AUSTIN & ANOR v COMMONWEALTH OF AUSTRALIA
Members: Gleeson CJGaudron J
Gummow J
Hayne J
McHugh J
Kirby J
Tribunal:
Full High Court
MEDIA NEUTRAL CITATION:
[2003] HCA 3
Gaudron, Gummow and Hayne JJ.
The case stated
37. The occasion for this litigation is provided by the impact of federal revenue laws upon the ``non-contributory'' and ``unfunded'' pension arrangements provided by State laws for the plaintiffs as State judicial officers. Constitutional issues respecting the impact of revenue legislation upon such judicial pension schemes have been considered in recent times by the Supreme Court of Canada
[43]
ATC 4055
and Western Australia intervened to support the submissions by the plaintiffs and, in certain respects, to supplement those submissions.38. Before the Full Court is a case stated under s 18 of the Judiciary Act 1903 (Cth) (``the Judiciary Act'') asking certain questions. The first is whether on the true construction of two laws of the Commonwealth the plaintiffs are liable to pay ``superannuation contributions surcharge'' in respect of ``surchargeable contributions'' reported for several financial years. The two laws are the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) (``the Protected Funds Imposition Act'') and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) (``the Protected Funds Assessment Act''). These statutes commenced on 7 December 1997. The Protected Funds Assessment Act has been amended several times, in particular by Sched 2 to the Superannuation Contributions and Termination Payments Taxes Legislation Amendment Act 1999 (Cth) (``the 1999 Amendment Act'').
39. The second question assumes an affirmative answer to the first. It asks whether on one or more identified grounds the legislation is invalid in its application to the plaintiffs. One objection to validity, shortly put, is that the Protected Funds Imposition Act imposes a liability upon the plaintiffs by reference to criteria which are so incapable of ascertainment or lacking in general application as to deny to both statutes the description of ``laws... with respect to... Taxation'', within the meaning of s 51(ii) of the Constitution. In seeking an affirmative answer to that question, the plaintiffs pray in aid passages in the joint judgments in
MacCormick v FC of T
[45]
40. Other objections to validity are formulated in various ways but, in essence, invite attention to fundamental constitutional considerations, invoking that implied limitation upon the legislative powers of the Commonwealth which is associated with
Melbourne Corporation v The Commonwealth
[48]
41. It should be emphasised that, contrary to what at times in the argument appeared to be some colour given by the Commonwealth to its submissions, the issues identified above are not to be approached with some broad view which takes as dispositive in this Court the economic results sought to be obtained by the legislation in question.
[53]
42. For the reasons that follow, the first question (about construction) should be answered differently in relation to each plaintiff - ``Yes'' in the case of the first plaintiff, ``No'' in the case of the second plaintiff. The second question (about validity) should be answered ``Yes''. The legislation is invalid. It exceeds that limitation on the legislative powers of the Commonwealth which flows from the very nature of the federal structure established by the Constitution.
43. The judgment is divided as follows:
The plaintiffs' pension entitlements
44. The first plaintiff was appointed after and the second plaintiff before the commencement of the legislation on 7 December 1997. The first plaintiff is a judge of the Supreme Court of New South Wales and was appointed to that office on 31 August 1998 at the age of 52 years. He must retire from office no later than 15 June 2018 when he attains the age of 72 years. Section 25 of the Supreme Court Act 1970 (NSW) (``the NSW Supreme Court Act'') provides that the Supreme Court is composed of the judges thereof. The second plaintiff was appointed to the office of Master of the Supreme Court of Victoria on 20 July 1993 when aged 42 years. She must retire from office no later than when she attains the age of 70 years in 2021. Section 75(2) of the Constitution Act 1975 (Vic) (``the Victorian Constitution'') states that the Supreme Court of the State of Victoria consists of the judges and the Masters of that Court.
45. It is accepted by the Commonwealth that the courts of the States are an essential branch of State governments. It should be added that the State courts, as contemplated by s 71 of the Constitution, exercise in substantial measure the judicial power of the Commonwealth. They do so pursuant to the investment of federal jurisdiction by laws such as s 39(2) and s 68(2) of the Judiciary Act, supported by s 77(iii) of the Constitution.
46. The pension provisions in relation to the offices held by the plaintiffs are made respectively by the
Judges' Pensions Act
1953 (NSW) (``the NSW Pensions Act'') and Pt 7 of the
Supreme Court Act
1986 (Vic) (``the Victorian Supreme Court Act''). There are considerable differences in matter of detail, but the statutes share significant characteristics. No provision is made for contributions by the plaintiffs. Pensions are payable to the plaintiffs
[54]
47. In
Northern Suburbs General Cemetery Reserve Trust v The Commonwealth
,
[57]
ATC 4057
statute in 1787 is a blending of all public moneys received so that they become available for appropriation by the legislature. Consistently with that system, provision for payment of the pensions in question is not made by the setting aside for investment of specific moneys or assets; in particular, legislation of neither State provides for the establishment of a fund whereby property is set aside for investment, with capitalisation of the yield from investment; nor is provision made for the funding of pensions by or with the assistance of contributions by prospective pensioners or others.48. The result is that neither legislative scheme answers the general description of a superannuation fund given by Windeyer J in
Scott v FC of T (No 2)
.
[58]
Federal superannuation legislation
49. In order to appreciate the issues respecting construction and validity of the Protected Funds Imposition Act and the Protected Funds Assessment Act, it is necessary first to consider in a little detail the impact upon superannuation arrangements of federal revenue law. In this field, a range of policy considerations are presented. One concerns the deductions, if any, to be allowed to those making contributions to superannuation arrangements; another the tax, if any, to be imposed upon the yields from the investment of those contributions; and a third, the tax treatment of the payments made to those having the benefit of the superannuation provisions. The responses by the Parliament, particularly over the past 20 years, have produced a complex and shifting legislative pattern formed by a number of federal statutes of which those immediately in dispute are but two.
50. The general position as it previously obtained has been described by one commentator as follows:
[59]
``Prior to 1983, if an employer contributed money to an approved employee superannuation fund, the contribution was tax deductible, the income of the fund was tax free and only 5% of any lump sum paid to an employee on retirement was included in assessable income, to be taxed at the employee's marginal rates. Pensions were treated separately. Because they were regular receipts and displayed some of the common indicia of income on ordinary concepts, they were taxed in full. This merely encouraged most superannuation benefits to be paid out as lump sums. Eventually governmental advisors and commentators sought to value this tax expenditure. Estimates were in the order of billions of dollars per annum in forgone revenue.''
To that it may be added, as the submissions for South Australia emphasised:
``In general terms these arrangements did not apply to public sector superannuation. Such schemes were usually unfunded, defined benefits pension schemes which were taxed as ordinary income upon receipt by the beneficiary.''
51. The terms of the New South Wales and Victorian laws providing pensions to judicial officeholders, particularly the absence of contributions and of any segregated fund, have rendered inapplicable certain concessional taxation treatment provided for many years by the
Income Tax Assessment Act
1936 (Cth) (``the ITAA''). That concessional treatment includes provision now made by subdivs AA and AB
[60]
52. Pursuant to Pt IX, liability for taxes was imposed upon certain income, receipts and net capital gains by superannuation funds. One significant change made by Pt IX was to add to the assessable income of funds the deductible
ATC 4058
contributions made by employers; this attracted full tax in respect of those contributions earlier in what might be called the investment cycle.The SASFIT litigation and s 114
53. The South Australian Superannuation Fund Investment Trust (``the SASFIT'') was incorporated by s 6 of the
Superannuation Act
1988 (SA) which made provision for the payment of superannuation benefits to South Australian statutory officers and public sector employees; the statutory scheme established the South Australian Superannuation Fund into which the contributions of contributors were paid either directly or indirectly. In
The State of South Australia
&
Anor v The Commonwealth
&
Anor
,
[62]
54. Section 267, the first provision in Pt IX, contained various definitions for the purposes of that Part. SASFIT had accepted that it was a ``complying superannuation fund'' within the definition in that provision. In the joint judgment of Mason CJ, Deane, Toohey and Gaudron JJ in
The State of South Australia
&
Anor v The Commonwealth
&
Anor
, their Honours, after referring to that definition, continued:
[63]
``The trustee of a complying superannuation fund is liable to pay tax on the taxable income of the fund of the year of income (s 278(1)). A complying superannuation fund is an `eligible superannuation fund' as defined by s 267(1) and is therefore an `eligible entity' as defined by that sub- section. The taxable income of an eligible entity shall be calculated as if the trustee were a taxpayer and a resident (s 272). A reference in Pt IX to a fund includes a reference to a fund established by (a) a law of a State or (b) a public authority constituted by or under a law of a State (s 270).
The provisions of Pt IX were drafted with an eye to the possibility that the provisions of the Part might infringe the prohibition in s 114 of the Constitution by imposing a tax on property of a State. Section 271 deals with that situation. Sub-section (1) provides:
`It is the intention of the Parliament that if, but for this section, this Part would have the effect that a law imposing taxation would impose tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution, this Part shall not have that effect.'''
Section 271(2), as the legislation stood at the time of the High Court litigation, read:
``For the purposes of this Part, a fund is a constitutionally protected fund in relation to a year of income if subsection (1) applies to the fund in relation to any tax in relation to the year of income.''
55. Thereafter,
[64]
``Despite any other provision of this Part, income derived by a constitutionally protected fund is exempt from tax.''
Section 266 of the ITAA conferred a regulation-making power to prescribe all matters which by the statute were required or permitted to be prescribed. The purpose of the declaration by regulations that a fund was a constitutionally protected fund was to enliven s 271A and the exemption from tax of income derived by those funds.
56. At the time of the commencement of the Protected Funds Assessment Act and the Protected Funds Imposition Act, reg 177 of the
Income Tax Regulations
1936
[65]
ATC 4059
The superannuation guarantee legislation
57. In the meantime, there had come into force legislation implementing three significant policies adopted by the Commonwealth. They were concerned with the making of stipulated contributions by employers, the prudential management of superannuation funds, and the imposition of the ``surcharge''. The first policy was implemented by the Superannuation Guarantee Charge Act 1992 (Cth), the Superannuation Guarantee (Administration) Act 1992 (Cth) (``the Guarantee Act'') and the Superannuation Guarantee (Consequential Amendments) Act 1992 (Cth). Section 12(9) of the Guarantee Act expands the ordinary meaning of the term ``employee'' and, in particular, it classifies a person holding office under a law of a State as an employee of that State. Section 16 obliges employers to pay the ``superannuation guarantee charge'' imposed on that employer's ``superannuation guarantee shortfall''.
58. The effect of the legislation is to require employers to pay stipulated contributions to a ``complying superannuation fund'', an expression adopted from Pt IX of the ITAA;
[66]
The SIS Act
59. The second development involved the introduction of new prudential arrangements for superannuation funds. The policy given effect by the Superannuation Industry (Supervision) Act 1993 (Cth) (``the SIS Act'') was identified in sub-ss (1) and (2) of s 3. These stated:
``(1) The object of this Act is to make provision for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commiss- ioner.
(2) The basis for supervision is that those funds and trusts are subject to regulation under the Commonwealth's powers with respect to corporations or pensions (for example, because the trustee is a corporation). In return, the supervised funds and trusts may become eligible for concessional taxation treatment.''
The scheme of the SIS Act was considered in
Attorney-General (Cth) v Breckler
.
[68]
60. The only complying superannuation funds within the meaning of s 45 of the SIS Act that are unfunded are public sector superannuation schemes.
[69]
61. Difficulties were encountered in applying the new prudential regime to State superannuation funds; in particular, as was emphasised in the submissions for South Australia, the prudential requirements relating to the maintenance of minimum assets could not be complied with in respect of those funds which were unfunded. Neither scheme established by the NSW Pensions Act or by s 104A of the Victorian Supreme Court Act, being the schemes affecting the plaintiffs, was a regulated superannuation fund for the purposes of the SIS Act; nor were the requirements of the definition in s 45(1) of ``complying superannuation fund'' met. However, s 45(6) of the SIS Act provided:
ATC 4060
``Despite subsection (1), if, at all times during a year of income when a fund was in existence, the fund was, or was part of, an exempt public sector superannuation scheme, the fund is a complying superannuation fund in relation to the year of income for the purposes of Part IX of the [ ITAA].''
The effect of the definition in s 10(1) of ``exempt public sector superannuation scheme'' was to identify its content as that specified in regulations. The effect of reg 1.04(4A) of the Superannuation Industry (Supervision) Regulations 1994 (``the SIS Regulations'') has been that, at all material times, what were identified therein as ``Schemes established by or operated under... [ the NSW Pensions Act and the Victorian Supreme Court Act]'' were exempt public sector superannuation schemes.
The surcharge legislation
62. It is with the implementation by the Commonwealth of its third policy that this litigation is more immediately concerned. In introducing the Budget, the Commonwealth Treasurer on 20 August 1996 announced a range of measures which, it was said, were designed to make superannuation arrangements fairer, more flexible and better suited to the needs of the modern workforce. In particular, it was announced that tax deductible contributions made to superannuation funds by or on behalf of ``high income earners'' were to be subject to a surcharge of up to 15 per cent ``payable by the funds''. Further, it was said that, with respect to service before the Budget announcement, the new measure would not affect ``benefits paid under an unfunded or Constitutionally protected scheme''. The apparent incongruity in singling out for the same impost, dubbed a ``surcharge'', those ``high income earners'' who had had the benefit of concessional deductions for contributions and those in the public sector who had non- contributory arrangements was not addressed in the announcement.
63. Subsequently, in the Second Reading Speech for the bills for what became the
Superannuation Contributions Tax Imposition Act
1997 (Cth) (``the Surcharge Imposition Act'') and the
Superannuation Contributions Tax (Assessment and Collection) Act
1997 (Cth) (``the Surcharge Assessment Act''), the responsible Minister said:
[71]
``The superannuation system has been inequitably biased in favour of high income earners. Those high income earners have been benefiting from the concessional taxation treatment of superannuation to a much greater extent than low income earners. The introduction of the superannuation contributions surcharge for high income earners is this government's response to ensure that the superannuation system is more equitable for all Australians, while also ensuring that superannuation remains an attractive savings option.''
64. The term ``surcharge'' has been used to describe a penalty imposed for late returns to revenue authorities and a sum not passed on an audit and required to be refunded by the person responsible. The Minister appears to have had in mind some other meaning to identify a new subject of taxation without using that word. At all events, counsel for the plaintiffs emphasised that persons in their position had not participated in this announced mischief; the non-funded pensions schemes for judicial officers had attracted no tax deductible contributions.
65. The oddly drawn s 34 of the Surcharge Assessment Act stated that the statute did not apply in any circumstance where its application would ``or might'' result in a constitutional contravention. Section 10 imposed liability to pay the surcharge not upon members but upon the superannuation provider, if that entity was the ``holder'' of the contributions. The arrangements in the private sector referred to at
[
60] for non-contributory unfunded benefits to which the SIS Act does not apply will not be ``unfunded defined benefits superannuation schemes'' (within the meaning of s 43 of the Surcharge Assessment Act) which attract the surcharge.
[72]
66. Section 4 of the Surcharge Imposition Act imposed by force of that provision the surcharges identified by the Surcharge Assessment Act. Section 9 stated that the Surcharge Imposition Act did not impose a tax on property of any kind belonging to a State, within the meaning of s 114 of the Constitution. Further, s 8, to the extent necessary, read down
ATC 4061
s 4 so as to save it from imposing in relation to a State or an authority or officer of a State a surcharge the imposition of which would exceed the legislative power of the Commonwealth. No such provision is found in the Protected Funds Imposition Act; as will appear, that legislation is drawn so as to avoid any operation of s 114 by imposing liability for the impost not upon the States but the plaintiffs themselves.67. It is convenient now to return to the particular legislation with which this litigation is concerned, the Protected Funds Assessment Act and the Protected Funds Imposition Act.
The protected funds legislation
68. In the Second Reading Speech on the bill for the Protected Funds Assessment Act, the responsible Minister said
[74]
``This bill complements the surcharge legislation already passed by the parliament. The existing superannuation contribution [ s] surcharge legislation imposes surcharge on superannuation providers. The legislation cannot apply to certain state superannuation funds because they are protected from revenue measures under the constitution.
This bill strengthens the equity of the surcharge measure by ensuring that the surcharge will apply to all high income earners....
The collection mechanism under the bill is similar to that which applies to members of unfunded defined benefits superannuation funds under the [ Surcharge Assessment Act]. The only difference is that the liability to pay the surcharge will rest with the member rather than the superannuation fund. The surcharge liability for a member for a year will be accumulated in a surcharge debt account, maintained by the Commissioner of Taxation, for the member and will be payable by the member when the member's superannuation benefit becomes payable. The member will have the option of paying off the debt as it arises once an amount of surcharge has been assessed.''
69. The emphasis upon strengthening the equity of the surcharge measure is indicative of a reluctance to admit of exceptions or qualifications to a particular revenue-raising policy. But the Constitution itself may require the allowance of exceptions. In that respect, attention was paid by the legislature to what was seen as the requirements of s 114. The plaintiffs submit that, as a result, the protected funds legislation implemented a different scheme from that in the Surcharge Imposition Act and the Surcharge Assessment Act. In particular, they point to the imposition of a surcharge not upon the superannuation provider, as with the general legislation, but upon members and to the apparent reason for this in a view taken as to the operation of s 114 of the Constitution. Whether that view, apparent from the Second Reading Speech, was soundly based may be open to question but should be acknowledged to the extent that it helps disclose the legislative purpose of the impugned statutes. However, what is at the heart of the present litigation is whether, in framing the laws in this form, there was a failure to have sufficient regard to another constitutional imperative, that expressed in the Melbourne Corporation doctrine.
70. The plaintiffs further contend that, as it applies to them (even if not to all persons taxed by this legislation), the essence of the legislative scheme is a fiction. The State is treated as having made actuarially determined contributions into a superannuation fund on behalf of the plaintiffs and those ``contributions'' are treated as if held in the fund on trust for them; in respect of that non- existent state of affairs, the legislation purports to impose a tax as if those notional contributions existed and were held for or otherwise available to the plaintiffs.
71. The plaintiffs do not contend that the statutes in question operate solely by resort to the fictions they identify. Rather, they submit, with particular support from New South Wales, that tax is imposed by two distinct criteria of liability which are to be seen from s 9 of the Protected Funds Assessment Act. The first is identified as the settlement of funds in what might be described as ordinary superannuation funds which are ``constitutionally protected superannuation funds'', where the tax is on actual contributions; the second, which applies to the plaintiffs, is the derivation of income at a rate determined by the ``notional surchargeable contributions factor''. It will be necessary to
ATC 4062
return to these submissions when considering the further ground of alleged invalidity, that based in the operation of s 55 of the Constitution.Federal unfunded schemes
72. Reference also should be made to the position respecting benefits payable to members of unfunded non-contributory Commonwealth superannuation schemes. There is no challenge made to the scheme adopted here.
[76]
The liabilities of the plaintiffs
73. Both the Protected Funds Imposition Act and the Protected Funds Assessment Act came into force on 7 December 1997. Section 7 of the latter Act states:
``This Act does not apply to a person who is a member [ of a constitutionally protected superannuation fund] because he or she is a judge of a court of a State at the commencement of this Act.''
The expression ``constitutionally protected superannuation fund'' is given by s 38 of the Protected Funds Assessment Act ``the same meaning'' as has the expression ``constitutionally protected fund'' in Pt IX of the ITAA. It will be recalled that the definition in Pt IX operates by reference to reg 177 (including Sched 14) of the Income Tax Regulations. This yoking of reg 177, through the medium of Pt IX, to a pivotal provision of the Protected Funds Assessment Act is a significant matter for present and later purposes.
74. The Commissioner of Taxation has the general administration of the Protected Funds Assessment Act. The Commissioner contends and the plaintiffs dispute that the first plaintiff is liable to pay superannuation contribution surcharge for the financial years 1998-1999 and 1999-2000 and that the second plaintiff is liable as well for the financial years 1996-1997 and 1997-1998. The alleged liability arises by virtue of accruing pension entitlements under the NSW Pensions Act and the Victorian Supreme Court Act.
The position of the second plaintiff
75. As has been indicated at [ 44], the first plaintiff was appointed a judge of the New South Wales Supreme Court after 7 December 1997, but the second plaintiff was appointed a Master of the Supreme Court of Victoria before that date. The application to her of the Protected Funds Assessment Act depends upon the view that, although a Master, she was not, within the meaning of s 7 of that statute, ``a judge of a court of a State'' at its commencement.
76. Section 75(2) of the Victorian Constitution states:
``The [ Supreme] Court consists of the Judges of the Court and the Masters of the Court.''
On the other hand, s 25 of the NSW Supreme Court Act reads:
``The [ Supreme] Court shall be composed of a Chief Justice, a President of the Court of Appeal and such other Judges of Appeal and Judges as the Governor may from time to time appoint.''
77. Upon the proper construction of s 7 of the Protected Funds Assessment Act, the second plaintiff was ``a judge of a court of a State'' at the relevant time and the legislation under which she has been assessed has no application to her. Provisions with respect to pensions for Supreme Court Masters are made by the Victorian Supreme Court Act; those for judges of the Supreme Court by Pt III of the Victorian Constitution. Section 7 of the Protected Funds Assessment Act is so drawn as to exclude certain persons to whom the statute otherwise would apply because they are members of a ``constitutionally protected fund''. Schedule 14, to which reference has been made, lists both the Victorian Supreme Court Act and the Victorian Constitution. The only ``fund'' established by the former statute is to be seen in the pension entitlement provisions for Masters. The inclusion in the Schedule of the Victorian Supreme Court Act can serve no other purpose.
ATC 4063
This supports the construction of the phrase ``a judge of a court of a State'' to include the second plaintiff.78. To that may be added the specification, in s 75(2) of the Victorian Constitution, of the Supreme Court as a court consisting both of judges and Masters. Reference to the significance of s 75(2) was made in
Harris v Caladine
[79]
``... [ T]he ways in which a court may be organized or structured for the purpose of exercising its jurisdiction, powers and functions admit of considerable variation. As Windeyer J noted in Kotsis [ v Kotsis ], ` [ a]ccording to the tradition of the common law, a superior court of record is a court sitting in banc for the administration of justice'. [81]
(1970) 122 CLR 69 at 91. However, as his Honour went on to point out:`In the course of time it became settled that, for some purposes, the jurisdiction of a superior court of common law could be exercised by a single judge. For the due administration of justice courts had officers who in some cases were, and are, empowered to perform specified functions on behalf of the courts to which they belonged.'''
Their Honours went on to describe s 75(2) of the Victorian Constitution as marking:
[82]
``... a further stage in the process of evolutionary development in the constitution of courts for purposes connected with the exercise of their jurisdiction. Although they are developments which have taken place since 1900, they serve to confirm what we have already said, namely, that a court may be organized or structured in a wide variety of ways for the purpose of exercising its jurisdiction.''
79. The conclusion that, in respect of the Supreme Court of Victoria, the term ``judge'' in s 7 of the Protected Funds Assessment Act includes both Masters and judges is not determinative of the position of officeholders in other State courts. The answer in each case will turn upon the relevant State legislation and the contents of Sched 14 to the Income Tax Regulations.
80. However, with respect to the second plaintiff, question 1(b) of the case stated should be answered ``No'' and question 2 does not arise. The second plaintiff may be dismissed from further consideration in these reasons; they will bear upon the position of the first plaintiff.
81. It is convenient to return to consideration of the provisions under which the first plaintiff has been assessed.
The position of the first plaintiff
82. Section 5 of the Protected Funds Assessment Act states:
``The object of this Act is to provide for the assessment and collection of the superannuation contributions surcharge payable on surchargeable contributions for high-income members of constitutionally protected superannuation funds.''
83. Section 4 of the Protected Funds Imposition Act imposes the superannuation contributions surcharge that is payable for each financial year on the surchargeable contributions of a member as computed under the Protected Funds Assessment Act. The rate of the surcharge is fixed by s 5 of the Protected Funds Imposition Act.
84. The surcharge is payable on the member's surchargeable contributions for the financial year that began on 1 July 1996 or a later financial year (Protected Funds Assessment Act, s 8(1)). However, no surcharge is payable for a financial year unless the member's adjusted taxable income for the financial year is greater than the surcharge threshold for the financial year (s 8(2)). The adjusted taxable income of the first plaintiff for the financial years in question was in each case greater than the surcharge threshold for that financial year.
85. The effect of definitions in s 38 of the Protected Funds Assessment Act is that a scheme for the payment of superannuation, retirement or death benefits established by or under a law of a State is a ``public sector superannuation scheme''; a ``defined benefits superannuation scheme'' includes a public sector superannuation scheme which is, within the meaning of the SIS Act, an ``exempt public sector superannuation scheme''. As already indicated, at [ 61], the effect of reg 1.04(4A) of the SIS Regulations is that schemes established by or operated under the NSW Pensions Act are exempt public sector superannuation schemes. This definitional chain leads to the result that the State statutory scheme for the provision of
ATC 4064
benefits to the first plaintiff is a ``defined benefits superannuation scheme''.86. This is significant for the operation of s 9 of the Protected Funds Assessment Act. This sets out to explain what are the surchargeable contributions of a member for a financial year. A definition of ``surchargeable contributions'' is provided by s 9. As indicated at [ 71], it falls into two halves. The first deals, in broad terms, with ``contributed amounts'' paid by the trustee of a constitutionally protected superannuation fund (s 9(2), (3)). The second deals (s 9(4)-(7)) with defined benefits superannuation schemes where there are no actual contributions and the statutory fictions of which the first plaintiff complains are employed. In both categories, the surcharge for each financial year is payable not by the superannuation provider, but by the member (s 11).
87. In the latter category, that in which the first plaintiff finds himself, the ``surchargeable contributions'' are identified in s 9(4) as:
``the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year.''
A component in the formula set out in s 9(5) for the identification of that ``actuarial value'' is identified as the ``notional surchargeable contributions factor''. That is specified in s 9(5) as meaning the factor applying to the member for the financial year worked out by an eligible actuary in accordance with ``the method set out in Superannuation Contributions Ruling SCR 97/1''. That ruling (``SCR 97/1'') was issued by the Commissioner of Taxation on 13 August 1997 to provide actuaries with a standard to follow when providing certificates which deal with the ``notional surchargeable contributions factor'' as defined in s 43 of the Surcharge Assessment Act. The effect of s 12 of the Protected Funds Assessment Act is to require New South Wales as a ``superannuation provider'' of the benefits of the first plaintiff to engage an actuary to make the calculations of ``surchargeable contributions'' required under s 9. Section 12(2) requires each ``superannuation provider'' to report to the Commissioner of Taxation surchargeable contributions which have been computed in the required way.
88. The first plaintiff emphasises that the actuary is obliged to undertake the calculation by reference to the amount of contributions which would have actually to be made to a fund, if one existed, in order to produce the pension benefits that it is supposed the judicial officer might receive upon retirement; further, for the purposes of that supposition, the actuary is required to assume that the judicial officer will qualify for a pension at an actuarially determined average age for judicial retirement, will have a spouse and dependants of number and circumstances corresponding to an actuarially determined mean, and will survive retirement for a period corresponding to an actuarially determined age of death for retired judicial officers. Thus the calculations incorporate assumptions for groups of people on matters such as matrimonial status, age of retirement and mortality, with the result that in many cases the pension benefits actually received will be significantly less than that assumed in the calculation of the notional surcharge contributions factor for s 9(5) of the Protected Funds Assessment Act.
89. Further, and it would appear inevitably, the ``surchargeable contributions'' calculated in this fashion are high proportions of the salary of the judicial officers. The first plaintiff has been assessed to surcharge for the years 1998-1999 and 1999-2000 on surchargeable contributions fixed at more than 61 per cent of his annual remuneration. If he were to pay the contributions surcharge which had been assessed, he would be doing so in respect of potential benefits under the State legislation which might never be received. In the event, there may be failure to comply with one or other of the statutory preconditions for receipt of those benefits under the State laws. There is a dispute between the parties as to whether, if events so transpired, the amounts paid to the Commonwealth would be refundable under the provisions of the Taxation Administration Act 1953 (Cth).
90. Section 15 of the Protected Funds Assessment Act makes provision for deferment of liability to pay the surcharge and for interest to accrue on the deferred amount in the ``surcharge debt account'' to be kept by the Commissioner for each member of a constitutionally protected superannuation fund. Interest is charged annually on the balance and added to the amount by which the surcharge debt account is in debit. The result is that that debit, which includes interest on interest, will continue to grow whilst the judicial officer
ATC 4065
remains in service after reaching that age at which, under the relevant State law, there has fully accrued the right to retire with a pension; this increase in the debit will continue even though the worth of the pension is diminishing because it would be payable for a shorter period of time.91. Tables accompanying the case stated provide examples where the amount payable by a judicial officer upon retirement to discharge the debit in the surcharge debt account can exceed the amount which would be payable under the State scheme in the first year of retirement. For example, if the first plaintiff lived and served until the statutory retirement age for those in his office, his surcharge and interest liability would be in the order of $550,000. That sum would be more than double the gross annual pension (before income tax) to which, as now estimated, he would be entitled at that time.
Construction issues
92. It is convenient to turn to the questions of construction which, if resolved by acceptance of the first plaintiff's submissions, would deny the application to him of the provisions respecting the surcharge. Section 3 of the Protected Funds Imposition Act gives to those expressions used therein which are defined in the Protected Funds Assessment Act the same meaning as in that statute.
93. The first point turns upon the definition in s 38 of the Protected Funds Assessment Act of ``constitutionally protected superannuation fund''. It is there said that this ``has the same meaning'' as another term, namely ``constitutionally protected fund'', ``has in Pt IX of the [ ITAA]''. Liability for the surcharge is imposed by s 11 upon those who are ``members'' of a constitutionally protected superannuation fund. The first plaintiff denies that, upon the proper construction of the legislation, he is a member of such a fund.
94. The reference to Pt IX of the ITAA directs the reader to s 271A of that statute. That has the purpose of limiting the reach of the revenue law by exempting from tax income derived from a ``constitutionally protected fund''. The definition of that term in s 267(1) identifies ``a fund'' declared by reg 177 of the Income Tax Regulations (which incorporates by reference Sched 14) to be a constitutionally protected fund. The range of State legislation listed in Sched 14 establishes schemes which provide a variety of benefits, including pensions and lump sum payments; some of the schemes are funded wholly or in part by contributions made by or on behalf of members, others are not; there are funds the assets of which belong to the State and others where benefits are paid directly from the State consolidated revenue fund. In addition to the NSW Pensions Act, Sched 14 identifies a number of non- contributory schemes with payments to be made out of the Consolidated Revenue.
[83]
95. The statutes listed for South Australia display perhaps the greatest diversity. There are several species of public sector ``constitutionally protected'' superannuation schemes. They include: (i) those where employee contributions are paid into a fund which is the property of the State; entitlements are paid from the Consolidated Account which is reimbursed from the fund; (ii) schemes in which both employer and employee contributions are paid into such a fund; (iii) schemes where employer and employee contributions are paid into a fund vested in a trustee and entitlements are paid from that fund; and (iv) schemes where there are no contributions by employees or officers, no fund, and entitlements are paid from the Consolidated Account. Thus, in South Australia, in some cases entitlements in respect of contributory schemes (as well as non-contributory schemes) will be received by payments from the Consolidated Account.
96. In the case of such legislative arrangements for contributory schemes, it is easy to speak of a fund which derives income, so that the exemption conferred by s 271A of the ITAA applies. That does not so readily appear where the State legislation both establishes non-contributory schemes and provides for payments secured upon the Consolidated Revenue. Those non-contributory schemes identified in Sched 14 are not limited to those respecting judicial officers, the law officers and vice-regal representatives. However, they are so limited in the case in New
ATC 4066
South Wales and Victoria, save for the schemes established by the Coal Mines (Pensions) Act 1958 (Vic) and the Mint Act 1958 (Vic). But the pensioners under these latter two statutes represented a closed class (of about 91 persons in all) when the protected funds legislation began its operation; the result is that, despite the terms of Sched 14, the legislation has no impact upon them. This incongruity is a consequence of the direct translation of the whole of Sched 14 from its earlier purpose to that of the later legislation.97. It is against that background that reg 177 falls for consideration. The text is as follows:
``For the definition of `constitutionally protected fund' in section 267 of the [ ITAA], each of the following funds is declared to be a constitutionally protected fund:
- (a) a fund of the kind to which, in the absence of section 271A of the [ ITAA], Part IX of the [ ITAA] would apply, established by:
- (i) a State Act specified in Schedule 14; or
- (ii) a specified provision of a State Act specified in Schedule 14;
- (b) the fund known as the Police Occupational Superannuation Scheme, established in South Australia under Trust Deed.''
98. Paragraph (a) of the regulation is to be understood as presenting two criteria, the first of which is broader than the second, and both of which are to be satisfied. The first criterion is the identification of a fund established by State legislation specified in Sched 14. The second requires identification, from among that list, of a fund of a kind to which, in the absence of the exemption conferred by s 271A, Pt IX of the ITAA would apply. The result is that, for more abundant caution, there have been included in Sched 14 some statutes which make arrangements not involving the establishment of funds deriving income. Nevertheless, in such cases, there is no ``constitutionally protected fund'' because there is no fund of a kind to which, in the absence of s 271A, Pt IX would apply. In this way, the legislative purpose of conferring an exemption from what otherwise would be the scope of Pt IX is satisfied.
99. The legislative purpose in the Protected Funds Assessment Act is quite different. The objective here is to create, or at least to identify, by the notion of a member of a constitutionally protected superannuation fund, a class of taxpayers and a ``subject of taxation'' within the meaning of s 55 of the Constitution. References already made to the provisions in the second half of s 9 dealing with the ``notional surchargeable contributions factor'' indicate that the legislature had in mind the imposition of taxation partly by reference to notional or fictional constructs.
100. In that setting, the construction of the definition of ``constitutionally protected superannuation fund'' in s 38 of the Protected Funds Assessment Act turns in large degree upon the statement that it ``has the same meaning'' as does the phrase just considered in Pt IX of the ITAA. Taken at one level, the phrase cannot have the same meaning in the ITAA as it has in the Protected Funds Assessment Act. That which is identified or indicated by the first use is the existence of an exemption to a certain species of revenue liability; that which is identified or indicated by the second use is the incurring of another species of revenue liability.
101. However, the phrase ``the same meaning'' is to be taken as used at the semantic level appropriate to the respective subject- matters of the two statutes.
[85]
102. Further, in
Cooper Brookes (Wollongong) Pty Ltd v FC of T
, Mason and Wilson JJ remarked:
[88]
``The fact that the Act is a taxing statute does not make it immune to the general principles governing the interpretation of statutes. The courts are as much concerned in the interpretation of revenue statutes as in the case of other statutes to ascertain the legislative intention from the terms of the instrument viewed as a whole.''
103. The definition in s 267(1) of the ITAA identifies ``a fund'' declared by the regulations to be a constitutionally protected fund; the only such regulation is reg 177. That regulation itself has difficulties of construction to which
ATC 4067
reference has been made and to these the requirement of the ``same meaning'' in s 38 of the Protected Funds Assessment Act is to be accommodated. Whether or not, given s 114 of the Constitution, Pt IX of the ITAA would apply in the absence of the exemption conferred in s 271A thereof for that purpose is not significant. What is significant for the purposes of the definition in the Protected Funds Assessment Act is the treatment as ``funds'' of the arrangements established by the State legislation listed in Sched 14. This includes the New South Wales legislation upon which the first plaintiff relies for his pension entitlements. The first construction point fails.104. Next, the first plaintiff submits that, even if he is a ``member'' for the purposes of the definition because he is a member of a constitutionally protected superannuation fund, nevertheless ss 8(1) and 9(4) of the Protected Funds Assessment Act do not apply. This is said to be because, contrary to the requirement in the definition of ``surchargeable contributions'' in s 9(4), he is not ``a member of a defined benefits superannuation scheme''. The reason given is that the first plaintiff is not a ``defined benefit member'' of a ``public sector superannuation scheme''. The expression ``defined benefit member'' is defined in s 38 of the Protected Funds Assessment Act as meaning:
``a member entitled, on retirement or termination of his or her employment, to be paid a benefit defined, wholly or in part, by reference to either or both of the following:
- (a) the amount of:
- (i) the member's salary at a particular date, being the date of the termination of the member's employment or of the member's retirement or an earlier date; or
- (ii) the member's salary averaged over a period before retirement;
- (b) a stated amount.''
(emphasis added)
105. The first plaintiff holds a statutory office and, in the common law sense of the term, is not an employee. However, the term ``employee'' and cognate expressions may take further colour from particular statutory contexts.
[89]
106. The third construction point fixes upon the requirement in the definition of ``defined benefit member'' that there be an entitlement on retirement or termination of employment to be paid a benefit which ``wholly or in part'' is defined ``by reference to'' the salary of the member at the date of the termination or retirement. It is said that the pension that would be payable to the first plaintiff under the NSW Pensions Act is referable to the salary from time to time of current officeholders; it is not frozen by reference to the particular officeholder's remuneration at the date of retirement or termination.
107. The first plaintiff is entitled under s 29 of the NSW Supreme Court Act to be paid remuneration in accordance with the Statutory and Other Offices Remuneration Act 1975 (NSW). The effect of s 21(1) and Sched 1 of that statute is to forbid the reduction of this remuneration. Remuneration at the time of retirement or termination of service of the first plaintiff will form a basal component of what thereafter becomes the pension sums paid from time to time. Pensions are calculated as percentages of the ``notional judicial salary'' from time to time of the retired or deceased judge. Section 2(2) of the NSW Pensions Act identifies this by reference to the salary payable from time to time to the holder of a judicial office of equivalent status to that held at the death or retirement of the judge in question. In that way, the first plaintiff is entitled after retirement or termination to be paid a benefit ``in part'' defined ``by reference'' to a salary at the date of termination or retirement. In that way the definition of ``defined benefit member'' is satisfied. Further, the provisions in ss 13-15 of the NSW Pensions Act with respect to lump sum benefits provide for the calculation of lump sums immediately by reference to final salary and years of service.
108. The satisfaction in this way of the criteria in par (a) of the definition of ``defined benefit member'' makes it unnecessary to consider the submissions with reference to par (b), the specification of ``a stated amount''.
109. Finally, the first plaintiff fixes upon the specification in the definition of ``surchargeable contributions'' in s 9(4) of the Protected Funds
ATC 4068
Assessment Act of ``amounts that constitute the actuarial value of the benefits that accrued to... the member for the financial year''. It is submitted that no ``benefit'' can be said to ``accrue'' to him in respect of any financial year before his retirement or termination of service. However, the content of the expression in question in s 9(4) is found in succeeding provisions of that section. The phrase ``the benefits that accrued to... the member for the financial year'' has no independent operation. Rather, there is in s 9(4) a composite expression ``actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year''. The content of that composite expression is detailed in s 9(5) in such a fashion as to bring into operation the method stipulated in SCR 97/1. It may be, as the first plaintiff contends, that the application of this method involves notional or fictional elements. But this circumstance does not make good the construction point respecting s 9(4).110. For these reasons, in the case of the first plaintiff, question 1(a) of the case stated should be answered ``Yes''. It then becomes necessary to answer question 2 which poses the various contentions respecting invalidity.
Constitutional implications
111. The plaintiffs rely in several ways upon principles derived from
Melbourne Corporation v The Commonwealth
,
[90]
``Taxation; but so as not to discriminate between States or parts of States.''
112. The relevant fundamental constitutional conception represents what, after the rejection in the
Engineers' Case
[91]
113. In
Australian Capital Television Pty Ltd v The Commonwealth
,
[92]
`` [ W]here the implication is structural rather than textual it is no doubt correct to say that the term sought to be implied must be logically or practically necessary for the preservation of the integrity of that [ constitutional] structure.''
Thereafter, in
Kruger v The Common- wealth
,
[94]
`` [ t]he limitation upon the powers of the Commonwealth Parliament which prevent it from discriminating against the States is derived from... considerations... articulated by Dixon J in Melbourne Corporation v The Commonwealth [95]
(1947) 74 CLR 31 at 82. when he said:`The foundation of the Constitution is the conception of a central government and a number of State governments separately organised. The Constitution predicates their continued existence as independent entities.'''
114. Sir Owen Dixon, shortly after
Melbourne Corporation
, said that in a dual political system, such as a federal system, one did not ``expect to find either government legislating for the other''.
[96]
115. Because the limitation on power is derived from the federal structure, it is difficult, if not impossible, to articulate it except in negative terms which are cast at a high level of abstraction
-
that the Commonwealth's legislative powers do not extend to making a law which denies one of the fundamental premises of the Constitution, namely, that there will continue to be State governments separately organised. In the cases which have considered this implication, including
ATC 4069
Melbourne Corporation and discrimination
116. It is important for an evaluation of the first plaintiff's submissions to examine what is involved in the notion of ``discrimination'' said to be drawn from
Melbourne Corporation
and succeeding decisions respecting intergovern- mental immunities. The notion of ``immunity'' here is concerned with freedom from legislative affectation.
[97]
``as to whether discrimination against a State is but an illustration of a law impairing the capacity of a State to govern or whether it has a standing of its own.''
117. It is necessary also to distinguish the specific reference in s 51(ii) to discrimination. A law with respect to taxation, in general, does not discriminate in the sense spoken of in s 51(ii) if its operation is general throughout the Commonwealth even though, by reason of circumstances existing in one or more of the States, it may not operate uniformly.
[100]
118. The phrase in s 51(ii) is ``discriminate between''. Likewise, in other provisions of the Constitution where ``discrimination'' is used expressly, notably ss 102 and 117, and in judicial interpretation of the Constitution, notably that of s 92, the primary sense is of ``discrimination between''.
[101]
119. The submission in the present litigation respecting Melbourne Corporation is that, at least in their application to the first plaintiff, the laws in question are beyond the taxation power because they discriminate against New South Wales by singling it out to place upon it special burdens or disabilities, the attainment of a constitutionally improper objective. But, even if that be so, where is the first step, the unequal treatment of equals or equal treatment of the unequal?
120. In
Melbourne Corporation
itself, in speaking of laws said to ``discriminate'' against the States, Latham CJ said:
[104]
``I have some difficulty in understanding how `discrimination' in a precise sense can be shown in a law applying only to one person or class of persons in respect of a particular subject matter. Discrimination appears to me to involve differences in the treatment of two or more persons or subjects. Legislation with respect only to one or more persons or with respect only to one or more subjects is not, I suggest with respect, properly described as discriminating against other persons or other subjects simply because it leaves them alone.... In New York v United States [105]
326 US 572 (1946). and the other cases to which I have referred in which it has been held that a law may be invalid on the ground of `discrimination,' the word `discrimination' is, I think, really used in the sense explained by Douglas J in New York v United States [106]326 US 572 (1946). - that is, singling out another government and specifically legislating about it.''
121. To similar effect is the more recent statement by Professor Tribe, with reference to the apparent paradox in the United States decisions treating ``discrimination'' as the trigger for principles of intergovernmental immunity. He said:
[107]
`` [ T]he very concept of an immunity (as reflected in the intergovernmental immunity doctrine) is more than a claim to equal treatment ; indeed, it is a claim to special treatment beyond that to which otherwise similarly situated parties are entitled.''
(original emphasis)
122. In the joint judgment of six members of the Court in
Australian Education Union
, after discussing the judgment of Dixon J in
Melbourne Corporation
, their Honours continued:
[108]
ATC 4070
``Although the comments of Dixon J were couched principally in terms of discrimination against States and the imposition of a particular disability or burden upon an operation or activity of a State or the execution of its constitutional powers, his Honour clearly had in mind, as did Latham CJ, Rich and Starke JJ, that the legislative powers of the Commonwealth cannot be exercised to destroy or curtail the existence of the States or their continuing to function as such. [109]
Whether this means that there are two implied limitations, two elements or branches of one limitation, or simply one limitation is a question which does not need to be decided in this case.'' ; see also Melbourne Corporation vThe Commonwealth (1947) 74 CLR 31 at 56, 60 per Latham CJ, 66 per Rich J, 74 per Starke J, 82 per Dixon Jper Dixon J. Bank of NSW vThe Commonwealth (1948) 76 CLR 1 at 337-338
123. At some stages in the argument in the present case it was suggested to be sufficient to render the legislation invalid in its application to the first plaintiff and other State judicial officers that the legislation treated them differently to beneficiaries under the unfunded private sector schemes to which reference is made at [ 60] and [ 65], and differently to Ch III judges, by imposing the taxation liability upon them rather than the provider of the benefits. This differential treatment was said, without more, to attract the Melbourne Corporation doctrine; the like was treated as the unalike and thereby the States were burdened in a ``special way''. That would appear to give ``discrimination'' a standing on its own which in this field of discourse it does not have.
124. There is, in our view, but one limitation, though the apparent expression of it varies with the form of the legislation under consideration. The question presented by the doctrine in any given case requires assessment of the impact of particular laws by such criteria as ``special burden'' and ``curtailment'' of ``capacity'' of the States ``to function as governments''. These criteria are to be applied by consideration not only of the form but also ``the substance and actual operation'' of the federal law.
[110]
The scope of the doctrine
125. In
Queensland Electricity
,
[112]
``These difficulties explain why there has been a preference to speak in terms of those aspects of legislation which may evidence breach of the doctrine rather than to generalize in terms of the doctrine itself. Discrimination against the States or their agencies may point to breach as may a special burden placed upon the States by a law of general application.''
The reasoning in the foundation decisions, and that in the contemporary United States cases, bears out the view later taken by Dawson J in this passage.
126. In
Essendon Corporation v Criterion Theatres Ltd
,
[113]
``It is, perhaps, desirable to add that this case cannot be considered as one in which the Commonwealth comes in to avail itself of privileges, facilities or a course of business established by or under State law to which a charge or even a tax is incident. In the Panhandle Oil Co's Case [115]
[ the United States as a purchaser suffered the increase in price which resulted from the sales tax on the vendor, and Holmes J in reference to this said of the Federal Government, `It avails itself of the machinery furnished by the State and I do not see why it should not contribute in the same proportion that every other purchaser contributes for the privileges that it uses. It has no better or other right to use them than any one else. The cost of maintaining the State that makes the business possible is just as necessary an element in the cost of production as labor or coal'.'' [116]Panhandle Oil Co v Mississippi; Ex rel Knox ] 277 US 218 (1928).277 US 218 at 224 (1928).
127. Section 48 of the Banking Act 1945 (Cth) (``the Banking Act''), the provision held invalid in Melbourne Corporation , was addressed to banks but impacted upon the States. It stated:
``Except with the consent in writing of the Treasurer, a bank shall not conduct any banking business for a State or for any
ATC 4071
authority of a State, including a local governing authority.''
128. Dixon J repeated the proposition that the States must accept the general legal system as it is established when they availed themselves ``of any part of the established organization of the Australian community''.
[117]
`` [ t]he actual decision in the present case can be no wider than the constituent factors contained in s 48 require, however widely the principles which lead to it may be stated.''
129. On the other hand, Rich J
[124]
130. Thereafter, in
Bank of NSW v The Commonwealth
(``the
Banking Case
''),
[126]
131. In
Melbourne Corporation
itself, Dixon J
[129]
The United States decisions
132. In
Helvering v Gerhardt
,
[135]
133. The Court in
Helvering
went on to refer to the application after 1870 of the governmental immunity doctrine in favour of the States. In particular, in
Collector v Day
,
[139]
ATC 4072
that which had founded the implied restriction upon State power. Referring to Collector v Day , the Court in Helvering said: [140]``In recognizing that implication for the first time, the Court was concerned with the continued existence of the states as governmental entities, and their preservation from destruction by the national taxing power. The immunity which it implied was sustained only because it was one deemed necessary to protect the states from destruction by the federal taxation of those governmental functions which they were exercising when the Constitution was adopted and which were essential to their continued existence.''
Their Honours continued:
[141]
``We need not stop to inquire how far, as indicated in McCulloch v Maryland ..., the immunity of federal instrumentalities from state taxation rests on a different basis from that of state instrumentalities; or whether or to what degree it is more extensive. As to those questions, other considerations may be controlling which are not pertinent here. It is enough for present purposes that the state immunity from the national taxing power, when recognized in Collector v Day ..., was narrowly limited to a state judicial officer engaged in the performance of a function which pertained to state governments at the time the Constitution was adopted, without which no state `could long preserve its existence.'''
Then, in
Graves v New York; Ex rel O'Keefe
,
[142]
134. Frankfurter J referred also to
West v C of T (NSW)
.
[145]
``that whenever the Constitution confers a power to make laws in respect of a specific subject matter, prima facie it is to be understood as enabling the Parliament to make laws affecting the operations of the States and their agencies.''
But this was subject to a reservation that the
Engineers' Case
:
[147]
``does not appear to deal with or affect the question whether the Parliament is authorized to enact legislation discriminating against the States or their agencies.''
135. It was against that background that
New York v United States
was decided in 1946. The Supreme Court determined that the State of New York, in selling mineral waters taken from Saratoga Springs, owned and operated by that State, was not immune from federal sales tax imposed on such waters. The Supreme Court was concerned to explain the circumstances in which a ``non-discriminatory tax'' of general application, such as the federal sales tax laid on a particular subject-matter without regard to the personality of a taxpayer, might nevertheless be an unconstitutional exertion of federal power on the States. The concurring judgment of four members of the Court, delivered by Stone CJ, said:
[148]
``The tax reaches the State because of the Congressional purpose to lay the tax on the subject matter chosen, regardless of who pays it. To say that the tax fails because the State happens to be the taxpayer is only to say that the State, to some extent undefined, is constitutionally immune from federal taxation. Only when and because the subject of taxation is State property or a State activity must we consider whether such a non-discriminatory tax unduly interferes with the performance of the State's functions of government. If it does, then the fact that the tax is non-discriminatory does not save it. If we are to treat as invalid, because discriminatory, a tax on `State activities and State-owned property that partake of uniqueness from the point of view of intergovernmental relations,' it is plain that the invalidity is due wholly to the fact that it is a State which is being taxed so as unduly to infringe, in some manner, the performance of its functions as a government which the Constitution recognizes as sovereign.''
Earlier in his judgment, Stone CJ had observed
[149]
ATC 4073
unduly with the State's performance of its sovereign functions of government''.The judgments in Melbourne Corporation
136. In
Melbourne Corporation
, Starke J
[150]
``Such action on the part of the Commonwealth may be invalid in two classes of case, one, where the Commonwealth singles out the States or agencies to which they have delegated some of the normal and essential functions of government, and imposes on them restrictions which prevent them from performing those functions or impede them in doing so; another, where, although the States or their essential agencies are not singled out, they are subjected to some provision of general application, which, in its application to them, would so prevent or impede them.''
Latham CJ referred at length to
New York v United States
, the reasoning in which he said corresponded to that in the
Engineers' Case
.
[153]
``Laws `discriminate' against the States if they single out the States for taxation or some other form of control and they will also be invalid if they `unduly interfere' with the performance of what are clearly State functions of government.''
137. Dixon J
[155]
``It is altogether another thing to apply the same doctrine to a use of federal power for a purpose of restricting or burdening the State in the exercise of its constitutional powers. The one involves no more than a distinction between the subject of a power and the policy which causes its exercise. The other brings into question the independence from federal control of the State in the discharge of its functions.''
Dixon J then said that:
[157]
``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.''
138. After referring to the demise in the United States, as in Australia, of the intergovernmental immunity doctrine, Dixon J observed
[158]
``What is important is the firm adherence to the principle that the federal power of taxation will not support a law which places a special burden upon the States. They cannot be singled out and taxed as States in respect of some exercise of their functions. Such a tax is aimed at the States and is an attempt to use federal power to burden or, may be, to control State action. The objection to the use of federal power to single out States and place upon them special burdens or disabilities does not spring from the nature of the power of taxation. The character of the power lends point to the objection but it does not give rise to it. The federal system itself is the foundation of the restraint upon the use of the power to control the States. The same constitutional objection applies to other powers, if under them the States are made the objects of special burdens or disabilities.''
139. It follows from the reasoning in these judgments in Melbourne Corporation that invalidity does not necessarily attend any federal law which requires a State in the
ATC 4074
performance of its functions to bear a burden or to suffer a disability to which others are not subject. That was the conclusion reached by Brennan J in Queensland Electricity [160]Taxation
140. Special considerations arise where it is the reach of the federal legislative power with respect to taxation that is in question. The statement by Marshall CJ in
McCulloch v Maryland
[164]
141. So it is that, following the
Pay-roll Tax Case
and
The Second Fringe Benefits Tax Case
,
[167]
``Although in some cases it may be possible to show that the nature of a tax on a particular activity, such as the employment of servants, renders the continuance of that activity practically impossible, it has not been shown that the tax in the present case prevents the States from employing civil servants or operates as a substantial impediment to their employment. The tax has now been imposed upon and paid by the States for nearly thirty years, and it has not been shown to have prevented the States from discharging their functions or to have impeded them in so doing. They may have less money available for public purposes because they have to pay the tax, but that could be said in every case in which a tax is imposed on the States, and in itself it cannot amount to an impediment against State activity sufficient to invalidate the tax.''
142. It might have been thought that the constitutional text itself, particularly in s 114, dealt exhaustively with that measure of immunity conferred with respect to federal taxation. Indeed, in some respects, s 114 would protect the States against imposts in circumstances which attract the operation of the
Melbourne Corporation
doctrine.
[169]
Queensland Electricity
143. To fix separately upon laws addressed to one or more of the States and upon laws of so- called ``general application'', and to present the inquiry as differing in nature dependent upon the form taken by laws enacted under the one head of power, tends to favour form over substance. The substance is provided by considerations which arise from the constitutional text and structure pertaining to the continued existence and operation of the States. Further, to treat as the decisive criterion of validity the form of an impugned law with respect to taxation is to distract attention from the generality of the terms in which in s 51(ii) the power is expressed (save for the specific reference to discrimination). It is to attend insufficiently to what in this realm of discourse is the essential question in all cases. This is whether the law restricts or burdens one or more of the States in the exercise of their constitutional powers. The form taken by a particular law may, as Dawson J explained in the passage from Queensland Electricity set out at [ 125], assist more readily in answering that question, but in all cases the question must be addressed.
144. In
Queensland Electricity
,
[171]
``(1) the prohibition against discrimination which involves the placing on the States of
ATC 4075
special burdens or disabilities; and (2) the prohibition against laws of general application which operate to destroy or curtail the continued existence of the States or their capacity to function as governments: Victoria v Australian Building Construction Employees' and Builders Labourers' Federation . [172](1982) 152 CLR 25 at 93. The second element of the prohibition is necessarily less precise than the first; it protects the States against laws which, complying with the first element because they have a general application, may nevertheless produce the effect which it is the object of the principle to prevent.''
However, that is to be read with an earlier passage in that judgment. Mason J, with reference to what had been said by Dixon J in the
Banking Case
[173]
``Plainly, his Honour was speaking of a law which, though referable to a head of legislative power, is, by reason of its impact on the States and their functions, inconsistent with the fundamental constitutional conception which underlies the prohibition against discrimination.''
145. That ``fundamental constitutional conception'' has proved insusceptible of precise formulation. Nevertheless, an understanding of it is essential lest propositions such as those expressed by Mason J in Queensland Electricity take on, by further judicial exigesis, a life of their own which is removed from the constitutional fundamentals which must sustain them.
The later decisions
146. Some guidance as to the content of the limited State immunity is provided by the later decisions in this Court. In
The Tasmanian Dam Case
,
[175]
``The relevant question is whether the Commonwealth law affects what Dixon J called the `existence and nature' of the State body politic. As the Melbourne Corporation Case illustrates, this conception relates to the machinery of government and to the capacity of its respective organs to exercise such powers as are conferred upon them by the general law which includes the Constitution and the laws of the Commonwealth. [178]
Constitution, Covering Clause V. A Commonwealth law cannot deprive the State of the personnel, property, goods and services which the State requires to exercise its powers and cannot impede or burden the State in the acquisition of what it so requires.''
Later in that judgment,
[179]
147. In
Melbourne Corporation
,
[180]
148. In the present case, the question thus becomes whether the two laws with respect to taxation, the Protected Funds Imposition Act and the Protected Funds Assessment Act, restrict or control the States, in particular New South Wales and Victoria, in respect of the working of the judicial branch of the State government.
149. Unlike the situation in the
Pay-roll Tax Case
and
The Second Fringe Benefits Tax Case
, these laws do not impose a taxation liability upon the States themselves. It is the plaintiffs who are taxed. In
Registrar of the Accident Compensation Tribunal (Vic) v FC of T
,
[182]
150. Similar considerations, where the tax is imposed not upon the State itself but upon
ATC 4076
officers or employees thereof, were considered in the United States in the period when Melbourne Corporation was decided. In Helvering , [183]151. However, as Dixon CJ pointed out in the
Second Uniform Tax Case
,
[184]
152. The joint judgment of six members of the Court in
Australian Education Union
[186]
Conclusion respecting Melbourne Corporation doctrine
153. The Protected Funds Imposition Act and the Protected Funds Assessment Act are invalid in their application to the first plaintiff.
154. The NSW Pensions Act is the only law of that State listed in Sched 14 to the Income Tax Regulations. With respect to that State, the issue for decision here fixes upon that statute as an exercise by the legislature of its functions respecting the judicial branch of its government. It may be added that the States, with the exception of Tasmania, have non- contributory judicial pension schemes under legislation listed in Sched 14.
155. As a general proposition, it is for the State of New South Wales, as for the other States, to determine the terms and conditions upon which it appoints and remunerates the judges of its courts. The concept of remuneration includes provision of retirement and like benefits to judges, spouses and other dependants. There is, as the Supreme Court of Canada pointed out in
R v Beauregard
,
[187]
156. In
R v Beauregard
, the Supreme Court of Canada, speaking of the Parliament of Canada which has responsibilities in respect of both federal and Provincial superior court judges, said:
[188]
``In fulfilling its constitutional obligation to establish salaries and pensions for superior court judges, it is reasonable that Parliament would ask: what is an appropriate total benefit package and what components should constitute the package? Salary and pension must be two of the components and Parliament must consider the relationship between them.''
157. Other methods for the provision of such remuneration might have been chosen by the New South Wales legislature. Beauregard found valid a choice by the Parliament of Canada to change the basis of superior court judges' pensions from non-contributory to contributory. New South Wales might have chosen a funded scheme which would generate State property on which the Commonwealth was forbidden by s 114 of the Constitution to impose any tax. Rather than pursue that or some other course, the legislature made provision for a non-contributory scheme with payment of benefits out of the Consolidated Fund of the State. The method so selected by the State legislature affected the terms and conditions for the engagement by the executive branch of
ATC 4077
judges and the organisation and working of the third branch of government of the State.158. In respect of that State legislative choice, the federal laws in contention impose no fiscal burden directly upon the State. It is the first plaintiff, not the State, who is the taxpayer. Does the absence of that immediate fiscal burden upon the State compel the conclusion that there has been but a ``speculative and uncertain''
[189]
159. The provision of secure judicial remuneration at significant levels serves to advantage and protect the interest of the body politic in several ways. Secure judicial remuneration at significant levels assists, as the United States Supreme Court has emphasised,
[191]
160. It also, as the Victorian Attorney- General indicated when introducing
[193]
161. Views may vary from time to time as to the relevant importance of these considerations and the measures to give effect to them. But in the constitutional framework in this country these are matters, respecting State judges, for determination by State legislatures. That constitutional framework also constrains those legislatures, in particular, by requiring them to take as they find federal laws of ``general application'' as part of the system enjoyed by the whole community.
[198]
``To subject them to a general tax is merely to recognize that judges are also citizens, and that their particular function in government does not generate an immunity from sharing with their fellow citizens the material burden of the government whose Constitution and laws they are charged with administering.''
162. However, that is not the present case. Section 5 of the Protected Funds Assessment Act speaks of ``high-income members of constitutionally protected superannuation funds''. They are taxed in a fashion which differs from that required by the Surcharge Imposition Act and the Surcharge Assessment Act. A law taxing them is not in the sense of the authorities a law of ``general application'' which, with reference to the classification by Dixon J, falls into category (a) identified at
[
130]. Those persons whose surchargeable contributions in respect of a ``defined benefit superannuation scheme'' are worked out by reference to the notional surchargeable contributions factor and other elements specified in the second half of s 9, are a particular group of State employees and officers. Their selection for attention by the federal legislature as ``high-income members'' of the non-contributory unfunded schemes in question suggests that, for the purposes of the
Melbourne Corporation
doctrine, they are those employees and officers ``at the higher levels of government'' spoken of in
Australian Education Union
.
[200]
163. The Commonwealth suggests that the treatment in special legislation of constitutionally protected funds, both funded and unfunded, as appear respectively in the first and second half of the definition in s 9 of the Protected Funds Assessment Act, was dictated by the operation of the Constitution itself. It is said that to treat members of constitutionally protected superannuation funds differently to members of non-constitutionally protected superannuation funds by reference to a relevant distinction, the operation of s 114 of the Constitution, is not an impermissible discrimination. It further is submitted that, to the extent that a member of a constitutionally protected fund does not receive from the State
ATC 4078
concerned a lump sum from which the surcharge may be deducted, this is but a consequence of the way in which the benefits of members are designed under State law.164. These submissions are not determinative of the application of the Melbourne Corporation doctrine. It may be conceded, as indicated earlier at [ 123]- [ 124], that, though differential treatment may be indicative of infringement of the limitation upon legislative power with which the doctrine is concerned, it is not, of itself, sufficient to imperil validity. What is more important for present purposes is that it is no answer to a case of alleged invalidity to assert that the federal law in question takes its form from a perceived need to escape the peril of invalidity presented by another constitutional restraint upon federal legislative power.
165. In its application to the first plaintiff, question 2(a) of the case stated asks whether either or both the Protected Funds Imposition Act and the Protected Funds Assessment Act are invalid on the ground that they so discriminate against New South Wales or so impose a particular disability or burden upon the operations and activity of that State as to be beyond the legislative power of the Commonwealth. That issue may be narrowed by asking whether that result comes about by a sufficiently significant impairment of the exercise by the State of its freedom to select the manner and method for discharge of its constitutional functions respecting the remuneration of the judges of the courts of the State. That requires consideration of the significance for the government of the State of its legislative choice for the making of provision for judicial remuneration. Having regard to what is said earlier in these reasons, particularly with reference to decisions of the Supreme Court of the United States and the Supreme Court of Canada, jurisdictions which share a common constitutional tradition with this country, that significance is to be taken as considerable.
166. In
The Second Fringe Benefits Tax Case
,
[201]
``The essential organs of government - the Governor, the Parliament, the Ministry and the Supreme Court - are the organs on which the `existence and nature' of the body politic depends. (I mention only the Supreme Court, for that is the court of general jurisdiction in which, subject to the jurisdiction of this Court, the laws of the State are finally interpreted and the constitutional and administrative law of the State is applied.) The existence and nature of the body politic depends on the attendance to their duties of the officers of the essential organs of government and their capacity to exercise their functions. The emoluments which a State provides to the officers of the essential organs of government ensure or facilitate the performance by those organs of their respective functions.''
167. The circumstances that judicial pensions do not require contributions but are fixed as a proportion of the remuneration of a serving judge and are to be paid at the full rate only upon a substantial period of service as well as attainment of a minimum age, indicates the importance attached by legislatures to such schemes in the remuneration of the judicial branch.
168. There then is posed the ``practical question'' identified by Starke J in
Melbourne Corporation
.
[203]
169. The first plaintiff has been assessed to surcharge on surchargeable contributions fixed at more than 61 per cent of his annual remuneration. If the first plaintiff were to meet such imposts as they are imposed year by year during the tenure of his office, he would be chancing fortune to the degree indicated earlier in these reasons. More immediately to the point, to a significant degree, the interest of the State in providing an adequate level of remuneration would have been denied. Further, the provisions for accumulation of indebtedness supply a disincentive to the first plaintiff to meet the public interest of the State in retaining his judicial services for the maximum possible term. This is because the ``notional surchargeable contributions factor'' is zero for each year after the earliest retirement date, but upon the surcharge debt interest will continue to accrue until retirement and receipt of the pension. If the first plaintiff does serve the
ATC 4079
public interest in this way by remaining in office until final retirement age, then the interest of the State in providing remuneration at what it regards as an appropriate level is again undermined, here by the imposition of a very large lump sum debt.170. The Commonwealth, in its submissions, urges against speculation upon what it says are the indirect effects of its laws upon the government of the State. However, one tendency of the federal laws readily apparent from their legal operation is to induce the State to vary the method of its judicial remuneration. The liberty of action of the State in these matters, that being an element of the working of its governmental structure, thereby is impaired. No doubt there is no direct legal obligation imposed by the federal laws requiring such action by the State. But those laws are effectual to do so, as was the Banking Act.
171. The Commonwealth referred to the well-known judgment of Kitto J in
Fairfax v FC of T
.
[204]
``altogether another thing to apply the same doctrine to a use of federal power for a purpose of restricting or burdening the State in the exercise of its constitutional powers.''
172. Earlier in these reasons at
[
141], there is set out a passage from the judgment of Gibbs J in the
Pay-roll Tax Case
.
[207]
173. In the Second Reading Speech in the Legislative Council on the bill for the 1998 Act, the Attorney-General said:
[209]
``The bill will enable a retired judge or other person entitled to be paid a pension to elect to have part of the pension commuted for the purpose of payment of the superannuation contributions surcharge. A spouse or eligible child, who is entitled to a reversionary pension under the Act, may also make an election in respect of a liability of a judge who has died in office or a retired judge who died before the original time for making an election ended.
The bill provides that an election may relate to the whole or part of any such liability and must be made not later than two months after the liability arises, or within such further period as the Minister may allow. The bill also provides that a pension may be commuted only to the extent necessary to meet the liability for the superannuation contributions surcharge.... If a lump sum is paid, the bill provides for the pension and any reversionary pensions payable to a spouse or eligible child under the Act to be reduced.''
The Attorney-General concluded:
[210]
``The amendments proposed are essential to provide judges and other persons entitled to a pension or reversionary pension under the Act with a mechanism to pay the superannuation contributions surcharge from the benefit they are entitled to receive.''
The occasion for the provision of that mechanism thus was supplied solely by the operation of the federal legislation; the provision of the mechanism was a response which changed what had been the legislative scheme respecting the terms and conditions for the remuneration of State judges, in particular as indicated in the NSW Pensions Act. The Court was referred to legislation in other States responding in a similar fashion to the same stimulus, in particular the Judicial and Other Pensions Legislation (Amendment) Act 2001 (Vic).
174. The conclusion reached is that, in its application to the first plaintiff, the Protected Funds Imposition Act and the Protected Funds
ATC 4080
Assessment Act are invalid on the ground of the particular disability or burden placed upon the operations and activities of New South Wales. The reasoning for that conclusion would apply also to the application of the legislation to the judges of other State courts as members of unfunded non-contributory pension schemes resembling that provided by the NSW Pensions Act. Nothing said in these reasons indicates any conclusion respecting the position of other members of constitutionally protected superannuation funds to which the federal legislation applies.Other immunity issues
175. It is unnecessary to decide the case upon the other submissions in which in varying formulations reliance was placed upon what was said to flow from Melbourne Corporation and later decisions of this Court.
176. The first of these has been identified at [ 123]. The position of the first plaintiff may be compared with and contrasted to that of an officer or employee of a private sector corporation with an agreement for an unfunded annuity or lump sum on retirement where the SIS Act, the Surcharge Assessment Act and the Surcharge Imposition Act do not apply. The taxation treatment of moneys so paid will attract no special taxation regime such as that to which the first plaintiff is subjected. In making provision for its officers and employees, the States must take the federal taxation system as it finds it. But does the legislation here in question isolate the States from that general system and, for that reason alone , so place them under a particular disability, discriminatory in this special sense, sufficient to attract the operation of the Melbourne Corporation doctrine? However, as was indicated at [ 139], invalidity does not necessarily attend a federal law which requires a State to bear a burden or suffer a disability to which others are not subject. It is unnecessary to determine whether any different outcome would follow if the appropriate comparator was taken not from the private sector but by looking to the position of the federal judges described at [ 72].
177. Secondly, Western Australia and South Australia emphasised the requirements of the Protected Funds Assessment Act and Regulations thereunder (``SR 371 of 1997'')
[211]
178. Further, South Australia emphasised that the actuarial calculations served only the purposes of federal law. Reference was made to narrowly divided decisions of the United States Supreme Court
[213]
179. In Australia, there are a number of express provisions imposing various federal duties and functions upon State officers and institutions, including Governors (ss 7, 12, 15), Parliaments (ss 9, 15) and courts (s 77(iii)). Section 120, to which reference has been made at [ 114], obliges the States to receive and hold federal prisoners.
180. The exercise of Commonwealth legislative power validly may burden the States in similar fashion. The upholding in the
First Uniform Tax Case
[215]
181. In the end, the complaint here is that consistently with, and perhaps in development of, the reasoning in Australian Education Union , it is critical to the constitutional integrity of the States that they alone have the capacity to give directions to their officials and determine what duties they perform. That is a large proposition and best left for another day.
ATC 4081
Arbitrary exactions?
182. It may well be said of the federal laws respecting superannuation enacted over the last 20 years that collectively and individually they fall well short of the Benthamite ideal referred to in
Byrnes v R
.
[218]
183. However, in
MacCormick
,
[220]
``Liability is imposed by reference to criteria which are sufficiently general in their application and which mark out the objects and subject-matter of the tax. See FC of T v Hipsleys Ltd. '' [222]
(1926) 38 CLR 219 at 236.
Further explanation of this passage was given in the joint judgment in
Truhold
.
[223]
``a reference to the fact that liability can only be imposed by reference to ascertainable criteria with a sufficiently general application and that the tax cannot lawfully be imposed as a result of some administrative decision based upon individual preference unrelated to any test laid down by the legislation.''
However, in
Truhold
, the Court went on to reject a submission that the formulation by the Commissioner of an opinion respecting the criteria of liability rendered the imposition an arbitrary one. So much already followed from what had been said in
Giris Pty Ltd v FC of T
.
[224]
184. The notions involved here are linked with the impermissibility of an ``incontestable tax''.
[225]
185. The plaintiffs complain that different actuaries, all applying SCR 97/1 and SR 371 of 1997, can reasonably differ in working out the amount of their surchargeable contributions under s 9 of the Protected Funds Assessment Act. That is because the ``eligible actuary'' identified in s 9(5) will be making assumptions and judgments on such variables as mortality rates, retirement age, marital status, age differences between spouses and the like. However, the various actuarial assumptions selected by SCR 97/1 supply ``the method'' mandated by s 9(5).
186. The submissions by the plaintiffs are foreclosed by what was said by Kitto J in
Giris
:
[226]
``There is no need to cite authority for the general proposition that the operation of a law with respect to taxation may validly be made to depend upon the formation of an administrative opinion or satisfaction upon a question, eg, as to the existence of a fact or circumstance, or as to the quality (eg, the reasonableness) of a person's conduct, or even as to the likelihood of a consequence of the operation of the law in an individual case, as in sec 265 [ of the ITAA] where the question is whether the exaction of an amount of tax will entail hardship.''
In such situations there has been no ``abdication'' of legislative authority.
[227]
Section 55 of the Constitution
187. The first paragraph of s 55 states:
``Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect.''
It was this provision which, in
Australian Tape Manufacturers Association Ltd v The Commonwealth
,
[228]
188. It is the stricture imposed by the first limb of the second paragraph of s 55 which is invoked by the plaintiffs here. The second paragraph states:
``Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only ;
ATC 4082
but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only.''(emphasis added)
It was with the requirement of the second limb that laws imposing duties of excise deal with duties of excise only that the Court was concerned in
Mutual Pools
&
Staff Pty Ltd v FC of T
.
[229]
189. As indicated at
[
83], s 4 of the Protected Funds Imposition Act imposes that tax identified as the superannuation contributions surcharge and s 5 prescribes the rates. However, in accordance with what was said in
The Second Fringe Benefits Tax Case
[230]
190. In
The Second Fringe Benefits Tax Case
, reference was made in the joint judgment
[232]
- (i) in construing the expression ``subject of taxation'' in s 55 it is not to be supposed that there exists some recognised classification of taxes according to subject-matter;
- (ii) s 55 is not directed to categories concerned with economic consequences or operation upon the creation, transfer and devolution of legal rights;
- (iii) rather, s 55 is concerned with political relations and contemplates ``broad distinctions between possible subjects of taxation based on common understanding and general conceptions, rather than on any analytical or logical classification'';
[235]
Resch vFC of T (1942) 6 ATD 203 at 218;(1941-1942) 66 CLR 198 at 223 - (iv) it is for the legislature to choose its own subjects of taxation unfettered by existing nomenclature or by categories adopted for other purposes; and
- (v) the test is whether, looking at the subject of taxation selected by the Parliament, it can fairly be regarded as a unit rather than a collection of matters necessarily distinct and separate.
191. It was with these matters in mind, that it was said in the joint judgment in
The Second Fringe Benefits Tax Case
:
[236]
``Although the Court is bound to insist on compliance with the requirements of sec 55 so that the section achieves its purpose of enabling the Senate to confine its consideration in each case to a taxing statute dealing with a single subject of taxation, in applying the test stated above, the Court will naturally give weight to the Parliament's understanding that its Tax Act deals with one subject of taxation only. This is because the application of the test involves what is in substance a question of fact or value judgment. The Court should not resolve such a question against the Parliament's understanding with the consequence that the statute is constitutionally invalid, unless the answer is clear: see National Trustees, Executors & Agency Co of Australasia Ltd v FC of T ; [237]
(1916) 22 CLR 367 at 378-379. Harding ; [238](1917) 23 CLR 119 at 134-136. Resch .'' [239]at 208; (1941-1942) 66 CLR 198 at 211. (1942) 6 ATD 203
192. The conclusion the Court reached with respect to the legislation at stake in
The Second Fringe Benefits Tax Case
is instructive. The Court rejected the submission that the principal subject of the tax imposed was fringe benefits provided by private employers to employees so that in imposing a liability in respect of benefits otherwise provided the statute dealt with more than one subject of taxation. After considering the framework of the legislation, Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ concluded:
[240]
``Clearly enough the legislation has been framed on the footing that there is but a single subject of taxation, formulated according to a broad conception of what constitutes fringe benefits. That conception embraces benefits, not being salary or wages, referable to the employment relationship, whether provided by the employer or not and whether received by the employee or not. So understood the legislation presented for the consideration of
ATC 4083
each House of the Parliament a `unity of subject matter' rather than distinct and separate subjects of taxation.''
193. The Attorney-General for New South Wales, in submissions supporting the plaintiffs on these issues, pointed out that s 4 of the Protected Funds Imposition Act was expressed to impose the ``superannuation contributions surcharge'' upon ``a member's surchargeable contributions'', terms for the meaning of which it was necessary to turn to the Protected Funds Assessment Act, and in particular to the detailed treatment of ``surchargeable contributions'' in s 9.
194. It was emphasised that the definition has two halves. In relation to contributory funded schemes, the surchargeable contributions are identified in terms reflecting amounts paid for or by a member to or otherwise credited or attributed to an account for the member by a superannuation provider. The other half of the definition deals with unfunded non-contributory arrangements identified as defined benefits superannuation schemes. Here there are no ``contributed amounts'', no fund into which contributions might be made and rather than rights of due administration of a fund there is a statutory entitlement, in the case of the first plaintiff, to the benefits provided by the NSW Pensions Act out of Consolidated Revenue.
195. The submissions proceeded by saying that the Parliament has sought to unite these two different arrangements by employment of the ``statutory fiction'' of the ``notional surchargeable contributions factor'' and that there has been an attempt to impose tax upon two distinct activities. The first is the settlement of funds by contributions in what might be called ordinary superannuation funds. The second is a tax on the derivation of income by persons who are entitled under certain non- contributory schemes, the rate of tax being determined by the ``notional surchargeable contributions factor''. Something plainly not a contribution to a superannuation fund, namely a percentage of deemed remuneration, is classified as a surchargeable contribution.
196. In
Resch
, Dixon J had said that the practice, among other bodies, of colonial legislatures might serve as a guide in the determination of whether a provision of a given kind was to be regarded as falling within a particular subject-matter.
[241]
197. The incidence and rate of the surcharge is conditioned by the quantum of the adjusted taxable income of the member for any financial year in question. If the relevant condition as to quantum be satisfied, then the surcharge applies at a particular percentage of the surchargeable contributions for the member. In working out those surchargeable contributions, s 9 of the Protected Funds Assessment Act applies with the sharp distinctions to which the first plaintiff and his supporters point.
198. However, the operation of these provisions is premised upon the taxpayer answering the description of a ``member''. That is defined in s 38 of the statute to identify members of ``a constitutionally protected superannuation fund''. This, as indicated earlier in these reasons, directs the reader to the State legislation listed in Sched 14. That legislation embraces a range of schemes in the public sector. The object of the Protected Funds Assessment Act, as indicated in s 5 thereof, was to collect an impost imposed upon those members of ``constitutionally protected superannuation funds'' who were ``high- income members''. The statutory notion of ``contributions'' reflected the range of the schemes provided for in the State legislation. In the case of non-contributory schemes, it was found in the benefit measured by contributed amounts. In the case of other schemes, being defined benefits superannuation schemes, it was found in a notional benefit identified in part by the actuarial computations to which reference has been made.
199. The legislation has been framed on the footing that there is but a single subject of taxation, formulated by reference to the quantum of adjusted taxable income and the value to be attributed to benefits accruing or deemed to accrue to the member in each financial year. That is sufficient for the first limb of the second paragraph of s 55. Has it been established, against the Commonwealth, that the question, whether there are necessarily distinct and separate subjects of taxation,
ATC 4084
should receive a clear and negative answer? [243]200. Reliance upon
Mutual Pools
was misplaced. It was the second limb of the second paragraph of s 55 which was considered in
Mutual Pools
. This presents issues of greater specificity. The decision in
Mutual Pools
turned upon whether a tax imposed in relation to something other than goods might ever constitute a duty of excise. The duty in question was imposed upon something which formed part of the realty, namely a constructed swimming pool. It was pointed out in the joint judgment
[245]
201. The argument for invalidity by reason of non-compliance with s 55 of the Constitution should not be accepted.
Conclusions
202. Question 1(a) should be answered ``Yes'', and question 1(b) should be answered ``No''.
203. Question 2 should be answered by stating that the legislation referred to is invalid in its application to the first plaintiff on the ground that it places a particular disability or burden upon the operations or activities of the State of New South Wales so as to be beyond the legislative power of the Commonwealth.
204. Question 3 should be answered that the costs of the plaintiffs, save for those otherwise dealt with by order, should be borne by the Commonwealth.
Footnotes
[43][44]
[45]
[46]
[47]
[48]
[49]
[50]
[51]
[52]
``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.''
[53]
[54]
[55]
[56]
[57]
[58]
[59]
[60]
[61]
[62]
[63]
[64]
[65]
[66]
[67]
[68]
[69]
[70]
[71]
[72]
[73]
[74]
[75]
[76]
[77]
[78]
[79]
[80]
[81]
[82]
[83]
[84]
[85]
[86]
[87]
[88]
[89]
[90]
[91]
[92]
[93]
[94]
[95]
[96]
[97]
[98]
[99]
[100]
[101]
[102]
[103]
[104]
[105]
[106]
[107]
[108]
[109]
[110]
[111]
[112]
[113]
[114]
[115]
[116]
[117]
[118]
[119]
[120]
[121]
[122]
[123]
[124]
[125]
[126]
[127]
[128]
[129]
[130]
[131]
[132]
[133]
[134]
[135]
[136]
[137]
[138]
[139]
[140]
[141]
[142]
[143]
[144]
[145]
[146]
[147]
[148]
[149]
[150]
[151]
[152]
[153]
[154]
[155]
[156]
[157]
[158]
[159]
[160]
[161]
[162]
[163]
[164]
[165]
[166]
[167]
[168]
[169]
[170]
[171]
[172]
[173]
[174]
[175]
[176]
[177]
[178]
[179]
[180]
[181]
[182]
[183]
[184]
[185]
[186]
[187]
[188]
[189]
[190]
[191]
[192]
[193]
[194]
[195]
[196]
[197]
[198]
[199]
[200]
[201]
[202]
[203]
[204]
[205]
[206]
[207]
[208]
[209]
[210]
[211]
[212]
[213]
[214]
``(1) Notwithstanding anything in this Constitution, the President may, with the consent of the Government of a State, entrust either conditionally or unconditionally to that Government or to its officers functions in relation to any matter to which the executive power of the Union extends. (2) A law made by Parliament which applies in any State may, notwithstanding that it relates to a matter with respect to which the Legislature of the State has no power to make laws, confer powers and impose duties, or authorise the conferring of powers and the imposition of duties, upon the State or officers and authorities thereof. (3) Where by virtue of this article powers and duties have been conferred or imposed upon a State or officers or authorities thereof, there shall be paid by the Government of India to the State such sum as may be agreed, or, in default of agreement, as may be determined by an arbitrator appointed by the Chief Justice of India, in respect of any extra costs of administration incurred by the State in connection with the exercise of those powers and duties.''
[215]
[216]
[217]
[218]
[219]
[220]
[221]
[222]
[223]
[224]
[225]
[226]
[227]
[228]
[229]
[230]
[231]
[232]
[233]
[234]
[235]
[236]
[237]
[238]
[239]
[240]
[241]
[242]
[243]
[244]
[245]
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