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[1987] HCA 2
High Court of Australia
1987-07-01
Dawson JJ
Original judgment source is linked above.
High Court of Australia Gibbs C.J. Mason, Wilson, Brennan, Deane and Dawson JJ. Queensland v Commonwealth [1987] HCA 2
ORDER Answer the questions as follows: Whether in the circumstances, apart from the provisions of s. 7 of the Fringe Benefits Tax Act 1986 Cth, tax is imposed by the Fringe Benefits Tax Act on property of any kind belonging to a State within the meaning of s. 114 of the Constitution:
(a) with respect to the taxable value of a car fringe benefit within the meaning of Pt III, Div. 2 of the Fringe Benefits Tax Assessment Act 1986 Cth:
(b) with respect to the taxable value of a housing fringe benefit within the meaning of Pt III, Div. 6 of the Fringe Benefits Tax Assessment Act:
Order that the plaintiff pay the costs of the stated case.
The question which falls for decision in these proceedings is whether the State of Queensland is liable to pay the tax imposed by the Fringe Benefits Tax Act 1986 Cth ("the Tax Act") in respect of certain benefits provided by the State to its employees, and in particular in respect of the benefits provided when motor vehicles owned by the State are used by, or available to, its employees and when dwelling-houses and other places owned by the State are occupied by its employees under lease or licence.
By s. 5 of the Tax Act, tax is imposed in respect of the fringe benefits taxable amount of an employer of a year of tax. The expression "fringe benefits taxable amount" is defined in s. 136(1) of the Fringe Benefits Tax Assessment Act 1986 Cth ("the Assessment Act"), which, by s. 3 of the Tax Act is incorporated with, and to be read as one with, the Tax Act. By s. 136(1), " "fringe benefits taxable amount", in relation to an employer in relation to a year of tax, means the sum of the taxable values, in relation to the year of tax, of all the fringe benefits in relation to the employer in relation to the year of tax". Section 136(1) also contains the following definition of "fringe benefit":
"fringe benefit", in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit -
(a) provided at any time during the year of tax; or
(b) deemed to be provided in respect of the year of tax,
being a benefit provided, or originally provided, as the case may be, to the employee or to an associate of the employee by -
(e) a person (in this paragraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement between -
(i) the employer or an associate of the employer; and
in respect of the employment of the employee, but does not include . Then follow certain exceptions, which are immaterial for present purposes. The taxable values of fringe benefits of various kinds are calculated in accordance with rather complicated formulae laid down in certain sections of the Assessment Act, to some of which it will be necessary to make more detailed reference. The State owns certain property, both real and personal, which is made available to many of its employees in connexion with their employment. In particular, cars owned by the State are used or available for use by its employees, e.g., by being garaged at an employee's place of residence or, even if not so garaged, by being available for an employee's private use. Dwelling-houses and other places which are able to be used for accommodation, and are owned by the State, are occupied by employees of the State under lease or licence. The circumstances in which these benefits are provided are such that their use or availability constitutes a fringe benefit within the Assessment Act and that there is a taxable value of car fringe benefits and of housing fringe benefits respectively within the meaning of the Assessment Act.
By s. 66(1) of the Assessment Act, subject to that Act, tax imposed in respect of the fringe benefits taxable amount of an employer of a year of tax is payable by the employer. The Tax Act and the Assessment Act both contain expressions of an intention to bind the Crown in the right of each of the States (see s. 4 of the Tax Act; s. 163(3) of the Assessment Act) but the Tax Act contains in s. 7 a severability provision in the following terms:
It is the intention of the Parliament that if, but for this section, section 5 of this Act would impose a tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution, section 5 of this Act shall have effect as if it did not impose that tax. Section 114 of the Constitution, so far as it is material, is in the following terms: A State shall not, without the consent of the Parliament of the Commonwealth impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State. If a tax in respect of the fringe benefits taxable amount in relation to the State of Queensland, as an employer, in so far as it consisted of the sum of the taxable values of the car fringe benefits and the housing fringe benefits which it has provided for its employees, would be a tax on property belonging to the State, s. 7 would have the effect that the Tax Act does not operate to impose such a tax on the State. The question therefore is whether such a tax would be a tax on property belonging to the State.
It will have been seen from what has been said that the fringe benefits tax is a tax imposed on an employer (in this case the State) on the taxable value of the fringe benefits provided by the employer (or by an associate of the employer, or a person acting under an arrangement with the employer or with an associate of the employer) to the employee or to an associate of the employee. By s. 136(1) of the Assessment Act "associate" has the same wide meaning in relation to a person as is given to that expression in relation to a person by s. 26AAB of the Income Tax Assessment Act 1936 Cth, as amended. "Benefit" is also widely defined in s. 136(1); it includes "any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility ". The particular cases of benefit specifically dealt with in Pt III of the Assessment Act illustrate the width of the definition - they expressly include, besides car benefits and housing benefits, cases where debts are waived, loans are made, payments are made for expenses, an allowance is paid to an employee for living away from home, a person employed by an airline operator or travel agent (or the employee's associate) is provided with airline transport, board or property is provided or "non-deductible exempt entertainment expenditure" is incurred, but those instances are not exhaustive: see s. 6 and Div. 12 of Pt III of the Assessment Act. The subject of the tax is the value of the benefits provided by the employer, and not the value of the benefits received by the employee; a benefit to the employee within the meaning of the Assessment Act will have been provided notwithstanding that the benefit was surplus to the needs or wants of that employee, and notwithstanding that the benefit is offset by some inconvenience or disadvantage: see s. 148(1)(c), (e) of the Assessment Act.
Car fringe benefits are dealt with in Div. 2 of Pt III of the Assessment Act. Section 7(1) of the Assessment Act provides as follows:
(a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this sub-section referred to as the "provider") -
(i) is applied to a private use by the employee or an associate of the employee; or
(ii) is taken to be available for the private use of the employee or an associate of the employee; and
(b) either of the following conditions is satisfied:
(i) the provider is the employer, or an associate of the employer, of the employee;
(ii) the car is so applied or available, as the case may be, under an arrangement between -
(B) the employer, or an associate of the employer, of the employee,
that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee. Sub-sections (2) and (3) then provide that in certain circumstances a car shall be taken to be available for the private use of the employee or associate as the case may be. A car is "held" by a person if it is owned by, leased to or otherwise made available to that person: s. 162 of the Assessment Act. The taxable value of a car fringe benefit is to be calculated in accordance with a formula set out in s. 9 of the Assessment Act, unless the employer elects that s. 10 of that Act shall apply in relation to all the car fringe benefits in relation to the employer in relation to a year of tax that relate to that car; if such an election is made s. 10 will apply. The provisions of these sections are convoluted, and an understanding of them necessitates constant recourse to the definitions in s. 136(1), but their effect may be stated simply, and ignoring irrelevant detail, as follows. The formula provided by s. 9 starts by taking the "base value" of the car, which, if it has been owned for no more than four years, will be the cost price (as defined in s. 136(1)), and if it has been owned for a longer period, is two-thirds of the cost price. The base value is multiplied by a "statutory fraction", prescribed by s. 9(2)(c); the fraction (in relation to a standard year of tax) decreases by stages from 0.24, in a case where the car has travelled less than 15,000 kilometres in a year, to 0.06 where the car has travelled more than 40,000 kilometres in a year, apparently on the assumption that the greater the distance travelled, the smaller the proportion of private use is likely to be. The statutory fraction is reduced by an appropriate proportion if the car has been held for less than a year. Similarly a proportion of the total reached by applying the statutory fraction to the base value is taken if the car fringe benefit has been provided for less than a year. From the total so reached the amount, if any, of the payment made by the recipient is deducted to give the taxable value of the fringe benefit. Under s. 10 the taxable value is based on the operating cost of the car, which is the sum of all relevant expenses and includes, in a case where the car is owned by the provider, the amount of depreciation that is deemed to have been incurred by the provider in respect of the car in respect of the year of tax and the amount of interest that is deemed to have been incurred by the provider in respect of the car in respect of the year of tax. Section 11 provides for the calculation of depreciation (at a rate of 22.5 per cent) and interest on the depreciated value of the car; these items are likely to be comparatively large.
The taxable value of a housing fringe benefit is ascertained in accordance with the provisions of s. 26 of the Assessment Act. It is sufficient to consider the ordinary case in which the accommodation is located in a State or Territory and does not consist of a caravan, mobile home, hotel, motel, hostel or guest-house. In such a case the taxable value is "the statutory annual value of the recipient's current housing right" reduced by an appropriate proportion if the housing right has not been enjoyed for the whole year. The "statutory annual value of the recipient's current housing right" is, in respect of a base year of tax, calculated by ascertaining the market value of the housing right proportionately reduced if the number of days in the tenancy period is less than a full year. If the year is not a base year the statutory annual value for the base year is taken as a basis and an indexation factor arrived at in accordance with s. 28 of the Assessment Act is applied to give the taxable value. In determining the market value of a housing right, where the recipient is entitled, pursuant to the housing right, to require a second person in discharge of an obligation of the recipient to make a payment to a third person in respect of expenditure incurred by the recipient, or to reimburse a recipient in respect of an amount of expenditure incurred by the recipient, the entitlement shall be disregarded: s. 27(1) of the Assessment Act. Similarly, any onerous conditions that are attached to the housing right and that relate to the recipient's employment are to be disregarded: s. 27(2). Special provision is made by s. 29 of the Assessment Act in the case of remote area accommodation; subject to the exercise of a right of election, the taxable value is calculated according to a formula which is in no way based on the actual value of the premises or the housing right.
In short, the taxable value of a car fringe benefit is based on the value of the car if s. 9 is applied, but the employer may elect that s. 10 shall apply, and in that case the taxable value is based on the operating cost, although the value of the car will be not unimportant in calculating the amount of depreciation. In some, but not in all, cases the taxable value of a housing benefit is based on the benefit of the housing right, that is of the lease or licence.
The sum of the taxable values of all fringe benefits in relation to the employer, in respect of which the tax is paid, may include the value of benefits other than car fringe benefits and housing fringe benefits, and those other benefits may not have resulted from any use made by the employer of his property. The fringe benefits taxable amount may also include the value of benefits provided by someone other than the employer. However, in the present case, the fringe benefits taxable amount in respect of which the tax is (subject to s. 7 of the Tax Act) intended to be imposed upon the State includes the sum representing the taxable value of benefits provided by the State to its employees when it made its property (its cars and places of accommodation) available for their use or occupation. If a tax which was imposed only in respect of those sums would be a tax on property belonging to the State, it would not lose that character because it formed part of a larger package of taxation. The prohibition enacted by s. 114 of the Constitution cannot be evaded by combining other taxes with a tax on property belonging to a State.
The expression "tax on property" is of course ambiguous and elliptical. A tax may be paid out of property but it obviously cannot be paid by property. What is meant by a tax on the property belonging to a State is a tax payable by the State by reason of and by reference to some relation between the State and its property. In Dennis Hotels Pty. Ltd. v. Victoria [1] , Fullagar J., when discussing the proposition that an essential feature of a duty of excise is that it must be a tax upon goods, pointed out that the expression a tax "upon goods" is ambiguous. He said:
Goods as such cannot pay taxes: there must be a person to pay them. And what is meant by saying that a tax is a tax upon goods is that the person by whom the tax is payable is charged by reason of, and by reference to, some specific relation subsisting between him and particular goods. A tax will be rightly regarded as a tax upon goods if the person upon whom it is imposed is charged by reason of and by reference to the fact that he is the owner, importer, exporter, manufacturer, producer, processor, seller, purchaser, hirer or consumer of particular goods. In H. C. Sleigh Ltd. v. South Australia [2] , I expressed my complete agreement with that statement. It is consistent with the view which was expressed in Attorney-General (Saskatchewan) v. Canadian Pacific Railway Co. [3] , where the Privy Council held that a statutory provision that certain property of the Canadian Pacific Railway Company should be "forever free from taxation " operated to relieve the railway company from a business tax assessed at a rate per square foot of each building used for business. Viscount Simon said [4] : Notwithstanding that the exemption provided by the clause is conferred on the physical property there mentioned, all taxes are exacted from and paid by persons, and the question comes to be whether the respondent company, as the owner and user of the properties mentioned, is free from taxation in respect of them. Mr. Leslie and Lord Hailsham argue that the business tax imposed by the City Act, 1947, of Saskatchewan was imposed on persons and companies carrying on a business and not upon their property or upon their ownership or user of property. On this view, the provision that the liability to business tax of a taxpayer was measured by the floor-space or area which he used while carrying on his business was nothing more than a "yardstick" to ascertain the amount for which the taxpayer was liable under the tax. There are, no doubt, many instances in which it is important to distinguish between the nature of the tax imposed and the measure of the amount of tax to be paid. But where the measure of the tax is the extent of the taxpayer's property used in his business, and this property when so used is "forever free from taxation" the tax so measured cannot be regarded as something lying outside the exemption. 1. (1960) 104 C.L.R. 529, at p. 554. 2. (1977) 136 C.L.R. 475, at p. 491. 3. [1953] A.C. 594. 4. [1953] A.C., at pp. 615-616.
A similar approach was taken by the majority of the Supreme Court of Canada in Reference re Proposed Federal Tax on Exported Natural Gas [5] . It was there held that a proposed federal law under which a levy was to be imposed on the receipt of merchantable pipeline gas by a distributor would be beyond power with respect to the interest of the Province of Alberta as the owner and deemed distributor of gas. Section 125 of the Canadian Constitution Act provides:
No lands or property belonging to Canada or any Province shall be liable to Taxation. The majority of the Supreme Court held that the immunity provided by s. 125 would be infringed by the proposed legislation. They said [6] : Of course, as Lord Reid observed in Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City [No. 5] [7] , "no tax literally falls on "property" only as opposed to "persons" ". All taxes are physically paid by persons. The substance of the matter is an attempt to exact a tax from the provincial Crown in respect of its property. That property is being made "liable to taxation" within the meaning of s. 125. 1. (1982) 136 D.L.R. (3d) 385. 2. (1982) 136 D.L.R. (3d), at p. 444. 3. [1951] A.C. 786, at p. 817.
It is clear that s. 114 gives to a State immunity from taxation which is sought to be imposed on the State with respect to its property. The relation between a State and its property which is sufficient to invoke the immunity would, if the words of s. 114 are given the full meaning of which they are capable, include not only ownership, but also use, of the property. The question arises whether the section should be given a narrower meaning.
The effect of s. 114 has been considered in a number of cases in this Court. In the first case, D'Emden v. Pedder [8] , it was held that a receipt given by a federal officer for his salary was not the property of the Commonwealth, and that s. 114 of the Constitution would not exempt such a receipt from stamp duty. Griffith C.J. [9] , speaking for the Court, said that although the receipt might be described as property of the Commonwealth, it was "not property of the kind intended in that section, which appears rather to refer to taxation imposed upon property qua property". The meaning of that cryptic expression was not explained and I share the difficulty expressed by King C.J. in Superannuation Fund Investment Trust v. Commissioner of Stamps [10] in knowing what it means.
In the same year, it was held that to levy a municipal rate upon Commonwealth property was to impose a tax within s. 114: Sydney Municipal Council v. The Commonwealth [11] . Once it was held, as the Court there held, that s. 114 applied to taxes imposed by municipal councils under power granted by the State, as well as to taxes imposed by the State itself, the section presented no difficulty. Griffith C.J. rejected an argument based on the fact that the rates were not a charge upon the land, and said [12] :
All such taxes primarily impose a personal liability upon individuals, and it is, in my opinion, immaterial whether the land does or does not itself become subject to a charge in the nature of an encumbrance. In either case the tax is in substance a "tax on property" in the sense in which these words are commonly understood, and certainly in the sense in which they are used in sec. 114 of the Constitution. 1. (1904) 1 C.L.R. 208. 2. (1904) 1 C.L.R., at pp. 231-232.
The effect of s. 114 on a law which levied a rate was also considered in Essendon Corporation v. Criterion Theatres Ltd. [13] where Latham C.J. expressed the view that a rate assessed in respect of the value of the occupation by the Commonwealth of land which it occupied under the National Security (General) Regulations would be invalid by reason of s. 114. The other members of the Court did not accept that view and the only relevance of the case lies in a remark made by Latham C.J. [14] :
Even where a tax is assessed by reference to a percentage of the capital value, the tax may still be a tax upon the interest of the occupier Stephen and Mason JJ. referred to those remarks in Bevelon Investments Pty. Ltd. v. Melbourne City Council [15] and said: His Honour was directing his remarks to s. 265(b) of the 1928 Act which, in his view, imposed a liability for the rate on the Commonwealth as the occupier of land. Where the tenant or occupier is liable for the rate and it is imposed in respect of the annual rental value of the land or on a percentage of the annual capital value, as in City of Montreal v. Attorney-General (Canada) [16] , it may be correct to say that the rate is levied upon the interest of the occupier. But it is otherwise where, as here, the occupier is not liable for the rate and the owner is made liable. In that case the owner of a building occupied by the Commonwealth challenged the validity of a section of a State Act which provided that a rate was to be levied on the occupier, unless the occupier was the Commonwealth, in which case it was levied on the owner. It was held that the section did not impose a tax on property of the Commonwealth. 1. (1947) 74 C.L.R. 1, at pp. 13-14. 2. (1947) 74 C.L.R., at p. 14. 3. (1976) 135 C.L.R. 530, at p. 544. 4. [1923] A.C. 136.
More important is the decision in Attorney-General (N.S.W.) v. Collector of Customs (N.S.W.) [17] ("the Steel Rails Case "). It was held in that case that the levying of duties of customs was not the imposition of a tax on property within s. 114. The decision of the majority of the Court (Griffith C.J., Barton, O'Connor and Isaacs JJ., Higgins J. doubting) was that having regard to the context provided by other sections of the Constitution, and particularly having regard to the provisions of the Constitution which give the Commonwealth power with regard to taxation and external affairs, and to those which expressly refer to the imposition of duties of customs, the word "tax" in s. 114 did not include duties of customs [18] . A second reason, accepted by Griffith C.J. and O'Connor J. [19] , was that s. 114 applied only to a tax on property within the Commonwealth and that a duty of customs was not a tax of that kind. Neither of those reasons for the decision can be applied in the determination of the present question. However, there were certain dicta upon which the learned Solicitor-General for the Commonwealth relied in argument in the present case. O'Connor J., after expressing his entire concurrence with the judgment of Griffith C.J., said [20] :
In the widest sense of the word no doubt a Customs duty is a tax, but in the circumstances under consideration it is in its nature and essence more properly a charge made in respect of the landing of the goods in Australia. But, used in relation to property and in the expression "tax on property", there is a narrower meaning of the word well known and recognized. A tax on property in the strict and narrower meaning is an exaction made in respect of the holding or ownership of property. That meaning would not include Customs duty on goods imported. He held that the word was used in s. 114 in that narrower meaning. Higgins J. [21] echoed the suggestion made in D'Emden v. Pedder [22] that s. 114 refers to "taxation of property as property" and held that a customs duty is "a tax, not on property as such, but on persons in respect of the act of importation". Isaacs J. expressed a contrary view. He said that if a customs duty is a tax it is one which "is intended to fall, and does fall, on the goods in the same sense as is ordinarily understood by a tax on goods, and not on the mere act of importation" and that customs duty is "imposed upon the goods themselves" and that if it were a tax within the true meaning of the section the case would come within s. 114: see the discussion at pp. 845-848. For reasons that I have already given I agree that a customs duty is a tax on property. The decision can in my opinion be supported by the fact that the context provided by the Constitution shows that "tax" in s. 114 was not intended to include duties of customs. With all respect I consider the reasons of Higgins J. cannot be supported. 1. (1908) 5 C.L.R. 818. 2. (1908) 5 C.L.R., at pp. 829-832, 837-839, 843-844, 848-851, 855. 3. (1908) 5 C.L.R., at pp. 831, 843-844. 4. (1908) 5 C.L.R., at pp. 843-844. 5. (1908) 5 C.L.R., at p. 854. 6. (1904) 1 C.L.R. 91.
In Attorney-General (Q.) v. Attorney-General (Cth) [23] it was held that a Commonwealth Act which imposed a land tax on leasehold estates in Crown lands was not invalid by reason of s. 114. Griffith C.J. [24] rejected the suggestion that the question of the ultimate incidence of the burden of the tax had any bearing on the construction of s. 114. Isaacs J. [25] , said:
The Steel Rails Case decided that "property", within the meaning of the section, meant merely the physical substance of the thing possessed. But whether that is so or not, the tax, as already pointed out, is not placed on the State, or in respect of any interest remaining in the State. It is placed on the lessee alone, and in respect of what he himself possesses. 1. (1915) 20 C.L.R. 148. 2. (1915) 20 C.L.R., at p. 162. 3. (1915) 20 C.L.R., at pp. 174-175.
In Victoria v. The Commonwealth [26] the Court held that a payroll tax - a tax on wages paid or payable by the Crown in right of a State to its employees - was not a tax on the property of a State within s. 114 [27] . Only Barwick C.J. gave reasons for this conclusion. He said [28] :
It is neither a tax upon any property of the employers nor upon any property of a State. It is not, as submitted, a tax upon those "revenues" of the State out of which the State may choose to pay the amount of the tax any more than it is a tax upon that income or capital of an employer out of which he may pay the tax. In my opinion, s. 114 is not infringed by the imposition upon the State of the pay-roll tax. These words suggest that the decision was based upon the character of the tax in question rather than upon the construction of s. 114 which was nowhere discussed. 1. (1971) 122 C.L.R. 353. 2. (1971) 122 C.L.R., at pp. 369, 393, 413, 426. 3. (1971) 122 C.L.R., at p. 369.
Finally, in Superannuation Fund Investment Trust v. Commissioner of Stamps (S.A.) [29] it was decided by a majority that s. 114 was no barrier to the conclusion that conveyances or transfers to the Superannuation Fund Investment Trust (a body corporate set up under Commonwealth law) were chargeable with stamp duty under State law. Stephen and Aickin JJ. held that the Trust was not the Crown in right of the Commonwealth, so that s. 114 did not apply and Mason and Murphy JJ. held that the stamp duty was imposed with the consent of the Commonwealth. Barwick C.J., who dissented, held that s. 114 applied. He said [30] :
If stamp duty were payable it would be payable by the Commonwealth. It is an exaction falling on the Commonwealth. Further, in form it is a tax upon the document by which the Commonwealth acquires the land to which the instrument relates. It falls upon the document when the document has itself become the property of the Commonwealth. Unless the document is stamped, i.e., the tax upon it paid, its function as a document is largely, if not indeed entirely, stultified. Thus, even in the most technical sense, the duty, in my opinion, is a tax upon the property of the Commonwealth. It falls squarely, in my opinion, within the operation of s. 114, which is expressed in universal terms, "any tax on property of any kind". That dictum was followed and applied by the Supreme Court of South Australia in the later case of Superannuation Fund Investment Trust v. Commissioner of Stamps [31] , decided after the Commonwealth Act setting up the trust had been amended so as to exempt the trust from taxation to which the Commonwealth is not subject. 1. (1979) 145 C.L.R. 330. 2. (1979) 145 C.L.R., at p. 337. 3. (1980) 25 S.A.S.R. 35; 31 A.L.R. 327.
It cannot be said that the decisions of this Court contain a clear exposition of the meaning and scope of s. 114. What is clear, however, is that the dicta of O'Connor and Higgins JJ. in the Steel Rails Case did not express the ratio of that decision and that no later decision has been based on the reasoning which commended itself to those justices. I have already indicated that I find it difficult to understand exactly what is meant by a tax on property as property, or a tax on property as such. Section 114 refers to a tax on property and it is patently obvious that if the impost in question is not a tax, or if the impost is not imposed on, i.e., in respect of, property, the section has no application. The words "as property" or "as such" add no meaning to the expression they are intended to qualify. There is no warrant for restricting s. 114, as O'Connor J. did, to make it refer to an exaction in respect of the holding or ownership of property. In the first place the section contains no indication that it is intended to be restricted in that way. Moreover, if the section did not render State property immune from taxation in respect of its use, the protection given by the section would be quite illusory. What advantage would it be to a State if a tax could not be imposed in respect of its ownership of property used for the purposes of, say, State schools or police stations, if a tax could validly be imposed in respect of the use of that property for those purposes? In my opinion a tax imposed in respect of the use by a State of its property will be struck down by s. 114.
The critical question then is whether the Tax Act and the Assessment Act impose a tax on the State in respect of the use of its property. As I have said, the tax imposed by those Acts on the State, as employer, is measured by the taxable value of the fringe benefits provided to its employees. The tax is attracted by the giving of the benefits. Not all of those benefits are given by the State (although typically they are) and not all those benefits are provided by the State out of its property (although some car fringe benefits and housing fringe benefits are so provided). However, where the car is the property of the State the tax which is exacted from the State is exacted because the car is applied or made available by the State as employer to the employee or to an associate of the employee. Similarly, where the housing accommodation is the property of the State, the tax is exacted because the State has granted a lease or licence to an employee or an associate of an employee. In other words, so far as the car fringe benefits and housing fringe benefits provided by the use of property of the State are concerned, the tax is imposed on the State by reason of the particular manner in which it has used its property and by reference to that use. The measure of the tax is the value of the benefit conferred calculated in accordance with the provisions already outlined; it is the value of the benefit provided by the State, and not the value of the benefit received by the recipient. In so far as the values of the car fringe benefits and housing fringe benefits are taxed, the tax in its true nature is one in respect of the use, under certain circumstances, of the property of the State. It is a tax on property belonging to the State within s. 114. As I have said, the fact that the Acts tax other benefits as well does not save the impost so far as it is now challenged. If it matters, it should be added that the tax on the property of the State used to provide the car fringe benefits and the housing fringe benefits is not a mere incidental concomitant of another tax; what is incidental is the tax on the provision of the benefits by associates or arrangers or a tax on the use of property not owned by the State.
In reaching this conclusion I do not find it necessary to decide whether regard should be had to the practical effect of the impost or to the criterion of liability laid down by the taxing statutes. If the substance of the operation of the Acts is regarded, it seems to me to be very clear that the Acts operate to tax the State by reason of and by reference to the use by the State of certain of its property. If regard is had to the criterion of liability the same conclusion is reached, since, once one threads one's way through the maze of the verbiage of the Assessment Act, one finds that the tax is imposed on the State by reason of the fact that it has used some of its property to provide benefits to its employees and by reference to the value of the benefit which it has provided by the use of its property. This conclusion as to the legality of the tax does not involve any judgment as to its merits, since that question is of course no concern of this Court.
The questions of law referred to the Full Court for determination are whether in the circumstances, apart from the provisions of s. 7 of the Tax Act, tax is imposed by the Tax Act on property of any kind belonging to a State within the meaning of s. 114 of the Constitution: (a) with respect to the taxable value of a car fringe benefit within the meaning of Pt III, Div. 2 of the Assessment Act; and (b) with respect to the taxable value of a housing fringe benefit within the meaning of Pt III, Div. 6 of the Assessment Act. I would answer those questions "Yes", in so far as the benefit is provided by the use of property belonging to the State.
This special case raises for determination the question whether the prohibition of s. 114 of the Constitution upon the imposition by the Commonwealth of "any tax on property of any kind belonging to a State" has the effect of precluding the Fringe Benefits Tax Act 1986 Cth ("the Tax Act") and the Fringe Benefits Tax Assessment Act 1986 Cth ("the Assessment Act") from imposing a tax on car and housing fringe benefits provided by a State as employer to its employees. Each Act binds the Crown in right of the States: Tax Act, s. 4; Assessment Act, s. 163(3). However, s. 7 of the Tax Act provides:
It is the intention of the Parliament that if, but for this section, section 5 of this Act would impose a tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution, section 5 of this Act shall have effect as if it did not impose that tax.
Section 5 of the Tax Act imposes tax, at a rate which currently corresponds with the company rate of income tax (s. 6), in respect of the fringe benefits taxable amount of an employer during the tax year. The expression "fringe benefits taxable amount" in relation to an employer in relation to a year of tax is defined by s. 136(1) of the Assessment Act as meaning, subject to any contrary intention, "the sum of the taxable values, in relation to the year of tax, of all the fringe benefits in relation to the employer in relation to the year of tax". The expression "fringe benefit" is also defined by s. 136(1), in terms of a benefit provided, or deemed to be provided, to the employee or an associate of the employee in respect of the employment of the employee, whether the benefit be provided by the employer, an associate of the employer or another person under an arrangement with the employer or an associate of the employer. The definition of "fringe benefit" excludes a long list of benefits too numerous to mention. Wages, salary and superannuation benefits are among the benefits thereby excluded.
The two instances of fringe benefits with which we are presently concerned are car fringe benefits, dealt with in Pt III, Div. 2 of the Assessment Act, and housing fringe benefits, dealt with in Pt III, Div. 6 of that Act. Section 7, which appears in Pt III, Div. 2, sets out the circumstances in which the private use of a car by an employee or his associate, or the availability of a car for the private use of an employee or his associate, shall be taken to constitute a car fringe benefit to the employee or his associate in respect of the employment of the employee. In the case of car fringe benefits, the designated or imputed value of the relevant vehicle provides the basic ingredient of the statutory formula by reference to which the taxable value of a fringe benefit will ordinarily be determined: Assessment Act, s. 9. The taxpayer has a right to elect to have the taxable value of a car fringe benefit calculated on a cost basis according to another statutory formula in which the basic ingredient is the operating cost of the car: Assessment Act, s. 10.
Section 25, which appears in Pt III, Div. 6, provides that the subsistence during the whole or a part of a year of tax of a "housing right" granted by a person ("the provider") to another person ("the recipient") shall be taken to constitute a benefit provided by the provider to the recipient in respect of the year of tax. The expression "housing right" is defined by s. 136(1) as meaning:
a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence. The "market value" of the relevant "housing right", which is naturally influenced by the nature and value of the premises, ordinarily constitutes a basic component for determining the taxable value of the fringe benefit: Assessment Act, s. 26.
The plaintiff employs a large number of persons and owns motor vehicles and various types of accommodation which it makes available to its employees in connexion with their employment. According to their terms, the Acts would, subject to s. 7 of the Tax Act, impose liability on the plaintiff to pay fringe benefits tax in respect of the sum of the annual values of those car and housing fringe benefits.
The questions referred to a Full Court for determination by the special case are whether in the circumstances, apart from the provisions of s. 7 of the Tax Act, tax is imposed by the Tax Act on the taxable value of property of any kind belonging to a State (within the meaning of s. 114 of the Constitution): (a) with respect to a car fringe benefit within the meaning of Pt III, Div. 2 of the Assessment Act; and (b) with respect to a housing fringe benefit within the meaning of Pt III, Div. 6 of the Assessment Act? The answer to these questions depends on whether the liability which the Acts would impose, but for s. 7 of the Tax Act, upon a State to pay tax in respect of car and housing fringe benefits, is for the purposes of s. 114 of the Constitution a "tax on" the cars or accommodation units which are the "property" of the State.
The plaintiff's case is: (1) that a tax imposed on a State in respect of the provision for use by another of the State's property is a tax on that property; and (2) that the effect of the two Acts is to impose a tax on the State in respect of the provision for use by another of the State's property. On the other hand the Solicitor-General for the Commonwealth submits that s. 114 prohibits the imposition of a tax on property of the State as such and that the legislation now in question does not tax the plaintiff's property as such.
The reciprocal immunity from taxation which s. 114 gives to the property of the Commonwealth and the property of a State resembles the reciprocal immunity from taxation given by s. 125 of the British North America Act 1867 U.K. (renamed the Constitution Act 1867) to the "lands" and "property" "belonging to Canada or any Province". The reference to "any tax on property of any kind" in the Australian provision serves to emphasize the width of the protection given by the section. The generality of the language indicates that the object of the section is to protect the financial integrity of the Commonwealth and the States by exempting each from taxation on its property by the other.
In its context in s. 114 of the Constitution, a "tax on property" is neither a term of art nor a concept with a clearly settled legal meaning. Nor, in that context, do the words express a concept susceptible of elucidation by means of a formula reflecting precise criteria. Rather, the section refers to a "tax on property" as that expression is ordinarily understood. The question whether a particular tax is properly to be characterized, for the purpose of s. 114, as a tax "on property of any kind belonging to a State" must be determined by reference to matters of substance rather than mere form. It is "the substance of the operation of the statute, rather than merely its form" which is "definitive of the relevant nature of the tax it imposes or exacts": see Dickenson's Arcade Pty. Ltd. v. Tasmania [32] ; Hematite Petroleum Pty. Ltd. v. Victoria [33] ; Gosford Meats Pty. Ltd. v. New South Wales [34] . It follows that if the impost which the relevant law seeks to impose is in substance a tax on property belonging to a State, it will be prohibited by the section.
As a matter of ordinary language, a prohibition against a tax on property might be understood in a very broad sense as prohibiting a tax on any transaction affecting property or in a somewhat narrower sense as prohibiting attacks on the ownership or holding of property. The Supreme Court of Canada has read s. 125 of the British North America Act as conferring a broad immunity from taxation on transactions affecting property. In Re Federal Tax on Exported Natural Gas [35] that Court by majority held that s. 125 of the British North America Act protected the proceeds of sale of a Province's natural gas from taxation on disposition. The majority supported its conclusion by saying [36] :
The purpose of this immunity is to prevent one level of government from appropriating to its own use the property of the other, or the fruits of that property. This immunity would be illusory if it applied only to taxes "on property" but not to a tax on the Crown in respect of a transaction affecting its property or on the transaction itself. The fundamental constitutional protection framed by s. 125 cannot depend on subtle nuances of form. 1. (1982) 136 D.L.R. (3d) 385. 2. (1982) 136 D.L.R. (3d), at p. 444.
To the extent to which the second sentence in this passage suggests that a tax on the Crown in respect of a transaction affecting its property or a transaction tax is necessarily and relevantly a tax on property, it ascribes to s. 125 a broader immunity than this Court has attributed to s. 114. In Attorney-General (N.S.W.) v. Collector of Customs (N.S.W.) [37] ("the Steel Rails Case ") this Court held that s. 114 did not confer an exemption from customs duties on steel rails imported by a State for the purposes of its railways. Two basic reasons were assigned for this conclusion. The first was that the language of the section, according to its primary or usual meaning, conferred an exemption from taxation on the ownership or holding of property, as distinct from taxation on transactions or on operations or movements of property: Griffith C.J. [38] ; Barton J. [39] ; O'Connor J. [40] . The same idea was expressed by Higgins J. [41] when he spoke of the section conferring an exemption from taxation on property "as such". The second reason was that the existence of the Commonwealth Parliament's exclusive control over customs duties was inconsistent with the existence of a constitutional immunity of State property from taxation on transactions generally, and taxation on importation in particular.
It is significant that in the Exported Natural Gas Case the minority (Laskin C.J.C., McIntyre and Lamer JJ.) relied on the Steel Rails Case to support the proposition that s. 125 of the British North America Act does not apply to a transaction tax. Their Lordships referred [42] to the comments of Griffith C.J., O'Connor and Higgins JJ., quoting the statement of Higgins J. of the Steel Rails Case [41] :
There is a fundamental difference between taxing men for having property, and taxing men for moving property - and, in particular, for moving property into the country from over seas. This statement expresses what in our opinion is the essence of the immunity conferred by s. 114 and what was one of the basic grounds of the decision in the Steel Rails Case. The section protects the property of a State from a tax on the ownership or holding of property but it does not protect the State from a tax on transactions which affect its property, unless the tax can be truly characterized as a tax on the ownership or holding of property. This interpretation gives effect to the popular or common understanding of what is involved in the prohibition of a tax of any kind on property of a State, namely a tax on the ownership or holding of property. And it gives a powerful measure of protection to the financial integrity of a State without preventing the Commonwealth from taxing every form of transaction to which a State is a party. No compelling reason has been advanced for giving the constitutional immunity any wider operation. 1. (1982) 136 D.L.R. (3d), at p. 414. 2. (1908) 5 C.L.R., at p. 854.
It may be said that a tax on the exercise of any of the rights giving content to the concept of ownership is itself a tax on ownership. This notion is rather more extensive than the common understanding of what is involved in the prohibition of a tax on the property of a State, as we have explained it, though we would accept that some taxes on rights exercised by an owner with respect to his property would amount to a tax on property in the prohibited sense. Thus, in the context of an exemption from taxation on ownership of property, a tax on the possession or use of property would constitute a tax on the ownership of that property: see Attorney-General (Saskatchewan) v. Canadian Pacific Railway. Co. [44] . This is because an exemption from taxation on ownership of property naturally extends to an exemption from taxation on the use of it. And a tax on the proceeds of sale of property is likewise a tax on the ownership of property or on property because it is an indirect means of taxing the ownership of property. Such a tax would necessarily fall within the constitutional immunity; if it did not, the constitutional immunity would amount to nothing but a formal prohibition.
Once this interpretation of s. 114 is accepted, it is apparent that the car and housing fringe benefits tax stands outside the constitutional immunity. In the case of car fringe benefits the tax is imposed on the value of the private use of the car by the employee or his associate or on the value of the availability of the car. The tax is not imposed on the ownership or holding of the car by the State as employer or on its possession or use of the car. Nor is it imposed on the disposition by the State of any interest in its property. The tax is imposed because the employer provides the employee with a benefit in connexion with his employment. Likewise with housing fringe benefits, though in this case the tax is imposed on the value of a benefit, a housing right, which may be an interest in property in the form of a lease. The tax is not imposed on or in respect of the disposition as such. Nor is it imposed on the proceeds of sale. It is imposed on the benefit which the employer provides to the employee in connexion with his employment and it is imposed because the benefit is provided on that account.
The tax imposed by the two Acts is not an income tax. It is levied on employers in respect of the fringe benefits which they provide to employees, not on employees in respect of the fringe benefits which they receive in connexion with their employment. Granted that it is a tax on employers in respect of employees' fringe benefits, it is natural that the legislative focus is on what the employer provides, rather than on what the employee receives. Indeed, the character of the tax accounts for other features of the tax on which the plaintiff relied in support of its submission that the Acts impose a tax on its property, namely that: (a) the tax is imposed on the employer's fringe benefits taxable amount; (b) the amount is ascertained by reference to the value of the benefit provided by the employer, the value of the benefit provided to the employee being disregarded; and (c) the calculation of the fringe benefits taxable amount is made, in the case of car and housing fringe benefits, by reference to the value of the employer's property.
All these features are matters of machinery and valuation associated with the imposition of a tax on employers. But they do not establish that the tax is imposed on property of the employers. They do not detract from the conclusion that the tax is not in substance a tax on the property of the State.
In the result we would answer the questions asked in the special case as follows: (a) No. (b) No.
The circumstances which give rise to the stated case, the questions which require the consideration of the Court and the relevant legislative provisions are all set out in other judgments. It is not necessary to repeat them. Section 114 of the Constitution declares that the Commonwealth shall not "impose any tax on property of any kind belonging to a State". The plaintiff, supported by the State of Tasmania intervening, argued that the fringe benefits legislation can have no application to a State in so far as the State makes cars and housing owned by it available to its employees in the form of fringe benefits. It was submitted that in purporting to impose on a State a tax on an amount (described as the fringe benefits taxable amount of an employer) calculated by reference, inter alia, to the taxable values of the car and housing fringe benefits provided to its employees, the legislation imposes a tax on the property of the State and thereby offends against s. 114.
The earlier decisions of this Court, in my opinion, do not provide any authoritative solution to the problem that is raised for decision in this case. I hesitate to draw more in terms of authority from the decision in Attorney-General (N.S.W.) v. Collector of Customs (N.S.W.) [45] ("the Steel Rails Case ") than the proposition that a customs duty is not a tax of the kind referred to in s. 114. The deceptively simple words in which the prohibition is couched are capable of encompassing a wide field of meaning. But it can hardly be supposed that it was intended that the immunity extend to every transaction which involved, however incidentally or indirectly, the property belonging to a State. Some more limited meaning must therefore be discerned in the provision. At the same time, however, I think it preferable to refrain from embarking on a general discussion in order to ascertain a precise meaning that may facilitate the resolution of future cases. The proper construction of s. 114 will emerge over time through the process of case-by-case decision.
Confining my attention, therefore, to the present case, I have come to the conclusion that the submission advanced for the States should not succeed. The tax is not a tax on the property of the State of Queensland ("the State") within the meaning of the material words in s. 114. That part of the tax which relates to a car fringe benefit is a tax imposed on the State as a consequence of the following circumstances: (a) the State is an employer; (b) its employee has a car made available to him for his private use (described as a "benefit"); (c) the benefit is provided to him in respect of his employment. Similarly, a tax payable by the State is attracted by the circumstance that its employee has provided to him in respect of his employment accommodation which constitutes a housing fringe benefit. Although on the facts of the present case both the cars and housing are owned by the State, that circumstance is immaterial. Liability to tax is in no way dependent on the employer being the owner or enjoying any right to possess the property that is made available to the employee. It is sufficient that there is an arrangement by which the employee receives the benefit in respect of his employment. The legislation applies to all employers. It does not single out the States. It is not limited to benefits associated with property. "Benefit" includes, inter alia, any right, privilege, service or facility. The emphasis is upon the provision to an employee of fringe benefits in respect of the employment.
Counsel for the plaintiff submitted that the prohibition contained in s. 114 extends to a tax imposed on a State in respect of the use of its property. That may well be so in a case where it can be seen that the tax is imposed on the property by reason of the use that the State makes of it. For example, a Commonwealth law which imposed a tax on the owner of land within the Commonwealth that is used in a particular way, say for mining or commercial purposes, would clearly be invalid, in my opinion, in its purported application to land belonging to a State. Such a tax, however it be computed, is imposed expressly by reference to the ownership of property. But the tax now in question is not of that character. It takes as the criterion of liability the provision to an employee of a fringe benefit in respect of the employment. The fringe benefit may take various forms. The fact that in the present case it involves making available to the employee a motor car for his use or a housing right does not shift the focus of the tax from the fringe benefit to the property in question. The involvement of the property of the State is merely fortuitous and peripheral to the operation of the legislation. The incidence of the tax would be precisely the same if instead of making its property available to the employee the State were to arrange for a hire car to be available to the employee for his private use or arranged for him to reside in a motel as his usual place of residence. This is because the tax is imposed, not on property belonging to a State but on the provision of a fringe benefit.
It was also submitted that the true character of the tax as a tax on property was exposed by the fact that the value of the fringe benefit is assessed, not by the value that it represents to the employee but by reference to the cost to the employer of providing it. The value of the benefit to the employee is immaterial. This comes about because the value of the property that is made available forms an important component in the formulae provided for the calculation of the value of the benefit. In this connexion it was observed that one of the formulae prescribed by the legislation for calculating the value of a car fringe benefit takes account of the period during which the car is available to the employee for his private use regardless of whether he actually uses it. But I do not think that these considerations are material to the characterization of the tax; they merely reflect the fact that the tax is imposed upon the employer, not the employee. In substance it is a tax on the cost to the employer of providing the benefit.
I would answer both questions asked in the case in the negative.
A tax, called a fringe benefits tax, is imposed by the Fringe Benefits Tax Act 1986 Cth ("the Tax Act"). It is to be assessed in accordance with the Fringe Benefits Tax Assessment Act 1986 Cth ("the Assessment Act"). The tax is imposed in relation to a number of fringe benefits provided directly or indirectly by an employer to an employee, that is to say, benefits provided in addition to salary or wages. It is imposed upon the employer who provides the benefits (in this case the State of Queensland), rather than the employee who receives them, and it is the value of the benefits provided which is included in the taxable amount rather than any reduced value which they might have to the recipient. The legislation is expressed to bind the Crown in right of each of the States. The mechanism by which the tax is imposed has already been described and I shall not set it out again. In this case the challenge to the tax is in its application to two types of fringe benefit only, car fringe benefits and housing fringe benefits, and it is sufficient to refer in general terms to the way in which the Assessment Act deals with these.
The taxable value of a car fringe benefit is calculated upon the value of the car provided or made available to an employee for his private use according to the distance travelled during the year of tax, with provision for a reduction where the car is provided or made available for less than the full year. An alternative method of calculation is provided which is based upon the operating cost of the car, with an allowance, where applicable, for depreciation and for interest upon the depreciated value of the car. The car need not be held or owned by the employer but may be provided by an associate of the employer or another person pursuant to an arrangement with the employer. The taxable value of a housing fringe benefit, which may for present purposes be confined to accommodation in premises owned by the State, is ascertained generally by reference to the market value of the housing right provided, that is, the lease or licence, subject to certain exceptions which are not presently relevant. That, I think, is a sufficient description of the operation of the legislation for the purpose of examining the challenge made to the two types of benefit selected.
The challenge is made under s. 114 of the Constitution. That section provides:
A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State. The plaintiff's basic submission is that the fringe benefits tax is imposed upon the State in respect of the provision of its property for the use of its employees and that it is assessed by reference to the value of the property. That, it is said, is the imposition of a tax on property belonging to the State and, as such, is prohibited by s. 114.
Whilst the questions asked in the case stated relate only to car fringe benefits and housing fringe benefits, the Commonwealth in its submissions sought to place reliance upon the fact that the tax is imposed in relation to a number of other fringe benefits which do not involve the use of property. They include the waiver of debt, the provision of loans, the payment of expenses, the provision of living-away-from-home allowances and the provision of airline transport benefits. This, so the Commonwealth submitted, establishes "the character" of the tax as being upon the provision of benefits rather than upon property.
That submission must be approached with caution because s. 114 contains a prohibition and the question is not so much how the legislation might be characterized as a whole, but rather whether it does anything which is prohibited by that section. To the extent, if at all, that the legislation in its operation or effect infringes the constitutional prohibition it must be denied validity and the only question will be whether the offending provision or provisions can be severed from the rest of the relevant enactment. This was recognized by Parliament in s. 7 of the Tax Act, which provides:
It is the intention of the Parliament that if, but for this section, section 5 of this Act [the section imposing the tax] would impose a tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution, section 5 of this Act shall have effect as if it did not impose that tax.
However, the tax which s. 114 prohibits is a tax on property belonging to the Commonwealth or a State and, whatever the correct description of a tax on property, it is clear enough that a tax which in its application does not require as an essential some relationship between the taxpayer and property is hardly likely to be, if it ever can be, a tax on property. As I understand its argument, it was for this reason that the Commonwealth pointed to the fact that the fringe benefits tax applies both where property is involved and where it is not. It is implicit in that argument that only one kind of tax is imposed by the legislation, but no submission was made to the contrary and no reliance was placed by the plaintiff upon the constitutional requirement (s. 55) that laws imposing taxation should deal with one subject of taxation only.
The Commonwealth, however, also put its argument referring only to the two types of benefit challenged. The first step must be, therefore, to ascertain what constitutes a tax on property. This is a conceptual rather than an empirical exercise. Every tax is, in the end, an exaction of money and, in my view, it is possible to differentiate one tax from another only by reference to the circumstances in which it is made payable. It is the criterion of liability which will distinguish one tax from another and a tax will only be a tax on property where it is tied to property by the circumstances which the legislation makes decisive of the liability to pay it: cf. Western Australia v. Chamberlain Industries Pty. Ltd. [46] , per Kitto J. For my part, I do not think it is helpful to say that what is sought is substance rather than form. Of course that is true, but it begs the question for unless it is possible to identify, by reference to its characteristics, the nature of the tax required to fit the given description, such an assertion expresses no more than a faith that one will recognize a particular type of tax, such as a tax on property, when one sees it; a faith which, without more, I do not share.
The point is well illustrated by the elliptical phrase "any tax on property". Property does not pay taxes; individual taxpayers do: see Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City No. 5 [47] ; Re Federal Tax on Exported Natural Gas [48] ; Dennis Hotels Pty. Ltd. v. Victoria [49] ; Gosford Meats Pty. Ltd. v. New South Wales [50] . But an individual may be liable to pay tax because of some relationship between himself and property and if the relationship between the tax and the property is sufficiently direct and substantial then the tax may be said to be a tax on property. Clearly enough, a tax upon the holding or ownership of property will be a tax upon property, whether or not the tax is actually charged upon the property. Thus municipal rates, whether or not a charge upon the land, are a tax on property: Sydney Municipal Council v. The Commonwealth [51] ; Attorney-General (N.S.W.) v. Collector of Customs (N.S.W.) [52] ("the Steel Rails Case "). On the other hand, a tax upon a transaction, even if it involves the use of property, is not ordinarily a tax upon property. Thus a pay-roll tax is not a tax on property: Victoria v. The Commonwealth [53] ("the Payroll Tax Case "). In one sense every tax involves property since it involves the payment of money which is a form of property, but clearly it is not the funds used to pay the tax, or the source of those funds, which determines what kind of tax it is. Sales taxes and income taxes are taxes imposed upon transactions or activities and there is no direct relationship between them and any property held or owned by the taxpayer in the sense that he is liable to tax because he is the holder or owner of property. On the other hand, a tax which is tantamount to a tax upon the holding or ownership of property, such as a tax upon the proceeds of sale, may provide a sufficiently direct relationship between the tax and the property itself to constitute the tax a tax on property. It was reasoning of this kind which led the Privy Council in Attorney-General (Saskatchewan) v. Canadian Pacific Railway Co. [54] to hold that a "business tax", imposed by reference to the floor space used for the purposes of business, was a tax on property rather than a tax upon the activity of carrying on business. The argument was rejected that the space used was nothing more than a yardstick to ascertain the amount for which a taxpayer was liable under the tax.
In D'Emden v. Pedder [55] , this Court held that stamp duty on a receipt given to the Commonwealth was not a tax on property within the meaning of s. 114 because a receipt, " although undoubtedly it may be described as the property of the Commonwealth for the purposes of a prosecution - say, for stealing - is not property of the kind intended in that section, which appears rather to refer to taxation imposed upon property qua property". This reference to "property qua property" seems to have caused difficulty to some (see Superannuation Fund Investment Trust v. Commissioner of Stamps [56] ) but in my view it can only mean that there was thought to be insufficient substance in the part played by the property (the receipt) as the means whereby the tax (the stamp duty) was imposed for it to determine the true nature of the tax. No doubt the tax was a tax on the instrument in the sense that, without the instrument being brought into existence, there could be no tax. But the instrument was upon this view no more than the occasion for, or the means of, imposing the tax. The taxpayer was not taxed because he held or was the owner of the piece of paper comprising the instrument, but because of the underlying transaction. Whether the conclusion is justified may be arguable. It appears to have been departed from by the Full Court of the Supreme Court of South Australia in Superannuation Fund Investment Trust v. Commissioner of Stamps [57] and not to have been accepted by Barwick C.J. in Superannuation Fund Investment Trust v. Commissioner of Stamps (S.A.) [58] . However, the reasoning which lies behind the comment of Griffith C.J. in delivering the judgment of the Court in D'Emden v. Pedder seems to me to be quite clear.
In the Steel Rails Case it was held that the levying of customs duties upon steel rails imported by the State of New South Wales was not the imposition of a tax on property within the meaning of s. 114. There is a clear majority in that case (Griffith C.J., Barton, O'Connor and Isaacs JJ.) for the proposition that, having regard to its constitutional context, there was an evident intention to confer upon the Commonwealth exclusive power to impose customs duties and to regulate trade and commerce with other countries. Upon that view it followed that the phrase "any tax on property in" s. 114 did not include customs duties even if otherwise a customs duty would be a tax on goods and for that reason a tax on property.
It is true that O'Connor and Higgins JJ. in that case also concluded that customs duties are not a tax on goods or property, but a tax upon the act of importation. O'Connor J. said [59] : "A tax on property in the strict and narrower meaning is an exaction made in respect of the holding or ownership of property. That meaning would not include Customs duty on goods imported." Having regard to the context he preferred this narrower meaning. Higgins J. expressed the view [60] : "A Customs tax is a tax, not on property as such, but on persons in respect of the act of importation." He added: "There is a fundamental difference between taxing men for having property, and taxing men for moving property - and, in particular, for moving property into the country from over seas." Whether Griffith C.J. shared these views is not altogether clear, although he referred to the payment of customs duty as " an obligation or condition which must be fulfilled before the goods can lawfully form part of the stock or mass of goods in the country, although for convenience they are allowed to be retained in bond in a King's warehouse until payment" [61] .
Clearly Isaacs J. was of the contrary view that a customs duty is "a tax on goods, and not on the mere act of importation" [62] . He regarded the act of importation as the occasion for the tax and, I think, regarded the tax as an imposition upon ownership or possession (although he did not use those terms) in the circumstance of importation. A customs duty is, of course, assessed by reference to the nature and quantity of the goods and the view expressed by Isaacs J. is not without force. Certainly in common parlance a customs duty is a tax upon goods: see Gosford Meats Pty. Ltd. v. New South Wales [63] . But the preponderance of opinion upon the point, notwithstanding the somewhat equivocal words of Griffith C.J., seems to be that a customs duty is a tax upon a transaction and not upon property.
The Steel Rails Case is, however, more clearly authority for the proposition that a tax on property, in the constitutional context of s. 114, does not include a customs duty. The approach which led to acceptance of that proposition finds support in Attorney-General (British Columbia) v. Attorney-General (Canada) [64] ("the Johnny Walker Case "). That case concerned s. 125 of the British North America Act 1867 U.K. (now renamed the Constitution Act 1867) which provides:
No Lands or Property belonging to Canada or any Province shall be liable to Taxation. It was held that, notwithstanding s. 125, customs duties might be levied by the Dominion Parliament upon alcoholic liquors imported by the government of British Columbia for the purpose of sale by it. Lord Buckmaster, delivering the judgment of the Privy Council, said [65] : The Dominion have the power to regulate trade and commerce throughout the Dominion, and, to the extent to which this power applies, there is no partiality in its operation. Sect. 125 must, therefore, be so considered as to prevent the paramount purpose thus declared from being defeated. 1. [1924] A.C. 222. 2. [1924] A.C., at p. 225.
A comparison of that decision with Re Federal Tax on Exported Natural Gas [66] is useful. In that case the Supreme Court of Canada, by a majority of six to three, held that a proposed federal government tax upon exported natural gas could not validly be levied upon the export of natural gas owned, produced and transported to the American border by the Province of Alberta. The decision is of limited effect since the proposed legislation was held to amount to no more than a taxing or revenue-raising measure and not to involve any exercise by the Parliament of Canada of its trade and commerce power. Had the latter been involved, it would not have been subordinated to s. 125. Moreover, the decision on its face goes somewhat further, I think, than would appear upon closer examination. The majority reached their decision upon the basis that to allow the tax would be to allow one level of government to tax away, with impunity, the fruits of property owned by the other. In so holding, they appeared to be prepared to extend the protection of s. 125 to a tax upon the Province in respect of a transaction affecting its property or on the transaction itself. However they did so for the purpose, so it seems to me, of laying down the proposition that the immunity conferred by s. 125 cannot be avoided by "the simple device" of making a tax "in personam" rather than "in rem" [67] . I do not understand the majority to have been attempting to say more than that the protection afforded by s. 125 must be a matter of substance rather than of form. Thus, whilst in some circumstances a tax upon a transaction may be substantially the equivalent of a tax upon the ownership of property, ordinarily the distinction between a tax upon a transaction and a tax upon property is a valid and necessary one.
The tax upon car fringe benefits and housing benefits is not, in my view, a tax on property. The circumstance giving rise to the liability to tax is not the holding or ownership of property, rather it is the provision of the benefit itself which, at least in the case of a car fringe benefit, may not involve property owned or held by the employer. The ownership or other right to the property is in a real sense coincidental to the provision of the benefit and it is the provision of the benefit which is taxed. The choice of how the benefit is to be provided, if it is to be provided at all, lies with the employer. True it is that it is the value of the property, although not necessarily the employer's property, which forms an important component of the calculation of the tax in each instance. But that does not, in my view, convert the tax from a tax upon a transaction into a tax on the property involved in the transaction. Whilst the measure of a tax may sometimes indicate the nature of a tax, the two things must be kept distinct and in this case taking the value of the property involved into account is no more than a convenient, perhaps the only practical, method of assessing the worth of the benefit provided.
The tax in my view is a transaction tax rather than a property tax, the transaction being the provision of benefits. The tax does not flow as a matter of course from the holding or ownership of property and it is not a tax upon the use of property which is in substance the equivalent of a tax upon the holding or ownership of property. The provision of benefits is not merely the occasion for the imposition of the tax, it is the reason for the imposition of the tax.
I would only add that no warrant is to be gained for a broader construction of s. 114 from the function which it performs. As Menzies J. remarked in the Payroll Tax Case [68] , "s. 114 is not an exhaustive statement of the protection of the Commonwealth or of a State from the taxation laws of the other".
I would answer each of the questions in the negative.
Queensland
Commonwealth