LLB203 Wk 7 L - Lecture notes 7 PDF

Preview

Summary

Taxation and Spending...

Description

Week 7: Taxation, State Grants and Spending Powers TAXATION Commonwealth Constitution s 51 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 SCOPE  The Federal tax power supports legislation imposing income tax, sale tax, company tax and customs excise duties  Taxation can be used to encourage or discourage particular types of activity, and in this way can be said to be an economic device  There is a well-developed body of jurisprudence about the meaning of ‘taxation’ because of the significance of taxation to the government’s operation and implementation of fiscal policy  Colonial anxieties about an over-reaching Commonwealth led to a series of restrictions on the taxation power, contained in ss 51(ii), 53, 99 and 114 WHAT IS ‘TAXATION’? The meaning of taxation has been expounded over years of legislation, but the foremost definition was provided by Latham CJ in Matthews v Chicory Marketing Board at 270. Matthews v Chicory Marketing Board Material Facts: Victorian legislation was introduced authorising an agency to levy producers of chicory. The money raised was used to meet industry needs. Held: The legislation imposed a taxation upon chicory and was an excise duty. At 270, Latham CJ said a tax is: “A compulsory exaction of money by a public authority for public purposes, enforceable by law and is not a payment for services rendered.” Air Caledonie International v Commonwealth Material Facts: An immigration clearance fee was imposed on people entering Australia in an amendment to the Migration Act. The Commonwealth argued it was a fee for service, and not a tax. Held: The amendment imposed a tax.  

As Australian citizens have a right to enter Australia anyway, they received nothing in return for the fee. Therefore, it was a tax not a fee. The court expanded the definition at 467:

“There are three comments which should be made in relation to the … general statement of Latham CJ. 1. …It should not be seen as providing an exhaustive definition of a tax. Thus, there is no reason in principle why a tax should not take a form other than the exaction of money or why the compulsory exaction of money under statutory powers could not be properly seen as taxation notwithstanding that it was by a non-public authority or for purposes which could not properly be described as public. 2. …In Logan Downs Pty. Ltd. v Queensland (1977) 137 CLR 59, at 63, Gibbs J made explicit what was implicit in the reference by Latham C.J. to "a payment for services rendered", namely, that the services be ‘rendered to’ - or (we would add) at the direction or request of – ‘the person required’ to make the payment. 3. …The negative attribute - ‘not a payment for services rendered’ - should be seen as intended to be but an example of various special types of exaction which may not be taxes even though the positive attributes mentioned by Latham CJ are all present.” Other examples include: o A charge for the acquisition or use of property; and o A fee for a privilege; and o A fine or penalty imposed for criminal conduct or breach of statutory obligation. On the other hand, a compulsory and enforceable exaction of money by a public authority for public purposes will not necessarily be precluded from being properly seen as a tax merely because it is described as a "fee for services’. If the person required to pay the exaction is given no choice about whether or not he acquires the services and the amount of the exaction has no discernible relationship with the value of what is acquired, the circumstances may be such that the exaction is, at least to the extent that it exceeds that value, properly to be seen as a tax.”

Taxes have various positive attributes and negative attributes. Positive Attributes  Compulsory exaction  Of money  By a public authority  For public purposes

(THINGS A TAX IS)

Negative Attributes  Fees for services  Fees for licenses  Arbitrary exactions  Penalties

(THINGS A TAX IS NOT)

Positive Attributes [1] Compulsory Exaction   

Where a person has no choice but to pay, this is sufficient to satisfy a ‘compulsory exaction’: Victoria v Commonwealth (the Pay-Roll Tax case) Generally a compulsory exaction will be of money but not necessarily: Air Caledonie v Commonwealth A charge is still compulsory even if the statutory scheme offers an alternative to payment, if payment is a burden the taxpayer would naturally seek to avoid: Attorney-General (NSW) v Homebush

Attorney-General (NSW) v Homebush Material Facts: The Act required flour millers to sell their flour to the government and either be compensated or buy it back for a higher amount. Millers would also be required to store flour until the government sold it. Held: If millers did not buy it back, they would go out of business. This practical compulsion to pay the difference meant it was a tax. o Dixon J emphasised at 413 that the effect of the law must be taken into account, not just the terms o Compulsory nature of the charge need not impact the taxpayer directly – if one person is practically compelled to pay a tax imposed on another person, that will be sufficient to satisfy the compulsion element of this test: MacCormick v Federal Commissioner of Taxation

[2] By a Public Authority 

Public authority includes a statutory board (see Matthews v Chicory Marketing Board) and anyone who is undertaking a public task (Air Caledonie International v Commonwealth; Australian Tape Manufacturers Association v Commonwealth case)

Australian Tape Manufacturers Association v Commonwealth Material Facts: The Act imposed “royalties” on sale of blank audiotapes to compensate record companies for ‘pirating’. The proceeds were payable to a collecting society that dispensed them. Held: The “royalty” was a tax. The nature of the body is not important, rather the fact it was performing a public function, making it a public authority (per Mason CJ, Brennan, Deane and Gaudron JJ) 

At 500-501, the majority went as far as to say there is no requirement that a public authority levy a tax.

[3] For a Public Purpose 

 

See the earlier Australian Tape Manufacturers case, where the Commonwealth argued the charge was not for a public purpose, but for the benefit of a particular group. It was held that the legislative solution to a problem may be characterised as an activity done for a public purpose. Therefore, because a loss to copyright owners is of public importance, exaction is for a public purpose. Taxes are generally imposed to raise revenue (minority considered this very important in the in Australian Tape Manufacturers case)

Airservices Australia v Canadian Airlines International Material Facts: The company went into liquidation and had not paid charges. The Act allowed for lien on aircraft until the charges were paid. Held: This was not a tax, which is generally imposed to raise revenue. However, this is not a blanket determinant, but can be indicative one way or the other of whether some exaction is a tax. 

Not every sum paid in the Consolidated Revenue Fund is a tax

Luton v Lessels Material Facts: Child support legislation was challenged. Held: Although the money was paid into the Consolidated Revenue Fund, the legislation had neither the purpose nor the effect of raising revenue for the Commonwealth. The legislation created an obligation “enforceable by private action, to pay for support of a child”. It was therefore not a taxation.

Negative Attributes [1] Fee for service 

This was first found in Matthews v Chicory, per Latham CJ at 270; also see Harper v Victoria and compare this with Parton v Milk Board (Victoria)

Harper v Victoria Material Facts: Owners of eggs in Victoria were required to pay a fee to a government agency to pay for grading, testing and marking of eggs. Held: It was not a tax, as the fee was to defray the costs of the services rendered.

Parton v Milk Board (Victoria) Material Facts: The relevant Act established the Milk Board, which promoted milk consumption, licensed dairies and paid administrative expenses. The act provided for the imposition, by the Milk Board, of a milk levy by dairymen who delivered milk based on the quantity delivered. Held: The fee payable was closely linked to the quantity of milk sold rather than the services provided to the dairymen. This supported, in the Court’s eyes, a finding that the fee was a tax and not merely a marketing levy because there was no sufficient link between the fee and the service apparently rendered.  



Based on Parton, there is a general understanding that there must be a relationship between the fee and the service provided; otherwise, it is considered to be a tax. In Air Caledonie, the challenged act imposed a tax as there was no “discernible relationship” between the service rendered and the fee imposed; further, the service must be rendered at the direction or request of the person required to pay for it not to be a tax In Airservices Australia, the Court held there must be a “rational basis” or “reasonable relationship” between the fee and the service provided, otherwise it will be held to be a tax.

Northern Suburbs General Cemetery Reserve Trust v Commonwealth Material Facts: The plaintiff challenged the validity of legislation that set up a training scheme where employers were required to expend money on workforce training, failing that, were required to pay the shortfall to the Commonwealth. The money collected was then to be expended by the States or Territories on facilities and services relating to workforce training. Held: The levy was a tax and not a fee for services rendered because the legislation did not connect the charges made with the benefit provided. [2] Fee for License 

Statutory license fees are not regarded to be taxes so long as the fee is “reasonably related” to the value of the privilege provided or the actual cost of providing the privilege

Harper v Minister for Fisheries Material Facts: Tasmanian law prohibited abalone fishing without a license, for which a fee was payable. Held: This levy was akin to a ‘profit e pendre’ or right of access, or a right to acquire property, or part of a system for preserving a limited resource, not a tax. 

BUT a fee aimed at preserving a natural resource may be a tax in the future, if there is no discernible relationship between the fee and the value of what is acquired.

[3] Arbitrary Exaction 

A tax must not be an arbitrary, or subjective, exaction

MacCormick v Federal Commissioner of Taxation Material Facts: This scheme was established to deal with tax avoidance, which relied on a certificate of tax liability issued by the Commissioner of Taxation. Held: The tax was not an arbitrary exaction; there was a clear criteria for liability and assessment was “open to ordinary processes of review and appeal” 

This case also outlined that an incontestable impost would be invalid

[4] Penalties   

Penalties are distinguishable from taxation provisions because penalties operate only where there has been a “failure to discharge antecedent obligations on the part of the person on whom the exaction falls” See: MacCormack; Northern Suburbs Cemetery Also R v Dymond, where the act imposed additional taxes on those who did not furnish tax returns; this was punitive and only indirectly fiscal, so it was not considered to be a tax

BUT provisions for recovery of tax, or amounts in lieu of tax, probably come within the incidental power: Collector of Customs (NSW) v Southern Shipping Co Ltd. INTERATION BETWEEN COMMONWEALTH AND THE STATES  

The Commonwealth’s taxation power (contained in section 51(ii) of the Constitution) does not preclude the State’s power to impose taxes Commonwealth and State have concurrent powers of taxation  BUT the Commonwealth cannot impose State taxes so there is no inconsistency

There are several constitutional prohibitions that apply in the relationship between the Commonwealth and the States:  The Commonwealth and States cannot tax each other’s property (s 114)  There may be an implied immunity from non-property taxes from other government levels under certain conditions  The Commonwealth can give express immunity from State taxes to its own Department or instruments Can the Commonwealth practically prevent states from collecting taxes? If s 51(ii) is read literally, the Commonwealth could be empowered to make laws forbidding States from imposing certain taxes or placing limits on their rates.



 

The High Court has so far been divided on whether the taxation power extends this far: the First Uniform Tax case held a provision prioritising Commonwealth tax over State tax was valid. However, the Second Uniform Tax case declared a similar provision invalid unless the taxpayer were bankrupt. Although the Commonwealth may use a variety of strategies to force the States to abandon taxation fields, it cannot use section 51(ii) directly to prevent State collection of taxes Murphy J opined the Commonwealth may use s 109 to overcome this constraint (see Hermatite Petroleum v Victoria)

RESTRICTIONS ON THE TAXATION POWER Colonial anxiety to ensure equal treatment of the States in the new Commonwealth was resolved in a series of restrictions placed on the federal taxation power. The restrictions are: 1. Prohibition on discrimination and preference (per ss 51(ii) and 99) 2. Money bills shall not originate in the Senate (s 53) 3. Prohibition on ‘tacking’ (s 55) 4. Taxes on Commonwealth or State property is impermissible (s 114)

[1] Discrimination and Preference (considered in detail next week) [2] Money Bills and the Senate Commonwealth Constitution Section 53 Proposed laws appropriating revenue or moneys, or imposing taxation, shall not originate in the Senate. But a proposed law shall not be taken to appropriate revenue or moneys, or to impose taxation, by reason only of its containing provisions for the imposition or appropriation of fines or other pecuniary penalties, or for the demand or payment or appropriation of fees for licences, or fees for services under the proposed law. The Senate may not amend proposed laws imposing taxation, or proposed laws appropriating revenue or moneys for the ordinary annual services of the Government. The Senate may not amend any proposed law so as to increase any proposed charge or burden on the people. The Senate may at any stage return to the House of Representatives any proposed law which the Senate may not amend, requesting, by message, the omission or amendment of any items or provisions therein. And the House of Representatives may, if it thinks fit, make any of such omissions or amendments, with or without modifications. Except as provided in this section, the Senate shall have equal power with the House

of Representatives in respect of all proposed laws. 

This is a significant procedural restriction; laws of the above nature cannot originate in the Senate

[3] ‘Tacking’ Commonwealth Constitution Section 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.  

This is merely about the formalities of drafting; the taxes themselves in previous case law have been held valid, but there were procedural issues that created validity problems The purpose of this prohibition is to prevent the “tacking of extraneous matter to a tax Bill” and the “tacking together of tax Bills of different kinds and unlimited numbers in one measure” per Osborne v Commonwealth at 342

What is a law dealing “only with the imposition of taxation”? o Provisions which actually “impose” taxation o Provisions that “deal with” the imposition of taxation although they do not impose it o Provisions that are laws “with respect to” taxation generally, but not dealing specifically with the imposition of taxation – a broader dealing Permanent Trustee Australia Ltd v Commissioner of State Revenue (Vic) (2004) 220 CLR 388. Material Facts: The appellant entered into an instrument of lease regarding the development of a hotel at Tullamarine Airport. The airport was a Commonwealth place, for the purposes of s 52(i) of the Commonwealth Constitution. The respondent made an assessment to stamp duty in respect of the instrument of lease, purportedly under the Stamps Act 1958 (Vic), as applied to the airport by the Commonwealth Places (Mirror Taxes) Act 1998 (Cth). In this respect, the Treasurer of Victoria had modified the application of the Stamps Act, under s 8(2) of the Commonwealth Places (Mirror Taxes) Act. The appellant brought a proceeding in the Supreme Court of Victoria, objecting to the assessment. The grounds of the objection included that the Commonwealth Places (Mirror Taxes) Act was constitutionally invalid as a result of ss 55. The proceeding was removed into the High Court, where a case was stated for the consideration of the Full Court. Held: the Commonwealth Places (Mirror Taxes) Act was not invalid on the ground

that, contrary to s 55 of the Constitution, it imposed taxation and dealt with a subject matter or subject-matters other than the imposition of taxation. Relevantly, the new test for validity is contained in [38]-[74] of the decision: 

   

“Dealing with” allows “the insertion of any provision which is fairly relevant or incidental to the imposition of a tax on one subject of taxation” and the inclusion “in a taxing Act [of] provisions incidental and auxiliary to the assessment and collection of the tax”. The former formulation is that of Higgins J in Osborne and the latter that of Starke J in Munro. These formulations should be accepted and are consistent with the purpose of s 55, per its history of restraining abuse by the House of Representatives with respect to ‘tacking’ ‘Tacking’ is different to the insertion in a taxing statute of provisions for the assessment, collection and recovery of that tax; a law containing added provisions of this nature is still a “law imposing taxation” This construction does not preclude splitting Bills between taxation and tax assessment The law which imposes taxation may deal with the assessment, collection and recovery of taxation without falling foul of the first limb of s 55

Essentially, a law may still be valid under the taxation power if it “deals with” the imposition of a tax in any way, including the mechanisms by which it is imposed. [4] Commonwealth or State Property Commonwealth Constitution Section 114 A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

GRANTS TO STATES Commonwealth Constitution Section 96 During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.  While the opening words of this provision suggest that it is transitional in nature, the concluding words impart a broader meaning – this broad literal interpretation of this provision has prevailed  Therefore, s 96 has contributed to the financial dominance of the Commonwealth and allows influence over State activities

C...