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COMMONWEALTH FINANCIAL POWERS (TAXATION) - Concurrent powers in s51: - S51(ii) laws wrt ‘taxation; but so as is not to discriminate between states or parts of states’ - S51(iii) laws wrt ‘bounties on the production of export goods, but so that such bounties shall be uniform throughout the Commonwealth.’ - S51(iv) laws wrt ‘borrowing money on the public credit of the Commonwealth’ EXCLUSIVE: power in s90 over customs, excise and bounties ‘on the imposition of uniform duties and customs’. SECTION 53-55 Section 53-55 are a reflection of the financial primacy of the House of Commons in the UK Parliament. Also reflect ‘the compromise of 1891’ in the Australian Constitution conventions Do be familiar with ss 53 and 54; but especially 55! Issue of ‘tacking’. Parliament cannot tack something else on to a law imposing taxation (or conversely tack the impostion of a tax onto a law dealing with somehting else). Laws imposing tax must only impose tax. Note that this only applies to (1) actual laws (so not ‘proposed laws’ as in s53 and 54) and (2) the imposition of taxation (so not some other laws dealing with some other aspect of taxation short of ‘imposition’. SECTION 55 “55. Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect. Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only.” ➔ We are focussing on the first clause of s 55. This is known as the issue of “tacking”. Parliament cannot tack something else onto a law imposing taxation (or conversely tack the imposition of a tax onto a law dealing with something else). Laws imposing taxation must only impose taxation. ➔ Note that (despite the presence of the word ‘Bill’ in the heading to s 55) this only applies to (1) actual laws (so not to proposed laws as in ss 53 & 54) and (2) the imposition of taxation (so not to laws dealing with some other aspect of taxation short of “imposition”). S55 ban on ‘tacking’ requires us to therefore consider (1) what is a ‘tax’ (for the purposes of s55: note not necessarily the same as s51(ii) and (2) what is an ‘imposition’ of a tax? If read literally, s55 renders that part of the legislation which does not impose a tax; i.e. the taxing provision survives but everything else goes. However, following Air Caledonie case, if the laws imposing tax are discretely contained in an amendment to the main Act, it is the amending Act which is rendered unconstitutional as somewhat of a compromise. S55: IMPOSITION - What is ‘imposition’? How exclusively can we interpret this? * will it cover only those laws which impose a liability to pay taxation? NO! s55 does not prohibit a law imposing tax which also makes provision for such things as the persons who are to pay tax and the classes of income iro of which they are to be taxed. BUT HC majority in Re Dymond (1959) said the following things MUST be kept separate from a law imposing taxation: - Provisions for administration and machinery of collection - The appointment and powers and duties of a commissioner of taxation - The making of returns and assessments, the collection and the recovery of a tax, the punishment of offences. * But note in Permanent Trustee of Australia (2004) a high court majority expressed agreement with the minority in Dymond without overruling that case. Position is uncertain but Dymond is still a binding authority. SECTION 55 CONT. - So how does 55 operate? For example see Air Caledonie (1988): - Migration Act 1958 (Cth) (which did not impose any tax) was amended in 1987 by adddition od s34A which imposed a fee for immigration clearance. - Despite being called a ‘fee’, the HC said this amounted to a tax. So what is the effect of imposing a tax? - S55 applies and Court upheld this. The tacking law fails. But which aspect of it fails?Problem

in this case was that the law imposing a tax was framed inas an amendment to another law (not dealing with tax) so does the whole migration act except for the new s34A fail? - High Court took a common sense approach and held only the amendment unconstitutional. This leaves us with the following position re s55: if you have a provision imposing a tax in the single Act, the other provisions are rendered invalid (i.e. only the imposition of the tax survives. If the imposition of a tax is an amending Act to a non-tax statute (i.e. a statute not imposing tax) then the amending act is invalid. SECTION 55: WHAT IS A TAX? - Note that s55 distinguishes a tax from 1) fines and other pecuniary penalties 2) fees for licences and other services - There may also be other aspects which require distinction e.g. royalties, a fee for privilege, a fee for the acquisition or use of property. - Statement of Latham CJ in Matthews v Chicory Marketing Board (1938): ‘[1] the compulsory exaction of money [2] by a public authority [3] for public purposes, [4] enforceable by law and …[5] not a payment for services rendered.’ [1]-[4]= the positive attributes of a tax [5] = the negative attributes As later cases make clear this is not an exhaustive definition of a tax nor does the statement need to be qualified – see especially the High Courts discussion in Air Caledonie – but it remains a useful starting point. AIR CALEDONIE - A ‘fee for immigration clearance’. Was this a tax within the meaning of s55? And if so would the entire Migration Act fair or just the amendment Act (i.e. the law that amended the Migration Act) and the original act will stay intact? - H Ct confirmed earlier classic statement of Latham CJ in Matthews and cautioned as follows: 1) just because an exaction is labelled ‘payment for services rendered’ doesn’t mean it is; it can still be a tax despite its appellation of a fee for service. 4) Latham CJ in Matthews is not an exhaustive definition. “There is no principle why [1] a tax should not take a form other than the exaction of money or [2]why the compulsory exaction of money under the statutory powers could not be properly seen as taxation notwithstanding that it was a non-public authority or for the purposes which could not be described as public.’ [1] not terribly controversial. You can have the exaction of assets other than money and still call it a tax. [2] much more controversial. Just obiter dicta in this case but it did lead to some interesting and controversial content (some would say erroneous) results in Australian Tape Manufacturers. Do note that while the Air Caledonie qualification adds an important caveat to avoid rigidities, the Latham definition is still regarded as the generally accepted position. Note too that the negative attribute in Latham’s definition ‘not a payment for services rendered’ should be seen intended to be but an example of various types of exaction which may not be taxes even though the positives attributes may all be present. E.g. a charge for the acquisition or use of property is not a tax E.g. a fee for privilege (licence) is not a tax E.g. a fine or penalty form criminal conduct or breach of a statutory obligation is not a tax. H Ct approved the following principles stated in previous cases: 1. The tax must not be an arbitrary exaction. In other words, the liability must be imposed by reference to criteria which are sufficiently general in their application and which mark out the objects [≠ purposes of the tax; = the persons taxed] and subject matter of the tax. 2. The tax must not be an arbitrary exaction in a second sense: the tax cannot be lawfully imposed as a result of some administrative decision based upon individual preference unrelated to any test laid down by legislation NOTE arbitrary = made up/random So how was the case resolved? ‘fee for immigration clearance’ on passengers travelling to AUS on overseas flight held to be a tax within the meaning of s55 and the amendment to the Migration Act fell foul of the anti-tracking provision and was thus invalid. Why was it held to be a tax despite being called a fee in the legislation?

It had all the positive attributes of a tax: 1) compulsory, 2) exacted by a public authority, 3)for public purposes, 4) enforceable by law Not a fee for service. Why not? No distinction in Act made between citizens and non-citizens in payment of (so-called) “fee”. Note that citizens enter Australia by right. Citizens cannot decline the (so-called) “service” on offer. By letting them into the country immigration officers are not providing any service (properly so called) to Australian citizens. By charging citizens (as distinct from aliens) money for immigration clearance Govt is taxing them, not charging a fee for a service. What does a fee for service mean? - 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. - Note the obiter comments that a tax need not be by a public authority or for public purposes. No examples given in Air Caledonie but following case may be an example of this XXXX possesses all the positive attributes which have been accepted by the Court as prima facie sufficent to stamp an exaction of maoney within the character of a tax; it was compulsory; it was exacted by public authority (the Cth itself); for public purposes (consilidated revenue); it (or its amount) was enforceable by law. AUSTRALIAN TAPE MANUFACTURERS Issue: People making home recordings. Even if a breach of copyright it would be practically unenforceable. Proposed solution was therefore to amend the Copyright Act to (1) provide that copyright in sound recordings would not be infringed where copying was carried out using blank tapes on private premises for private and domestic use but (2) impose a levy on vendors of blank audio tapes to compensate copyright owners. Money NOT paid to the Cth but to a collecting society (a private company) for distribution to copyright owners. e Was the blank tape levy therefore a tax? Held: 4-3 majority said it was a tax and therefore the Act was in breach of s 55. The proposed Amendment to the Copyright Act was therefore unconstitutional (and invalid). The majority picked up on the obiter statement in Air Caledonie (which was completely without precedent or any examples given in that case) on the exaction being by a “non-public authority” and “purposes which could not properly be described as public”. Majority (Mason CJ, Brennan, Deane and Gaudron JJ) substantially broadened the concept of “public purposes” in Latham’s definition of a tax in Matthews. They said that: * It was not essential that the collecting body be a public authority for the levy to be regarded as a tax * therefore, an impost collected by a private body, where its collection was authorised by statute and was for public purposes, would give that private collecting body the relevant degree of public character - Thus, they considered the “royalty” (so called; strictly speaking given the ratio it was not a royalty properly so called which involves a payment made by reference to a right granted) on the blank tape was for public purposes because it was imposed to serve the public interest. - Majority seem to be saying that the public purpose requirement will be met if the tax is imposed to serve the public interest. - This definition extends the notion of public purpose well beyond the notion of money being raised for government purposes, or government revenue purposes. - Note the strong dissent (Dawson, Toohey, McHugh JJ) who thought the majority’s definition far too wide. Dawson and Toohey JJ (dissent): * Highly critical of dictum in Air Caledonie * Majority unjustified in significantly loosening the concept of a tax as being money raised for govt purposes and which had to be paid to govt - Here the money was NOT paid into consolidated revenue. Rather it was exacted and paid into a privately administered fund for the purposes of compensating copyright owners. - Their Honours held this to be a royalty imposed by the Act as a special kind of debt payable between groups of individuals and not as taxation. McHugh J (dissent) * The term “public purpose” means government purposes and here there was no government purpose as the role of the government was merely supervisory * Also s 81 point: How can you say something is a tax when it is not being paid into Consolidated

Revenue as s 81 requires? The result of the case is, it seems, that a compulsory exaction will prima facie constitute a tax, even though its proceeds are not public funds. HARPER V MINISTER FOR SEA FISHERIES (1989) A licence fee demanded by Tasmania for the right to take abalone in State fishing waters was not a tax. The reason was that abalone was a limited natural resource which was liable to damage, exhaustion or destruction by uncontrolled exploitation by the public; therefore the fee in this case was sui generis as a fee for exploiting this limited natural resource. AIR SERVICE AUSTRALIA V CANADIAN AIRLINES INTERNATIONAL (1999) Civil Aviation Authority established by statute to perform a regulatory function, essentially relating to safety Act empowered CAA to fix charges for various services or facilities provided. Section 67 of the Act provided that the amount or rate of the charge should be reaonably related to the expenses incurred by the CAA and ‘shall not be such as to amount to a taxation.’ Compass Airlines went into liquidation owing money to CAA relating to airtraffic services, rescue, firefighting services etc. CAA invoked statutory liens over Compass’s aircraft which were leased from Canadian Airlines. Canadian Airlines argued that the charges a) did not reasonably relate to the expenses incurred (or to be incurred) in relation to the matters to which those charges related; and b) were such as to amount to taxation and therefore the charges were not fixed in accordance with s 67 of the Act. e Canadian Airlines argued the charges were in fact taxes because there was no discernible relationship between the amount paid to the CAA and the value of the services received by Compass. e This was because of the method of calculation of the charges. The method of the calculation of the charge was that some airlines paid more for the same services than other airlines; i.e. the amount of payment by individual airlines was not proportionate at all to the amount of services they used. However, expert evidence was received that the method of calculation which was being used was the most efficient: The charges were fixed taking into account what was referred to as a “network” concept, taking into account “Ramsey” economic pricing principles. A majority of 6-0 (1 not deciding) held this was a fee for services. CAI relaxes the requirement that there needs to be a discernable relationship between the amount paid by an individual to a provider of services which are legally or practically compulsory so long as the amount paid reflects a bona fide attempt by the provider to recover costs across the whole spectrum of users If this condition is mey, there need to be an absolute correlation between the actual amount charged and the cost of the service. LUTON V LESSELS - Child Support (Assessment) Act 1989 (Cth) and Child Support (Registration and Collection) Act 1988 (Cth) established a scheme for the registration of liabilities to make child maintenance payments, the assessment and adjustment of those liabilities, and the recovery of registered child maintenance liabilities from persons obliged to pay them. - ISSUE: Was this a tax? If so it would offend against s 55 in that it was part of another statute dealing with child support generally (and those parts of the statute NOT dealing with taxation would be invalid). - Important thing to note about this case: you really do need to look at each case on its merits to determine whether or not it’s a tax. - Argument could be made that it is a compulsory exaction of money for public purposes (in the broad sense of Australian Tape Manufacturers), even though the money is ultimately payable to private persons. - But H Ct rejected the argument that it was a tax. WHY? - The scheme created by the two Acts did not provide for the imposition of a tax, Rather, it provided for a mechanism for the enforcement of an existing private obligation. * The substitution of a new obligation owed by the payer to the Cth in place of an equivalent existing obligation owed by the payer to the carer * coupled with the creation of new rights in the carer against the Cth measured by the extent to which the payer performed his or her obligations to it

* took the compulsory exaction beyond the description of taxation. In other words, the effect of the Acts was to transform an existing private obligation on A to pay $X in child support to B into a mechanism whereby A could pay $X in child support to the Cth and B could claim $X in child support payments from the Cth è Not a tax but a way of administering collection and distribution of payment in respect of existing private obligations. Gleeson CJ: “Although the legislation is enacted in furtherance of a clearly defined public policy, it creates a distinctively personal liability”. Note that this case demonstrates that the alternatives to a “tax” are certainly not a closed category. LAWS WRT TAXATION: S51(ii) “The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to: (ii) taxation; but so as not to discriminate between States or parts of States;” - In characterising Cth legislation the early HC applied two doctrines which seriously confined the ambit of the Cth power: - reserved state powers doctrine - single subject characterisation: one had to characterise legislation as being wrt only one head of power In the early case of R v Barger (1908) these two doctrines were used to severely limit the power of the Cth. R v Barger (1908) - Excise Tariff Act (Cth) imposed excise duties (= a tax!) on certain types of agricultural machinery. But an exemption was made, inter alia, where goods were manufactured in employment conditions which the Cth favoured. - Barger challenged validity of the Act. - Under the influence of the reserved powers doctrine and single subject characterisation the Court (Griffith CJ, Barton and O’Connor JJ; Isaacs and Higgins JJ dissenting) found that the substance of the Act was to regulate the conditions of manufacture (which was beyond the power of the Cth) and was not a valid exercise of the power of taxation. - Barger has never been formally overruled but since 1920 (Engineers case) it is now defunct and no longer good law. The current leading judgement on characterisation re tax power, Fairfax (1965) makes this plain. - Barger is now considered wrong for two reasons: 1) Where the power is non-purposive you cannot characterise the Act as to whether it is “wrt” taxation on the basis of its purposes (except perhaps if you are trying to put reliance on the IIP) 2) We now operate in an environment of dual (or multiple) characterisation. Judgment of Kitto J in Fairfax (1965) sets out the current approach. [You came across this case at the very start of the course when we were looking at characterisation in general] Fairfax v FCT (1965) - Facts: 1961 Amendment to Income Tax and Social Services Contribution Assessment Act 1936 effectively exempted income earned by superannuation funds on the proviso that they invested a certain proportion of the funds in government bonds. e Clearly the aim was to provide incentive for investment in govt bonds. Means of achieving this was through preferential tax treatment. - Fairfax, a trustee of a fund assessed as not complying with the conditions for preferential treatment, challenged the validity of the amendment on the basis that it was in substance not a law wrt taxation of investment moneys but a law on the subject of investment of such moneys. - Entire court held the amendment in substance a valid law wrt taxation. e A tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. Kitto acknowledged the obvious legislative policy (to encourage investment in ...