Fairfax v Commissioner of Taxation

This is a case stated under s. 198 of the Income Tax and Social Services Contribution Assessment Act 1936-1962 Cth in an appeal to this Court by the trustees of a superannuation fund. The appeal is against an assessment by which the respondent Commissioner treated the trustees as liable to pay tax upon the "investment income" of the fund by virtue of the provisions of s. 121D, which is one of the sections in Div. 9B of Pt III of the Act. The trustees deny liability, contending that s. 11 of the amending Act No. 17 of 1961, by which, if it be valid, Div. 9B was inserted into the Act, is void and the provisions of Div. 9B are therefore not law. The question asked in the case stated is whether s. 11 is valid.

The first operative provisions in Div. 9B, those contained in sub-ss. (1), (2) and (3) of s. 121C, are directed to denying to the whole or part of the investment income of a superannuation fund in a year of income the general exemptions from income tax which pars. (j) and (ja) of s. 23 of the Principal Act confer upon the income of such a fund, unless the Commissioner is satisfied that at all times during the year (a) the assets of the fund included "public securities" the cost of which was not less than the lesser of two amounts, and (b) the assets of the fund consisting of "public securities" included "Commonwealth securities" the cost of which was not less than the lesser of two amounts. By definition, inserted into s. 6 of the Principal Act by the 1961 amendments "Commonwealth securities" is defined to mean (broadly) bonds, debentures, stock or other securities issued under an Act of the Commonwealth Parliament, and "public securities" is defined to mean (broadly) (a) Commonwealth securities, (b) bonds, debentures, stock or other securities issued by a State, a Territory or an authority constituted by or under an Act or law of a State or Territory, and (c) securities issued in respect of a loan to a water, gas or electricity company in Australia or a Territory.

The provisions thus made by sub-ss. (1), (2) and (3) are qualified by sub-ss. (4) and (5). The former provides that for the purposes of the section the Commissioner shall disregard any failure of the assets of a superannuation fund to include, at all times during a particular year of income, assets as provided by the section if he is satisfied either that the trustee made a genuine and bona fide attempt to ensure that the assets included at all such times assets as so provided, or that the failure was by reason of a temporary delay in investment, and that in all the circumstances it would be reasonable to disregard the failure. The provision of sub-s. (5) is that where the Commissioner is satisfied that the inclusion in the assets of the fund of assets as provided by the section would be likely to endanger the financial stability of the fund and would be unreasonable in all the circumstances the Commissioner may inform the trustee that the exemption (under s. 23 (j)) will continue in whole or in part, and in that case the exemption continues accordingly.

It is unnecessary to refer in greater detail to the provisions of s. 121C, and the only other provision of the new Div. 9B that need be mentioned at all is s. 121D. By sub-s. (1) of that section the trustee of a superannuation fund is made assessable and liable to pay tax upon the investment income of the fund, to the extent to which it is not exempt from income tax under the Act (i.e. to the extent to which s. 121C removes the exemption under s. 23) at the rates declared by the Parliament for the purposes of the section. Sub-section (2) provides that the investment income of a superannuation fund is not subject to income tax otherwise than as provided by sub-s. (1).

The contention of the appellant trustees is that no head of federal legislative power will support the enactment of s. 11. It is, they say, a law with respect to the investment of the moneys of superannuation funds, a subject which is not one upon which the Parliament has any power to make laws. The Commissioner's answer is that s. 11 is a law with respect to taxation, whatever else it is, and is therefore to be upheld as an exercise of the power conferred on the Parliament by s. 51 (ii.) of the Constitution.

The argument for invalidity not unnaturally began with the proposition that the question to be decided is a question of substance and not of mere form; but the danger quickly became evident that the proposition may be misunderstood as inviting a speculative inquiry as to which of the topics touched by the legislation seems most likely to have been the main preoccupation of those who enacted it. Such an inquiry has nothing to do with the question of constitutional validity under s. 51 of the Constitution. Under that section the question is always one of subject matter, to be determined by reference solely to the operation which the enactment has if it be valid, that is to say by reference to the nature of the rights, duties, powers and privileges which it changes, regulates or abolishes; it is a question as to the true nature and character of the legislation: is it in its real substance a law upon, "with respect to", one or more of the enumerated subjects, or is there no more in it in relation to any of those subjects than an interference so incidental as not in truth to affect its character? See per Latham C.J. in Bank of New South Wales v. The Commonwealth [1] , and per Higgins J. in Huddart Parker & Co. Pty. Ltd. v. Moorehead [2] .

1. (1948) 76 C.L.R. 1, at pp. 185-187. 2. (1909) 8 C.L.R. 330, at pp. 409-411.

The need to distinguish between form and substance appears from what has just been said. The possibility has to be recognized, as it was in the United States as long ago as McCulloch v. Maryland [3] , that under the guise of exercising one or more of the powers of the Parliament legislation may in truth endeavour only to accomplish objects beyond those powers: Bank of New South Wales v. The Commonwealth [4] ; see, for example, Waterhouse v. Deputy Federal Commissioner of Land Tax (S.A.) [5] . Accordingly the task of characterizing laws according to subject matter must be performed with care lest mere words mislead. The Court, as Higgins J. said in R. v. Barger [6] "is not to be bound by the name which Parliament has chosen to give the Act" - one may add, or has chosen to give anything else - "but is to consider what the Act is in substance - what it does, what it commands or prescribes" [7] . The appellant's argument in its final form accepted this as its real starting point and proceeded to say that s. 11, though it is couched in terms of taxation and wears the badge of a tax law prominently upon it, really operates to expose trustees of superannuation funds to a liability which it miscalls a tax, a liability which in truth is a penalty or sanction for a failure to pursue a prescribed course of conduct by such trustees with respect to the investment of moneys. For this reason, it was said, s. 11 is in substance not a law upon taxation but only a law upon the subject of the investment of such moneys. Thus the argument endeavours to lift the section out of its formal surroundings in an Income Tax Assessment Act, to treat the use it makes of the terminology and machinery of taxation legislation as a veil to be removed, and to exhibit it as in truth but an attempt to regulate, with sanctions, the investment of superannuation fund moneys.

1. (1819) 4 Wheat. 316, at p. 423 [4 Law. Ed. 579]. 2. (1948) 76 C.L.R. 1, at p. 187. 3. (1914) 17 C.L.R. 665. 4. (1908) 6 C.L.R. 41. 5. (1908) 6 C.L.R., at p. 118.

For this method of attack there is precedent, by no means inconsiderable, in the United States. The Child Labor Tax Case, Bailey v. Drexel Furniture Co. [1] , is an example. The legislation there in question purported to impose a tax of ten per cent of the net profits received from the sale of the products of any mine or quarry in which, during any portion of the taxable year, children under sixteen should have been employed or permitted to work or any mill, cannery, workshop or factory in which children under fourteen should have been employed or permitted to work more than eight hours in any day, or more than six days in any week, or after 8 p.m. or before 6 a.m. The Supreme Court held that Congress, "in the name of a tax which on the face of the Act is a penalty" was seeking to regulate the hours of labour of children, a matter beyond its constitutional authority, and that the Act was void.

There is a degree of general resemblance between some of the matters which the Supreme Court in that case treated as decisive of the true character of the Act and certain features of the provisions enacted by s. 11. The Court expressly refrained from treating the heaviness of the burden as concluding the matter, but emphasized that the Act imposed its heavy exaction upon a departure from a detailed and specified course of conduct in business. The same may be said of s. 11. The Court proceeded: "If an employer departs from this prescribed course of business, he is to pay to the Government one-tenth of his entire net income in the business for a full year. The amount is not to be proportioned in any degree to the extent or frequency of the departures, but is to be paid by the employer in full measure whether he employs five hundred children for a year, or employs only one for a day. Moreover, if he does not know the child is within the named age limit, he is not to pay; that is to say, it is only where he knowingly departs from the prescribed course that payment is to be exacted. Scienter is associated with penalties not with taxes In the light of these features of the act, a court must be blind not to see that the so-called tax is imposed to stop the employment of children within the age limits prescribed. Its prohibitory and regulatory effect and purpose are palpable. All others can see and understand this. How can we properly shut our minds to it?"

To read through s. 11 is to see that the removal of the exemption under par. (j) or par. (ja) of s. 23 in cases where the Commissioner is not satisfied that the stated conditions have been fulfilled throughout the year of income is only preliminary to the substantial operation of the provisions inserted into the Principal Act. The kernel of the provisions is to be found in the new s. 121D. Sub-section (1) of that section, as I have said, makes the trustee of a superannuation fund assessable and liable to pay tax upon the investment income of the fund, to the extent to which it is not exempt, at the rates declared by the Parliament for the purposes of the section; and sub-s. (2) provides that the investment income is not subject to income tax otherwise than as provided by sub-s. (1). The result is that the provisions of Div. 6, which regulate income tax liability upon the income of trust funds generally, do not apply to the investment income of superannuation funds, and the new Div. 9B is a law by reference to which the Parliament may, by declaring rates specially for the purposes of s. 121D, impose a liability peculiar to superannuation funds, a liability depending upon opinions which the Commissioner forms of the conduct of the trustees in relation to the investment of the assets of the fund during the year. First, as has been mentioned, the exemption is lost unless the Commissioner is satisfied that the prescribed level of investment in public securities and in Commonwealth securities has been observed at all times during the year of income; so that the threat of liability is an ever-present deterrent to even momentary waywardness. The severity of the sanction is mitigated by sub-ss. (4) and (5), the provisions of which I have already stated; but these provisions may fairly be described as providing grounds upon which the Commissioner may extend leniency in certain cases where the failure of the trustees to invest in the manner which the section contemplates is excusable. The words of the Supreme Court of the United States may be adapted, not unfairly, to the case: in the light of these features of the enactment, a court must be blind not to see that the "tax" is imposed to stop trustees of superannuation funds from failing to invest sufficiently in Commonwealth and other public securities.

But is this enough to justify the conclusion that what purports to be a set of provisions for imposing a tax upon the investment income of superannuation funds is in reality not a law with respect to taxation at all, but only a law with respect to the investment of such funds? If the criterion is to be found in Bailey v. Drexel Furniture Co. [1] and other cases in the same line, such as Hill v. Wallace [2] ; United States v. Constantine [3] ; and Carter v. Carter Coal Co. [4] , the Supreme Court of the United States would be likely to say, Yes. Corwin's edition of the Constitution of the United States of America with annotations to June 30, 1952, at p. 111 makes the broad statement, by reference to these decisions, that where a tax is conditional, and may be avoided by compliance with regulations set out in the statute, the validity of the measure is determined by the power of Congress to regulate that subject matter: if the regulations are within the competence of Congress, apart from its power to tax, the exaction is sustained as an appropriate sanction for making them effective; otherwise it is invalid. It is not for us to say whether the statement is too general. Possibly the Court has not gone further than to hold that a law purporting to impose a tax upon failure to pursue a defined course of conduct is not a law upon taxation if the inference arises on the face of the law itself that the purpose is to enforce the course of conduct and not to raise revenue. But even this proposition represents a departure from principles formerly adhered to in a line of cases from the Head Money Cases [5] ; Ex parte Kollock [6] and McCray v. United States [7] to United States v. Doremus [8] , and there seems to have been a reaction against it: see Sonzinsky v. United States [9] ; United States v. Kahriger [10] . See generally, Willoughby on The Constitution of the United States, 2nd ed. (1929) pp. 669-681, pars. 379-388.

1. (1922) 259 U.S. 20 [66 Law. Ed. 817]. 2. (1922) 259 U.S. 44 [66 Law. Ed. 822]. 3. (1935) 296 U.S. 287 [80 Law. Ed. 233]. 4. (1936) 298 U.S. 238 [80 Law. Ed. 1160]. 5. (1884) 112 U.S. 580 [28 Law. Ed. 798]. 6. (1897) 165 U.S. 526 [41 Law. Ed. 813]. 7. (1904) 195 U.S. 27 [49 Law. Ed. 78]. 8. (1919) 249 U.S. 86 [63 Law. Ed. 493]. 9. (1937) 300 U.S. 506 [81 Law. Ed. 772]. 10. (1953) 345 U.S. 22 [97 Law. Ed. 754].

The dissenting judgment of Frankfurter J. in the case last-mentioned makes it clear that the distribution of power as between the Congress and the State legislatures in relation to the regulation of conduct has been a potent underlying factor in the decision of all these cases. In Australia, too, the distribution of powers has greatly influenced decision, particularly in the majority judgment in R. v. Barger [11] , upon which the appellants' argument in the present case is largely founded. While affirming that in deciding whether a law is supported by the taxation power it is irrelevant to inquire into the ultimate indirect consequences of the operation of the law - for no conclusion can be built upon them save as to the motives of the legislators - the majority of the Court accepted the view that it is legitimate to draw an inference from what appears on the face of the law as to whether the substantial purpose is, on the one hand, to raise revenue or, on the other hand, to regulate the conduct of persons by providing for a sanction in the form of a pecuniary impost to be incurred by departure from a specified course. Griffith C.J. and Barton and O'Connor JJ. treated the task of choosing the correct inference as one to be performed against a background provided by the doctrine, to which they were adherents, that the Constitution was to be interpreted as intending to reserve to the States all such powers as were not expressly conferred upon the Commonwealth. From this doctrine they took as the background of their thinking in Barger's Case [1] the proposition that taxation in s. 51 (ii.) of the Constitution has a special meaning, that it refers only to taxation not imposed as a means of regulating the domestic affairs of the States. Confronted by an Act which purported to provide for a duty of excise to be paid upon manufactured goods if certain conditions of employment in the course of manufacture were not observed, their Honours saw on the face of it an intention to use the taxation power as a mere means of regulating conditions of employment, a matter "reserved", as they considered, to the States; and they concluded that the end aimed at was the substance, the taxing means employed was mere form, and that the law was therefore outside the true limits of the power.

In so far as the judgment insisted upon testing the validity of the law by reference to its substantial operation, it has been approved by the Privy Council in W. R. Moran Pty. Ltd. v. Deputy Commissioner of Taxation [2] and neither the dissenting members of the Court in Barger's Case [1] nor any Judge since has wished to disagree. But it is by no means a settled doctrine that a law which purports to provide for a tax upon behaviour is in substance not a law with respect to taxation if it exhibits on its face a purpose of suppressing or discouraging the behaviour and is to be explained more convincingly as a means to that end than as a means to provide the Government with revenue. Indeed, to espouse such a doctrine would be to fall into the error already mentioned, of confusing the distinction between form and substance with the distinction between the major and the minor importance which a reading of the Act suggests that those who passed it may have attributed to the various aspects of its operation. In my opinion the judgment of the majority in Barger's Case [1] provides no satisfactory guide in the case before us, partly because the doctrine of the reserved powers of the States, in the wide form in which it was held by their Honours, has long since been exploded (see Amalgamated Society of Engineers v. Adelaide Steamship Co. [2] ), but, more fundamentally, because we ought to maintain the principle which may be stated in words taken from the judgment of Clark J. in United States v. Sanchez [3] : "It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. Sonzinsky v. United States [4] . The principle applies even though the revenue obtained is obviously negligible, Sonzinsky v. United States [4] or the revenue purpose of the tax may be secondary, J. W. Hampton & Co. v. United States [5] . Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate" [6] .

1. [1940] A.C. 838, at p. 849; (1940) 63 C.L.R. 338, at p. 341. 2. (1908) 6 C.L.R. 41. 3. (1908) 6 C.L.R. 41. 4. (1920) 28 C.L.R. 129, at p. 154. 5. (1950) 340 U.S. 42 [95 Law. Ed. 47]. 6. (1937) 300 U.S. 506, at pp. 513, 514 [81 Law. Ed. 772, at pp. 775, 776]. 7. (1937) 300 U.S. 506, at pp. 513, 514 [81 Law. Ed. 772, at pp. 775, 776]. 8. (1928) 276 U.S. 394 [72 Law. Ed. 624]. 9. (1950) 340 U.S., at p. 44 [95 Law. Ed., at p. 50].

The dissenting judges in Barger's Case [1] , Isaacs and Higgins JJ., rejected the doctrine of the reserved powers of the States, and thus they did not have to face the same somewhat loaded question as the majority, namely whether the Act was a law with respect to taxation other than taxation imposed to regulate matters reserved for regulation by the States. The question for them was less complicated: was the liability for which the Act provided, in its real nature, a tax or a penalty; and with emphasis and great elaboration they answered that it was what it purported to be, a tax. Notwithstanding features of the Act which, like features of s. 11 to which I have drawn attention, might have induced a court like-minded with the Court that decided Bailey v. Drexel Furniture Co. [7] to deny the quality of a tax to the exaction imposed, their Honours found themselves unable to take that course consistently with the acknowledgement, which they considered ought to be made, that subject only to the limitations expressed in the Constitution the power with respect to taxation was "plenary and absolute; unlimited as to amount, as to subjects, as to objects, as to conditions, as to machinery" [8] , so that "the Parliament has, prima facie, power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to exemption as it chooses": per Higgins J. [1] . It may be that the power is subject to some implied as well as express limitations; but with that reservation the soundness of the propositions thus stated is not now, I think, open to doubt.

1. (1908) 6 C.L.R. 41. 2. (1922) 259 U.S. 20 [66 Law. Ed. 817]. 3. (1908) 6 C.L.R., at p. 114. 4. (1908) 6 C.L.R., at p. 114.

In the result I think that this case should be decided against the appellants upon the broad principle which Sir Owen Dixon stated in Melbourne Corporation v. The Commonwealth [2] : "Speaking generally, once it appears that a federal law has an actual and immediate operation within a field assigned to the Commonwealth as a subject of legislative power, that is enough. It will be held to fall within the power unless some further reason appears for excluding it. That it discloses another purpose and that the purpose lies outside the area of federal power are considerations which will not in such a case suffice to invalidate the law" [3] . The operation of s. 11 is to replace a total exemption from all income tax with a conditional special liability to income tax on "investment income". The legislative policy is obvious and may be freely acknowledged: it is to provide trustees of superannuation funds with strong inducement to invest sufficiently in Commonwealth and other public securities. The raising of revenue may be of secondary concern. But the enactment does not prescribe or forbid conduct. Its character is neither fully nor fairly described by saying that it makes trustees of superannuation funds liable to pay for failing to do what the legislature wishes. To adapt the language of Higgins J. in R. v. Barger [4] , the substance of the enactment is the obligation which it imposes, and the only obligation imposed is to pay income tax. In substance as in form, therefore, the section is a law with respect to taxation.

1. (1947) 74 C.L.R. 31. 2. (1947) 74 C.L.R., at p. 79. 3. (1908) 6 C.L.R. 41, at p. 119.

I would answer the question in the case stated: Yes.

The broad question in this case is whether the provisions of Div. 9B of Pt III of the Income Tax and Social Services Contribution Assessment Act 1936-1962, which were introduced into the Act by the amending Act of 1961, constitute a law with respect to taxation. The appellant asserts that it does not on the ground that the substance of the provisions is to impose what is, in effect, a penalty on the trustees of superannuation funds who fail to have a specified proportion of their funds invested, in any income year, in public securities or Commonwealth securities as defined. The basis upon which this is asserted is that, subject to the observance of certain preliminary conditions, the incomes of superannuation funds have for many years been exempt income, that is to say, income which is exempt from income tax, and the denial of the exemption, which is the effect of the impugned provisions, to trustees who fail to satisfy the conditions prescribed by those provisions amounts to a penalty imposed for a failure to follow a prescribed course of conduct.

Questions of this character have received much attention in the United States in a variety of cases and diverse views have been expressed (see e.g. Bailey v. Drexel Furniture Company [1] ; United States v. Constantine [2] ; Sonzinsky v. United States [3] ; and United States v. Kahriger [4] ). But this Court has consistently maintained that where a challenge is made to a statute on the ground that it is not a law with respect to a particular legislative subject matter it is irrelevant to consider the motives which led to its enactment or to examine the indirect consequences which may, ultimately, result from it; if it be, in substance, a law with respect to a particular subject matter the motives which influenced the legislature or the indirect consequences of the measure cannot operate to change its character.

1. (1922) 259 U.S. 20 [66 Law. Ed. 817]. 2. (1935) 296 U.S. 287 [80 Law. Ed. 233]. 3. (1937) 300 U.S. 506 [81 Law. Ed. 772]. 4. (1953) 345 U.S. 22 [97 Law. Ed. 754].

But there have been two cases in this Court where differences of opinion have arisen in the application of this principle to statutes purporting to impose taxation. I refer to R. v. Barger [5] and Osborne v. The Commonwealth [6] . In the earlier case a majority of the Court held that the provisions of the Excise Tariff 1906, which imposed duties of excise on agricultural implements and then exempted from the provisions of the Act goods manufactured under certain conditions as to the remuneration of labour, were not a valid exercise of the taxing power. But in reaching this decision the majority was largely, if, indeed, not wholly, influenced by the doctrine of State reserved powers which was then current but which has long since been exploded. In the later case the same bench unanimously upheld as valid the provisions of the Land Tax Act 1910 notwithstanding the argument that the purpose of the Act, and the associated Land Tax Assessment Act, was to prevent persons resident in the Commonwealth from holding and owning large areas of land and to prevent persons not resident in the Commonwealth from holding and owning any such land. It has been thought that the two cases are irreconcilable (see Legislative, Executive and Judicial Powers in Australia - Wynes 3rd ed. (1962) p. 238) and, indeed, Higgins J., who was a dissentient in the earlier case, observed in Osborne's Case [1] that if he were able to "accept the view of the majority of the Court in Barger's Case" [2] he would "find much more difficulty in answering the argument" that the Acts "were not passed for the purpose of raising revenue, but in order to control matters which are essentially within the reserved powers of the States" but he thought it sufficient to say that "as these Acts create an obligation to pay taxes" and, I add, they did no more than this, "they are taxation Acts, whatever conditions they impose, and whatever State subject they affect" [3] .

1. (1908) 6 C.L.R. 41. 2. (1911) 12 C.L.R. 321. 3. (1911) 12 C.L.R. 321. 4. (1908) 6 C.L.R. 41. 5. (1911) 12 C.L.R., at p. 374.

I find great difficulty in distinguishing between the two cases though it seems that the majority in Barger's Case [2] treated the Act under consideration in that case as not being "in substance an exercise of the power of taxation conferred upon the Commonwealth Parliament by the Constitution" [4] because it was "within the competence of a State legislature to regulate the conditions of labour employed in the manufacture of agricultural implements", that it was "equally clear that a State legislature, having prescribed such conditions, could impose a pecuniary burden upon everyone who did not conform to them" [5] and that "the exclusive power of the Parliament to impose duties of Excise cannot be construed as depriving the States of the exclusive power to make such enactments" [6] . But to assert this was, it seems to me, merely to assert that the expression "taxation" in placitum (ii.) of s. 51 of the Constitution was subject to a limitation derived from the doctrine of the reserved powers of the States and it is beyond doubt that once that notion is disposed of, no distinction can be perceived between the two cases. However, that was the basis upon which Barger's Case [2] was, at the time, decided.

1. (1908) 6 C.L.R. 41. 2. (1908) 6 C.L.R., at p. 64. 3. (1908) 6 C.L.R., at p. 74. 4. (1908) 6 C.L.R., at p. 77. 5. (1908) 6 C.L.R. 41.

The argument of the plaintiff in the present case is the same as that which was rejected in Osborne's Case [1] , except so far as reliance was placed in that case on the doctrine of the reserved powers of the States. It seizes upon what is said to be the purpose which the impugned provisions were intended to serve and then seeks to characterize them as a law, not with respect to taxation, but with respect to the investment of superannuation funds. But the power of the Commonwealth Parliament to make laws with respect to taxation is a power to make laws with respect to a specified subject matter; it is not a power defined by reference to any purpose or purposes. That being so, is it possible to say that a law made under that head of power will be valid or invalid according to whether or not it appears upon enquiry that the legislature has been moved to pass it by some particular motive, or, according to whether or not the legislature had in mind some particular purpose to be served by the legislation? This Court has consistently held that no such enquiry is relevant or permissible. The contention to the contrary "involves a confusion between the operation of the law and the motives of the legislature" (Grannall v. Marrickville Margarine Pty. Ltd. [1] and Reg. v. Anderson; Ex parte Ipec-Air Pty. Ltd. [2] ). The object, the purpose and the intention of an enactment made under such a power can be gathered only from an examination of what the legislature has chosen to enact and not from a consideration of extraneous matters. Unrestricted by limitations arising from the doctrine of the reserved powers of the States the power of the Commonwealth to make laws with respect to taxation stands revealed as a head of power subject to no limitations except those prescribed by the Constitution itself. The test of validity must be, therefore, whether an impugned law creates duties, obligations or liabilities which are extraneous to the power. If it does no more than impose a liability to tax it is such a law and it is not to the point to consider the motives of the legislature in enacting it or to examine the purpose which it was intended to serve. Applying this test to the provisions of Div. 9A there can only be one answer. It imposes no duties, obligations or liabilities upon trustees of superannuation funds other than an obligation to pay income tax in certain events; it imposes no obligation upon them to invest their funds in any particular fashion and no duties, obligation or liabilities which are extraneous to the power. It may be conceded that it offers a substantial inducement to trustees to invest a substantial proportion of their funds in public and Commonwealth securities but this is, by no means, sufficient to enable it to be said that it is not a law with respect to taxation. I am of opinion, therefore, that the question raised by the case stated should be answered in the affirmative.

1. (1911) 12 C.L.R. 321. 2. (1955) 93 C.L.R. 55, at p. 79. 3. (1965) 113 C.L.R. 177, at p. 196. Menzies J.

The question stated for the opinion of the Full Court is whether s. 11 of the Income Tax and Social Services Contribution Assessment Act 1961 is valid.

The effect of the section is twofold. In the first place, it denies the exemption from income tax accorded by pars. (j) and (ja) of s. 23 of the Principal Act to the investment income of a superannuation fund falling within a particular description unless the Commissioner is satisfied that, at all times during a stated year, or part of a year, of income, the assets of the fund included a certain percentage of public securities including a certain percentage of Commonwealth securities (s. 121C). Secondly, it provides for the taxation of the investment income of such a fund, to the extent to which it is not exempt from income tax under the 1961 Act, at rates to be declared by Parliament (s. 121D).

It is clear, of course, that in consequence of the amending Act the trustees of a superannuation fund affected by the amendment and lacking the percentages of public securities and Commonwealth securities specified, would have to decide whether or not to invest in such securities sufficiently to obtain an exemption from income tax for the investment income of the fund pursuant to the amended Act. Furthermore, the amendment, by affording a conditional taxation exemption, obviously provides a financial inducement to the trustees of superannuation funds affected to invest in public securities and in Commonwealth securities. Full recognition of this does not mean, however, that s. 11 is not what it appears to be, viz. a law with respect to taxation. The giving of taxation advantages to induce investment in Commonwealth securities has long been a feature of the taxation laws of the Commonwealth. Furthermore, participation in certain enterprises is encouraged by holding out tax advantages - e.g. ss. 23 (o) and (p), 73A, 75, 77A, 77AA and 77B of the Principal Act. Indeed, pars. (j) and (ja) of s. 23 provided exemptions to encourage the establishment and maintenance of funds of the kind therein described.

Whether or not a law is one with respect to taxation cannot be determined by looking at its economic consequences, however apparent they must have been at the time of its enactment; nor is an enquiry into the motives of the legislature permissible. There may be laws ostensibly imposing tax which, nevertheless, are not laws with respect to taxation. For example, a special prohibitive tax upon income derived from the sale of heroin or from the growing or treatment of poppies for the production of heroin may not be a law with respect to taxation but rather a law made for the suppression of the trade in that drug by imposing penalties described as taxes for participation in it. The reason for denying to such a law the character of a law with respect to taxation would not be either its economic consequences or the motive behind its enactment. It would simply be that its true character is not a law with respect to taxation. The problem in every case is, therefore, to ascertain from the terms of the law impugned its true nature and character.

In this case, there is no reason - apart from the likely consequences upon the investing of the assets of superannuation funds and the motives imputed to the legislature - for denying to s. 11, which relates to exemption from income tax, the character of a law with respect to taxation. Those consequences and imputed motives, for the reason which I have given, do not deprive the law of its character as such a law.

It was almost conceded that, if the original exemption from income tax conferred by s. 23 (j) and (ja) in favour of superannuation funds had been in more limited terms and extended only to the investment income of funds of which some percentage of the assets were of a particular description, the law would have been a law with respect to taxation. It cannot matter that s. 11 is an amending law which substitutes a more limited exemption for the one which it displaced.

I agree that the Case Stated should be answered, Yes.

This case is dealt with fully in the judgments that have been delivered which I had the advantage of reading. Therefore, as I am in substantial agreement with the reasons given for upholding the validity of the enactment in question, I need not myself deal with the matter at any length. The Commonwealth Parliament may use its power to make laws with respect to taxation in order to promote some purpose that it desires to promote. The law is not thereby rendered invalid. The question is only: is it properly described as a law with respect to taxation? The cases to which the Solicitor-General referred us contain emphatic assertions of that principle. A law with respect to taxation may do no more than exempt from a tax that would otherwise be exigible persons or transactions that answer certain descriptions or fulfil certain conditions. In considering the enactment here in question it is not to be seen as it were in outer darkness, but in the light that is shed upon it by the scheme into which it comes. It is a familiar incident of laws with respect to taxation, especially of income tax and estate duty, that they provide for a great variety of exemptions, concessions, rebates and deductions, some of them absolute some conditional, the products of policies or purposes that the Parliament wishes to advance.

I do not mean to say that a case could not be imagined in which an Act in the guise of a law with respect to taxation might be seen to be in its true character something else. But here the very matter that is relied upon as remote from the character of taxation seems to lead to quite the opposite conclusion. Taxes are ordinarily levied to replenish the Treasury, that is to provide the Crown with revenue to meet the expenses of government. That is the prime purpose of the income tax. It seems to me far from foreign to such a tax that its incidence should be so adjusted as to encourage persons to subscribe to government loans.

I would answer the question in the stated case, Yes.