The Federal Commissioner of Land Tax forwards the following memorandum for advice:

Mr A.B.C. was formerly the registered holder of 1265 shares in the D. Estate Company Limited, a company duly incorporated in the State of Tasmania.

By Declaration of Trust (copy attached) dated 27 June 1912, he declared that he held the said shares upon trust for his wife and four children equally upon trust to transfer to his wife or to whomsoever she may appoint, 253 shares whenever she may call upon him to do so, and upon trust to transfer one-fifth of the shares to each child as he or she shall attain the age of 21 years.

The Declaration of Trust, par. 4 recites that so long as the said shares shall remain untransferred the trustee is to receive the dividends arising therefrom and to pay the same to or for the benefit of his wife and children in equal shares.

The trustee has power to dispose of the said shares at such times and in such manner and upon such terms and conditions as he in his absolute discretion shall think fit.

Mr C. thus controls this interest notwithstanding the transfer and he is still in possession of the income from them on account of the transferees.

The question is whether under section 42 or section 42A he is still liable to assessment in respect of the interests.

Both sections 42 and 42A refer to 'land' and as there is no definition of land in the Land Tax Assessment Act 1910-1912, it appears necessary to refer to the Acts Interpretation Act for one. The definition of 'land' in that Act does not appear to cover interests in land held through shares in a company, but this is not absolutely clear to me.

A shareholder in a company which owns land clearly has an interest in the land and a transfer of shares apparently involves a transfer of an interest in land, and to that extent may be regarded as a disposition of land.

If a person may relieve himself of liability to assessment on shares by transferring them, and still retaining control of them and continuing to receive the income from them, as in this case, although he does both on behalf of the beneficiaries under the trust, it will be a very simple thing for any person to evade the clear intention of the Act in respect of liability to assessment on land represented by shares. I shall be glad of your advice as to the law on this point.

In my opinion the shares in the D. Estate Company Limited, which are the subject of a Declaration of Trust by Mr A.B.C., constitute an interest in land and as such are assessable under the Land Tax Assessment Act 1910-1912. I am also of opinion that as Mr C. still remains in possession of these shares and is in receipt of the income therefrom he is, notwithstanding the Declaration of Trust made by him, the 'owner' within the meaning of section 3 of that Act.

Isaacs J. said in the case of Osborne v. The Commonwealth 12 C.L.R. 321: 'the expression "land" is elastic, adapting itself to the context by virtue of the Acts Interpretation Act' [at p. 368]. As defined in section 22 of this Act 'land' includes messuages tenements and hereditaments corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein.

In the case of Osborne v. The Commonwealth the subject of shares in a company owning land was exhaustively considered in relation to the Land Tax Assessment Act, and from the judgments delivered we may extract the following principles: Griffith C. J. said 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.' The learned Lord in that case was speaking of the rights of members of a company when all its objects are completed and it is simply a question of distributing its assets, but as a proposition of law it cannot be assailed.

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

I was at first disposed to think that there was something in . . . [the] contention 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.

Technically, no doubt, the holder of shares in a company has no interest in the lands of the company. But, looking at the substance of the matter, every owner of a share is interested in the land of a company proportionately to the number of his shares, just as a partner is interested in the lands of a partnership. 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 . . . ******** ********

The shareholders then-subject to liabilities and to securities for creditors provided by Statute-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.

From these dicta it is clear that the 1265 shares in the D. Estate Company Limited held by Mr C. constitute a taxable interest in land. With regard to the Declaration of Trust dated 27 June 1912 it appears that the shares remain on the register in the name of Mr C. and that he continues to receive the income therefrom. In my opinion the trust has not been executed so as to free Mr C. from liability to pay land tax in respect of this interest in the Company.

[Vol. 13, p. 200]

1. This opinion is unsigned in the Opinion Book, but it is attributed to Mr Garran.