Fairfax v Commissioner of Taxation

Fairfax v Commissioner of Taxation - [1965] HCA 64 - HCA 1965 case summary — Zoe

[15]

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.

[18]

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.

[19]

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] .

[33]

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.

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Judgment (44 paragraphs)

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