Victoria v Commonwealth

Victoria v Commonwealth - [1957] HCA 54 - HCA 1957 case summary — Zoe

[13]

Lord Dunedin delivered the judgment of the Privy Council. The conclusion was stated as follows: - "Upon the whole matter, therefore, their Lordships think that the plea of the appellant is good. The effect of s. 16 is, so to speak, to add to the words of s. 17, "but this priority shall not operate against any right in the Crown in a Province, where such right would be diminished by the priority being asserted against it." Whether the strict result of this view should be to give to the Province an overriding priority need not be discussed. Counsel for the Province did not ask for such relief; he was content that the two debts should rank pari passu " [5] . From the foregoing it will be seen that the decision has nothing to do with the present case. But at stages in the progress of the case through the courts points were made concerning the validity of the statutory provisions involved and although, on the view taken by the Privy Council, there could be no room for these points, they occasioned certain obiter dicta that have been relied upon. The legislative powers to which s. 17 of the Dominion Special War Revenue Act was referred were those conferred as part of the exclusive legislative authority by s. 91 (3) of the British North America Act 1867, viz. "The raising of money by any mode or system of Taxation" and by s. 91 (21) "Bankruptcy and Insolvency". The provision of the Province giving priority was referred to the exclusive power under s. 92 (2) "Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes" and apparently to the power under s. 92 (16) "generally all matters of a merely local or private nature in the Province". The latter power cannot, by reason of the last paragraph of s. 91, comprise any matter coming within any of the subjects enumerated in s. 91. In the Supreme Court of Canada Anglin C.J.C., with whom Lamont and Smith JJ. concurred, expressed his agreement with Mignault J. and said: "The right of the Dominion Parliament, under the legislative jurisdiction conferred upon it by heads 3 and/or 21 of s. 91 of the B.N.A. Act, to enact s. 17 appears to me to be so clear as to admit of no question. If so construed as to avoid any conflict with over-riding Dominion legislation, the provincial statute is, no doubt, within the authority given by head 2 of s. 92" [1] . The learned Chief Justice took the view that there was a conflict in which the Dominion provision must prevail.

[15]

Mignault J. in a full judgment expressed the like view, having first given reasons for excluding the application of s. 16 of the Interpretation Act to s. 17. He accepted the view that "there being a conflict here between Dominion and provincial legislation in a field open to both, the Dominion statute must prevail" [2] . Newcombe J. excluded the Interpretation Act also and so adopted the same view, having first expressed the opinion that s. 17 was "bankruptcy legislation under item 21 of the Dominion powers" [3] . Rinfret J. (as he then was) based his dissenting judgment on the view afterwards taken in the Privy Council, viz. that s. 17 was governed by s. 16 of the Interpretation Act and did not affect the priority of the claim by the Province [4] . But he prefaced this by the following observation: "These two paragraphs (91 (3) and 92 (2)) confer absolute and independent powers, neither of which can impinge on the other, whether because of their very nature of by application of s. 125 of the B.N.A. Act (as is remarked by my brother Duff, whose reasoning I accept). If, consequently, the federal legislation here invoked (An Act to amend the Special War Revenue Act 1915, 1922 Can., c. 47, s. 17) had for its object the creation of a "first charge" intended to rank prior even to a privileged debt of the Crown in right of the Province of Quebec (R.S.Q. 1909, s. 1357), I must conclude that to that extent such legislation is ultra vires " [4] . Duff J. (as he then was) in his dissenting judgment referred to s. 125 of the British North America Act which provides that "no lands or property belonging to Canada or any province shall be liable to taxation" and expressed the view that s. 17 might give priority over a security or charge of the province and so operate inconsistently with that section. Duff J. relied upon that as an additional reason for applying s. 16 of the Interpretation Act to s. 17 in the same way as the Privy Council afterwards did [1] . The obiter dicta which are relied upon as supporting the validity of s. 221 (1) (a) occur in the following passage from the judgment of Lord Dunedin speaking for the Privy Council. "The appeal before their Lordships was argued upon two grounds. The first, and it is this which bulks almost exclusively in the judgments of the Courts below, was that on the proper construction of the well-known ss. 91 and 92 of the British North America Act the Dominion had no power to enact the s. 17 above quoted so as to prejudice the rights of the Government of the Province of Quebec. As to that question their Lordships have no hesitation in preferring the views of the majority of the judges of the Supreme Court. It would be of no service to go over again the familiar ground of what may be called the competing claims of the two sections and to re-state what has been so often stated. As lately as 1929, in the case of Att.-Gen. for Canada v. Att.-Gen. for British Columbia [2] , Lord Tomlin, delivering the judgment of the Board, laid down four propositions regarding the conflict of Dominion and Provincial jurisdiction in terms which need not here at length be repeated. Now, looking at s. 17 and the way it speaks of the preference, it would not be difficult to hold that it was a rule only applicable in bankruptcy. If that is so, then the matter is ended, for bankruptcy is head 21 of s. 91. But let it be assumed that it is rather a natural concomitant of taxation, then the case falls clearly under the fourth proposition laid down in the judgment delivered by Lord Tomlin; it runs thus: "There can be a domain in which Provincial and Dominion legislation may overlap, in which case neither legislation will be ultra vires if the field is clear, but if the field is not clear and the two legislations meet the Dominion legislation must prevail." As a matter of fact, this is the textual reproduction of what had been said by Lord Dunedin as long ago as 1907 in the case of the Grand Trunk Rly. Co. of Canada v. Att.-Gen. of Canada [3] . Now here, so far as taxation itself is concerned, the field is clear. The two taxations, Dominion and Provincial, can stand side by side without interfering with each other, but as soon as you come to the concomitant privileges of absolute priority they cannot stand side by side and must clash; consequently the Dominion must prevail" [1] . (It is perhaps a matter of no importance at this date but I have not found it easy to follow Lord Dunedin's remark that the first ground bulks almost exclusively in the judgments of the Canadian Courts in view of what appears in the reports of those judgments.)

[24]

The Tax Reimbursement Act authorises the payment of money to a State as financial assistance on condition that the Treasurer of the Commonwealth is satisfied that the State has not, in the relevant year, imposed a tax on incomes. The Act is applicable to any State. Section 12 appropriates the Consolidated Revenue Fund to provide for the payments: this section is enacted on the basis that the payments are purposes of the Commonwealth within the meaning of the Constitution. If they are, s. 12 is supported by ss. 81 and 83 of the Constitution. Whether the payments are purposes of the Commonwealth or not depends on their being within the scope of s. 96 of the Constitution. Section 96 says: "During a period of ten years after the establishment of the Commonwealth and thereafter until Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as it thinks fit." The intention of the words "unless the Parliament otherwise provides" is not clear. It is not necessary here to construe them. Parliament has not enacted anything which alters the specific power, vested in it by s. 96, to grant financial assistance to any State on such terms and conditions as Parliament thinks fit. Now grants of money are clearly financial assistance. But it is argued for the plaintiffs that the effect of the Tax Reimbursement Act is this, that the Parliament binds the Commonwealth to pay money to a State in consideration of the surrender by the State of its right to impose tax on incomes; this, the argument continues, is not to grant money to the State, even if the money can be described as financial assistance. I do not agree with the view of what Parliament has done. Parliament has done no more than to authorise payments of money to a State, on condition that the Treasurer of the Commonwealth is satisfied that the State has not in fact imposed any tax on incomes. This is not making a contract. It seems to me that it is truly a conditional grant. Section 96 permits such grants. It is further argued that the condition creates the need for the grant and the money payable is therefore not truly financial assistance and the condition is beyond the scope of Parliament's discretion. But the power conferred by s. 96 is a very general one, and the terms and conditions on which the Parliament may grant financial assistance to any State are within its discretion. This discretion is limited only by the scope and object of the power. I am of the opinion that even though a State's need is caused by its abstaining, as required by the condition of the Commonwealth grant, from imposing tax on incomes, still the character of financial assistance cannot be denied to money paid to meet that need. It is not a condition of the power conferred by s. 96 that a State should be in need of financial assistance. In the present case, the condition of the grant is that the recipient State should not impose a tax on incomes. Would a condition that the State concerned should not increase, or again, that it should actually reduce a tax be bad? I do not think that either condition would be beyond the discretion of Parliament. Nor do I think that it would be beyond the scope of that discretion to make a condition that the State should positively increase a tax of its own. I cannot regard differently the instant condition, namely that a State receiving assistance should impose no tax upon incomes. This condition is not rendered ultra vires and bad, simply because Commonwealth and State taxpayers may be the same people - this fact, indeed, might justify it - or because "financial assistance" is paid from the proceeds of Commonwealth taxation.

[29]

The plaintiffs contend that sub-s. (1) (a) of s. 221 would render worthless any State law that might be passed to impose a tax on incomes. An analysis was made in argument of the processes of the Assessment Act that might take place before the federal income tax is fully paid. It lends much force to what the plaintiffs contend. The Commonwealth seeks to justify sub-s. (1) (a) of s. 221 by reference to the power conferred by s. 51 (ii.) of the Constitution to make laws with respect to: "Taxation". Griffith C.J. said in the Municipal Council of Sydney v. The Commonwealth [1] that this power refers to "federal taxation for federal purposes" [2] . The plaintiffs argue that sub-s. (1) (a) of s. 221 exceeds the subject matter of the power; and, alternatively, that the provision in question is calculated to subvert the federal structure of the Constitution and is invalid for the same sort of reasons as those on which the majority of the Court in the Melbourne Corporation Case [3] held that s. 48 of the Banking Act was invalid. I decided in South Australia v. The Commonwealth [4] that because invasion was threatening the country the defence power was ample authority for enacting s. 31 of the Income Tax Assessment Act 1942. This section, as stated above, enacted privileges for federal income tax in war-time; s. 221, as it now stands, purports to continue those privileges. I considered that s. 31 was justified by the defence power because it was specifically connected with the prosecution of the war. It could clearly operate as a means whereby the Commonwealth could get in more of the sinews of war. I refrained from expressing any opinion on the question whether s. 31 was validly enacted under the power conferred on the Parliament by s. 51 (ii.) of the Constitution. It was unnecessary for me to do so, since I took the view that s. 31 was warranted by the defence power. The other members of the Court, leaving the war-time preamble out of consideration, decided that s. 31 was validly enacted under the taxation power. They cited the case of In re Silver Bros. Ltd. [5] as an authority for that conclusion. As I read this case, the point whether a provision, said to be similar to sub-s. (1) (a) of s. 221, was a concomitant of a legislative power of taxation was assumed for the purpose of the reasoning, but it was not actually decided. Sub-section (1) (a) of s. 221 provides for the eventuality that State income tax may emerge. According to the terms of this provision, whoever pays his State income tax before fully paying up his federal income tax is exposed to a fine or imprisonment or both. Sub-section (1) (a) of s. 221 would, if valid, operate to alter the time which State law may fix for the payment of State income tax. If the utility of the provision in getting in federal revenue makes it a valid law of taxation, the same would be true of a law postponing, in a similar way, debts due to trades people. I cannot agree that the powers to make laws with respect to taxation extends so far as to interfere with the contractual rights of creditors vis-a-vis their solvent debtors. Such a law would be, in substance, about debts; but not about federal taxation. Sub-section (1) (a) of s. 221 purports to fix the time for the payment of State income tax by reference to the time when federal income tax is fully paid. This, in my opinion, is not sufficient to make the provision a law with respect to federal taxation. It is in substance a law with respect to State income tax. I do not follow the decision of the majority in South Australia v. The Commonwealth [1] on the point under discussion because I think it is manifestly wrong. If I am right in deciding that sub-s. (1) (a) of s. 221 is beyond the power conferred upon the Parliament by s. 51 (ii.) of the Constitution, it is unnecessary for me to enter upon the question of the application to this provision of the Melbourne Corporation Case [2] . I would declare invalid sub-s. (1) (a) of s. 221 of the Income Tax and Social Services Contribution Assessment Act 1936-1956.

[31]

The purpose of these actions is to challenge the constitutional validity of the scheme of income tax at present in force in the Commonwealth of Australia, usually called the uniform tax system. It was first introduced at the height of the war by four Commonwealth Acts, Nos. 20 to 23 inclusive, all assented to on 7th June 1942. The scheme was challenged as unconstitutional and invalid in this Court by the States of South Australia, Victoria, Queensland and Western Australia. The nature of the scheme is fully explained in that litigation [1] . One of the Acts, the Income Tax (War-time Arrangements) Act 1942 is no longer of any importance. The legislation there discussed which has an important bearing on the present argument is firstly s. 221 of the Income Tax Assessment Act 1936-1942, and secondly the States Grants (Income Tax Reimbursement) Act 1942. Section 221 of the Income Tax Assessment Act 1936-1942 was first introduced by s. 31 of the Act No. 22 of 1942. Sub-section (1) of this section commenced with the words: "For the better securing to the Commonwealth of the revenue required for the efficient prosecution of the present war". Paragraphs (a) (b) (i) and (ii) followed. They were in the following terms: "(a) a taxpayer shall not pay any tax imposed by or under any State Act on the income of any year of income in respect of which tax is imposed by or under any Act with which this Act is incorporated until he has paid that last-mentioned tax or has received from the Commissioner a certificate notifying him that the tax is no longer payable; and (b) notwithstanding anything contained in any other Act or State Act - (i) a person who is a trustee within the meaning of the Bankruptcy Act 1924-1933 shall apply the estate of the bankrupt in payment of tax due under this Act (whether assessed before or after the date of the order of sequestration) in priority to all other unsecured debts other than debts of the classes specified in paragraphs (a), (d) or (e) of sub-section (1) of section eighty-four of that Act; and (ii) the liquidator of a company which is being wound up shall apply the assets of the company in payment of tax due under this Act (whether assessed before or after the date of the commencement of the winding up) in priority to all other unsecured debts: Provided that, where, under the law of any State relating to the payment of debts on the winding up of a company, debts of the classes specified in paragraph (a), (d) or (e) of sub-section (1) of section eighty-four of the Bankruptcy Act 1924-1933 are preferred to all unsecured debts due to the Crown in the right of that State, debts of those classes may also be paid in priority to any tax due under this Act." Sub-section (2) provided that "This section shall have operation during the present war and until the last day of the first financial year to commence after the day on which His Majesty ceases to be engaged in the present war, and no longer." By s. 8 of the States Grants (Income Tax Reimbursement) Act 1942 the operation of that Act was confined to the same period. Section 4 of that Act was in the following terms: "In every financial year during which this Act is in operation in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State the amount set forth in the Schedule to this Act against the name of that State, less an amount equal to any arrears of tax collected by or on behalf of that State during that financial year."

[32]

The date on which His Majesty ceased "to be engaged in the present war" has not been proved but the date is immaterial because s. 221 of the Income Tax Assessment Act and the States Grants (Income Tax Reimbursement) Act became the subject of subsequent legislation. By the Income Tax Assessment Act (No. 6 of 1946, s. 20), s. 221 of the principal Act was amended (a) by omitting from sub-s. (1) the words "the efficient prosecution of the present war" and inserting in their stead the words "the purposes of the Commonwealth"; (b) by omitting sub-s. (2). This section came into force on 13th April 1946. The States Grants (Income Tax Reimbursement) Act 1942 was repealed and replaced by the States Grants (Tax Reimbursement) Act (No. 1 of 1946), which came into force on 1st July 1946. Section 5 of this Act provides that: "In respect of any year during which this Act is in operation and in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State an amount calculated in accordance with the provisions of this Act (other than this section) less an amount equal to any arrears of tax collected by or on behalf of that State during that year." Section 11 provides: "(1) The Treasurer may, in any year, make monthly or other advances to any State of portions of the grant to which it appears to him that State will be entitled under this Act in respect of that year. (2) Any such advance shall be made on the condition that the State shall not impose a tax upon incomes in respect of that year, and if, after the close of that year, the Treasurer gives notice in writing to the Treasurer of the State that he is not satisfied that the State has not imposed such a tax, the advances shall be repayable and shall be a debt due by the State to the Commonwealth." Section 12 provides: "Payments in accordance with this Act shall be made out of the Consolidated Revenue Fund, which is hereby appropriated accordingly."

[33]

The legislation which is now under particular challenge is s. 221 of the Income Tax and Social Services Contribution Assessment Act 1936-1956 and ss. 5 and 11 of the States Grants (Tax Reimbursement) Act 1946-1948. It is not disputed that under s. 51 (ii.) of the Constitution, "Taxation; but so as not to discriminate between States or parts of States", the Commonwealth Parliament can levy income tax at such rates as it thinks fit. But it is disputed that it can give the Commonwealth priority by requiring taxpayers to pay the Commonwealth tax before they pay the State tax or that it can under s. 96 of the Constitution make a grant of financial assistance to a State upon the condition that the State shall not exercise its constitutional power to levy income tax. Section 96 of the Constitution provides that: "During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit." The inclusion of s. 221 in the Income Tax and Social Services Contribution Assessment Act 1936-1956 and the enactment of the States Grants (Tax Reimbursement) Act 1946-1948 indicates clearly enough the intention of the Commonwealth Parliament to continue indefinitely in peace time, if this is constitutionally possible, the scheme of taxation introduced in 1942 as a major war financial measure. Section 221 of the Income Tax and Social Services Contribution Assessment Act and ss. 5 and 11 of the States Grants (Tax Reimbursement) Act, particularly ss. 5 and 11 of the latter Act, form important buttresses in the execution of that intention. Section 11 of the States Grants (Tax Reimbursement) Act which enables the Treasurer of the Commonwealth in any year to make monthly or other advances to a State to which it will become entitled under s. 5 is plainly ancillary and incidental to s. 5 of that Act and must stand or fall with the latter section. Accordingly only the constitutional validity of s. 221 of the Income Tax and Social Services Contribution Assessment Act and s. 5 of the States Grants (Tax Reimbursement) Act need be considered.

[36]

The question whether pars. (a) and (b) (i) and (ii) of s. 221 of the Income Tax and Social Services Contribution Assessment Act 1936-1956 are constitutionally valid poses perhaps a more difficult question but the Court in 1942 decided that these provisions were a valid exercise of the power of taxation and nothing has been said in the present argument which leads me to think that this decision should now be overruled. The paragraphs contemplate three cases, par. (a) where the taxpayer, if an individual, has not been made bankrupt or if a company is not being wound up, par. (b) (i) where a trustee is administering the estate of a bankrupt, and par. (b) (ii) where a liquidator is winding up a company. Paragraph (b) (ii) is not limited to the winding up of an insolvent company, but no question of priority could arise unless the company was insolvent. Dixon C.J. has expressed the opinion that par. (b) (i) is a valid exercise of the bankruptcy power, s. 51 (xvii.) of the Constitution, and with that opinion I respectfully agree. But I am of opinion that this paragraph would also be justified by the taxation power. It has also been suggested that the provisions of par. (b) (ii) might be justified by the bankruptcy power. But the provisions of par. (b) (ii) relate to the winding up of companies incorporated under State laws. Such companies are, as this sub-paragraph acknowledges, wound up in accordance with State laws. With respect I cannot see how the Commonwealth bankruptcy power could affect such laws but I can see how the Commonwealth taxation power could do so where the company was in debt to the Commonwealth for a Commonwealth tax. The provisions of par. (b) (ii) can, to my mind, be justified, if at all, only under the taxation power aided if necessary by the incidental power: s. 51 (xxxix.) of the Constitution. Paragraph (a) and sub-par. (b) (ii) appear to me to be in the same constitutional position. They must rest on these powers and no others, and the incidental power would add little, if anything, to the taxation power because an express power includes within its content power to enact everything that is reasonably necessary to carry it into effect. The power to tax must therefore include the power to enact all such provisions as are reasonably necessary to ensure that the tax will be paid promptly and in full. To provide that a taxpayer must pay the Commonwealth income tax imposed in respect of any year of income before he pays a State income tax imposed in respect of the same year is one way of ensuring that the Commonwealth tax will be paid promptly and in full. It is a way of giving the Commonwealth tax priority over the State tax. In these days of high income taxation there could clearly be a clash between the personal obligations of a taxpayer to pay a Commonwealth income tax and a State income tax in the sense that a taxpayer would not be able to pay both taxes promptly and in full. Such a provision as that contained in par. (a) cannot be said to go beyond what the Commonwealth Parliament could reasonably consider to be necessary in the circumstances to make its taxation law effective. There is no distinction in substance between the provisions of pars. (a) and (b) (i) and (ii). If the Commonwealth can give its debt priority in the bankruptcy of an individual or the winding up of a company, it must equally be able to give itself priority while the taxpayer, natural or artificial, outwardly at least, is still a going concern.

[37]

This conclusion, to my mind, derives strong support from the judgment of the Privy Council in In re Silver Bros. Ltd. [1] . In that case the facts were briefly that a company in liquidation was indebted to the Dominion for tax assessed under the Special War Revenue Act 1915, a Dominion Act, and to the Province of Quebec for provincial taxes. The question was whether the Dominion debt was entitled to priority of payment over the provincial debt. Section 17 of the Special War Revenue Act provided "Notwithstanding the provisions of the Bank Act and the Bankruptcy Act, or any other statute or law, the liability to the Crown of any person, firm or corporation, for the payment of the excise taxes specified in the Special War Revenue Act 1915, and amendments thereto, shall constitute a first charge on the assets of such person, firm or corporation, and shall rank for payment in priority to all other claims of whatsoever kind heretofore or hereafter arising save and except only the judicial costs, fees and lawful expenses of an assignee or other public officer charged with the administration or distribution of such assets." The Quebec Statute provided that "All sums due to the Crown in virtue of this section shall constitute a privileged debt, ranking immediately after law costs". Section 16 of the Interpretation Act 1906, another Dominion Act, provided "No provision or enactment in any Act shall affect, in any manner whatsoever, the rights of His Majesty, his heirs or successors, unless it is expressly stated therein that His Majesty shall be bound thereby". The question of priority was first argued in the Superior Court of Quebec. Panneton J. decided in favour of the Dominion. There was an appeal to the Court of King's Bench which decided that because of the Interpretation Act the two debts should be paid pari passu [1] . There was a further appeal to the Supreme Court of Canada consisting of seven judges five of whom (Anglin C.J.C., Mignault, Newcombe, Lamont and Smith JJ.) were in favour of allowing the appeal (Duff and Rinfret JJ. dissenting) [2] . Finally there was the appeal to the Privy Council [3] . In the Privy Council the judgment of the Supreme Court of Canada was reversed and the judgment of the Court of King's Bench restored. It was restored on the ground, upheld in that Court, that the Interpretation Act removed the priority which the Dominion would otherwise have had by virtue of s. 17 of the Special War Revenue Act. It is perfectly clear that but for the Interpretation Act the Privy Council would have upheld the judgment of the Supreme Court of Canada. The first ground argued for the appellant, the Attorney-General for Quebec, before the Privy Council was that s. 17 of the Special War Revenue Act was not within the Dominion power as to bankruptcy though it touched bankruptcy incidentally. The subject was taxation and the section was only ancillary to that head. If its effect was to give priority in respect of a Dominion tax the provision was ultra vires under the British North America Act 1867. On that point counsel for the respondent, the Attorney-General of Canada, was not called upon. Lord Dunedin, delivering the judgment of the Privy Council, said: "The appeal before their Lordships was argued upon two grounds. The first, and it is this which bulks almost exclusively in the judgments of the Courts below, was that on the proper construction of the well known ss. 91 and 92 of the British North America Act the Dominion had no power to enact the s. 17 above quoted so as to prejudice the rights of the Government of the Province of Quebec. As to that question their Lordships have no hesitation in preferring the views of the majority of the judges of the Supreme Court" [1] . The views of the majority of the judges of the Supreme Court were that the Dominion had this power and in the opinion of Anglin C.J.C., (with whom Lamont and Smith JJ. concurred) had it beyond question "under the legislative jurisdiction conferred upon it by heads 3 and/or 21 of s. 91 of the B.N.A. Act " [2] (that is under the power to tax or the bankruptcy power). I can see no distinction in principle between the position that would arise under the British North America Act 1867 where the Dominion of Canada imposed a tax under s. 91 (3) of that Act for Dominion purposes and a Province imposed an income tax under s. 92 (2) for Provincial purposes and the position that would arise under our Constitution where the Commonwealth imposed an income tax for the purposes of the Commonwealth and a State imposed an income tax for the purposes of the State. Lord Dunedin continued: " looking at s. 17 and the way it speaks of the preference, it would not be difficult to hold that it was a rule only applicable in bankruptcy. If that is so, then the matter is ended, for bankruptcy is head 21 of s. 91. But let it be assumed that it is rather a natural concomitant of taxation, then the case falls clearly under the fourth proposition laid down in the judgment delivered by Lord Tomlin; it runs thus: "There can be a domain in which Provincial and Dominion legislation may overlap, in which case neither legislation will be ultra vires if the field is clear, but if the field is not clear and the two legislations meet the Dominion legislation must prevail." Now here, so far as taxation itself is concerned, the field is clear. The two taxations, Dominion and Provincial, can stand side by side without interfering with each other, but as soon as you come to the concomitant privileges of absolute priority they cannot stand side by side and must clash; consequently the Dominion must prevail" [3] . His Lordship is here discussing the effect of s. 17 of the Special War Revenue Act as a concomitant of taxation. He is prepared to assume that it is a natural concomitant and that there could be a clash in priority between a Dominion and a Provincial tax.

[39]

In the previous case in this Court Latham C.J., with whom Rich J. agreed on this point, after citing certain authorities in this Court, referred to In re Silver Bros. Ltd. [4] and said: "Apart from these authorities the case of In re Silver Bros. Ltd. [1] is really conclusive on the matter" [2] . His Honour then summarised the decision and said: "This decision does not depend upon any special provisions of the Canadian Constitution. It is simply an interpretation of a power to make laws in relation to the subject of taxation. The decision is applicable to the Commonwealth Constitution. Thus the Commonwealth has power, by a properly framed law, to make Commonwealth taxation effective by giving priority to the liability to pay such taxation over the liability to pay State taxation" [3] . Starke J. said: "It was said that the Commonwealth had no power to give itself priority in payment of its income taxes over the taxes of the States. But that contention, despite some dicta to the contrary, is precluded by the decision of this Court in The Commonwealth v. State of Queensland [4] , and by the decision of the Judicial Committee in In re Silver Bros. Ltd. [1] " [5] . I said: "But the Privy Council in In re Silver Bros. Ltd. [1] , and the majority of the Justices of this Court in Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [6] , appear to me to have considered, I would respectfully say correctly, that it is possible for the Canadian and Australian national Parliaments respectively, by aptly framed legislation, to give priority to their taxation statutes over those of the Provinces in the case of Canada and of the States in the case of Australia, where they come into conflict in the same field in the sense that a taxpayer who has to pay the two exactions is unlikely to be able to meet them both in full" [7] . Four judges were therefore of opinion that the reasoning in In re Silver Bros. Ltd. [1] was as applicable to the Australian Constitution as to the Canadian Constitution and that not only par. (b) but also par. (a) of sub-s. (1) of s. 221 of the Income Tax Assessment Act 1936 was valid. In Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [6] , Evatt J. said: "Further, although it is a decision on the Canadian Constitution, the case of In re Silver Brothers Ltd. [1] suggests, not obscurely, that, under the taxation power, the Commonwealth Parliament is competent to enact that its taxation assessments shall be paid in priority to debts owing by the same debtor to the State Governments. Such an enactment is strictly relevant to the subject of taxation for Commonwealth purposes. It would be otherwise if it attempted to destroy altogether the States' claim to priority over private creditors; for in such a case, the Commonwealth enactment could no longer be regarded as sufficiently connected with the subject matter of Commonwealth taxation mentioned in s. 51 (ii.) of the Constitution " [1] . In The Commonwealth v. State of Queensland [2] it was held that under the legislative power of the Commonwealth with respect to borrowing, s. 51 (iv.) of the Constitution "Borrowing money on the public credit of the Commonwealth", the Commonwealth Parliament, in order to make its borrowing effective, could enact a law exempting bondholders from payment of income tax upon the interest from their bonds imposed by State law. If the Commonwealth Parliament can so provide to make its borrowing power effective, surely it must have power to require a taxpayer to pay a Commonwealth tax in priority to a State tax to make its taxation power effective. The British North America Act does not contain a section similar to s. 109 of our Constitution so that the Commonwealth Parliament would appear to be in a stronger position than the Dominion Parliament where it is possible for the personal obligations of a taxpayer under Tax Acts of the Commonwealth and a State or States to clash. And who could doubt that such a possibility exists to-day? I entirely agree with the statement of Starke J. that "there is no distinction in principle between the Commonwealth giving itself priority in the administration of assets in bankruptcy and in giving itself priority in payment of the personal obligations imposed by an income tax" [3] .

[41]

Finally it was contended that even if pars. (a) and (b) of s. 221 (1) of the Income Tax and Social Services Contribution Assessment Act are justified by the terms of the taxation power and s. 5 of the States Grants (Tax Reimbursement) Act by the grants power, nevertheless, because of the federal nature of the Constitution which creates the Commonwealth and States as separate organs independent of each other and co-ordinate in their respective spheres there is a necessary implication that these powers could not be exercised singly or jointly so as to destroy or weaken the independence or integrity of the States or so as to place a particular disability or burden upon an operation or activity of a State and more especially on its constitutional powers. The same argument was addressed to the Court in the previous case and was rejected. But it is now urged that this contention should be reconsidered because the previous decision may have rested partly on the defence power and also because the judgments in the later case of the Melbourne Corporation v. The Commonwealth [4] throw a great deal of new light on the nature of the implication and its operation. But as I have said the decision in the previous case that s. 221 of the Income Tax Assessment Act 1936-1942 and the States Grants (Income Tax Reimbursement) Act 1942 were valid did not really rest on the defence power but on the taxation and grants powers and I can find nothing in the judgments in the Melbourne Corporation Case [1] which suggests that the previous decision that these laws did not involve any illegal interference with the sovereignty of the States was wrong. Section 48 of the Banking Act 1945, the constitutional validity of which was in issue in the Melbourne Corporation Case [1] , is set out in the report [2] and need not be repeated. The section in effect prohibited the private trading banks conducting any business for the States or their authorities, including a local Government authority except with the consent of the Treasurer of the Commonwealth. Although the section was in terms addressed to the private banks, it operated so as to prevent the States depositing their moneys in these banks without his consent. In other words it deprived the States of the power to make their own banking arrangements. The direct operation of the law was to clothe the Treasurer of the Commonwealth with authority to impose his will upon the Treasurers of the States in a matter which fell completely within State sovereignty. It was held that s. 48 infringed the implication. It was a law which sought to give directions to the States as to the manner in which they should perform an essential governmental function. The power to make laws with respect to banking, s. 51 (xiii.) of the Constitution, was a power to make such laws for the peace, order and good government of the Commonwealth and would not justify such a law. Such a law was not a law for the peace, order and good government of the Commonwealth. It was an unlawful intervention in the constitutional affairs of the States and therefore outside Commonwealth power. Section 221 of the Income Tax and Social Services Contribution Assessment Act and ss. 5 and 11 of the States Grants (Tax Reimbursement) Act are of a different character. Each is a federal law which in the words of Dixon J. (as he then was), in the Melbourne Corporation Case [1] "has an actual and immediate operation within a field assigned to the Commonwealth as a subject of legislative power" [3] . His Honour said: "Speaking generally that is enough" [3] . Section 5 does not operate to prevent the States exercising their powers to levy income tax. It is not, like s. 48 of the Banking Act, a coercive law at all. It does not compel the States to do anything. It is simply a law authorising grants to be made to the States which they may accept or refuse at their own option. It is for the States to decide whether or not to levy an income tax. If a State decides to do so it will not qualify for the grant. If it decides not to do so it will qualify. Dixon J. pointed out [1] that the fact that a federal law discloses a purpose which lies outside the area of federal power will not in general suffice to invalidate the law. Valid federal laws may "reach as a matter of purpose into fields lying under State legislative authority" [2] . This must be particularly so in the case of grants made under s. 96 of the Constitution. It has been held that this section authorises grants to be made to States to induce them to carry out some purpose outside Commonwealth power, per Latham C.J. [3] (adopted in Pye v. Renshaw [4] ), and it must equally authorise grants to induce them to refrain from carrying out some purpose within their power. To grant a State financial assistance on such conditions enables the Commonwealth indirectly to do something or to prevent something being done which it could not do or prevent directly. It is true that pars. (a) and (b) (i) and (ii) of sub-s. (1) of s. 221 of the Income Tax and Social Services Contribution Assessment Act and particularly par. (a) may operate to make it difficult for a State to levy its own income tax. If this was their sole purpose, the legislation could be an unlawful interference with State sovereignty. But it is also true that these paragraphs disclose another purpose that is to say to ensure that the federal tax will be paid promptly and in full or in other words to make the federal tax effective. If this latter purpose be, as it must be, within the taxation power, the legislation in question could not be said to be an illegal intrusion into the affairs of the States. It is a consequence which follows from the structure of the Constitution and in particular from s. 109 which makes Commonwealth laws paramount over State laws and invalidates them to the extent of the inconsistency. The legislation seeks to give priority to an unsecured debt to the Commonwealth over one type of unsecured debt only, that is unsecured debts to the States, and in this respect singles out and discriminates against the States. But the reason for the discrimination is not difficult to detect. It is apparent that the debt most likely to compete with the debt to the Commonwealth for income tax would be a debt to a State or States for a similar tax. There must be a limit to the capacity of taxpayers to pay income tax if they are to provide for themselves and their families and remain solvent or be left with an incentive to work, and the Commonwealth Parliament may well consider that it is already exploring this taxable capacity to the full. Discrimination against a State, where it can be seen to be justified, is not a ground for invalidating a Commonwealth law which would otherwise be authorised by a legislative power conferred on the Commonwealth Parliament. It was not contended, and in my opinion could not be contended, that discrimination in itself would be sufficient to invalidate such a law.

[85]

As to the Melbourne Corporation Case [2] I find it difficult to resist the conclusion that there was a change in the reasoning of two of their Honours, as regards the application of the federal principle. Bogle's Case [3] held that a State could not prescribe the uses which might be made by the Commonwealth of its own property, or the terms upon which this property might be let to tenants or upon which the Commonwealth might provide accommodation for migrants, and so appears to me to have no application here. In any case, I propose to be guided by what I understand to be the views of their Lordships in Silver Bros. Case [4] . It is true that the actual decision turned on the scope of the Interpretation Act of the Dominion of Canada. But the reasoning of their Lordships seems to me to exclude the application of the federal principle, which it is not questioned is as much a feature of the Canadian Constitution as it is of the Australian Constitution. Their Lordships thought the principle did not prevent the Dominion Parliament from enacting that in an administration of assets there should be priority of payment of Dominion taxes over Provincial taxes and other claims against the assets. Whatever view is taken as to the extent to which their Lordships' reasoning goes it extends at least that far, even if the reasoning is confined to the Dominion's bankruptcy power, to which it certainly extends, and does not affect the Dominion taxation power, as the headnote to the case asserts. But if such an essential power of the States as the taxation power can validly be interfered with by the Commonwealth in the exercise of its bankruptcy power, I fail to see why it cannot validly be interfered with in the exercise of the Commonwealth's taxation power. The Commonwealth's power is to make laws in respect of taxation and to make laws incidental to the execution of its powers: s. 51 (ii.) and (xxxix.) of the Constitution. These two powers are wide enough to authorise s. 221 unless the federal principle operates to restrict them, although it fails to do so in the case of priority of payments under a federal bankruptcy law. It is true that when the Commonwealth enters the bankruptcy field the States are excluded from that field, and that on the other hand the entrance of the Commonwealth to the income tax field does not exclude the States from imposing income tax not merely on the same persons but also in respect of the same income and to the same extent. The debts created are separate obligations, but so far there is no conflict to be resolved by s. 109 of the Commonwealth Constitution. The conflict arises when the Commonwealth gives itself priority of payment over the State tax.

[87]

But why should the Commonwealth await payment of its income tax in the ordinary course when the taxpayer is solvent, as is mostly the case, but be able to ensure and expedite payment, as it does in s. 221 (1) (b) when the taxpayer is bankrupt, or is a company being wound up even voluntarily? Why should the federal principle operate in the one case but not in the other? I am unable to supply an answer, unless it be that s. 221 (1) (a) is really unnecessary, which it is not for this Court to decide, or that there is discrimination against the State in respect of its income tax. If there is discrimination it is in respect of only one obligation to a State. But discrimination is not in itself a vitiating factor: to have an invalidating effect it must be such as to show that s. 221 is not really a law under s. 51 (ii.) or s. 51 (xxxix.) but is a law dealing exclusively with State taxation. It certainly is in a sense a law dealing with State taxation. One thing is clear: that the Commonwealth could not reasonably be expected to enact a law postponing the discharge of all other obligations, both private and public, to the payment of Commonwealth income tax. That would have a most disturbing and undesirable if not chaotic effect on the community. So there is a practical necessity to single out obligations for the postponement of their discharge. But only one kind is singled out, although there must be others that could also in all fairness be singled out with as little disadvantage to the community as that caused by the postponement of payment of State income tax. However the discharge of the obligation to pay State income tax ordinarily involves the payment of such vast sums of money in all States that it is not possible to deny that the postponement of its discharge would contribute appreciably to the prompt, if not to the certain payment of the Commonwealth income tax. But if that is so s. 221 has a real and substantial connexion with the Commonwealth's taxation power and cannot properly be held to be neither a law with respect to Commonwealth income tax under s. 51 (ii.) nor a law incidental to the execution of the power to impose such tax under s. 51 (xxxix.), although in a sense it is also a law with respect to State income tax. The power is not lost by unfairness in its exercise.

[91]

The Assessment Act of 1942 contained a number of provisions, but the only relevant provision is that which was contained in s. 31. That section introduced a new s. 221 into the Income Tax Assessment Act 1936-1941. This s. 221 was in the following terms: - "(1) For the better securing to the Commonwealth of the revenue required for the efficient prosecution of the present war - (a) a taxpayer shall not pay any tax imposed by or under any State Act on the income of any year of income in respect of which tax is imposed by or under any Act with which this Act is incorporated until he has paid that last-mentioned tax or has received from the Commissioner a certificate notifying him that the tax is no longer payable; and (b) notwithstanding anything contained in any other Act or State Act - (i) a person who is a trustee within the meaning of the Bankruptcy Act 1924-1933 shall apply the estate of the bankrupt in payment of tax due under this Act (whether assessed before or after the date of the order of sequestration) in priority to all other unsecured debts other than debts of the classes specified in paragraphs (a), (d) or (e) of sub-section (1) of section eighty-four of that Act; and (ii) the liquidator of a company which is being wound up shall apply the assets of the company in payment of tax due under this Act (whether assessed before or after the date of the commencement of the winding up) in priority to all other unsecured debts: Provided that, where, under the law of any State relating to the payment of debts on the winding up of a company, debts of the classes specified in paragraph (a), (d) or (e) of sub-section (1) of section eighty-four of the Bankruptcy Act 1924-1933 are preferred to all unsecured debts due to the Crown in the right of that State, debts of those classes may also be paid in priority to any tax due under this Act. Penalty: One hundred pounds or imprisonment for six months or both, and, in addition, the court may order the person, trustee or liquidator, as the case may be, to pay to the Commissioner a sum not exceeding double the amount of tax due by him, or by the bankrupt estate or company in liquidation, as the case may be, on the date on which the offence occurred. (2) This section shall have operation during the present war and until the last day of the first financial year to commence after the day on which His Majesty ceases to be engaged in the present war, and no longer."

[92]

The Arrangements Act of 1942 contained a preamble in the following terms: "Whereas, with a view to the public safety and defence of the Commonwealth and of the several States and for the more effectual prosecution of the war in which His Majesty is engaged, it is necessary or convenient to provide for the matters hereinafter set out". Sections 4 and 11 contained the main operative provisions. Section 4 provided: "The Treasurer may at any time and from time to time, after receipt of a recommendation from the Public Service Board, by notice in writing addressed to the Treasurer of any State, notify him that, as from the date specified in the notice, it is, in his opinion, necessary for the efficient collection of revenue required for the prosecution of the war, for the effective use of manpower, or otherwise for the defence of the Commonwealth, that any officers of the State service specified in the notice who have been engaged on duties which, in the opinion of the Treasurer, are connected with the assessment or collection of taxes upon incomes should be temporarily transferred to the Public Service of the Commonwealth, and any officer so specified shall, by force of the notice, be temporarily transferred to the Public Service of the Commonwealth accordingly as from that date." Section 5 (1) provided that, unless sooner re-transferred, every transferred officer should be re-transferred to the State Service immediately after the Act ceased to operate. Section 11 (1) provided: "The Treasurer may at any time and from time to time, by notice in writing addressed to the Treasurer of any State, notify him that, as from the date specified in the notice, it is, in his opinion, necessary for the efficient collection of revenue required for the prosecution of the war, for the effective use of manpower, or otherwise for the defence of the Commonwealth, that the Commonwealth should, during the operation of this Act, have the possession and use of any office accommodation, furniture and equipment specified in the notice (whether specified particularly or in general terms) and the Commonwealth shall have the possession and exclusive use of that office accommodation, furniture and equipment accordingly as from that date." The rest of the Act contained provisions relating to such incidental matters as the rights of transferred officers and the payment of compensation for office accommodation etc. which might be taken over by the Commonwealth. These provisions were amended as to matters of detail in 1943 and again in 1944. Section 16 provided: "This Act shall continue in operation until the last day of the first financial year to commence after the date on which His Majesty ceases to be engaged in the present war, and no longer."

[93]

The Grants Act of 1942 provided by s. 4 that: "In every financial year during which this Act is in operation in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State the amount set forth in the Schedule to this Act against the name of that State, less an amount equal to any arrears of tax collected by or on behalf of that State during that financial year." The expression "arrears of tax" was defined by s. 3 as meaning (in effect) income tax payable to the State concerned for any financial year prior to that commencing on 1st July 1942. Section 5 provided for payment to the States, after the expiration of the Act, of an amount equal to arrears of tax collected by them, which amount was to bear interest at a rate not less than three per cent. Section 6 provided for certain additional grants to the States if the Treasurer was of opinion that the payments under s. 4 were "insufficient to meet the revenue requirements of the States". Section 7 provided that payments in accordance with the Act should be made out of the Consolidated Revenue Fund, which was appropriated accordingly. Section 8 provided: "This Act shall continue in operation until the last day of the first financial year to commence after the date on which His Majesty ceases to be engaged in the present war, and no longer." In the schedule were set out the respective amounts referred to in s. 4. The largest sum (£15,356,000) was payable to New South Wales, and the smallest (£888,000) to Tasmania. It would appear from South Australia v. The Commonwealth [1] that the amounts set out in the schedule represented substantially the average of the amounts raised by each State by way of income tax in the financial years ended 30th June 1940 and 30th June 1941. It may be mentioned that exactly parallel provisions were made in relation to Entertainments Tax by Act No. 43 of 1942, which came into force by proclamation on 1st October 1942. The Commonwealth, by Act No. 42 of 1942, imposed an entertainments tax, but nothing corresponding to s. 221 of the Assessment Act or to the Arrangements Act appears ever to have been enacted in relation to entertainments tax.

[99]

The Grants Act of 1942 would also, by virtue of s. 8 thereof, have expired on (I think) 30th June 1947. But again the Parliament of the Commonwealth took action in 1946. By s. 3 of the States Grants (Tax Reimbursement) Act 1946 (No. 1 of 1946), which came into force on 1st July 1946, the whole of the Grants Act of 1942 was repealed. Section 5 provided: "In respect of any year during which this Act is in operation and in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State an amount calculated in accordance with the provisions of this Act (other than this section), less an amount equal to any arrears of tax collected by or on behalf of that State during that year." The expression "arrears of tax" is defined by s. 4 as having the same meaning as in the repealed Grants Act. Section 6 stated the aggregate amount which was to be distributed in grants to the States in each ensuing year. For the years ending 30th June 1947 and 30th June 1948 the amount was £40,000,000. For every subsequent year the amount was to be calculated in a manner, which need not be stated in detail, by reference to the populations of the respective States and the average wages per person employed in the respective States. Sections 7 and 8 provided for the manner in which the aggregate grant should be divided among the States. For the years ending 30th June 1947 and 30th June 1948 it was to be divided in accordance with the table in the first schedule to the Act. For ensuing years it was to be divided according to a somewhat complicated method which may be sufficiently described for present purposes as a population basis. Section 11 provided: "(1) The Treasurer may, in any year, make monthly or other advances to any State of portions of the grant to which it appears to him that the State will be entitled under this Act in respect of that year. (2) Any such advance shall be made on the condition that the State shall not impose a tax upon incomes in respect of that year, and if, after the close of that year, the Treasurer gives notice in writing to the Treasurer of the State that he is not satisfied that the State has not imposed such a tax, the advances shall be repayable and shall be a debt due by the State to the Commonwealth." The Grants Act of 1946 was amended in minor respects in 1947 and 1948. In 1949 and in each succeeding year up to and including 1956 Acts were passed by the Parliament of the Commonwealth which appropriated for "financial assistance" for the States very considerable sums in addition to those calculated under ss. 6, 7 and 8 of the Grants Act of 1946: see Acts Nos. 48 of 1949, 25 of 1950, 10 of 1951, 35 of 1951, 56 of 1952, 63 of 1953, 38 of 1954, 44 of 1955 and 108 of 1956.

[102]

It is clear that no estoppel is created by the decision of 1942. The statutes attacked are not identical with those which were attacked in 1942. In any case, one of the plaintiffs, the State of New South Wales, was not a party to the proceedings of 1942. Although, however, there is no estoppel, and it was never suggested that there was any estoppel, the substance of the legislation now attacked is precisely the same as that of the Grants Act and the Assessment Act, which were attacked in 1942, and the ground of the attack is precisely the same. It is clear, in my opinion, that the present actions cannot be decided in favour of the plaintiffs without overruling South Australia v. The Commonwealth [1] . It was indeed sought to distinguish that case on the ground that the Grants Act and the Assessment Act were at the time of that decision limited in operation to the duration of the war, and could be supported by the defence power in the circumstances then existing. It is true, I think, that the validity of the Arrangements Act was rested on the defence power, and, so far as it applied to personnel, perhaps could not have been rested on any other power. But the Arrangements Act is not now in question. It is true also that McTiernan J. upheld the Assessment Act as an exercise of the defence power, and, while regarding the Grants Act as fully justified by s. 96 of the Constitution, was of opinion that that Act also might possibly be justified as an exercise of the defence power [2] . But Latham C.J. and Rich, Starke and Williams JJ. regarded the Assessment Act as authorised by the taxation power (s. 51 (ii.) and (xxxix.)) and the Grants Act as authorised by s. 96. It would in truth, as it seems to me, have been impossible, if the objection taken to them had been otherwise valid, to sustain either the Grants Act or the Assessment Act as a lawful exercise of the defence power. For the objection taken then, which is the objection taken now, is fundamental. It asserts what is said to be a basic principle of the Constitution - that the Commonwealth cannot prohibit or fetter or control the exercise by the States of their constitutional powers. If this principle exists and is violated by the Grants Act or the Assessment Act as they now stand, it existed and was violated by those Acts as they stood in 1942, whatever the head of power by reference to which the Commonwealth might have sought to justify them. It is, in my opinion, impossible, so far as those two Acts are concerned, to distinguish the decision of 1942 from the present cases by referring that decision to the defence power.

[110]

It cannot be doubted, as a general proposition, that the Commonwealth could not by a naked prohibition prevent the States from exercising any of their constitutional powers, including the power to impose taxes. Nor could the Commonwealth by a naked prohibition prevent the States from collecting taxes lawfully imposed in the exercise of that power. But the powers which are preserved by ss. 106 and 107 of the Constitution are preserved subject to the Constitution, and the legislative power granted to the Commonwealth by s. 51 enables the Commonwealth, in the course of exercising affirmatively its power with respect to any of the subjects mentioned, to exclude expressly or by implication State legislation on the same subject, and in effect to say that its own law shall be the whole law and the only law on the subject. There has been such an express exclusion in the Bankruptcy Act, the Life Insurance Act, the Patents Act and other Acts. The power to make laws with respect to taxation (s. 51 (ii.)) has generally been regarded as standing on a special footing: see Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd. [1] . This is, of course, because the power to make laws with respect to taxation has been regarded as a power to make laws imposing taxation, and a legal conflict between a Commonwealth power to impose taxation and a State power to impose taxation is seen as an impossibility. A very real conflict, however, may arise between the taxing powers of the States and some other power of the Commonwealth, and, apart altogether from South Australia v. The Commonwealth [2] , I would regard it as settled law that the Commonwealth, when it legislates within its powers to confer rights upon itself or create rights against itself, may by express enactment make those rights subject to, or immune from, the taxing power of the States: Chaplin v. Commissioner of Taxes (S.A.) [3] ; The Engineers' Case [4] ; The Commonwealth v. State of Queensland [1] . By a parity of reasoning, I think that the Commonwealth, though it cannot prohibit the States from exercising their taxing powers, must have power, by virtue of its own taxing power, to take all necessary steps to ensure the collection of its own taxes, and to that end to give priority to the obligation to pay its own taxes over the obligation to pay State taxes.

[118]

Before referring to the nature and relevance of these differentiating circumstances it is of importance to observe that in 1942 the members of the Court regarded the provision (s. 221) introduced by Act No. 22 of 1942, merely, as a measure designed to secure "priority" for Commonwealth income tax as against claims of the several States for like imposts and this view was of the very essence of the decision that the section was a valid legislative enactment: see South Australia v. The Commonwealth, per Latham C.J. [4] ; per Rich J. [5] ; per Starke J. [6] ; per McTiernan J. [7] and per Williams J. [8] . I agree at once that the provisions of s. 221 (1) (b) were and are provisions of this character and I see no reason to doubt that the Commonwealth Parliament may, with respect to circumstances such as those in which this sub-section was designed to operate, legislate to give priority to outstanding claims for income tax validly imposed. Such a provision may, in the language of Starke J., be regarded as an exercise of " Commonwealth authority to make its taxation effective and to secure to it the full benefit thereof" [1] , and so achieve validity. But I recognise a clear distinction between a provision which secures "priority" to a Commonwealth claim for income tax in the administration of a bankrupt estate or in the winding up of a company on the one hand and, on the other, a provision which, irrespective of the means available to a taxpayer to satisfy his outstanding obligations, makes it an offence for him to discharge a liability for income tax levied by a State until such time as his Commonwealth income tax for the same year has been assessed and paid. There can be no point in the creation of "priorities" with respect to the payment of debts except to provide for cases where it is seen that a debtor is or may be unable with the means at his disposal to discharge his obligations in full or where assets to which creditors may resort for payment are or may prove to be insufficient to satisfy all claims that may be made upon them. Except in such cases no additional security is provided for any outstanding debt by the prescription of a "priority" and, except in cases of that character, the provisions of s. 221 (1) (a) can do nothing to make the Commonwealth's "taxation effective" or "to secure to it the full benefit thereof"; in cases where a taxpayer's estates are sufficient to meet all his outstanding obligations those provisions will operate, merely, to postpone payment of State income tax without providing for the Commonwealth any additional guarantee that its claim for income tax will be met.

[121]

I do not suggest and I do not believe that these rather obvious considerations were overlooked or discarded when s. 221 in its original form was previously considered by the Court. Indeed there is every reason for thinking that the problem which then arose was of a very special character. As has been said already, the section was originally enacted at a critical stage of the war and income tax rates had been increased to an unprecedented level. Indeed they had been increased to such an extent that it was no far-fetched assumption that the burden so created was one which could not, together with income tax levied by the several States, be borne by the general body of taxpayers. Moreover the provisions of s. 221 were designed as a temporary measure. They were to continue in operation only until the expiration of a short period after the war and there was every reason for thinking that the demands of the war would maintain taxation at the same level during that period. In these circumstances it was a simple matter to assume that the general body of taxpayers would, at the very least, find difficulty in meeting both Commonwealth and State demands for income tax and to regard the provisions of s. 221 (1) (a) as a measure designed to secure, in competition with the States, priority for payment of Commonwealth income tax. At all events these were the circumstances in which the question was decided and they were circumstances which were vastly different from those which now present themselves. The present section is no temporary provision designed to deal with a special and transient situation. Nor, much as experience may pessimistically incline one to think otherwise, is there any sound reason for concluding that rates of income tax will remain indefinitely at a level which will require the Commonwealth and the States - if any of the latter should see fit to levy income tax - to endeavour, in competition with one another to collect their respective imposts from a body of taxpayers which, in general, will be unable or likely to be unable to pay both.

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Judgment (122 paragraphs)

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Cases Cited (1)