The Acting Commissioner of Taxation has forwarded the following memorandum for advice:

The estate duty statement furnished in respect of the above estate showed amongst other assets New South Wales, Victorian, South Australian and Western Australian Government securities.

An objection has been lodged against the inclusion in the assessment of such securities, on the grounds that they are not liable to Federal taxation.

I should be glad to be advised whether the State Government securities are dutiable under section 8 (3) of the Estate Duty Assessment Act 1914.

The right of a State or Federal authority to levy an estate duty and the field over which that duty can operate has been dealt with in a number of cases in the American courts.

In Knowlton v. Moore 178 U.S. 41, the Supreme Court of the United States held that the Federal authority has power to levy an estate duty. The Court said at p. 56:

Although different modes of assessing such duties prevail, and although they have different accidental names, such as probate duties, stamp duties, taxes on the transaction, or the act of passing of an estate or a succession, legacy taxes, estate taxes or privilege taxes, nevertheless tax laws of this nature in all countries rest in their essence upon the principle that death is the generating source from which the particular taxing power takes its being, and that it is the power to transmit, or the transmission from the dead to the living, on which such taxes are more immediately rested.

Dealing with the argument that the Federal authority had no power to levy such a duty on the ground that the right to regulate the transmission of or succession to property was a State matter, and consequently it was not within the competence of the Federal authority to levy a tax on an estate passing by death, the Court said [at p. 59):

But the fallacy which underlies the proposition contended for is the assumption that the tax on the transmission or receipt of property occasioned by death is imposed on the exclusive power of the State to regulate the devolution of property upon death. The thing forming the universal subject of taxation upon which inheritance and legacy taxes rest is the transmission or receipt, and not the right existing to regulate.

The Court goes on to show it is well established in law that the fact that a subject-matter is within the exclusive regulation of the State authority does not debar the Federal authority from levying a tax on the same subject-matter, unless expressly limited by the Constitution.

The validity of a Federal estate duty is thus established by Knowlton v. Moore. The next question is whether in fixing the amount of an estate or legacy for the purpose of the Federal duty the portion of the estate or legacy represented by State Government securities can be lawfully included.

This question does not appear to have come up for decision, but the converse question, viz. the right of the State authority to include in an estate or duty the securities of the Federal Government, was decided by the Supreme Court of the United States in the case of Plummer v. Coler 178 U.S. 115. In that case dealing with a State tax, the Court decided that an estate consisting wholly of Federal securities was liable to tax, and in delivering judgment said [at p. 134]:

We think the conclusion, fairly to be drawn from the State and Federal cases, is, that the right to take property by will or descent is derived from and regulated by municipal law; that, in assessing a tax upon such right or privilege, the State may lawfully measure or fix the amount of the tax by referring to the value of the property passing; and that the incidental fact that such property is composed, in whole or in part, of Federal securities, does not invalidate the tax or the law under which it is imposed.

The tax was a tax upon a privilege only, and the Federal securities only came into calculation in establishing a basis for arriving at the taxable value of that privilege. The tax was in no sense a tax on the Federal securities.

I think that the reasoning of the Court in Plummer v. Coler can be applied with equal force to the case submitted for advice.

The Federal authority having power to levy a tax on the right to transmit or receive property, that authority can, in the exercise of that power, assess the amount of tax by taking as a basis the value of the property passing, and if the property passing includes State securities, then the tax is not a tax on these securities, as their value is merely being used, either wholly or in part as a basis in arriving at the value of a right.

In my opinion, the value of the estate which is liable to estate duty under the Estate Duty Assessment Act 1914 includes the value of State Government securities forming part of the estate of the deceased.

[Vol. 15, p. 173]