State Chamber of Commerce & Industry v Commonwealth

State Chamber of Commerce & Industry v Commonwealth - [1987] HCA 38 - HCA 1987 case summary — Zoe

[9]

I agree with the reasons for judgment of Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. except in one respect. I would hold that the Fringe Benefits Tax Act 1986 Cth ("the Tax Act") and the Fringe Benefits Tax Assessment Act 1986 Cth ("the Assessment Act") do not validly impose tax on a State in respect of so much of the fringe benefits taxable amount of a State as represents the value of fringe benefits provided in respect of the "employment" of members of the State Parliament, Ministers of the Crown and judges of the State Supreme Court. It may be that on the true construction of the definition of employee in s. 136 of the Assessment Act, the value of fringe benefits provided in respect of the "employment" of State judges or any State Ministers of the Crown who are not members of the State Parliament is not included in the fringe benefits taxable amount of the State. The judgment of Deane J. states the difficulty in the way of including that value. However, I do not find it necessary to decide the point for I would rest my conclusion on a different principle. The relevant principle, implied in the Constitution, is that a law of the Commonwealth cannot unduly impair the capacity of a State to perform its constitutional functions. The implication of a prohibition of this kind in the Constitution has long been recognized, though its formulation has not been uniform and its scope uncertain:Melbourne Corporation v. The Commonwealth [22] ; Bank of N.S.W. v. The Commonwealth [23] ; Victoria v. The Commonwealth ("the Pay-roll Tax Case") [24] ; Victoria v. Australian Building Construction Employees' and Builders Labourers' Federation [25] ; Koowarta v. Bjelke-Petersen [26] ; The Commonwealth v. Tasmania ("the Tasmanian Dam Case") [27] ; Queensland Electricity Commission v. The Commonwealth [28] . The principle, however it is stated, is to be distinguished from a complementary but different principle recently considered in Queensland Electricity Commission v. The Commonwealth, namely, that a law of the Commonwealth cannot discriminate against a State unless the power under which the law is made authorizes the discrimination.

[12]

to attempt to burden the exercise of State functions by means of the power to tax needs no ingenuity, and that, no doubt, is why that power occupies such a conspicuous place in the long history both in the United States and here of the question how far federal power may be used to interfere with the States in the exercise of their powers. Attempts to answer the question how far federal taxing power may validly burden the exercise of State functions have not yielded in this country a general criterion which distinguishes between those taxes to which a State is subject and those from which it is immune. In America, the problem was considered inNew York v. United States [30] , a case to which reference has been made in this Court. It was a case where a federal tax was imposed on a State in respect of activities in which the State had engaged in exercise of its powers. A suggested criterion for determining whether the State was immune from the tax was the governmental character of the power which the State was exercising, but that criterion proved too elusive. In the leading opinion, Frankfurter J. said [31] : Any implied limitation upon the supremacy of the federal power to levy a tax like that now before us, in the absence of discrimination against State activities, brings fiscal and political factors into play. The problem cannot escape issues that do not lend themselves to judgment by criteria and methods of reasoning that are within the professional training and special competence of judges. The principle expressed by Stone C.J., with the concurrence of Reed, Murphy and Burton JJ., was that a tax, though non-discriminatory, should not "interfere unduly with the State's performance of its sovereign functions of government" [32] . As Latham C.J. observed in Melbourne Corporation [33] : "this statement of principle renders it necessary to distinguish between the "sovereign functions of Government" performed by a State and other functions assumed and performed by it." 1. (1947) 74 C.L.R., at p. 80. 2. (1946) 326 U.S. 572. 3. (1946) 326 U.S., at p. 581. 4. (1946) 326 U.S., at pp. 587, 588. 5. (1947) 74 C.L.R., at p. 60.

[32]

Moreover, consideration of the context of the definitions of employee and salary or wages in s. 221A(1) of the Income Tax Assessment Act confirms that the reference to payment "to an employee as such" in the definition of "salary or wages" must be construed as payment to a person who is an employee in the ordinary or traditional meaning of that word. The definitions in s. 221A(1) are framed for the purposes of provisions concerned with the deduction by "an employer" of P.A.Y.E. instalments at the prescribed rate from the salary or wages of "an employee". If the word "employee" in the general words of the definition of "salary or wages" is not construed in that ordinary sense but is construed as meaning anyone to whom "salary, wages, commission, bonuses or allowances" is paid or payable, the consequence would be that, for the purposes of those P.A.Y.E. provisions, any person who received, or was entitled to receive, a commission, bonus or allowance from another person was to be treated as the employee of that other person. For example, every person who sold a house, a car, a share or a postage stamp through an agent to whom he was liable to pay a commission or a bonus would become, for the purposes of the provisions of the Income Tax Assessment Act dealing with the obligation to deduct P.A.Y.E. instalments, an employer of that agent. And any payment of commission to that agent would, for those purposes, be made to him as "an employee as such". Such a construction of the definitions in Div. 2 would make the P.A.Y.E. system of deductions from the income of "an employee" simply unworkable and would be in the teeth of the long-established understanding of lawyers, accountants and taxation officials that the "generality of the opening words of the definition" of "salary or wages" is confined by the words "paid to an employee as such" with the result that the liability of "an employer" to make a deduction under Div. 2 "therefore depends in most cases upon the existence of an employer-employee, that is, a master-servant relationship": see Mannix & Harris, Australian Income Tax Law and Practice, 11th ed. vol. 5, p. 4196.1, par. 221a/1; C.C.H. Australian Federal Tax Reporter, vol. 6, p. 50,315, par. 83-771. Such a construction also seems to me to be inconsistent with the long-settled effect of the corresponding definitions of "wages" in pay-roll tax legislation: see, e.g.,Mutual Acceptance Co. Ltd. v. Federal Commissioner of Taxation [50] ; Queensland Stations Pty. Ltd. v. Federal Commissioner of Taxation [51] ; Federal Commissioner of Taxation v. Barrett [52] ; Sentry Life Assurance Ltd. v. Commissioner of Pay-roll Tax; General Accident Fire & Life Assurance Corporation Ltd. v. Commissioner of Pay-roll Tax [53] ; and Commissioner of Pay-roll Tax v. Mary Kay Cosmetics Pty. Ltd. [54] .

[41]

It was submitted by Mr. Davies Q.C., who appeared for the State of Queensland, that the "purpose" and "result" of the definition of employment in s. 136 of the Assessment Act are not to widen the content of the definition of "employee" in that Act. In my view, that submission should be accepted at least in so far as the "result" of the definition is concerned. There is no use of the word "employment" in any of the four definitions (i.e. those of "employee", "future employee", "former employee" and "current employee") which, in combination, determine the meaning of "employee" for the purposes of that Act. As has been said, the definition of "employment" in the Assessment Act plainly does not operate to extend the scope of the definition of employee in s. 221A(1) of the Income Tax Assessment Act. The only arguable way in which the definition of "employment" could be used to widen the class of persons who are "employees" for the purposes of the Assessment Act would be by the application of the definition to extend the ordinary meaning of the word "employed" in the one place where that word is used (in any tense) in any of those four definitions, namely, in the reference to "a person employed by a State or by an authority of a State" in the additional words of the definition of "current employee". There are, however, two reasons why the definition of "employment" should not be applied in that way. The first is that the Assessment Act contains no provision to the effect that the verb "employ" is to bear a corresponding meaning to the expanded meaning of the noun "employment". The second, and more substantial, reason is that, if the word "employed" in the additional words of the definition of "current employee" were to be given such an extended meaning, the effect would be, when the Assessment Act is read with the Fringe Benefits Tax Act 1986 Cth ("the Tax Act"), to impose upon the States a liability of a different kind to that imposed upon other employers in that the States would be required to pay fringe benefits tax in respect of relevant payments to persons who do not stand in a relationship of a kind which attracts liability to such tax in the case of other employers. In other words, the effect of giving such an extended meaning to the word "employed" in the reference to persons "employed by a State or by an authority of a State" would be to single out the States to make them "the objects of special burdens or disabilities": cf. Melbourne Corporation v. The Commonwealth [56] . That being so, the effect of the application of the definition of "employment" to give an extended meaning to the word "employed" in that special reference to State employees would be to discriminate against the States in a manner that is inconsistent with a fundamental implication of the Commonwealth Constitution: see, generally, Queensland Electricity Commission v. The Commonwealth [57] . In these circumstances, the word "employed" in the definition of "current employee" should, as a matter of construction, be given its ordinary meaning. Even if that were not so and the definition of "employment" would otherwise be applicable to give it an extended meaning, that definition of employment would need to be read down to validity by precluding its application in that regard. On either approach, the result is that, putting to one side a member of a State Parliament, an office holder of a State, who is not "employed" by the State in the ordinary sense of that word, is not an "employee" or "current employee" for the purposes of the Assessment Act. Such an office holder is not an "employee" for the purposes of Div. 2 of Pt VI of the Income Tax Assessment Act: he or she does not come within the general words of the definition of employee in s. 221A(1) since he or she does not receive payments "paid to an employee as such"; he or she does not come within the special provisions of cl. (b) of that definition since he or she is not "employed". Nor, not being "employed", is such an office holder within the additional words in the definition of current employee in s. 136 of the Assessment Act.

[44]

To be caught by the reservation, the law must, as has been indicated above, discriminate in the sense that its operation involves a singling out of the States to make them "the objects of special burdens or disabilities": cf. Melbourne Corporation. That is not to say that a law cannot discriminate against the States in the relevant sense if it is cast in general terms and is of apparently general application. Quite apart from the case where such a general law applies to the States in a way which would prevent them from performing their essential functions or which would impede them in so doing (cf. per Rich J., Melbourne Corporation; per Walsh J., the Pay-roll Tax Case), a general law may operate in the context of particular circumstances to single out the States for discriminatory treatment. The character of a law as a law of general application is ordinarily a factor, and sometimes a conclusive factor, militating against the conclusion that it discriminates against the States or a State in the relevant sense. The question whether a law does so discriminate against the States or a particular State is however, for the purposes of the law of the Constitution, a question of substance which is not susceptible of being resolved by the mere inquiry whether, as a matter of form, the law is a general or a special one. The point may be conveniently illustrated by reference to the Pay-roll Tax Case. The decision in that case was that Commonwealth legislation imposing a general pay-roll tax to be paid by employers on wages paid to their employees validly applied to the States and their agencies. The fact that the States' pay-rolls were particularly large no doubt meant that the effect of the legislation was particularly onerous in its application to them in the sense that they paid more tax than all or most other employers. That did not, however, mean that the legislation was discriminatory against the States in the sense that it singled them out to be made objects of special burdens or disabilities. On the other hand, if the legislation had been confined to the imposition upon all employers other than the Crown in right of the Commonwealth of liability to pay-roll tax upon wages paid to "public servants", it might still properly have been seen, as a matter of form, as a law of general application. Such confined legislation would, nonetheless, have discriminated against the States in the relevant sense for the reason that, as a matter of substance, its operation would have been, in circumstances where the States and State instrumentalities were the only non-Commonwealth employers of "public servants", to single out the States for the imposition of a special burden. 1. (1985) 189 C.L.R., at pp. 248-249.

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