The Federal Commissioner of Land Tax submits the following question for advice:

Section 39 of the Land Tax Assessment Act 1910-1912 reads as follows:

1. All land owned by a company shall be deemed (though not to the exclusion of the liability of the company or of any other persons) to be owned by the shareholders of the company as joint owners, in the proportions of their interests in the paid-up capital of the company.
2. The provisions of section thirty-eight of this Act shall apply accordingly (but so that the assessment and liability of the company shall be in lieu of the joint assessment and liability under sub-section two of that section), and the shareholders shall be separately assessed and liable, and entitled to deductions, in accordance with that section.
3. The term 'shareholder', in this and the next following section, includes all persons on whose behalf a share in the company is held by a trustee or by any other person.
4. A company shall in no case be deemed to be an absentee; but any of the shareholders who are absentees shall be separately assessed and liable as absentees.
5. A company shall be deemed to be the agent in the Commonwealth for the purposes of this Act for an absentee shareholder in respect of his interest in the company.

The A.B. Co. (Australia) is a shareholder in several subsidiary companies registered in Australia and owning land in the Commonwealth. The main company, as such, does not own any land but holds the whole of the shares in the subsidiary companies.

The main company is registered in England and is, it is contended by its representative, merely a shareholder in Australia.

Advice is desired as to whether there is power under the section quoted to assess the shareholders in the main company in respect of the interests they hold through the main company in the subsidiary companies.

It appears that the A.B. Company, a company registered in England, holds shares in certain subsidiary companies which are registered in and carry on business in Australia and which own land in the Commonwealth. The question at issue is whether section 39 of the Land Tax Assessment Act gives the Commissioner power to assess the shareholders in the main company in respect of the interests they as such shareholders in the main company hold in the subsidiary companies. In my opinion it does.

In the case of Osborne v. The Commonwealth 12 C.L.R. 321 Griffith C. J. says at p. 337:

In sec. 39 Parliament has clearly proceeded upon the assumption that the members of a joint stock company which owns land are in substance the beneficial owners of that land in proportion to their interests in the paid-up capital of the company. In support of that view the words of Lord Macnaghten in Birch v. Cropper, In re Bridgewater Navigation Co. Ltd 14 App. Cas. 525, at p. 543 were referred to: 'Every person who becomes a member of a company limited by shares of equal amount becomes entitled to a proportionate part in the capital of the company, and, unless it be otherwise provided by the regulations of the company, entitled, as a necessary consequence, to the same proportionate part in all the property of the company, including its uncalled capital.' ... as a proposition of law it cannot be assailed. The contention is that this is an erroneous view, and that members have in the eyes of the law no interest in the land. If the case is considered apart from the positive law relating to the juridical relations inter se of joint stock companies and their members, the assumption is in accordance with the actual facts. It is true that members have no legal estate in the land, but why should not Parliament act on the basis of their substantial beneficial interest in the land? The only ground for saying that Parliament cannot do so is that it is extra vires as interfering with a matter pertaining exclusively to the States ... I do not encourage anyone to act upon the assumption that it is invalid.

In the same case at p. 356 O'Connor J. says:

I was at first disposed to think . . . that in sec. 39 the subject of taxation was shares, not land. But an examination of the section makes it clear that it is the shareholder's interest in the land of the company, not his shares in the company, which is the subject of taxation.

. . . The legislature, disregarding the provisions of company law, imposes the tax according to the real interest of the shareholder taking the number of his shares as the measure of his interest.

Again Isaacs J. says at p. 365:

The incorporation of a company is not a fiction of course; it is a statutory fact, but while it remains a fact for all the purposes for which it was designed, it does not annihilate, but on the contrary is in aid of, the ultimate truth which underlies the matter, namely, the beneficial ownership of those who for the moment compose the company.Incorporation gives a special character and status to the partnership, and surrounds it with certain legal attributes and conditions, but it does not destroy it . . .

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The shareholders then . . . are the real and only masters of the property under the general law of the land, and the Commonwealth legislature may properly lay hold of this essential concept, and . . . make it the foundation or the guarantee of the tax imposed by it upon the property itself.

No legal reason therefore exists which renders either impossible or improbable the primary import of the words of sec. 39.

It is clear from the views taken by the High Court in Osborne's Case that the tax may be fastened upon those who are 'in substance the beneficial owners of the land'. In my opinion the shareholders in the A.B. Company are, in proportion to the shares held by them, 'beneficial owners' and the 'real and only masters' of the land nominally held by the subsidiary companies. I think therefore that they come within the scope of section 39 of the Land Tax Assessment Act.

[Vol. 13, p. 174]

1. This opinion is undated in the Opinion Book,but this date is derived for a reference in Opinion No.808.
2. This opinion is unsigned in the Opinion Book,But it is attributed to Mr Garran.