Parliamentary Trustee of the Parliamentary Contributory Superannuation Fund v Commissioner of Taxation

REASONS FOR JUDGMENT 1 This is an appeal pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) ("the Administration Act") from a decision of the respondent, the Commissioner of Taxation ("the Commissioner"), made on 28 July 2011, whereby objections by the applicant, the Parliamentary Trustee, to assessments of superannuation contributions surcharge under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth) ("the Assessment Act") in respect of the years 1997-2005 inclusive were disallowed. In those years, the applicant had certain responsibilities under the Parliamentary Salaries and Superannuation Act 1968 (Vic) ("the PSS Act") with respect to the management of the Parliamentary Contributory Superannuation Fund ("the Fund"), a defined benefit, contributory, superannuation fund for members of the Victorian Parliament (although it seems that the applicant was not trustee of the assets held by the fund in the conventional sense of having vested in it the legal title to such assets). 2 The applicant's challenge to the assessments involves a single point of high principle: that, in the imposition upon the Fund of liability to pay the surcharge, the Assessment Act is beyond the legislative competence of the Commonwealth Parliament because it curtails or interferes with the capacity of the State of Victoria to function as a government. Further, the applicant's point is narrower again. It relies only upon the application to the facts of the present case of the judgments of the High Court in Austin v The Commonwealth (2003) 215 CLR 185 and Clarke v Commissioner of Taxation (2009) 240 CLR 272. It is not said that the Fund was itself a manifestation of the State of Victoria and for that reason alone could not, consistently with Melbourne Corporation v The Commonwealth (1947) 74 CLR 31, be the subject of a Commonwealth tax, impost or surcharge of general application. The applicant advances its single point in two ways, to which I shall refer below, but the essence of the point is as I have described it here. 3 The object of the Assessment Act, as stated in s 5 thereof, was - … to provide for the assessment and collection of the superannuation contributions surcharge payable on surchargeable contributions for high-income individuals. By s 7(1) of the Assessment Act, "surcharge is payable on a member's surchargeable contributions" for years which included those with which I am concerned. A "member" was, relevantly, a member of a superannuation fund, and "surchargeable contributions" were, in the case of a defined benefits superannuation scheme - …the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year. By other definitions in the Assessment Act to which it is not necessary to refer, the superannuation scheme managed by the Fund was a defined benefits superannuation scheme. 4 In the case of a member of a fund who had not received a lump sum superannuation payment, and who had not yet commenced to receive a payment of pension or annuity, the "superannuation provider" was treated as the "holder" under the Assessment Act (s 8A(2)) and was liable to pay the surcharge (s 10(2)). A "superannuation provider" was so defined to include the trustee of a superannuation fund, and a "trustee" was, in the case of a fund which did not have a trustee within the ordinary meaning of the word, the person who managed that fund. In the present case, for most of the members of the Fund whose circumstances were relevant to the assessments, the applicant was the "holder" under the Assessment Act, and was assessed as liable to pay the surcharge by the Commissioner. In a limited number of other cases, it was the members themselves who were the holders and were assessed, and I shall return to those cases, but for the moment I shall focus on the situation in which the applicant was assessed as the holder. By s 15(3) of the Assessment Act, the surcharge was payable within one month after the day on which the assessment was made. Assessments were required to be made "for" each financial year, but it seems that an assessment was generally made some time after the end of the financial year to which it related. 5 The way the Fund operated was explained uncontroversially in the applicant's written submission as follows: During the Relevant Period Parliamentarians were required to contribute a proportion of their salary to the Fund. For the first 20.5 years of service, 11.5% of the member's total salary was deducted and paid into the Fund. After that period of service, no further contributions were made unless the member was the holder of a specified office, which case 11.5% of that additional salary was deducted and paid into the Fund. The Fund continues to receive contributions from those Parliamentarians who remain in Parliament. The Fund does not receive contributions from new Parliamentarians. When a member exits the Fund, he or she is entitled to a lifetime pension or a lump sum payment depending on the length of parliamentary service. Where retirement is voluntary (for example, where the person resigns or chooses not to re-contest an election), the member qualifies for a pension after completing 12 or more years of service. If a member's retirement is involuntary (for example, loss at an election), he or she qualifies for a pension after 8 years of service. If a member has not reached the qualifying periods and the retirement is not an invalidity retirement, he or she receives a lump sum payment. A member of the Fund who is entitled to a pension may convert all or part of it to a lump sum, except where the member receives a pension on grounds of ill health. For members of the Fund who are entitled to a pension, the rate of pension is calculated as a percentage of salary payable to the Parliamentarian at the time of retirement. The rate of pension increases with completed years of service, starting at 50% of salary after 8 years of service and reaching a maximum of 75% of salary after 18 years of service…. 6 The effect of the enactment of the Assessment Act was that, in relation to members in respect of whom it was the holder, the applicant was obliged to pay the 15% surcharge each year. That circumstance led to the enactment of the Superannuation Acts (Amendment) Act 2000 (Vic), the need for which was explained by the Minister for Finance in the following terms: With the passing of commonwealth legislation on 5 June 1997, certain contributions called surchargeable contributions made to a superannuation fund on behalf of high-income earners after 7.30 p.m. on 20 August 1996 became subject to a superannuation contributions tax, known as surcharge. Because the surcharge is imposed on the fund, legislation is being introduced to allow Victorian public sector superannuation schemes to recover the surcharge from members. This legislation will bring Victoria into line with every other state and the commonwealth as this government believes it is only fair and proper that members of Victorian public sector superannuation schemes pay the surcharge like everyone else, and it will save Victorian taxpayers an estimated $3 million a year. The way the amending legislation would work was explained by the Minister as follows: For defined benefit scheme members, a surcharge debt account will be established by the fund for each member to which interest will be applied to the balance as at 30 June each year. The rate of interest is the same as the rate set by the commonwealth under its surcharge legislation - that is, the 10-year bond rate. When the benefit is due to be paid to a defined benefit scheme member, provisions are to be inserted to allow trustee discretion to apply to determine how much of the outstanding debt is to be recovered from the member's benefit payment. Trustee discretion is provided to cater for circumstances when a member's final benefit varies substantially from the benefit assumptions that had been used for surcharge assessment each year. The trustee discretion criteria are based on the same criteria that the commonwealth has given its own fund administrators - that is, the trustee must have regard to: the surcharge debt balance; the value of the employer-financed component of the benefit; the values of the benefit that were assumed likely to be payable to the member on exit when working out the surchargeable contributions each year; whether the person has or had qualified for the maximum benefit; and any other relevant matters. 7 By Pt 4 of the 2000 amending Act, ss 24D and 24E were inserted into the PSS Act. By s 24D, the applicant was required to establish and to maintain a "separate surcharge debt account for each member of the Fund". To that account, the applicant was required to debit the amount of any surcharge paid or payable in respect of the member under the Assessment Act, together with interest if the member's surcharge debt account was in debit at the end of a particular financial year. If, at the time benefits became payable to a person who had been a member, and his or her surcharge debt account was in debit, then (by s 24D(4)) - [Despite] anything in any Act or in any trust instrument, contract or other document, the Parliamentary Trustee may reduce those benefits by an amount determined in writing that, in the Parliamentary Trustee's opinion on the advice of an actuary, would be fair and reasonable having regard to the matters specified in sub-section (5). Section 24D(5) set out the matters to which the applicant was required to have regard under subs (4), and subs (6) put a cap of 15% of the "employer-financed component of that part of the benefits payable to the person that accrued after 20 August 1996" on the amount determined under subs (4). 8 Under subs (7) - For the purposes of sub-subsection (4), if the benefit is in the form of a pension entitlement, the deduction is to be made by the Parliamentary Trustee commuting the member's pension entitlement to the extent determined by an actuary appointed by the Parliamentary Trustee to be necessary to meet the amount determined under sub-section (4). Section 24E provided for a similar power of commutation in the case of a former member who was already in receipt of a pension under the PSS Act and who (because, in such circumstances he or she would be the "holder") received a notice of surcharge assessment under the Assessment Act. 9 The first way in which the applicant's case was argued was to contend that the operation of the Assessment Act infringed the Melbourne Corporation principle by reference to the reasoning in Austin and in Clarke. Those cases concerned the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) (" the CPSF Assessment Act"), in Austin with reference to its application to a member of the Supreme Court of New South Wales and in Clarke with reference to its application to a member of the Parliament of South Australia. The CPSF Assessment Act does not apply to the facts of the present case. Subject to the applicant's case on invalidity, the Fund is covered by the Assessment Act along with other private and public sector superannuation funds which fall within its terms. But the applicant says that the present facts are sufficiently akin to those which came before the court in Austin and Clarke to require the conclusion to be reached that the operation of the Assessment Act in relation to the Fund would be beyond the legislative competence of the Commonwealth Parliament. 10 The object of the CPSF Assessment Act is the same as that of the Assessment Act, but the "high-income" persons referred to are "members of constitutionally protected superannuation funds". The Fund is not such a fund, but the funds concerned in Austin and Clarke were. Under the CPSF Assessment Act, the surcharge was payable on a member's "surchargeable contributions", a term which was, in the case of a defined benefits superannuation scheme, defined in the same terms as was the like term in the Assessment Act (see para 3 above). Under s 11 of the CPSF Assessment Act, the surcharge was payable not by the holder of the contributions but by the member. Section 15 provided for when the surcharge would be payable: not from time to time within one month after each annual assessment (as in the case of the Assessment Act) but (under subs (6)) "when a superannuation benefit … becomes payable". The amount then to be paid was the debit balance of the surcharge debt account which the Commissioner was obliged to keep in respect of each member, to which account would periodically have been debited the surcharge assessed from time to time together with interest. Thus, although the surcharge was debited by reference to notional contributions made by or for the benefit of the member over the period of his or her service in the office concerned, no obligation to pay the surcharge fell due until, in effect, the member's period of service ceased and he or she was due to be paid a superannuation benefit. Further, the surcharge was then payable by the member himself or herself. It is in these two significant respects that the CPSF Assessment Act departed from the scheme of the Assessment Act. 11 In their joint judgment in Austin, Gaudron, Gummow and Hayne JJ considered the scope of the Melbourne Corporation doctrine, particularly with reference to general laws which, in their application to the States, arguably imposed a burden which was constitutionally impermissible. Their Honours referred to a passage in Essendon Corporation v Criterion Theatres Ltd (1947) 74 CLR 1, 24 where Dixon J had referred to the following from the judgment of Holmes J in Panhandle Oil Co v Mississippi ex rel Knox (1928) 277 US 218, 224 speaking of the federal government in the USA: It avails itself of the machinery furnished by the State and I do not see why it should not contribute in the same proportion that every other purchaser contributes for the privileges that it uses. It has no better or other right to use them than any one else. The cost of maintaining the State that makes the business possible is just as necessary an element in the cost of production as labor or coal. 12 Gaudron, Gummow and Hayne JJ also considered the judgment of Dixon J in Bank of NSW v The Commonwealth (1948) 76 CLR 1. His Honour had said (76 CLR at 337-338): It is open to the States, at all events in contemplation of law, under the exception of State banking, to provide for their own needs. But even if that were not so, the States would be bound to take the banking system as any general law, made in the exercise of Federal power, left it. Just as when the Federal Government desires to use or take advantage of anything the nature or character of which is determined by an exercise of the exclusive power of the State, it must take it as it finds it, so the States, when they avail themselves of services or facilities regulated or determined by Federal law, must accept it as part of the system enjoyed by the whole community. Such things are a consequence of the distribution of powers and stand apart altogether from some exercise of legislative power which singles out the States or which operates specially to impede them in their functions. Section 48 of the Act of 1945 discriminated against States and in that way singled out the States in order to curtail their freedom in using the general banking system. No doubt without discrimination laws applying to States may operate against them in such a way that it must be beyond Federal power to enact them. That is perhaps shown by the discussion in New York v. United States (1946) 326 US 572 .... But it is a question which lies outside such a case as the present where the law relates to the form to be taken by part of the established organization of the community affecting all alike. In Austin, their Honours said (215 CLR at 251 [130]) that Dixon J was here making a distinction … between (a) a federal law of general application which the States must take as they find it as part of the system enjoyed by the whole community, if they wish to avail themselves of the services or facilities regulated or determined by that federal law; (b) a law which discriminates against the States and in that way singles them out in order to curtail their freedom in the execution of their constitutional powers; and (c) laws which, without discriminating against the States and singling them out, nevertheless operate against them in such a way as to be beyond federal power. 13 Gaudron, Gummow and Hayne JJ dealt with comparable United States decisions, and ultimately in that sequence with New York v United States (1946) 326 US 572, which involved the susceptibility of the State of New York to federal sales tax. Their Honours said (215 CLR at 253-254 [135]): The Supreme Court was concerned to explain the circumstances in which a "non-discriminatory tax" of general application, such as the federal sales tax laid on a particular subject-matter without regard to the personality of a taxpayer, might nevertheless be an unconstitutional exertion of federal power on the States. The concurring judgment of four members of the Court, delivered by Stone CJ, said (326 US at 588): The tax reaches the State because of the Congressional purpose to lay the tax on the subject matter chosen, regardless of who pays it. To say that the tax fails because the State happens to be the taxpayer is only to say that the State, to some extent undefined, is constitutionally immune from federal taxation. Only when and because the subject of taxation is State property or a State activity must we consider whether such a non-discriminatory tax unduly interferes with the performance of the State's functions of government. If it does, then the fact that the tax is non-discriminatory does not save it. If we are to treat as invalid, because discriminatory, a tax on 'State activities and State-owned property that partake of uniqueness from the point of view of intergovernmental relations,' it is plain that the invalidity is due wholly to the fact that it is a State which is being taxed so as unduly to infringe, in some manner, the performance of its functions as a government which the Constitution recognizes as sovereign. Earlier in his judgment, Stone CJ had observed (326 US at 587) that a federal tax which was non-discriminatory as to its subject-matter, might nevertheless affect a State "as to interfere unduly with the State's performance of its sovereign functions of government". 14 In Austin, Gaudron, Gummow and Hayne JJ next considered the judgments in Melbourne Corporation itself, setting out (215 CLR at 256 [138]) the following from that of Dixon J (74 CLR at 81): What is important is the firm adherence to the principle that the federal power of taxation will not support a law which places a special burden upon the States. They cannot be singled out and taxed as States in respect of some exercise of their functions. Such a tax is aimed at the States and is an attempt to use federal power to burden or, may be, to control State action. The objection to the use of federal power to single out States and place upon them special burdens or disabilities does not spring from the nature of the power of taxation. The character of the power lends point to the objection but it does not give rise to it. The federal system itself is the foundation of the restraint upon the use of the power to control the States. The same constitutional objection applies to other powers, if under them the States are made the objects of special burdens or disabilities. Their Honours continued (215 CLR at 256 [139]): It follows from the reasoning in these judgments in Melbourne Corporation that invalidity does not necessarily attend any federal law which requires a State in the performance of its functions to bear a burden or to suffer a disability to which others are not subject. That was the conclusion reached by Brennan J in Queensland Electricity Commission v The Commonwealth (1985) 159 CLR 192 at 233 after consideration of what had been said, not only by Sir Owen Dixon in Melbourne Corporation and in Victoria v The Commonwealth (1957) 99 CLR 575, 609, but by Williams J in the latter case (99 CLR at 638) and by Barwick CJ and Gibbs J in [Victoria v The Commonwealth "the Pay-roll Tax Case"] ((1971) 122 CLR 353, 375, 426 respectively). 15 Turning specifically to the subject of taxation, Gaudron, Gummow and Hayne JJ held (215 CLR at 257 [141]) that it could not be said that the imposition upon the States of a tax of general application necessarily imposed some special burden or disability upon them, so that the law might be described as one aimed at the restriction or control of the States. In that respect, their Honours cited, with approval, the following passage from the judgment of Gibbs J in Victoria v The Commonwealth ("the Payroll Tax Case") (1971) 122 CLR 353, 425: Although in some cases it may be possible to show that the nature of a tax on a particular activity, such as the employment of servants, renders the continuance of that activity practically impossible, it has not been shown that the tax in the present case prevents the States from employing civil servants or operates as a substantial impediment to their employment. The tax has now been imposed upon and paid by the States for nearly thirty years, and it has not been shown to have prevented the States from discharging their functions or to have impeded them in so doing. They may have less money available for public purposes because they have to pay the tax, but that could be said in every case in which a tax is imposed on the States, and in itself it cannot amount to an impediment against State activity sufficient to invalidate the tax. That passage, and their Honours' approval of it, provided an important background to the course which their reasons subsequently followed, a course which is of some significance in the context of the present case. 16 In a passage upon which the applicant relied in the present case, Gaudron, Gummow and Hayne JJ said (215 CLR at 257-258 [143]): To fix separately upon laws addressed to one or more of the States and upon laws of so-called "general application", and to present the inquiry as differing in nature dependent upon the form taken by laws enacted under the one head of power, tends to favour form over substance. The substance is provided by considerations which arise from the constitutional text and structure pertaining to the continued existence and operation of the States. Further, to treat as the decisive criterion of validity the form of an impugned law with respect to taxation is to distract attention from the generality of the terms in which in s 51(ii) the power is expressed (save for the specific reference to discrimination). It is to attend insufficiently to what in this realm of discourse is the essential question in all cases. This is whether the law restricts or burdens one or more of the States in the exercise of their constitutional powers. The form taken by a particular law may, as Dawson J explained in the passage from Queensland Electricity set out at 249 [125], assist more readily in answering that question, but in all cases the question must be addressed. Their Honours next considered certain aspects of the judgments in The Commonwealth v Tasmania (1983) 158 CLR 1 and of the Native Title Act Case (1995) 183 CLR 373, and concluded (215 CLR at 260 [148]) that the question in the case before them was "whether the two laws with respect to taxation, the [Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth)] and the [CPSF] Assessment Act, restrict or control the States, in particular New South Wales and Victoria, in respect of the working of the judicial branch of the State government." 17 In that respect, their Honours were of the view that Re Australian Education Union (1995) 184 CLR 188 was of "central importance" for the case before them, in particular for two propositions, namely (215 CLR at 260-261 [152]) - … that (a) it is "critical to a State's capacity to function as a government" that it retain ability to determine "the terms and conditions" on which it engages employees and officers "at the higher levels of government", and (b) "Ministers, ministerial assistants and advisers, heads of departments and high level statutory office holders, parliamentary officers and judges would clearly fall within this group". One result, with which Australian Education Union was immediately concerned, would protect the States to some degree from the exercise by the Commonwealth Industrial Relations Commission of power under federal law to fix minimum wages and working conditions in respect of persons to whom the federal law otherwise would extend. Another result is to support the foundation for the case made by the first plaintiff. That is to say, the question in Austin was whether the two laws referred to restricted or controlled the States in respect of their determination of the terms and conditions upon which they engaged judges. In the present case, it is accepted by the Commissioner that members of Parliament are no less to be regarded as occupying positions "at the higher levels of government" than were the plaintiffs in Austin. 18 Stating their conclusions with respect to the application of the Melbourne Corporation doctrine to the facts in Austin, Gaudron, Gummow and Hayne JJ said (215 CLR at 261 [155]): As a general proposition, it is for the State of New South Wales, as for the other States, to determine the terms and conditions upon which it appoints and remunerates the judges of its courts. The concept of remuneration includes provision of retirement and like benefits to judges, spouses and other dependants. There is, as the Supreme Court of Canada pointed out in R v Beauregard [1986] 2 SCR 56 at 83, "a close relationship between salaries and pensions", both being "remunerative benefits". The State of New South Wales chose to discharge its responsibilities for the establishment and maintenance of its judicial branch by providing the unfunded and non-contributory scheme in the NSW Pensions Act. Their Honours noted that the State of New South Wales had chosen to remunerate its judiciary, in part, by way of pension on retirement. That choice, according to their Honours, "affected the terms and conditions for the engagement by the executive branch of judges and the organisation and working of the third branch of government of the State" (215 CLR at 262 [157]). Their Honours continued (215 CLR at 262 [158]): In respect of that State legislative choice, the federal laws in contention impose no fiscal burden directly upon the State. It is the first plaintiff, not the State, who is the taxpayer. Does the absence of that immediate fiscal burden upon the State compel the conclusion that there has been but a "speculative and uncertain" impairment by the federal law of the exercise by the State of its freedom to discharge as it decides its constitutional functions respecting the remuneration of the judicial branch? Does the federal law merely affect the ease of the working of the judicial branch? Their Honours then referred to the justification for, and the perceived importance of, secure judicial remuneration, including remuneration in retirement, and said that such matters were "for determination by State legislatures" (215 CLR at 263 [161]). Their Honours continued (215 CLR at 263 [161]-[162]): That constitutional framework also constrains those legislatures, in particular, by requiring them to take as they find federal laws of "general application" as part of the system enjoyed by the whole community [Bank of NSW v The Commonwealth (1948) 76 CLR 1 at 337]. Hence the statement by Frankfurter J in O'Malley v Woodrough (1939) 307 US 277 at 282: "To subject them to a general tax is merely to recognise that judges are also citizens, and that their particular function in government does not generate an immunity from sharing with their fellow citizens the material burden of the government whose Constitution and laws they are charged with administering." However, that is not the present case. Section 5 of the Protected Funds Assessment Act speaks of "high-income members of constitutionally protected superannuation funds". They are taxed in a fashion which differs from that required by the Surcharge Imposition Act and the Surcharge Assessment Act. A law taxing them is not in the sense of the authorities a law of "general application" which, with reference to the classification by Dixon J, falls into category (a) identified at 251 [130]. Those persons whose surchargeable contributions in respect of a "defined benefit superannuation scheme" are worked out by reference to the notional surchargeable contributions factor and other elements specified in the second half of s 9, are a particular group of State employees and officers. Their selection for attention by the federal legislature as "high-income members" of the non-contributory unfunded schemes in question suggests that, for the purposes of the Melbourne Corporation doctrine, they are those employees and officers "at the higher levels of government" spoken of in Australian Education Union (184 CLR at 233). At all events, there is no doubt that the first plaintiff is such an individual. The concluding reference here to "category (a)" was to their Honours' own paraphrase of what Dixon J had said in Bank of NSW v The Commonwealth (see para 12 above). The above was, in my view, an important passage in the joint judgment in Austin. It showed that the circumstance that the CPSF Assessment Act was not a law of general application was significant in their Honours' reasons. It was an essential aspect of the ratio decidendi of the case. 19 Turning to the question which had been posed for the court in the case stated in Austin, Gaudron, Gummow and Hayne JJ narrowed that question "by asking whether [invalidity under the Melbourne Corporation doctrine] comes about by a sufficiently significant impairment of the exercise by the State of its freedom to select the manner and method for discharge of its constitutional functions respecting the remuneration of the judges of the courts of the State" (215 CLR at 264 [165]). Addressing the question whether there had been, in a significant manner, a curtailment or interference with the exercise of State constitutional power, their Honours said (215 CLR at 265 [169]-[170]): The first plaintiff has been assessed to surcharge on surchargeable contributions fixed at more than 61 per cent of his annual remuneration. If the first plaintiff were to meet such imposts as they are imposed year by year during the tenure of his office, he would be chancing fortune to the degree indicated earlier in these reasons. More immediately to the point, to a significant degree, the interest of the State in providing an adequate level of remuneration would have been denied. Further, the provisions for accumulation of indebtedness supply a disincentive to the first plaintiff to meet the public interest of the State in retaining his judicial services for the maximum possible term. This is because the "notional surchargeable contributions factor" is zero for each year after the earliest retirement date, but upon the surcharge debt interest will continue to accrue until retirement and receipt of the pension. If the first plaintiff does serve the public interest in this way by remaining in office until final retirement age, then the interest of the State in providing remuneration at what it regards as an appropriate level is again undermined, here by the imposition of a very large lump sum debt. The Commonwealth, in its submissions, urges against speculation upon what it says are the indirect effects of its laws upon the government of the State. However, one tendency of the federal laws readily apparent from their legal operation is to induce the State to vary the method of its judicial remuneration. The liberty of action of the State in these matters, that being an element of the working of its governmental structure, thereby is impaired. No doubt there is no direct legal obligation imposed by the federal laws requiring such action by the State. But those laws are effectual to do so, as was the Banking Act. 20 Their Honours then referred to the legislative response which had been made by the State of New South Wales to the enactment of the CPSF Act. That was to enable persons in the position of Austin J to commute their pensions to a lump sum, to the extent only necessary to meet their obligations upon retirement, under the CPSF Assessment Act. Their Honours said (215 CLR at 267 [173]): The occasion for the provision of that mechanism thus was supplied solely by the operation of the federal legislation; the provision of the mechanism was a response which changed what had been the legislative scheme respecting the terms and conditions for the remuneration of State judges, in particular as indicated in the NSW Pensions Act. Their Honours reached the conclusion that the CPSF Assessment Act (and the corresponding Act which imposed the surcharge) were "invalid on the ground of the particular disability or burden placed upon the operations and activities of New South Wales" (215 CLR at 267 [174]). 21 What I have set out above from the joint judgment of Gaudron, Gummow and Hayne JJ in Austin will be sufficient to identify the jurisprudential basis of the majority view in that case. However, in the present case, it is appropriate also to refer to two passages from the judgments of other members of the court who joined in that view. The first comes from the judgment of Gleeson CJ (215 CLR at 219-220 [28]): It is plain, and was accepted in the Australian Education Union Case, that quite apart from the consideration that they are not employees, the conciliation and arbitration power does not extend to enable the Parliament directly or indirectly to dictate to the States the terms and conditions of engagement of judges. An attempt to do so would be an impermissible interference with the capacity of States to function as governments. For the same reason, the Parliament's power to make laws with respect to taxation does not extend to enable it to legislate to single out State judges for the imposition of a special fiscal burden. Judges, like other citizens, are subject to general, non-discriminatory taxation, and the mere fact that the incidence of taxation has a bearing upon the amount and form of remuneration they receive does not mean that federal taxation of State judges is an interference with State governmental functions. It is otherwise when, as here, a federal law with respect to taxation treats State judges differently from the general run of high income earners and federal judges, and to their practical disadvantage. That differential treatment is constitutionally impermissible, not because of any financial burden it imposes upon the States, but because of its interference with arrangements made by States for the remuneration of their judges. The practical manifestation of that interference is in its capacity to affect recruitment and retention of judges to perform an essential constitutional function of the State. Evidence of that capacity is to be found in the legislative response which the State of New South Wales was, in effect, forced to make. The Parliament could never have compelled the State of New South Wales to alter the design of its judicial pension scheme. Indeed, at the time of the Acts, the State judicial pension scheme was not materially different from the federal judicial pension scheme. But the State scheme was substantially altered as a result of the practical necessity that followed from the subjection of State judges to a discriminatory federal tax. The second is from the judgment of McHugh J (215 CLR at 283-284 [229]): Here the federal law discriminates against State judicial officers in a way that interferes in a significant respect with the States' relationships with their judges. It interferes with the financial arrangements that govern the terms of their offices, not as an incidence of a general tax applicable to all but as a special measure designed to single them out and place a financial burden on them that no one else in the community incurs. The Commonwealth does not dispute that the relevant federal legislation treats the first plaintiff and other State judicial officers differently from the way federal laws concerned with the superannuation contributions surcharge deal with other "high income earners". Private "high income earners" do not have the surcharge imposed on them. In their case, the surcharge is imposed on their superannuation provider. The federal legislation assumes - no doubt with good reason - that the surcharge will be passed on to the high income earner in his or her capacity as a member of the superannuation scheme in the form of reduced benefits. But in so far as the federal legislation deals with these private "high income earners", it does not impose any surcharge on them personally. It does not make them liable to pay a debt of hundreds of thousands of dollars, as these federal laws make State judicial officers liable to pay. 22 From the foregoing survey of the reasons given in Austin, there are two considerations which stand out. The first is that the CPSF Assessment Act did not apply generally, but was a law of limited application which operated by reference to classes of persons who necessarily included those who served State governments at the highest levels. The second is that that Act operated upon an element of the remuneration of the plaintiff in such a way as to interfere with the freedom which the State had to remunerate him in ways of its own choosing. 23 As mentioned above, in Clarke the appellant was a former member of the South Australian Parliament. His pension entitlement arose under the Parliamentary Superannuation Act 1974 (SA), to which Gummow, Heydon, Kiefel and Bell JJ, in their joint judgment in the case, referred as "the PSS Act". Describing the operation of that Act, and the nature of the entitlements arsing under it, their Honours said (240 CLR 272 at 301-302 [45]-[47]): The PSS Act defined (s 5(1)) a "member" as a member of either House of Parliament of the State, and included those former members still in receipt of a salary. As a member, the appellant was obliged by s 14 of the PSS Act to contribute 11.5 per cent of his salary which was deducted by the Treasurer from his salary. Upon the appellant ceasing to be a member of the House of Assembly on 8 February 2002 by reason of the loss of his seat at an election, and having had not less than six years service, he became entitled for life, pursuant to s 16 of that statute, to a pension of about 43 per cent of his final salary. He continues to receive that pension. There was a limited right of commutation under s 21 of a proportion of the pension which had to be exercised by the appellant within three months of the loss of his seat. The appellant did not exercise that right. The pension may not be assigned or charged and cannot pass by operation of law (s 38). Were the appellant to be re-elected in the future his pension would cease, but his previous service would again be taken into account for subsequent pension entitlement (s 20). Section 39(1) states that the money required for the purposes of the PSS Act is payable by the Treasurer from the Consolidated Account or from a special deposit account established by the Treasurer for that purpose. Since the amendments made by the 1999 Act, benefits have been paid from the Parliamentary Superannuation Fund established by s 13 of the PSS Act. The assets of the fund belong, at law and in equity, to the Crown in right of the State (s 13(2)). The fund receives from the Treasurer payments equal to member contributions (s 13(4)(a)); the Treasury may charge the fund with the amount of benefits which are paid and thereby reimburse the Consolidated Account or other special deposit account (s 39(2)). 24 It will be seen that these South Australian provisions have much in common with the Victorian ones which are before the court in the present case. Counsel for the Commissioner did not rely upon any point of differentiation as being presently material. However, the South Australian fund was covered by the CPSF Assessment Act, not by the Assessment Act. The features of the former Act to which I have referred above, and to which the High Court drew attention in Austin, applied equally in the facts of Clarke. As in New South Wales, so too in South Australia the legislature introduced an amendment which provided for the commutation of so much of a member's pension entitlement as was necessary to yield a lump sum equivalent to the surcharge, with interest, that the member was obliged to pay on retirement under the CPSF Assessment Act. In the Full Court, it had been held that this amendment was not something which the State of South Australia had been obliged to do by the CPSF Act, but was, rather, "a piece of fine tuning" (Clarke v Federal Commissioner of Taxation (2008) 170 FCR 473, 503 [131]). With respect to that view of the matter, Gummow, Heydon, Kiefel and Bell JJ said (240 CLR at 308 [72]): However, the introduction of that provision had a greater significance. It was indicative of the curtailment or restriction of legislative choice for South Australia to provide remuneration to senior office holders. The appellant entered the Parliament under a system provided by the PSS. This provided a life pension after at least six years of service, with a limited right of commutation under s 21. The practical operation of the Assessment Act and the Imposition Act was to curtail the continued exercise of State legislative choice, as expressed in the PSS. The introduction of s 21AA was responsive to and indicative of that curtailment. As Hayne J explains in his reasons, the State was left with no real choice but to provide retirement benefits by a method which enabled parliamentarians to meet the burden imposed by the surcharge legislation. 25 As appears from the extract just set out, their Honours in the joint judgment in Clarke endorsed also what was said by Hayne J in a separate judgment. His Honour said (240 CLR at 315-316 [101]-[102]): What is important is that the laws now in issue, by their effect on how States may choose to remunerate their parliamentarians, place a special disability or burden upon the exercise of powers and the fulfilment of functions of the States. It is for a State to decide how and in what amount its parliamentarians are to be remunerated. Is it to be by salary, with or without funded or unfunded retirement benefits, or other forms of benefit? Are some or all of those benefits to be provided with or without contribution by the beneficiary? Are any or all of the benefits to be defined or are they to be an accumulation of whatever is contributed with interest? Are benefits to be paid by pension or in lump sum? The legislation imposing the surcharge in issue in this matter impairs the capacity of a State to choose between these various forms of remuneration of its parliamentarians in one particular but important respect: the State has no real choice but to adopt a method of providing retirement benefits that will enable parliamentarians to meet the tax liability specially imposed on them. That a State may have made particular choices about these matters in the past, and the effect of the surcharge on the arrangements chosen, is not to the point. Whether a State has chosen to administer the superannuation entitlements of State parliamentarians through one or more separately established schemes, or in conjunction with other superannuation arrangements for other State "employees", does not alter the effect of the surcharge upon the capacity of the State to fix the terms and conditions under which State parliamentarians serve. The effect of the surcharge on that capacity remains the same, no matter whether, before the enactment of the legislation imposing the surcharge, the State had chosen to provide retirement benefits for parliamentarians through a separate unfunded parliamentary pension scheme providing defined benefits, or had chosen to do so through one or more general public sector schemes providing undefined benefits. 26 This brief review of the main passages in the reasons delivered in Clarke makes applicable the conclusions which I ventured with respect to Austin in para 22 above. However, like Austin, Clarke, was concerned with the CPSF Assessment Act rather than with the Assessment Act. Are those conclusions transferrable to the circumstances of the Fund, to which the latter Act applied? 27 Because the surcharge in the present case was imposed on the Fund rather than upon the individual member, the starting point must, in my view, be the Payroll Tax Case. The Fund was a statutory artifact from which members' pensions were paid. The members' entitlement to those pensions arose by the operation of statute, rather than because they had an interest in the Fund, which they did not. A tax on the Fund was not a tax on the members. In one sense, because the ultimate obligation to ensure that the Fund was sufficiently funded to pay the surcharge under the Assessment Act lay upon the State, it was the State which effectively bore the burden of the surcharge. If so, the position was, at least ex facie, indistinguishable from that arising under the Payroll Tax Case: it might be said that the State had chosen to remunerate its members of Parliament in part by pension, and the Assessment Act was a law of general application that applied to all employers who had made that choice. Just as the State fell under an obligation to pay payroll tax upon salaries paid to members of Parliament, so too it fell under an obligation to pay the surcharge with reference to the notional annual increment in the value of those members' prospective pension entitlements. As was the situation in the case of the tax, the payment of the surcharge was not (to use the words of Gibbs J cited in Austin) "shown to have prevented the States from discharging their functions or to have impeded them in so doing". 28 What I have just said must, of course, now be taken subject to Australian Education Union. Even a law of general application to which the reasoning in the Payroll Tax Case would otherwise be relevant would overstep the implied limitation to the extent that it interfered with the ability of a State to determine the terms and conditions on which it would engage employees and officers at the higher levels of government, including members of Parliament. An industrial award, even if expressed in terms that made it applicable to salaried persons generally in a certain area, could not validly effect such an interference. Although members of Parliament are not employees, the principle is applicable to them in the same way. Thus, to take the case of retirement benefits (and subject always to an applicable head of Commonwealth legislative power), a federal law that set minimum (or maximum) levels of pensions by reference to salaries paid or some other factor would not be valid in its application to State members of Parliament. As I understand Austin and Clarke, this (additionally to the problem of the legislation applying only to constitutionally protected funds) was essentially the vice in the way the CPSF Assessment Act operated: by obliging the fund members, those Acts effectively cancelled out, pro tanto, the choices which the States concerned had made as to the remuneration of their judicial officers. 29 The same cannot be said of the Assessment Act. It does not operate upon the entitlements of the members of the Fund. True it is that it operates by reference to the notional value of the members' prospective entitlements, but the obligation is placed upon the Fund, and compliance with it would not affect the choices which the State had made as between, for example, the various options referred to by Hayne J in Clarke (see para 25 above). The Assessment Act takes a State's remuneration arrangements as they stand, and imposes the surcharge in a way which is, so far as I can see, indistinguishable, at the level of principle, from the arrangements discussed in the Payroll Tax Case. 30 The applicant contended, however, that an analysis along the lines of that set out above would place form ahead of substance. The Melbourne Corporation doctrine, it was stressed, was concerned with the practical effect of Commonwealth legislation, rather than merely with its formal prescriptions. Consistently, Austin and Clarke were decided the way they were because the practical effect of the CPSF Assessment was to control or to interfere with the remuneration arrangements which the States concerned made with respect to judges and members of Parliament, notwithstanding that that Act imposed no relevant obligation upon those States. It was submitted that, in the present case, both the policy underlying the Assessment Act and the explicit contemplation of the legislature was that the surcharge, although payable by the superannuation provider, would inevitably find reflection in a corresponding diminution in the retirement benefits, whether by way of pension or otherwise, to which the members of funds themselves would otherwise be entitled. In enacting the 2000 amendment to the PSS Act, the Victorian Parliament was, in the submission of counsel for the applicant, doing no more than "seeking to fulfil the expectation of the Commonwealth to achieve this policy measure of equity in the payment of taxation by high income earners with regard to taxation." 31 So far as it went, counsel for the Commissioner did not seek to resist that submission. They accepted that the passing-down of the requirement to pay the surcharge from the provider to the member was "in the contemplation of the Commonwealth at the time that the legislation was passed". There seemed to be a perception, shared both by the applicant and by the Commissioner, that this contemplation found expression in the Second Reading Speech for the Assessment Act. For my own part, I have not been able to understand that speech in that way, but I accept that the very high-level terms of what was a rather short speech may not have permitted the specific circumstances of a defined benefit, funded, superannuation scheme to be addressed. The responsible minister did say: As members lodge their income tax returns, the ATO will match details of their taxable income with the information supplied by superannuation providers. Where, as a result of the level of a member's adjusted taxable income, a surcharge liability arises the ATO will assess the amount of surcharge and will periodically send assessments to the provider who holds the member's contributions. The superannuation provider will then debit the member's superannuation account with the surcharge liability and will remit that amount to the ATO within one month of the assessment. From 1998 an advance instalment of surcharge will be payable on 15 June. The advance instalment will be 50 per cent of the surcharge assessed in the previous year. Unless I have missed something, there appears not to have been, either in the Bill of which the minister spoke or in the Assessment Act as passed, a provision which required the provider to debit a member's account as proposed in the third sentence of this extract. But there seems little doubt, if not elsewhere from the passage to which Gaudron, Gummow and Hayne JJ referred in Austin (215 CLR at 232 [63]), that the policy of the Commonwealth was that the fund members themselves should be the worse off for their providers having to pay the surcharge arising under the Assessment Act. 32 It was submitted on behalf of the Commissioner, however, that the Melbourne Corporation doctrine was concerned not with legislative policy or the contemplation, but with the practical impact of the Assessment Act. Validity under the Constitution related only to the latter. The practical impact of that Act, it was submitted, was to oblige the Fund to pay the surcharge. The State of Victoria apparently tolerated that situation for a period, and then made the amendment of 2000. That it did so - in a way, and at a time, of its own choosing - demonstrated (if demonstration were needed) that it was not the Assessment Act which had the practical effect of requiring the members of the Fund to bear the detriment of the surcharge: it was the Victorian legislation that did so. 33 I accept the Commissioner's submissions on this point. Sitting as a Judge at first instance, I do not consider myself to be in any position to hold that the Melbourne Corporation limitation has been overstepped in circumstances where legislation does not of its own force, or as a necessary consequence, interfere with arrangements made by a State for the remuneration of its members of Parliament, but where there is no more than an expectation or contemplation that the legislation would lead to choices made by the State, and in its own interests, by way of alteration to such arrangements. As I pointed out in the course of argument, this conclusion does produce the odd result that the present case will be decided differently from the way that Clarke was decided, notwithstanding the absence of any apparent difference between the fund in that case and the Fund. That result, however, is due to the circumstance that the fund in that case was, while the Fund is not, a constitutionally protected superannuation fund. 34 For the above reasons, I take the view that the present case, to the extent that it relates to members of the Fund in relation to whose notional contributions the applicant was the holder, is not within the same class as Austin and Clarke. The High Court's judgments in those cases are not, in my view, authority for the proposition that, in relevant respects, the Assessment Act infringed the Melbourne Corporation principle. 35 The second way in which the applicant argued its case was to rely on s 34 of the Assessment Act, which provides: This Act does not apply in any circumstance where its application would or might result in a contravention of the Constitution. In Austin, Gaudron, Gummow and Hayne JJ said that this provision was "oddly drawn" (215 CLR at 232 [65]) but, since the Assessment Act itself was not before the court on that occasion, their Honours did not develop their concerns. I agree that the provision is oddly drawn, in two respects. 36 First, the term "contravention of the Constitution" is problematic. In the submission of the Commissioner, that term is apt to encompass, possibly amongst other things, "contravention of a proposition which is implicit in the Constitution[,] and the Melbourne Corporation principle answers that description". The same submission underlay the applicant's case in reliance on s 34 (at least implicitly). In the circumstances - and in the absence of an effective contradictor on the point - I shall proceed by reference to that understanding of the notion of "contravention" in the provision. For my own part, I consider that the Melbourne Corporation principle is concerned with an implied limitation on Commonwealth legislative power which, if overstepped, would result in the ostensible legislation being invalid, rather than with an implied constitutional injunction to the legislature which could be "contravened" (although I recognise that there is some terminological support in the cases for the terminology for the position which the Commissioner takes, both before - Payroll Tax Case 122 CLR at 402 per Windeyer J - and after - Solomons v District Court of NSW (2002) 192 ALR 217, 249 [128]-[129] per Kirby J (diss); Austin 215 CLR at 217 [24] per Gleeson CJ; O'Donoghue v Ireland (2008) 244 ALR 404, 409 [12] per Gleeson CJ - the enactment of the Assessment Act). 37 Secondly, there is the problem of the word "might" as used in s 34. Counsel for the applicant focussed on what could be described as the quantitative denotation of the word, submitting that "the risk of contravention of the Constitution need only be a low level possibility to trigger the disabling effect of the section". They drew my attention to other statutory settings in which the word has been used, such as the way the privilege against self-incrimination was expressed in the National Crime Authority Act 1984 (Cth) - "the answer to a question [etc] … might tend to incriminate …" - and the Minister's discretion under s 78 of the National Health Act 1953 (Cth) (now repealed) to declare that a change in the rules of a registered organisation not come into operation where he or she was of the opinion that the change "would or might result in a breach" of that Act. These and the other contexts referred to by counsel are, however, very different from that arising under s 34 of the Assessment Act. That section is not concerned with the conditions for the exercise of a power of discretion. It identifies positively a circumstance in which the Assessment Act will not apply, and it does so without stating by whom the judgment implicit in the use of the word "might" is to be made. 38 The applicant relied on s 34 by way of a "preliminary point", albeit one the resolution of which was informed by considerations arising under the Melbourne Corporation principle. It was submitted that, having taken account of that principle but having made no decision by reference to it, the court could move to s 34 and decide that the Assessment Act had no application because any such application "might" contravene the Constitution. That is to say, it was sufficient if the court were able to conclude that, on uncontroversial facts, the question of law arising under that principle "might" be decided in favour of the applicant. In the view I take, however, whatever "might" means under s 34, it does not contemplate a forensic hypothetical of that kind. The constitutional validity of the Assessment Act, in its application to the Fund, having been challenged, the court's treatment of that challenge must be such as involves a positive judicial determination, one way or the other. The idea that a Ch III court should approach the resolution of contested litigation on the basis that the correct outcome only "might" be to a particular effect is so conspicuously counterintuitive as to make it most improbable that the legislature contemplated such an operation for s 34. 39 The Commissioner's submission on s 34 was expressed as follows in his written outline: 43. The phrase "would or might" addresses two situations: 43.1 first, the actual application of the Assessment Act to or in respect of a person at the time the challenge is brought; and 43.2 secondly, the possible application of the Assessment Act at some future time to or in respect of a person who brings a challenge in anticipation of the Assessment Act being so applied. Understood in that way, the phrase "or might" is a statutory recognition that a person may seek to challenge the future application of the Assessment Act in advance of the actual application of the Assessment Act to or in respect of that person. Counsel offered no oral elaboration upon that submission, and I must say that I find it difficult to understand. It was presumably the "secondly" aspect which related to the word "might" and, if so, the result for which the Commissioner contended would seem to be that the Assessment Act would not apply in a case in which a person may seek to challenge the application of the Act on a future occasion and to future circumstances. I cannot imagine that the legislature would have intended to tether the application of the section to such an abstract concept. 40 It was also submitted on behalf of the Commissioner that s 34 had the same effect as s 15A of the Acts Interpretation Act 1901 (Cth), which provides as follows: Every Act shall be read and construed subject to the Constitution, and so as not to exceed the legislative power of the Commonwealth, to the intent that where any enactment thereof would, but for this section, have been construed as being in excess of that power, it shall nevertheless be a valid enactment to the extent to which it is not in excess of that power. It was said that s 34 "confirms that, if there is a conflict between the terms of the Assessment Act and the Constitution, then this is not a case where the Parliament intends the law to apply 'fully and completely according to its terms, or not at all' (Pidoto v Victoria (1943) 68 CLR 87, 108; Victoria v The Commonwealth (1996) 187 CLR 416, 502)". The very existence of s 15A on the statute books, however, tells against this construction. Further, considerations of the kind invoked by s 15A go no distance towards resolving the relevant denotation of the expression "would or might result" in the section. 41 The enactment of s 34 of the Assessment Act arose, it would seem, out of reservations as to the constitutional validity of the Bill for that Act in the form in which it was originally introduced into the House of Representatives. Counsel for the applicant took me, in some detail, to the legislative history of the Bill, and to the circumstances in which the now s 34 was introduced. Regrettably, those materials go little further than to demonstrate what it is self-evident, namely, that the provision had the purpose of preserving the effective operation of the Assessment Act in circumstances in which the Act itself, or some provisions of it, might fail for want of constitutional validity. It seems fairly clear from the materials that the relevant Minister took the view, at the time, that the introduction of s 34 would resolve any issues of constitutional validity which might arise. The materials to which I was thus referred do not throw any light on what the legislature intended by the words which I am presently finding problematic, nor on how the legislature proposed that a court should give effect to the limitation contained in those words. 42 Because I have rejected the construction of s 34 for which the applicant contends, and because the Commissioner was disinclined to go further, in his submissions, than I have indicated above, I am not disposed to venture any alternative construction of my own. It is sufficient for me to conclude, as I do, that, having decided the applicant's case directly arising under the Melbourne Corporation principle in the way that I have, I could not follow that decision with a holding that the application of the Assessment Act in the circumstances of the Fund "might result" in a contravention of the Constitution. The effect of my decision is that the application of the Assessment Act in those circumstances did not result in such a contravention, and that conclusion should also be sufficient under s 34. 43 To date, my reasons have been confined to the circumstances of members of the Fund where the Fund itself was the holder under the Assessment Act. As I have indicated above, where, at the relevant time, the member concerned had commenced to receive a pension, it was the member, rather than the Fund, who was to have been regarded as the holder. It seems that assessments were made by the Commissioner in relation to such members in the years with which I am concerned. However, the objections in disallowance of which the Commissioner's decision of 28 July 2011 was made had been lodged pursuant to s 24(1) of the Assessment Act, which provides: (1) If: (a) an assessment of surcharge on a member's surchargeable contributions is made; and (b) the member, or a superannuation provider who is the holder of the contributions, is dissatisfied with the assessment; In his decision, the Commissioner treated as a "preliminary point" the circumstance that "the objection is only valid to the extent that [certain] … conditions [were] met [including] … the assessments to which you object were issued pursuant to section 10 of the [Assessment Act] and you have objected pursuant to section 24 of the [Assessment Act]". In his case in the court, the Commissioner submitted, consistently with s 24 and with his decision on the objection, that the only assessments properly before the court were those made in circumstances where the applicant was the holder. 44 Counsel for the applicant did not join issue with that submission. Rather, they submitted that the question of who had standing to object, and thus to appeal, was a matter of detail to be resolved if the point of principle in the case were resolved favourably to their client. Since I have not resolved that point favourably to the applicant, the occasion does not arise for the court to consider the circumstances of members, or former members, of the Fund who received assessments in their own right. What I have decided in these reasons above will, therefore, be sufficient to dispose of the applicant's appeal. 45 Counsel for the applicant accepted that, if I should decide the matter adversely to their client, there was nothing which they could say to resist an application for an award of costs in favour of the Commissioner. In the circumstances, the appeal should be dismissed with costs. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.