Commissioner of Taxation v Clyne

Commissioner of Taxation v Clyne - [1958] HCA 10 - HCA 1958 case summary — Zoe

[8]

The other line of reasoning on which the validity of the imposition of provisional tax was attacked goes to the validity of the whole Income Tax and Social Services Contribution (Individuals) Act 1956 (No. 102) and for that matter the Income Tax and Social Services Contribution (Companies) Act 1956 (No. 28 of 1956). Indeed the argument affects the validity of the whole system since 1945. It is based on the assertion that there is a failure to observe both the condition of the power given by s. 51 (ii.) that there shall be no discrimination between States or parts of States and the command of s. 99 of the Constitution that the Commonwealth shall not by any law or regulation of revenue give preference to one State or any part thereof over another State or any part thereof. The discrimination or preference which the defendant claims to have discovered has nothing to do with the circumstances of his particular case but, of course, he can as a person sued for tax rely upon it if it be true that it brings down the whole edifice of income tax. It lies in s. 79A of the Assessment Act, a section which few persons in the more populous parts of Australia have occasion to read or notice. Section 79A (1) states that for the purpose of granting residents of the prescribed area an income tax concession in recognition of the disadvantages to which they are subject because of the uncongenial conditions and high cost of living in a zone called A and to a lesser extent in a zone called B in comparison with parts of Australia not included in the prescribed area, an amount ascertained in accordance with the section should be an allowable deduction. It is unnecessary at this point to go into the details of the provision. It is enough to say that within the very extensive areas to which it refers, covering parts of five States, one or other of two deductions from his assessable income is allowed to the taxpayer. It is this which is said to produce a forbidden discrimination or preference. Section 79A was inserted in the Assessment Act by Act No. 4 of 1945 which commenced on 15th June 1945 and, though it has since been amended, there can be no doubt, if the argument be right and justify the conclusion, that it is at that time that the total invalidity claimed for the imposition of income tax must have set in.

[17]

No doubt the Income Tax and Social Services Contribution (Individuals) Act 1956 (No. 102 of 1956) is an Act imposing taxation within the meaning of s. 55. It follows that it may deal only with the imposition of taxation and any provision dealing with any other matter is of no effect. Let it be assumed that s. 12 in imposing provisional tax and contribution deals with an incidental liability. Why should it follow that it deals with a matter other than the imposition of taxation? When s. 55 uses the expression "imposition of taxation" it employs a term of somewhat indefinite connotation. In Federal Commissioner of Taxation v. Munro [1] Isaacs J. discusses the meaning of the first paragraph of s. 55 and gives his reasons for adopting what may be called a narrow interpretation of the words "imposing taxation". A much wider meaning appears to have been adopted by other members of the Court. Isaacs J. however distinguished sharply between the provisions of the Assessment Act directed to the collection of the tax and the actual grant or imposition of the tax. His Honour, however, did not have in view any process for requiring provisional payment of the proportion of income as part of a scheme of taxation in which the burden or incidence of the tax, the source from which the burden should be borne, and the ultimate ascertainment of the tax finally payable formed a closely associated congeries of liability. It does not seem probable that his Honour would have regarded this as no part of the imposition of taxation within s. 55. No other judge who has dealt with this subject has adopted quite so strict an interpretation of the words "imposition of taxation" in s. 55 and it does not seem that any of the judges of the past would have doubted that s. 12 of Act No. 102 of 1956 came within the words "imposition of taxation" and did not form another matter. For these reasons I am of the opinion that neither s. 12 of Act No. 102 of 1956 nor Div. 3 of Pt. VI of the Assessment Act 1936-1956 is obnoxious to the first paragraph of s. 55 of the Constitution. Little need be said of the argument based upon s. 51 (xxxi.) of the Constitution. The argument is that "provisional tax" is paid provisionally and returned without interest in the event of no tax accruing due. That is said to be an acquisition of property on terms not just. Once it is held that provisional tax is authorised by s. 51 (ii.) it seems absurd to say that, within the meaning of s. 51 (xxxi.), the sums paid or payable as provisional tax constitute property acquired for a purpose in respect of which Parliament has power to make laws. The purpose of the power itself which is conferred by s. 51 (ii.) is to acquire money for public purposes and that is no less so if the money is raised provisionally and in advance of the actual accrual of the tax as debitum in praesenti solvendum in praesenti.

[19]

It is necessary now to turn to the second of those grounds. Section 11 of Act No. 4 of 1945 introduced into the Assessment Act s. 79A upon which is based the contention that there has been a disregard both of the prohibition against discrimination between States and parts of States and of the prohibition contained in s. 99 of giving preference by a regulation of revenue to one State or any part thereof over another State or any part thereof. The introductory words of sub-s. (1) of s. 79A have been set out early in this judgment. The enacting part of the sub-section provides that in the case of a resident of the prescribed area an amount ascertained in accordance with the section should be an allowable deduction. Sub-section (2) then declares what amounts may be deducted. There have been amendments of s. 79A increasing the fixed amounts of the deduction. See Act No. 11 of 1947, s. 14, and Act No. 101 of 1956, s. 12. It is enough now to give the amounts in the figures as they stand at present. The prescribed area, which is defined in a schedule added to the Assessment Act by s. 19 of Act No. 4 of 1945, is divided into Zones A and B. A resident of Zone A of the prescribed area is to receive a deduction of £180, a resident of Zone B a deduction of £30, if he has not resided or actually been in Zone A during any part of the year of income. There is an elaborate definition of resident in sub-s. (4). A man is a resident who resides in an area for more than half the year of income or has actually been in the area whether continuously or not during more than half of the year of income or who, provided he does not come within the foregoing, has died during the year of income and at the date of his death resided in the area. There is necessarily a third category of deduction covering persons who cannot be considered residents of Zone A within the definition or a resident of Zone B who has not resided or actually been in Zone A during any part of the year of income. Such persons are to receive a deduction of such an amount being not less than £30 and not more than £180 as in the opinion of the commissioner is reasonable in the circumstances. The prescribed areas in the zones are set out in a schedule. As the schedule stood in 1945 Zone A comprised the whole of that part of Australia which lies north of an imaginary line drawn in an irregular fashion across the continent from west to east. The line began at Exmouth Gulf, went down in an irregular way to the limit of the tropic of Capricorn, followed the meridian marking the tropic easterly to somewhere beyond the border of Queensland and then took an irregular course in a north-easterly direction to Cape Tribulation, the latitude of which may be stated with sufficient approximation as about 16 deg. south. Zone B was a zone south of Zone A bounded in an irregular fashion by a line beginning on the west coast near Geraldton and going south-east to Point Hood and then along the coast through Hopetoun and Esperance and the coastline of the Australian Bight towards Ceduna. Before Ceduna the line left the coast to go inland in such a way as to exclude the Eyre Peninsula, pass through Port Augusta, exclude Quorn and Peterborough, and then pass easterly into New South Wales and then northerly considerably east of the Darling into Queensland and again, after a westerly turn, northerly through the centre of Queensland, turning to the coast so as to meet it at approximately Broadsound which is somewhat north of Townshend Island. Zone B also included the south-western portion of Tasmania.

[21]

The legislative plan by which all this is done is attacked as involving the violation both of ss. 51 (ii.) and 99. Section 51 (ii.) confers power to make laws with respect to taxation; but so as not to discriminate between States or parts of States. The full text of s. 99 is as follows: - "The Commonwealth shall not, by any law or regulation of trade, commerce, or revenue, give preference to one State or any part thereof over another State or any part thereof." We are not of course concerned with a law or regulation of trade or commerce but only with one of revenue. It happens however that the decision of this Court upon s. 99 most discussed during the argument is concerned with a law or regulation of trade or commerce. It is Elliott v. The Commonwealth [1] . In that case the majority of the Court gave to the words "one State or any part thereof over another State or any part thereof" a restricted meaning. If legislation is attacked as violating that portion of s. 99 it would appear that according to that interpretation the legislation will be good unless in some way the parts of the State are selected in virtue of their character as parts of a State. This view seems to accord with that expressed by Isaacs J. in relation to s. 51 (ii.) in R. v. Barger [1] , a view, however, contrary to that taken by the majority of the Court in that case. See further W. R. Moran Pty. Ltd. v. Deputy Federal Commissioner of Taxation (N.S.W.) [2] . It is a view that was attacked by Evatt J. in his dissenting judgment in Moran's Case [3] . For myself I have the greatest difficulty in grasping what exactly is the requirement that the selection of an area shall be as part of the State. No doubt it may be expressed in various ways, e.g. "in virtue of its character as part of the State" or " qua part of the State" or "because it is part of a State" or "as such". However it may be expressed I find myself unable to appreciate the distinction between the selection by an enactment of an area in fact forming part of a State for the bestowal of a preference upon the area and the selection of the same area for the same purpose "as part of the State". But I shall not discuss this question further because in the view I take of the case I do not think it is necessary to decide whether s. 79A involves or carries with it a forbidden preference or discrimination. For the purposes of my decision I am prepared to accept the view that s. 79A assumes to give a preference to taxpayers who are residing in Zone A over taxpayers residing in Zone B and to give to the residents of either zone a preference over taxpayers who reside outside the prescribed area. I am further prepared to proceed upon the assumption that in giving this preference s. 79A, as a law or regulation of revenue, gives a preference to parts of five States of the Commonwealth over the State of Victoria and also in the case of each one of those five States gives a preference to part of it over parts of the other four of them. In the same way I am prepared to assume that s. 79A would if valid work a discrimination between Victoria and parts of the other five States as well as a discrimination between a part of each of those five States and parts of the other four of them. It follows that I assume that the provisions of s. 79A are not consistent with the requirements expressed in ss. 51 (ii.) and 99. Section 79A prior to its amendment was enacted in a statute directed to the amendment of the Income Tax Assessment Act 1936-1944 which is described as the Principal Act. By s. 11 of Act No. 4 of 1945 it was simply enacted that after s. 79 of the Principal Act the following section is inserted. Thereupon s. 79A was set out in full. By s. 19 of Act No. 4 of 1945 it was provided that the Principal Act is amended by adding at the end thereof the following schedule. Section 19 then set out the schedule containing the description of the zones as they then were defined. But it was by these two sections of the Income Tax Assessment Act 1945 (No. 4 of 1945) that it was sought to make the provisions of s. 79A and the schedule part of the Income Tax Assessment Act. Act No. 4 of 1945 was assented to on 18th May of that year and its date of commencement was the 15th June 1945. The Income Tax Act 1945 (No. 5 of 1945) imposing tax was also assented to on 18th May and also came into force on 15th June 1945. That Act like other Taxing Acts provided by s. 2 that the Income Tax Assessment Act should be incorporated and read as one with this Act. A like provision is contained in s. 4 of the Income Tax and Social Services Contribution (Individuals) Act 1956 (No. 102 of 1956). The argument for the defendant is that this Taxing Act is invalid because it operates on an Assessment Act and indeed incorporates the Assessment Act containing s. 79A so that the Taxing Act embodies an attempt to give by a law of revenue a preference to parts of States over another State or parts of other States and an attempt by a law with respect to taxation to discriminate between a State and parts of other States and between parts of each of those other States and parts of the remaining States. I repeat that I assume that s. 79A with the schedule does attempt to give such a preference and so to discriminate. But this can affect the validity of the Taxing Acts only if s. 79A ever became part of the Assessment Act upon which the Taxing Acts operated. In my opinion this hypothesis or condition never was fulfilled. My opinion is that s. 79A was invalid ab initio and never became a valid portion of the Assessment Act. Let it be assumed to the full that the provisions of s. 79A would involve a preference forbidden by s. 99 once the Taxing Act operated upon them. It appears to me that, because s. 79A would if valid necessarily involve such a preference once the Taxing Act operated upon it, the consequence must be that it never was within the competence of the Parliament to enact s. 79A. It must therefore be treated as void. It is, I think, equally true that without s. 99 s. 79A on the hypothesis stated would be outside the competence of Parliament because it would conflict with the condition expressed in s. 51 (ii.) that a law with respect to taxation must not discriminate between States or parts of States. There is no problem of severance. Severance is not the point. Sections 11 and 19 of the Income Tax Assessment Act 1945 (No. 4 of 1945) are plainly severable from the rest of the enactment. The problem is of another description. It is whether the Taxing Act when it incorporates the Assessment Act is to be read as incorporating the Assessment Act as it is written or as it validly exists. Not without some hesitation I have formed the view that the proper construction of the Taxing Acts is that they incorporate the Assessment Acts not so to speak as pieces of paper but as valid laws of the Commonwealth. Now I do not think that s. 11 of the Income Tax Assessment Act 1945 (No. 4 of 1945) ever could become a valid law of the Commonwealth if the assumption upon which I speak be true. That Act must be dealt with as a separate statute, an observation which is by no means unfavourable to the defendant's contention. But as a separate statute it nevertheless is a law of revenue within s. 99. The Act is a law of revenue because it is an exercise of the legislative power to tax given by s. 51 (ii.). As an exercise of the power conferred by s. 51 (ii.) it expresses a discrimination which ex hypothesi is forbidden by the condition of the power. Sections 11 and 19 therefore could not begin to exist as valid enactments. Section 20 of Act No. 4 of 1945 provided that these two provisions should apply to all assessments for the financial year beginning on 1st July 1945 and all subsequent years. On the hypothesis which I have accepted they could not validly so apply. It is true that a Taxing Act which sought to apply them would itself give a preference. It is for that reason that the critical consideration in this case appears to me to be, and I speak again on the same hypothesis, whether the Taxing Acts are to be construed as incorporating what stands in the printer's copy of the Assessment Acts or incorporating only what has been validly enacted by the legislature in a lawful exercise of its powers as and for part of the Assessment Acts. As in my opinion the latter is the correct view it follows that the defendant's second contention must fail as well as his first. The demurrer should be overruled and judgment entered for the plaintiff for the amount claimed.

[32]

As to the remaining ground of the demurrer, i.e. that based on discrimination and preference contrary to ss. 51 (ii.) and 99: It is not, I understand, submitted by the defendant that for the purposes of this case there is any substantial difference between ss. 51 (ii.) and 99, between discrimination and preference. Dixon J. as he then was, said in Elliott v. The Commonwealth [1] : "If s. 99 had been expressed to forbid the Commonwealth by a law or regulation of trade, commerce, or revenue to discriminate against a State or part of a State, I do not think its effect would have been substantially varied" [2] . I respectfully agree. Then confining attention to s. 51 (ii.), the defendant relies on the reasoning of the majority in R. v. Barger [3] where Griffiths C.J. and Barton and O'Connor JJ. in a joint judgment, referring to the words "so as not to discriminate between States or parts of States" in s. 51 (ii.), said that those words "recognise the fact that nature has already discriminated, and prescribe that no attempt shall be made to alter the effect of that natural discrimination" [4] . Their Honours added that "The varying conditions of climate and of locality make an effectual discrimination for many purposes between several portions of the Commonwealth. Lest, however, the Parliament should desire to bring about equality in the incidence of the burden of taxation, or what has been called an equality of sacrifice, by discriminating between such different portions they were expressly prohibited from so doing." [4] Their Honours then proceeded to say that "States or parts of States" was synonomous with "parts of the Commonwealth" or "different localities within the Commonwealth", and that "it would be a strange thing if Parliament could discriminate in a taxing Act between one locality and another, merely because such localities were not coterminous with States or with parts of the same State" [5] . However, Isaacs and Higgins JJ. dissented, the former saying that the taxation power is required by s. 51 (ii.) "to be exercised over all persons, things and circumstances, without regard to the existence of separate States" [6] and without "differentiating in its measure of taxation between States and parts of States because they were particular States or parts of States" [7] ; and that the discrimination or preference in s. 51 (ii.) or s. 99 that is forbidden is "in relation to the localities considered as parts of States, and not as mere Australian localities or parts of the Commonwealth considered as a single country" [7] . His Honour added that "it does not include a differentiation based on other considerations, which are dependent on natural or business circumstances, and may operate with more or less force in different localities" [1] . If his Honour's view is sound it supports the validity of s. 79A.

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