#7310 - The Tax Power - Federal Constitutional Law

Air Caledonie International v Commonwealth (1988) 165 CLR 462

Facts: Section 7 of the Migration Amendment Act sought to impose a fee for immigration clearance of $5 (set by the regulations) on international airline passengers entering Australia by the insertion of s 34A in to the Migration Act. The plaintiffs argued that it was a tax for the purposes of s 55 and hence s 34A could not be inserted as the Act dealt with other matters than the “imposition of taxation”

The Court noted the definition of Latham CJ and also the fact that in MacCormick v Fed Comm of Tax [1984] HCA the court also ruled that a “tax is not by way of penalty and that it is not arbitrary”. They made 3 points concerning Latham CJ’s ruling:

1. It should not be seen as providing an exhaustive definition of tax (e.g. no reason why a tax has to take the form of an exaction of money or that it can’t be imposed by a non-public authority or for non-public purposes) (O: tend to disagree with the last point here)

2. Logan Downs v QLD [1977] – Gibbs J made explicit that the reference to services being rendered in Latham CJ’s conception refers to the services being rendered to, at the direction or request of, the person required to make the payment

3. The negative attribute of “payment for services rendered” is but an example of various types of exaction that may not be taxes even though the positive attributes are present (hence charges for use of property, fines for criminal conduct etc. are not taxes even though they fulfil the other requirements)

Furthermore they noted that compulsory exaction by a public authority for public purposes needn’t not be a tax just because it is a “fee for services’ – if the person is given no choice about acquiring the services and the amount of exaction has no relationship with the value of what is acquired – the circumstances may be such that the exaction is a tax.

Held: The fee was a tax – but this did not invalidate the whole Act since the law which was to be denied legal effect was the one that sought to produce the unconstitutional consequence (the amending Act)

Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480

Facts: Part VC of the Copyright Act, passed in an amendment (1989) to deal with widespread taping of sound recordings in breach of copyright by providing a royalty to copyright owners in return for permitted copying of sound records for domestic use. Under s 135ZZP(1) the royalty was payable by a vendor of each blank tape when distributed – and it was payable to a ‘collecting society’ whose members were copyright owners.

Held: By a 4:3 majority that 135ZZP imposed a tax and hence the amending 1989 Act infringed s 55

Mason, Brennan, Deane and Gaudron JJ noted and agreed with the statements in Air Caledonie to the effect that the ‘public authority’ requirement was not necessary – especially where the levy/tax is to be expended on public purpose (a fortiori for Commonwealth purposes). They went on:

• The requirement is scarcely justifiable unless it be a case where the character of the authority is relevant in deciding whether the purposes on which the moneys raised are themselves public

  • And it seems a misnomer to suggest that an authority with one of its functions to expend money for public purposes is non-public – and at least to this extent the authority should be regarded as public

• But the better view is that it is not essential to the concept of a tax that the exaction be by a public authority

• One reason for holding that this provision is not a law imposing tax is that expropriating money from one group to another as an incident of regulating interests on a subject matter within power to get an equitable income isn’t an exaction for public purposes as it is in the interests of only two groups

  • But the legislative problem proceeds on the footing that it is imposed in the public interest – the purpose of the distribution of the levy is ultimate distribution to copyright owners. This is a solution to a public problem of public importance

Hence their honours concluded that it was a tax – also noting that it was not a fee for license, a penalty etc.

McHugh J dissented, doubting the obiter in Air Caledonie cited by the majority, he was of the opinion that for a compulsory exaction of money under a statutory power it had to be raised for public purposes. He cited the US case of United States v Butler in support (“The word has never been thought to connote the expropriation of money from one group for the benefit of another”), holding that a tax ought to be raised for some “public, that is governmental” purpose (not public in the broad sense used by the majority).

Accordingly he held that s 135ZZP was not a tax – it not being paid into the Consolidated Revenue Fund and not being imposed for any government purpose or public authority (the CTH not being involved at all – the revenue being collected and being the property of a private collecting society)

Northern Suburbs General Cemetery Reserve Trust v Commonwealth (1993) 176 CLR 555

Facts: This case depended on the distinction between taxes and penalty and shows how laws made under s 51(ii) could be made for purposes other than taxation. The Training Guarantee (Administration) Act set out minimum expenditure that employers should spend on employment-related training. It also provided that any shortfall (amount required – amount spent) would have to be paid to the CTH’s ‘Training Guarantee Fund’.

Held: The Act was valid under s 51(ii) – the exaction was a tax rather than a penalty

Mason CJ, Deane, Toohey and Gaudron JJ noted Latham CJ’s definition and it’s inadequacy to cover all cases and continued:

• “The fact that the revenue-raising burden is merely secondary to the attainment of some other object or objects is not a reason for treating the charge otherwise than as a tax”

  • E.g. Customs duty is for protective purposes but it is still a tax

• If a law is one with respect to taxation it’s character does not change just because parliament seeks to achieve a purpose outside the legislative power (example land tax purposed to prevent residents owning large areas of land in Osborne)

• In this particular case the distinction between a penalty and a tax was decisive in labelling it a tax

  • The Act doesn’t mandate or proscribe certain conduct

  • The Act doesn’t make it an offence to fail to spend the minimum requirement or provide civil penalties

  • Hence the charge isn’t a penalty since the...