MacCormick v Commissioner of Taxation

MacCormick v Commissioner of Taxation - [1984] HCA 20 - HCA 1984 case summary — Zoe

[8]

The tax imposed by the Taxation (Unpaid Company Tax - Vendors) Act 1982 Cth ("the Vendors Act") and assessed under the Taxation (Unpaid Company Tax) Assessment Act 1982 Cth ("the 1982 Assessment Act") is defined as vendors recoupment tax in s. 3(1) of the latter Act. The tax imposed by the Taxation (Unpaid Company Tax - Promoters) Act 1982 Cth ("the Promoters Act") and assessed under the 1982 Assessment Act is defined as "promoters recoupment tax" in the same sub-section. Vendors recoupment tax is imposed by s. 4 of the Vendors Act; promoters recoupment tax is imposed by s. 4 of the Promoters Act. Each of the Vendors Act and the Promoters Act incorporates the 1982 Assessment Act and requires that Act to be read as one with it. (Hereafter references to particular provisions are references to the provisions of the 1982 Assessment Act unless otherwise indicated). In the first action, the plaintiff challenges the validity of the Vendors Act or alternatively the validity of the imposition of the vendors recoupment tax imposed by s. 4 of the Vendors Act in conjunction with ss. 5(1) and 8(1) of the 1982 Assessment Act. In the second action the plaintiffs challenge the validity of the Vendors Act and the Promoters Act or alternatively the validity of the imposition of the vendors recoupment tax imposed by s. 4 of the Vendors Act in conjunction with ss. 5(1), 6(1) and 8(1) of the 1982 Assessment Act and the validity of the imposition of the promoters recoupment tax imposed by s. 4 of the Promoters Act in conjunction with ss. 7(1) and 8(2) of the 1982 Assessment Act. The defendant Commissioner of Taxation contends that the Vendors Act and the Promoters Act are valid in their entirety. These proceedings are on demurrer to the statement of claim in each action. The interlocking provisions of the three Acts are extremely complex, but it is possible to give a sufficient description of the leading features of the statutory scheme to consider the challenge to the validity of the Acts imposing the respective recoupment taxes.

[9]

The quantum of both vendors and promoters recoupment taxes are ascertained by reference to certain "overdue company tax" (see ss. 3(1), 5(1)(g) and 7(1)(f)) which a company has been unable to pay or which a company that has gone out of existence would have been unable to pay immediately before it went out of existence: pars (g) and (h) of ss. 5(1) and 5(2), and pars (f) and (g) of ss. 7(1) and 7(2). The amount to be paid by way of recoupment tax is reduced by a payment of the overdue company tax by reference to which the recoupment tax has been ascertained: s. 9(1) and (6). The amount to be paid by way of vendors recoupment tax is reduced also by a payment of a promoters recoupment tax assessed by reference to the same overdue company tax: s. 9(7). There are two categories of vendors recoupment tax (ss. 5 and 6), and a reduction is provided for in favour of one category of vendors recoupment tax when a payment is made in respect of another category of vendors recoupment tax: s. 9(5). However, no payment of vendors recoupment tax goes in reduction of the overdue company tax by reference to which the vendors recoupment tax is assessed. A payment of promoters recoupment tax is deemed to be applied in reduction of the overdue company tax by reference to which the promoters recoupment tax is ascertained: s. 9(7). The scheme of the three Acts is that an amount equal to but not exceeding the whole of the overdue company tax will be recouped by payment of the vendors recoupment tax and promoters recoupment tax or by the payment of one or other of those recoupment taxes. If both recoupment taxes are payable and are fully paid, the vendors recoupment tax would yield an amount equal to 80 per cent of the overdue company tax, and the promoters recoupment tax would yield an amount equal to 20 per cent of the overdue company tax (s. 7(1)(j)) unless the promoters recoupment tax so calculated would exceed the ceiling prescribed by s. 7(3) in which case the vendors recoupment tax would be correspondingly increased. No person who is liable to be assessed to recoupment tax is or would have been liable to be assessed to any part of the company tax by reference to which his liability to pay a recoupment tax is ascertained. The criteria of liability to pay either of the categories of vendors recoupment tax or to pay promoters recoupment tax are such that the income year in relation to which the relevant overdue company tax is assessed may not have closed at the time of the occurrence of the transaction which might expose a person to liability to pay the recoupment tax - namely, a sale of shares in the company: pars (a) and (b) of s. 5(1) and s. 7(1). At the time of the relevant sale, the persons who later become liable to pay recoupment tax might have no grounds for suspecting, much less knowing, that the company would become unable to pay the taxes which it would become liable to pay - taxes which, if due and unpaid become overdue company tax by reference to which the amount of those persons' liability for recoupment tax is ascertained. It will be necessary to return to the several criteria of liability in greater detail after considering the relevant principles which govern the constitutional validity of laws purporting to impose taxation. However, this partial and abbreviated description of the statutory scheme for recouping amounts equal to unpaid company tax may serve to explain the challenges made to the constitutional validity of the Vendors Act and the Promoters Act. They are said not to be laws with respect to taxation and therefore not to be within the taxation power of the Parliament (s. 51(ii) of the Constitution) or, if they survive that challenge, they are said to deal with more than one subject of taxation and therefore to offend the second paragraph of s. 55 of the Constitution. If, to borrow the metaphor used by Rich and Dixon JJ. in Jolly v. Federal Commissioner of Taxation [32] , the Acts sail away from the Scylla of the first challenge and are not pulled down by the Charybdis of the second, it is then said that they perish on the shoal of s. 23 of the 1982 Assessment Act. That section is said to make each of the recoupment taxes incontestable, an on that account the imposition of the recoupment taxes is said to have exceeded the legislative power of the Parliament.

[15]

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. Aickin J. was able to say in General Practitioners Society v. The Commonwealth [45] that "the tax power is not limited to older or well-known taxes but extends to any form of tax which ingenuity may devise". Nevertheless, the principle seems to be inherent in a majority of the judgments in Waterhouse [46] - and the principle is not affected by the reserved powers doctrine - that a provision that does no more than exact payment of a tax imposed on another is a provision dealing with a matter other than taxation. That principle was affirmed by the judgment of the majority in Barnes . Whether such a provision in invalid because it is not a law "with respect to" taxation, as their Honours held in Barnes or because, though a law with respect to taxation, it does not impose taxation and is struck down by the condition attached to s. 51(xxxi), need not detain us. It is established that such a law is outside the powers of the Parliament. Are the three Acts or any of them such a law? In my view, neither the Acts nor particular provisions of the Acts are laws of that kind. They impose a new tax calculated by reference to the company's overdue tax but giving rise to a new and different liability. The company's tax liability remains unaffected by the imposition and assessment of the recoupment taxes. The liabilities imposed respectively upon the company, vendors and promoters coexist before any payment is made. A payment of vendors recoupment tax does not reduce overdue company tax or promoters recoupment tax; a payment of promoters recoupment tax is deemed to reduce overdue company tax (s. 9(7)) and thus vendors recoupment tax (s. 9(1)); a payment of overdue company tax pursuant to an arrangement with the Commissioner affects liability for vendors recoupment tax but does not affect liability for promoters recoupment tax: ss. 20, 21. The 1982 Assessment Act thus treats as distinct the tax liability of the company, the liability for promoters recoupment tax and the liability for vendors recoupment tax. The obligation to pay a recoupment tax is distinct from an obligation to pay overdue company tax. The circumstance that payments made in discharge of one tax liability may reduce another of those liabilities is quite consistent with according the character of taxation to each of the taxes. As Kitto J. said in Moore v. The Commonwealth [47] : Separate obligations to pay money to the Commonwealth may, no doubt, be so created that each of them is a tax, notwithstanding that a payment in respect of one is to operate as pro tanto satisfying the other, and even notwithstanding that any excess of one over the other is to be refunded. (See also per Dixon J. [48] .) Upon their true construction, the three Acts do not throw upon the accountable parties the burden of paying the company's overdue tax; they oblige an accountable party to pay the tax imposed upon him. The first argument fails. 1. (1975) 133 C.L.R., at p. 493. 2. (1914) 17 C.L.R. 665. 3. (1965) 114 C.L.R. 1, at p. 16. 4. (1980) 145 C.L.R. 532, at p. 569. 5. (1914) 17 C.L.R., at pp. 671, 674-675, 678. 6. (1951) 82 C.L.R., at p. 581. 7. (1951) 82 C.L.R., at p. 568.

[19]

The plaintiffs propounded the subject of taxation to be "a company's undischarged liability to pay overdue tax and/or undis-tributed profits tax". The objects of vendors recoupment tax were taken to be the vendors of shares. The other criteria can be taken to exhibit whatever connexion there may be between the objects and the subject of taxation: liability of the company for overdue company tax (s. 5(1)(g)) calculated as though the last relevant year of income ended immediately before the last sale of shares (s. 3(10)) and an arrangement or transaction which secures or achieves the result that the company is unable to discharge its tax liability: s. 5(1)(h). Then it was said that there was an insufficient connexion between the objects and the subject of taxation because it was not necessary that the vendors of the shares be concerned in any way with, or even know of, the non-payment of overdue company tax or the entering into the arrangement or transaction which resulted in the company's inability to discharge its tax liability. But why should the liability of a company for unpaid tax be selected as the subject of taxation? It could also be said that the subject of the vendors recoupment tax is the sale of shares under a scheme (s. 5(1)(a)) carrying certain voting power (s. 5(1)(c)); or, a sale of that kind at a price in excess of the amount calculated according to the formula in s. 5(1)(d). If a sale of shares were taken to be the subject of taxation, the connexion with the vendors of the shares would be obvious and substantial. And so, if sufficient connexion were the test of validity, the selection of one criterion rather than another would or might determine the validity of the law. In my opinion, the division of criteria for the purpose of determining whether the law truly imposes taxation is artificial and erroneous. It is artificial because the selection of one criterion as the subject of taxation arbitrarily diminishes the significance of other criteria in ascertaining the character of the law. It is erroneous because the broad concept "subject of taxation" and the notion of sufficient connection with it are impermissibly translated from the context of the second paragraph of s. 55 to the context of s. 51(ii). Yet the purpose and function of s. 51(ii) and s. 55 are quite different. The first requirement of the second paragraph of s. 55 is calculated to safeguard the powers of the Senate in relation to bills imposing taxation that originate in the House of Representatives and that may not be amended in the Senate: Constitution, s. 53: Harding v. Federal Commissioner of Taxation [51] ; Resch's Case [52] ; see also National Trustees, Executors and Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation [53] . That requirement does not affect the scope of the legislative power granted to the Parliament by s. 51(ii); it affects the means by which that power is exercised.

[25]

The Vendors Act imposes taxation upon a "vendors taxable amount" in "an amount equal to the vendors taxable amount": Vendors Act, ss. 4 and 5. "Vendors taxable amount" is defined to mean "an amount that is a primary taxable amount or a secondary taxable amount": the 1982 Assessment Act, s. 3(1). A primary taxable amount exists in relation to a person where the criteria specified in pars (a) to (j) of s. 5(1) of s. 5(2) are met. The chief of those criteria are a sale of shares carrying more than 90 per cent of the voting power of a company for an amount exceeding the value of the net assets of the company taking account of its tax liability assessed on the basis that the company's income year ended immediately before the time of the last sale (except in relation to the distribution period in respect of Div. 7 tax), the non-payment of ordinary company tax or undistributed profits tax due and payable by the company, the entry into an arrangement or transaction (not necessarily by the vendors) that resulted in the company being unable to pay to the Commissioner all the company tax due and payable by it and the discontinuance after the time of the last sale of a business previously carried on by the company. A secondary taxable amount exists where the criteria specified in s. 6 are met. The chief of those criteria is that a vendors taxable amount exists in relation to a company or in relation to a trustee of a trust estate. Section 6 provides for the existence of a secondary taxable amount in the circumstances specified in the section in relation to persons other than the company or the trustee. Broadly speaking, the persons in relation to whom a secondary taxable amount exists are persons entitled on a distribution of the capital of the company or of the corpus of the trust estate. The effect of s. 6, when incorporated into the Vendors Act, is to widen the objects upon whom the liability for vendors recoupment tax is laid beyond those primarily liable under s. 5. However the subject of taxation is described in relation to those who become liable by reason of s. 5, it is the same subject of taxation when liability is imposed by reason of s. 6. I would hold that the Vendors Act does not deal with more than one subject of taxation and does not offend the second paragraph of s. 55 of the Constitution.

[26]

The Promoters Act imposes taxation on a "promoters taxable amount" which is defined in relation to a person or persons as meaning "an amount that is a promoters taxable amount under section 7 in relation to an eligible promoters class in which the person is, or the persons are, included": the 1982 Assessment Act, s. 3(1). The tax is imposed in an amount equal to the promoters taxable amount: Promoters Act, ss. 4 and 5. A promoters taxable amount exists where the criteria specified in pars (a) to (h) of s. 7(1) or s. 7(2) are met. The chief of those criteria are a purchase of shares in a company by a person or persons who, immediately after the purchase, is or are capable of controlling more than 90 per cent of the voting power of the company, the non-payment of ordinary company tax or undistributed profits tax due and payable by the company, the entry into an arrangement or transaction that resulted in the company being unable to pay to the Commissioner all the company tax due and payable by it and the discontinuance after the time of the last purchase of a business previously carried on by the company. A promoters taxable amount does not exceed the difference between the value of the net assets of the company immediately before the time of the last purchase and the sum of the amounts of purchase price of the shares and tax paid after the purchase but before 25 July 1982: s. 7(3). A promoters taxable amount may exist in relation to the persons in any of seven eligible promoters classes specified in s. 7(8), including the purchasers of the shares (par. (a)), their agents or brokers (par. (b)), and their associates who gave them financial assistance for the purpose of, or in connexion with, the purchase: par. (c). It was submitted that, as promoters recoupment tax was imposed upon those several classes in relation to whom a promoters taxable amount exists, the Promoters Act deals with more than one subject of taxation. Purchasers, agents, brokers and financiers are, in their several ways, involved in a purchase of shares in a company, but the activities which characterize their respective involvement and expose them to tax liability are different. Are those activities merely descriptive of the objects of the tax or do they identify different subjects of taxation? The question is not to be answered by analytical or logical classification but on "common understanding and general conceptions". The common criterion of the existence of a promoters taxable amount in relation to any person is his involvement, directly or indirectly, in the purchase of shares in a company which, as a result of some arrangement or transaction, becomes unable to pay the whole of the company tax that has become due. That common foundation of liability is a sufficient connexion among the several heads under which a person may be assessed to promoters recoupment tax to bring all heads within the same subject of taxation. The criteria to be found in s. 7 are not so diverse as to reveal that "very clear demonstration of error" which Isaacs J. thought the Court should perceive before holding that the Act dealt with more than one subject of taxation: National Trustees, Executors and Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation [1] .

[28]

For the purposes of this Act, and a certificate signed by the Commissioner, a Second Commissioner or a Deputy Commissioner and stating that an amount of company tax specified in the certificate is due and payable by a company and that, on a date specified in the certificate, that company tax remained unpaid, is conclusive evidence of the matters stated in the certificate except in proceedings under Division 2 of Part V of the Assessment Act in relation to an assessment in respect of that company tax. By force of this sub-section, two of the criteria of liability for recoupment tax can be made incontestable except in certain objection and appeal proceedings under the Income Tax Assessment Act 1936 Cth. A certificate issued under s. 23(1) can preclude a recoupment taxpayer from challenging that an amount of company tax is due and payable and that it is unpaid - facts which are essential both to the existence of a liability for recoupment tax and to the quantification of that liability. The sub-section therefore invites consideration of what Dixon C.J. said in Deputy Federal Commissioner of Taxation v. Brown [2] : Although there is no judicial decision to that effect, it has, I think, been generally assumed that under the Constitution liability for tax cannot be imposed upon the subject without leaving open to him some judicial process by which he may show that in truth he was not taxable or not taxable in the sum assessed, that is to say that an administrative assessment could not be made absolutely conclusive upon him if no recourse to the judicial power were allowed. A conclusive certificate shrouds the statutory criteria to which it relates, substituting the existence of the certificate for the existence of the criteria. Liability assessed by reference to the certificate may differ in incidence or amount from liability assessed by reference to the actual existence of the criteria. Yet where the Parliament imposes a tax by reference to prescribed criteria, it is for the courts and not for the executive to determine whether each of those criteria exist in the particular case. The jurisdiction of the courts cannot be wholly excluded by a provision which makes the Commissioner's certificate conclusive as to the existence of a fact when the Parliament has prescribed the existence of the fact to be a criterion of the taxpayer's liability. An opportunity to obtain a judicial determination as to the existence of the fact may be validly limited (as it is under the Income Tax Assessment Act) to judicial proceedings on appeal from disallowance of an objection to an assessment, but it cannot be wholly excluded. A further objection to the validity of a conclusive certificate provision could be raised where the criterion of liability to which the certificate relates is essential to give the impost the character of a tax. In such a case, a liability imposed by reference not to the existence of that criterion but by reference to the existence of the certificate would not be an impost of the same character. However, the challenge to the validity of s. 23(1) must be founded upon the former, more general, objection. 1. (1958) 100 C.L.R 32, at p. 40.

At a glance

Court

Decision date

Before

Source

Judgment (31 paragraphs)

Parties

Cases Cited (1)