LWB Murray McCarthy
Week 7
TAXATION POWER
Cth
If the Cth charge is NOT a tax, then it has to be justified under another head of power or it is invalid
If the Cth charge IS a tax, it will be invalid if it has not met the requirements of s.55, s88 s.99 or s.114
State
If the State charge IS a tax, it MAY possibly be a customs or excise duty and therefore invalid under s.90
If the State charge is NOT a tax, there is no danger of it contravening s.90
ELEMENT 1: What is the head of power?
51. The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Cth with respect to:
(ii) taxation; but so as not to discriminate between States or parts of States;
Element 2: What is a “tax”?
· The Northern Suburbs Case applied the definition of taxation outlined in Matthews v. Chicory Marketing Board to s.51(ii) cases. This states:
· “Taxation is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered”.
This definition can be split it up into elements:
Sub-Element: Compulsory exaction
· A critical element of a tax is compulsion – if a person has no choice but to pay the charge this will be sufficient for the charge to be considered: Victoria v The Commonwealth
· In the case of Vacuum Oil, the court looked to the form of the imposition, whereas in Homebush Flour Mills, they looked to the substance of the exaction to see if it amounted to a tax:
Vacuum Oil v. Qld
- The Motor Spirit Vendors Act 1933 (Qld) prohibited any person from selling petrol in Qld w/o a licence and required that every licensee should purchase and pay for locally-produced power alcohol equivalent to 2.1% of the volume of the licensee’s sales of petrol.
HELD:
- The MSV Act did not impose a tax.
- “It is not a liability to the State, or to any public authority, or to any definite body or person authorised by law to demand or receive it. The liability…is not imposed by the enactment…but arises only when the suppliers of petrol proceed to fulfill the requirements of the enactment…”
A-G (NSW) v. Homebush Flour Mills Ltd
- “When the desired contributions are obtained not by direct command but by exposing the intended contributor, if he does not pay, to worse burdens or consequences which he will naturally seek to avoid, the payment becomes an exaction” - Dixon J.
Sub-Element: Public Authority
· This concept covers any public body formed under statute. The minimal requirement is that there must be a definite body authorised by law to receive the exaction: Vacuum Oil Case
· The statutory body need not be a federal body, but can be an accommodating State body that levies on behalf of the Federal Govt.
ð Eg A state Egg Board that collects a poultry levy on behalf of the Federal Government.
· The public body may also be an agency:
Australian Tape Manufacturers Association Ltd v. Cth (Blank Tape Case) (1993)
- An amendment to the Copyright Act 1968 (Cth) purported to impose a levy (‘blank tape royalty’) on vendors of blank tapes
- The purpose of the scheme was to compensate record companies and performers for losses suffered as a result of unauthorised duplication of sound recordings
- The levy was not paid to the Executive, but directed to a collecting society (a separate entity) consisting of relevant copyright owners or their agents.
- The Cth argued that the law did not impose a tax because the government did not receive the monies levied and that the law fell within the scope of the intellectual property power.
Held:
- The Ct held that the royalty charge was a tax and as a consequence the scheme was invalid under s.55.
- Majority also held that an exaction could be a tax even if it is not paid to a public authority or into the CRF.
Sub-Element: Public Purposes
· This can be determined simply by looking to whether the compulsory exaction goes into the Consolidated Revenue Fund (1st Uniform Tax Case).
· But just because a compulsory exaction doesn’t go into the CRF, does not mean that it is not for ‘public purposes’.
Blank Tape Case
- Majority adopted broad idea of public purpose and said that it was synonymous with public interest or public importance. Here it was in the public interest and was designed to provide a solution of public importance.
· This element is not easy to displace b/c of s.81 of the Constitution which directs revenue raised by the Executive into the CRF, and b/c of the Logan Downs law.
Logan Downs v. Commissioner of Taxation
- The Wool Tax Act (Cth) imposed a levy on wool growers, the exaction of which went into the CRF.
- Logan Downs (LD) asked the HC for a declaration that the WTA was invalid, by pointing to the Wool Industry Act (Cth) (WIA) which est’d the Australian Wool Board (AWB).
- The WIA appropriated out of the CRF and paid to the Board for its purpose “the amounts equal to the amounts received by the C’er of Taxation in respect of tax imposed by any WTA”.
- LD argued that the WTA was not a law w.r.t taxation and it was a law w.r.t. a non Cth purpose.
HELD:
- The WIA did “no more than reveal why Parl had imposed the taxation in question”.
- The WTA was accepted “on its face” as a valid taxation law.
Sub-Element: not a fee for services…
· Fees only cease to be taxes if they are “exacted for particular identified services provided…individually to…the particular person required to make the payment”: Air Caledonie
· The law on the distinction b/w a fee for services rendered and a tax has arisen mostly in s.90 cases:
Harper v. Vic
- Victorian marketing of primary products legislation imposed a levy on egg producers to defray the expenses incurred by the Victorian Egg Board in grading, testing, marking and stamping the eggs to ensure a satisfactory grade, quality and standard of eggs.
- The HC characterised the egg levy as a fee for services rendered to the egg producers, and not as a tax. It didn’t matter that it was compulsory, the amount was determined by the cost to the authority of rendering the services.
· The line b/w a charge for services rendered and a tax can be a narrow one:
Parton v. Milk Board (Vic) (1949)
- This was a scheme regarding the milk industry and the distribution of milk.
- The levy was fixed to be imposed on operators in the dairy industry. The levy was not related to any particular services provided (it was for a fund for sales promotions) and even though the Board’s activities could be beneficial, the Board didn’t conduct services for which the levy was payable.
Held:
- The Victorian leg did impose a tax when it required dairy distributors to contribute money to a fund administered by a govt agency.
- “The expenditure is by a govt agency and the objects are governmental. It is not a charge for services.”
Air Caledonie International v. Cth
- s.34A of the Migration Act (Cth) required any passenger travelling to Australia on an overseas flight to pay a ‘prescribed fee for immigration clearance of that passenger by an officer at the airport at which the passenger intends to enter Australia’.
Held:
- HC held that s.34A imposed a tax.
- Ct looked at whether the ‘fee’ was a ‘payment for services rendered’. To fit into that category, it would need to be ‘a fee or charge exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment’.
- The justices noted that Oz citizens had a legal right to re-enter Oz without ‘clearance’ by the executive govt. Requiring the returning citizen to submit to that inconvenience could not ‘properly be seen as the provision of rendering of “services” to…the citizen concerned’.
Northern Suburbs General Cemetery Reserve Trust v. Cth (Training Levy Case) (1993)
- The Training Guarantee Act 1990 (Cth) imposed a levy on employers (i.e. any employer that had not spent 2% of its income on training schemes would have to pay the shortfall to the Cth).
HELD:
- The HC held that the levy was a tax and not a fee for services, even though the proceeds of the levy were to be paid to the States and Territories, which were to apply the payments on providing training programs for those employers who had paid the levy.
- It was said that the legislation did not establish a ‘sufficient relationship b/w the liability to pay the charge and the provision of employment related training by the ultimate expenditure of the money collected’ to allow the levy to be described as a fee for services.
Sub-Element: …not a fine or penalty…
· A penalty is attracted by some irregular course of conduct, such as conduct that constitutes an evasion of an already imposed tax liability or conduct that constitutes a crime.
· A tax is attracted by a regular or acceptable course of conduct, e.g. earning income or selling or importing goods.
Re Dymond
- This case concerns s.55 of the Cth Const.
- This involved an attempt by D to move to be discharged from bankruptcy. The C’er denied this and said that there was additional tax under s.46 of the Sales Tax Assessment Act.
- The section read, “any person who fails…to furnish any return (tax)…shall…be liable to pay additional tax at the rate of (etc.)…or the sum of One pound, whichever is greater”.
HELD:
- The provision was a penalty and not a tax.
- Liability was imposed not as a consequence of sale of goods, but as a consequence of an attempt to evade payment of tax. The exaction is exactly punitive and indirectly fiscal - it is imposed for the protection of revenue.
Training Levy Case
- The charge the employer would have had to pay the Cth was a tax rather than a penalty.
- Neither the Training Guarantee Act nor the other Act mandated or prescribed conduct. Legislation didn’t make it an offence to fail to spend money on training.
- The charge wasn’t pecuniary b/c the liability to pay didn’t arise out of failure to discharge obligations to the employer.
…not in the nature of a profit a prendre…
· i.e. a charge for acquisition or use of property is not a tax:
Harper v. Minister for Sea Fisheries
- HC held that a licence fee demanded by Tasmania for the right to take abalone in State fishing waters was not a tax.
- Because abalone was a limited natural resource which was liable to damage, exhaustion or destruction by uncontrolled exploitation by the public, the fee charged for the privilege of exploiting that limited natural resource was ‘a charge for the acquisition of a right akin to property’.
Element 3: Is the Law ‘with respect to’ Taxation?
Characterisation
· A Cth law will be supported under the taxation power only if it is a law ‘with respect to’ taxation.
· A tax can be used to regulate or control behaviour as well as a revenue-raising exercise.
Current approach:
ð When testing the validity of a purported taxation law the Ct looks to its legal operation and NOT to its practical effect or economic consequences.
Therefore, a Cth law which imposes a liability to pay money (except for penalties, fees for services etc) is valid as a tax, even if:
It is apparent that the law has been passed for some purposes other than the simple raising of revenue
Fairfax v. C’er of Taxation
- Provisions in the Income Tax and Assessment Act (Cth) subjected superannuation funds to income tax unless funds maintained a minimum level of investments in public securities.
- The provisions had been imposed to stop trustees of superannuation funds from failing to invest sufficiently in Cth and other public securities.
HELD:
- The provisions were supported by s.51(ii).
- The purpose behind the legislation was irrelevant to its validity: to determine whether it was a law with respect to taxation, the Ct must examine the legislation’s substance.
- Kitto J.: “…the question is always one of subject matter to be determined…by reference to the nature of the rights, duties, powers and privileges which it changes, regulates or abolishes”.
- The legislative policy was obvious…to provide trustees of superannuation funds with strong inducement to invest sufficiently in Cth…with revenue raising ‘of secondary concern’, the legislation was a law w.r.t taxation.
Training Levy Case
- The imposition of the levy on employers was a secondary object of the scheme established by the Act. But, that was no reason for treating the charge otherwise than as a tax:
- “If a law, on its face, is one w.r.t taxation, the law does not cease to have that character simply b/c Parl seeks to achieve, by its enactment, a purpose not within Cth legislative power”. (Mason CJ, Deane, Toohey, Gaudron JJ - Brennan J agreeing
The Act is part of a scheme of Acts by which the money raised is appropriated for a special (and arguably non-Cth) purpose