue to have at its base – to use Chief Justice Dixon’s expression as a basal conception - the word “income”.

Now, that basal conception has been described, again by Chief Justice Dixon – these are from the passages we have been bold enough to set out at page 84 of the application book from WE Fuller – has a number of the critical provisions using the known legal and commercial term “income” – income in the ordinary sense – as speaking, as his Honour put it very colourfully, at bedrock.

Then, very importantly, still as part of the first proposition, Mr Justice Windeyer explained in the very important vindication of Chief Justice Dixon in WE Fuller by this Court in two sets of reasons in Gibb - Mr Justice Windeyer in the passages we have quoted at pages 85 and 86 of the application book expounded and, in our submission, authoritatively demonstrated why there is a complete insecurity of statutory meaning for those advising and those considering its improvement if one inserts the artificial, unquestionably lawful, additions to the notion of income by statutory accretion and interpretation at the beginning of the exercise of interpretation where you are using the word “income”, undefined in its ordinary meaning.

That notion of avoiding the absurdity that we have sought to encapsulate at the end of paragraph 20 of our written submission on page 86, about line 12, is the first proposition and we say a manifestly very important one for this Court to address, albeit, again. It is impermissible to work backwards, we suggest, from what goes into assessable income and use that to control the basal conception of income. It must be so in a statute which says we take income and tax income and the following things which are income will not be taxed and the following things which are not income will be taxed as if they were.

FRENCH CJ: What do you say about paragraph 57 at page 62?

MR WALKER: This is the stultifying notion of the interpretation for which we contend.

FRENCH CJ: Let me put it to you this way. Does this suggest that there is a particular approach to construction being taken by a reference to self-stultification? You may agree or disagree with it. The question is does that raise a point of what you might, in another context, call a transcendental importance?

MR WALKER: Well, whether stultification would ever be a very useful canon of interpretation has to be doubted because it is, if I may say so, a word with its Latin meaning of “stupid” underneath a word which rather has the thumb in the balance as you ask yourself “Well, now, should I adopt an interpretation which will stultify the provision - probably not.” So, no, I cannot say that the reference to “stultification” or “self-stultification”, if that is a difference, in - - -

FRENCH CJ: Putting aside the conclusionary terminology.

MR WALKER: Yes. It does rather dictate the outcome. The notion, however, shorn of the derogatory overtones, of identifying perhaps implicitly a purpose, seeing a frustration in whole or in part of that purpose and therefore adopting an opposite interpretation is, if one says it quickly enough in a neutral circumstance, unexceptionable. If, however, it is, as it was here, a process which started by assuming in the conclusion in contest, then it is of course of transcendental importance that it be an error exposed and extirpated. Your Honours, as to paragraph 57, we have another answer which goes to the merits of that for this rather important piece of statute law.

BELL J: You come up with instances where you say - - -

MR WALKER: A very important one. It is one that is actually given colour by this very case. The character of the receipt by the trustee flowing through to the character of the receipt by the beneficiary is, as Charles’ Case pointed out, paragraph 21 on page 86 of the application book, says a fundamental, we would go so far as to say an elementary aspect of the law in this area. So, of course, there is no stultification of a provision which we argue has to do with whether something is in, so called, special income or not so as to lead to a special component of a special rate of tax.

There is no self-stultification in observing that income in its ordinary sense will permit a discrimination such as the law of trusts and the law between life tenant and remainderman insist upon and the law of ordinary commerce observes between the proceeds of the realisation of a capital asset on the one hand and income, say, by a surplus of revenue over outgoings from annual trading on the other hand. Now that, in our submission, puts paid to the notion that ours is an argument which, as it were, reduces these words to ash of no useful application at all - - -

BELL J: They are only reduced to a – they are not reduced to nothing.

MR WALKER: No, no, quite so. The income serves the critical purpose of discrimination. Purposiveness is a label that lends itself to a most unattractive glibness when it comes to a tax statute because we all fear, or those of us who are taxpayers fear, that is the purpose the raising of as much revenue as possible. One rejects that, of course, when one has provisions like this because the purpose of these provisions self-evidently is to define, and by that I do mean to discriminate by line some cases on one side, other cases on the other side, for the special treatment which is singled out to be given to special forms of receipt or deemed receipt.

Now that, in our submission, means that when one sees that word, not an incidental or rare word in these provisions, that word “income” used – it does become of great importance to know with what I might call a stability, with real ballast in the judicial admonitions about it as to whether it is to be, when unaccompanied by an epithet, understood in those cases subject to compelling context amounting to clear or plain words, income according to the ordinary conception. As I say, the second aspect then - - -

FRENCH CJ: Does that involve you contending for, as the respondent’s submissions seem to suggest, a uniform construction of the unqualified term “income”?

MR WALKER: No, that would be absurd and contrary to one of the most important canons of interpretation, that any word including very evocative words like – important words like “income” are nonetheless to be construed in the particular context. Naturally, that is a straw man with which we would have nothing to do. Rather, we say when one looks at the context – we have expatiated upon it in writing – it in fact tells in our favour.

But for present purposes, I now move to the second of the propositions that makes this an ideal case for special leave. If we have a case where, as the Full Court’s decision on penalty makes clear, there is a deal to be said on both sides – I grudgingly accept that because we would like to say there is not much to be said against us – but if that be the case, then this actually presents, not as a hypothetical but as an actual, whether in the jurisprudence of this Court there is any current vitality to the notion that as a tax statute where issues of doubt arise, they must as a rule – and we do not shrink from using the word “rule”, with and without inverted commas – as a rule is to be decided as the putative tax presumably contended for by the Commonwealth is not imposed because there is a failure of that requirement which statutory interpretation calls for of sufficiently plain or clear words to impose it.

Now, the area of tax is naturally an area of the most important concern between Crown and subject, or citizens and citizens – citizens representatively in Parliament, citizens severally as taxpayers. In our submission, this is not dusty or technical law. This is an important aspect of statutory interpretation which, as my final point seeks to demonstrate, quite urgently calls for attention from the Court and that is because of those words in the plurality reasons in Alcan.

The Full Court quotes the words that suit, as it were, the position of the present respondent and we supplement or complete that quotation by the passage we have extracted on page 87 of the application book in paragraph 23, about line 25 on the page. That really is why this Court should look at the matter. What is the authority of Anderson and Waugh v Kippen now? If one turns the page, in our written submissions, and sees on page 88 in paragraph 24 and page 89 in paragraph 27, one sees real substance in that question I have just asked.

BELL J: The question turns on the proper construction of the word “income” in the provision that has since been repealed. I appreciate you seek to contend it may have some continuing significance when one has regard to section 295-550. Nonetheless, accepting the importance of context in the construction of particular provisions, including 295-550, one might query the value of the exercise in this instance.

MR WALKER: Your Honour, paragraph 12 of our written submission is not as long as it is because the point you raised lacks weight. Obviously it is an important matter and the comment by the Full Court attracted the attention it did from us in our paragraph 12 on page 83 because it is very important that special leave not be given for moot or interesting academic points. I accept that entirely.

But giving full weight to the perhaps first or most important canon of interpretation that the exercise is using words which are never uniquely appearing in the provision before the Court, they are words of our language, but they are therefore in the context in which they appear, giving full weight to that one sees immediately that the 1997 counterpart wrongly said by the Full Court to render all of this mere history, in fact uses, in those critical words in parentheses, words which are so close, not identical, but they are so close, particularly by reference to the derivation as beneficiary of a trust in the provisions which complement the provisions of – in all the subsections I should say, of section 295-550, that there is very plainly an ongoing utility.

In our submission, it can hardly be said that a decision of this Court, say, if there were an appeal and we were to succeed, could be, as it were, disregarded as throwing no light upon the meaning of those expressions in the 1997 Act. It is for those reasons, in our submission, that a factor which, had it been accurately based on the text of the 1997 Act, a factor which would have weighed powerfully, perhaps fatally against special leave, in

fact can be seen to draw to attention ongoing and continuing importance of the matters we seek to raise.

In conclusion, the question of what I will call methodology, the approach to statutory interpretation, is one which this Court has very plainly raised as being yet to be determined. That is the importance of the passage we have quoted in our paragraph 23 at page 87, about line 29. Those are words which, with respect, do not tell readers what the authoritative status of words which have been quoted so often that the footnote would occupy most of the page were we to give the noting up. That is ordinarily a mark, particularly if I may put it this way given the identity of the judges associated with those dicta – that is usually a mark of evergreen law.

Now, evergreen law may fade, it may be a jurisprudential autumn for it, but in our submission, whatever the outcome of the inquiry, the inquiry is an urgent one to be had and that is why I have drawn to attention that at courts below this Court there appears to be what some scholars might call an engaging variety that those caring about stare decisis would be entitled to say is a confusion engendered by the state of affairs.

Why is this case such a good one to raise that matter of methodology? Because we have, as our success in the Full Court demonstrates, a case which is, as it were, a fully stamped certified case of ambiguity or good things to be said on both sides, and therefore, in our submission, ideal for this Court to attend to that urgent business. May it please the Court.

FRENCH CJ: Thank you, Mr Walker. Yes, Mr Couper.

MR COUPER: Thank you, your Honours. Your Honours, once one accepts that decisions such as Fuller and Gibb and the passages our learned friends refer to do not dictate that the word “income” without a descriptive epithet must mean income in accordance with ordinary concepts, one then does, with respect, what the court below did to approach the question as a matter of construction of the provision having regard to context and mischief. In our submission, the approach which their Honours took was entirely orthodox and, with respect, correct and on any proper analysis does not disclose the existence of any ambiguity to give rise to the second limb, if we might put it that way, of our learned friend’s submissions.

We might seek to summarise the court’s approach in this way. Section 273 defines or identifies special income. What is special income? That is determined really by section 284 which is extracted at page 51 of the appeal book at paragraph 13. Special income minus relevant deductions gives the special component of taxable income which is then taxed in accordance with the Rates Act at the higher rate of 47 per cent.

Once one has that context it is clear, in our submission, that special income is a component of assessable income. One takes that component of assessable income and subtracts from it relevant deductions to get a special component, taxable income. What is then left, section 285 tells us, is the rest, which is described as standard income and is taxed at the standard rate as appears from section 26, paragraph 15.

Once one sees, with respect, the purpose which section 273 serves it is to identify out from the full gamut of types of assessable income that which is special income for the purpose of supplying the identifier for the application of the higher rate.

The court then also turned its mind so that on the face of it the obvious answer is what should income in section 273 be regarded as? Answer: assessable income because one then takes types of assessable income and decides whether they are special or not. The court also approached the matter, with respect correctly, by looking at the mischief which was being addressed. Can we ask your Honours to have regard to page 63 to paragraph 60 of the reasons, where their Honours make reference to the explanatory memorandum and make the point at about line 40:

the mischief at which ss 273(6) and (7) were aimed, namely to prevent income being diverted through a superannuation fund to avoid the tax rates ordinarily applicable.

Their Honours repeated that view of the mischief at page 67 at paragraph 62, as your Honours see in the first sentence. One can then consider the question of construction in this way. If income derived – to use the words of section 273(7):

Income derived by the entity in the capacity of beneficiary of a trust estate –

is confined to income in accordance with ordinary concepts and otherwise excludes statutory income, what is the rationale for a distinction of that type in the context of the purpose of the provision? The answer is that there is none. It makes no sense to treat income derived by the entity in the capacity of a beneficiary as ordinary income as being the subject of a special tax rate. Other statutory income may somehow be immune. It makes, with respect, no sense to approach the matter in that way.

Similarly, one can take a similar approach to the second limb of our learned friend’s alternatives that income in that provision means income in accordance with trust law concepts, harking back to Bamford. Again, one could ask the question how is that confinement of income and that

subsection consistent with the evident purpose of the provision to identify special income and the answer is it is simply not.

My learned friend did not deal, in much detail or at all, with the trust law income point. But can we make this submission also? There is a very great difficulty in treating income in subsections (6) and (7) as if it meant trust law income. This Court in Bamford, with respect, tells us that section 97, in our respectful submission, works in this way. One identifies income of the trust estate, to which a beneficiary is presently entitled, by reference to trust or income concepts and identifies that share to which the beneficiary is presently entitled.

Income, in accordance with trust law concepts, has then done its job. That share as a proportion is then applied to net income, as defined in section 95, to include all assessable income to produce the assessable income in the hands of the beneficiary. What the construction for which our learned friends contend involves is that that regime is swept aside for the purpose of section 273(6) and (7) and instead one is back to deciding special income by reference to that which is otherwise utterly irrelevant for the purpose of taxation, income in accordance with trust law concepts. One again asks the question: why would that be the purpose of the statute? The answer is there is no good reason for it.

So, in our respectful submission, the Full Court of the Federal Court adopting orthodox principle looked at the context and mischief addressed by the provision and came up with the right answer that it makes sense that the income being spoken of is assessable income. That then places in context, in our submission, our learned friend’s submissions that this is a vehicle to determine what is left of Waugh v Kippen and Hepples and so forth.

The starting point proposition must be that there is sufficient ambiguity about the court below’s decision on the construction of this section that there is really a ventilation of issues about what is the consequence of the ambiguity. In our submission, this was a clear-cut, plainly correct decision. Whatever residual argument remains about ambiguity and construction in favour of or against taxpayers or what is or is not anti-avoidance and so forth simply does not arise in our submission. Those are our submissions.

FRENCH CJ: Thank you, Mr Couper. Yes, Mr Walker.

MR WALKER: Your Honours, nothing that my learned friend has said about the supposed clarity with which or plainness with which an evident mischief has been met by these words even begins to explain how it is that section 273 devoted to the delineation definition of special income and

thereby discriminating it from other concepts, how it is that that is to be addressed by seeing what are in truth invisible epithets before the word “income” which appear throughout that section.

That section starts in the familiar way with the concept which is studiously not itself defined so as to be the bedrock, the starting point for provisions just such as this to deal with special income. The notion that a provision which is devoted to giving content to an epithet, namely “special”, also has an invisible epithet contained within the defining provisions is one which, in our submission, threatens great instability in terms of an interpretative approach, bearing in mind what we see on the one hand in Chief Justice Dixon and Mr Justice Windeyer, neither of which have been regarded as in any way wrong or outmoded and regrettably not attended to in the Full Court.

That itself, as we have written, is a reason for special leave. When one adds the ambiguity, the arguable nature that the Full Court itself acted upon in upholding part of our appeal in the appeal to that Court, in our submission, it does provide a most concrete case and thus an appropriate vehicle for an important point.

FRENCH CJ: Thank you, Mr Walker.

This application for special leave involves the construction of section 273(7) of the 1936 Act and, in particular, the term “income derived by the entity in the capacity of beneficiary of a trust estate” which appears in that subsection. A key question raised by the applicants is whether the term “income” there refers to income according to ordinary concepts. The application for special leave raises a question of statutory construction in a particular context. The Full Court adopted the construction which it did by reference to both purpose and context. In so doing, in our opinion, it applied correct principle. The decision is unattended with sufficient doubt to warrant the grant of special leave. Special leave will be refused with costs.

The Court will adjourn now to reconstitute.

AT 12.58 PM THE MATTER WAS CONCLUDED