PROCESS: STEP 1: NSW or Cth? If NSW plenary power, subject to excise limitation.

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1 PROCESS: STEP 1: NSW or Cth? If NSW plenary power, subject to excise limitation. STEP 2: Characterisation: Determine whether impugned legislation falls within the scope of the subject matter of a relevant head of power. STEP 3: Interpretation: Define the relevant head of power. STEP 4: Determination: Decide whether the law is valid or ultra vires under that head of power a. Does it go outside the boundaries of the head of power as interpreted? (Look at cases) If Y, does it fall within the incidental power? b. If N, does it breach any implied or express prohibition? NOTE: if there are several principles/possibilities under the one issue, say WHY the current facts are one constitutional scenario but not another STEP 5: Conclusion: severance/reading down needed? - The law is constitutionally valid as it is within power /incidental power, OR: - The law is invalid as it is ultra vires the head of power / breaches a prohibition and is thus unconstitutional, AND: But the provision can be severed or read down to render the rest of the Act valid and preserve parliament s intention consistently with the constitution, OR: The offending provision cannot be read down because it is an undistributed expression/ cannot be severed because the rest of the Act is reliant on it. 1

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3 CHARACTERISATION/ INTERPRETATION Characterisation: Fairfax v Federal Commissioner of Taxation (1965) 114 CLR 1 at 6-18 per Kitto J: discusses the appropriate question to ask when discussing constitutional validity under s Under [s 51] the question is always one of subject matter, to be determined by reference solely to the operation which the enactment has if it be valid, that is to say by reference to the nature of rights, duties, powers and privileges which it changes, regulates or abolishes; it is a question as to the true nature and character of the legislation: is it in its real substance a law upon, with respect to, one or more of the enumerated subjects, or is there no more in it in relation to any of those subjects than an interference so incidental as not in truth to affect its character? Quoting Dixon in Melbourne Corporation v Commonwealth (1947) 74 CLR 31 at 79, Kitto discussed the dual characterisation principle, that is, so long as it falls under one head of constitutional power, a law will not be invalidated if there is another discernible purpose outside the area of federal power. - CONFIRMED IN GRAIN POOL Interpretation: Grain Pool of Western Australia v Commonwealth (2000) 202 CLR 479 at 492 [16] per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ: general principles to apply to determine whether a law is with respect to a head of legislative power under s The text of the Constitution is to be construed with all the generality which the words used admit. When validity of a law is challenged, purpose and object are ignored look simply to whether the words answer the description of the head of power. 2. The character of the law in question must be determined by reference to the rights, powers, liabilities, duties and privileges which it creates. 3. Sufficient connection between the law and the head of power look to the practical as well as legal operation of the law. 4. If a law answers the description of being a law with respect to a s 51 and a non-s 51 power, the law is valid even if there s no connection between the two subject matters. 5. If there is sufficient connection, it is a matter of legislative choice. Engineers case: overthrew doctrine of reserve state powers, which was a form of interpretation which favoured preserving state power; in favour of literal and legalist approaches to interpretation NOTE: power to regulate the subject matter includes power to PROHIBIT (Murphyores) 3

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5 TAXATION POWER s 51(ii) non-purposive Section 51(ii): confers Cth power to make laws with respect to tax subject to limitation that cannot discriminate between states and parts of states. - Note: s 99 prohibits preference being given to States or parts thereof. Section 55 - the anti-tacking provision: Laws which impose taxation shall only deal with the imposition of taxation. Tax and Tax Administration Acts are kept separate. Any provision regarding any other matter is ineffective and totally invalid (only taxation provisions will survive invalidity in such an Act). DEFINITION: tax affirmed in Air Caledonie Matthews v Chicory Board: a compulsory exaction of money by a public authority for public purposes enforceable by law and not a payment for services rendered. Merely because an exaction is labelled a 'fee' etc does not negate it being a tax if it meets in substance the definition. Australian Tape Manufacturers Case: application of the definition Facts: amendment to Copyright Act. By this amendment it was designed to compensate copyright owners for the private and domestic taping of sound recordings taken not to be illegal. It provided that it would not be illegal so long as blank tape used on private premises for private and domestic use. It imposed royalty on sellers of blank video tapes. The royalty fee was then collected by a private agency from video-shops and pass it onto copyright owners. If can prove it is a tax, under s55 and Air Caledonie, the amendment which imposes the royalties fee would be invalid. Held by majority: this was a tax. A public authority is not an essential element to regard exaction of money as a tax where the collection was authorised by statute for public purposes (compensating copyright owners, protecting IP), as this gives the private body the relevant public character. Vendors did not receive any direct benefit or service, therefore could not be a fee for a service. The connection between the 'service' and the person paying the tax/royalty was too remote. Therefore it is in relation to tax under s51(ii), but the attempt to put it into Copyright Act under s55 made the amendment invalid. Minority: McHugh J: how can this be a tax if the money is not going into consolidated revenue (s81); (better put, isn't it a breach of s81) Dawson and Toohey JJ: critical of Air Caledonie dicta about private collecting agencies, this significantly loosens the content of a tax as money being raised for public purposes by the govt, the Act by imposing this 'royalty' is actually establishing a special kind of debt payable between groups of individuals to remedy any inequities. 5

6 INCENTIVES/DISINCENTIVES VIA TAXATION: RULE: a law is still with respect to taxation even though in form it may appear to relate also to something else and if the aim of the legislation is not revenue per se but the regulation, deterrence or encouragement of certain activities or conduct, (even if beyond s 51), the power being non-purposive. (Fairfax; Second Fringe Benefits Case) Fairfax v Federal Commissioner of Taxation (1965) p 705 W Facts: A Cth law effectively exempted the income earned by superannuation funds from income tax provided that the funds were invested in government securities, i.e. to incentivise such investment. The appellants argued that the provision was invalid as it was, in substance/operation a law with respect to the investment of moneys into superannuation funds, and no s51 head of power supports this (at 6, 8). Held: unanimously valid under s51(ii). This law could be characterised appropriately under s 51(ii). The critical factor is the substance, not the form of legislation. Section 51(ii) is non-purposive. o At 7 (Kitto J): look beyond the name Parliament gives; consider the Act s substance (R v Barger). o At 9-11: Kitto J conceded that the tax was imposed to stop trustees of super funds from failing to invest in government securities. But found that this was not enough to render it invalid as despite this, it was still, in substance a law with respect to taxation, the indirect consequences of the operation of a tax law are irrelevant. o At 12 A tax does not cease to be valid merely because it regulates, discourages or even definitely deters the activities taxed, citing Clark J in United States v Sanchez (1950) 340 US 42. Citing other US authorities: principle applies even though the revenue obtained is negligible; and the revenue purpose of the tax may be secondary; nor does a tax statute fail because it touches on activities that Congress may not otherwise regulate. o Affirmed at 12-13: Higgins J in R v Barger: the Parliament has, prima facie, the power to tax and exempt who it chooses and power to impose such conditions to liability or as to exemption as it choses note the reservations of Barwick, Menzies and Windeyer JJ indicating that in some circumstances, they would be willing to hold that such a tax imposed for the purposes of regulating, deterring, or encouraging other conduct, may be held not to be with respect to taxation. Menzies J: e.g., a prohibitive tax on growing plants from which are produced illegal narcotic drugs as its true character would not be a law with regards to tax, but to the suppression of the narcotic drug industry. - However, they fail to justify their position in constitutional terms, especially as the power is nonpurposive and hence the clear repudiation of this provision in the Second Fringe Benefit Tax Case) (1987) 163 CLR 329 (at ): This case concerned a tax on fringe benefits given by employers. The dicta of Barwick CJ and Windeyer, Menzies JJ in Fairfax was unanimously rejected. - In characterising a law the Court has regard to its operation, to what the law does in the way of creating rights and obligations It matters not that the provisions which so operate may be intended to achieve some other purpose Here the legislation operates to as to impose tax and define the extent of the liability to the tax - to the extent to which [Menzies J] regarded the existence of a prohibitive tax as a decisive element in reaching his suggested conclusion, it is not an issue in this case. 6

7 ANTI-TACKING PROVISION: s55 Air Caledonie: Facts: Amendment to Migration Act, at no time imposed any form of taxation, but in 1987 inserted s 34A which was a fee for immigration clearance, even for citizens. Govt claimed this was a fee for a service. But conversely this was basically a tax for coming back home. Held: this is not a fee for a service. This was in substance a tax. The result of applying s55 would be Migration Act invalid apart from the tax. Although the result in this case was the invalidity and disallowment of the taxation part of the Amendment Act. At 470: A fee for service must be exacted for particular identified services provided or rendered individually to, or at the request or direction of, the person required to make the payment. An Aus citizen has no choice but to pay it or be stuck in limbo, by public authority for public purposes enforceable law. Allowance to come home is NOT a service. At 467 obiter: a tax may be collected by non-public authority or for a non public purpose But this may be inconsistent with s81: all revenues or monies raised by exec govt Cth shall form one Consolidated Revenue fund. The exaction of a tax must not be aribitrary, the law must set out criteria which are sufficiently general and clear. Can't be imposed upon people for some personal criteria (eye colour, religion etc). Pape [2009] application of Fairfax to a payment TO taxpayers, rather than from them Held: not a law with respect to taxation. Hayne and Kiefel JJ [386] Here, it is said that the Impugned Act, in all its operations, is a law with respect to taxation because it takes as the critical criterion for its operation the identification of a person as one who has paid tax for the most recently completed financial year. And because those, and only those, who have paid tax (and whose taxable income for that year did not exceed $100,000) are eligible for the payment, the law is said to be a law with respect to taxation. But as in Fairfax, that fact, standing alone, directs attention to why the legislators may have enacted the Impugned Act. While it may readily be accepted that the Impugned Act seeks to single out certain taxpayers for the benefit for which it provides, that does not make the Impugned Act a law with respect to taxation. Further, although the payment to be made under the Impugned Act is called a tax bonus, attribution of that name adds nothing to the debate about characterisation. The character of the Impugned Act depends upon the nature of the rights, duties, powers and privileges which it changes, regulates or abolishes. 412 [387] The amount to be paid depends upon a person s taxable income for On the face of the Impugned Act there is no direct connection, in all operations of the Act, between the amount of the bonus and the amount that has been paid in tax. As the Act is written, the amount that is paid under the Impugned Act may be more or it may be less than the amount of tax the person paid for that year. By the time payments must be made under the Impugned Act it will not be known whether a person to whom the payment is made will be liable to pay income tax for [388] The Commonwealth was right to accept that the Impugned Act is not a law with respect to taxation in all its operations. Gummow, Crennan and Bell JJ [248] the legislation is not concerned with the refund of taxation lawfully collected or the imposition and collection of taxation. It is not therefore in substance a law with respect to taxation Heydon J [ ]: it does not concern a taxpayer s rights or liabilities. It does not change, regulate or abolish any right, duty, power or privilege with respect to taxation. Properly construed, it was not a law creating an incentive to lodge income tax returns. Properly construed, it was not a law providing a refund for mistaken payment. 7

8 Illustrations: 4 scenarios: EXAMPLE A: service fee/licence seems disproportionately high to the right given Harper v Minister for Sea Fisheries (Tas case) Facts: license fee to take abalone from Tas waters. The licence fee was immense, not commensurate and disproportionate to the service provided. Argued that this was a tax [thus invalid under excise law]. Held: this was a not a tax. Because the high fee had a rational basis. Abalone was a limited natural resource liable to damage, exhaustion or destruction by uncontrolled exploitation by the public; with purpose of protecting the natural resource = exception Note: may also apply to limited cultural resources Brennan J: (with which the other justices agreed) - At 332: The fact that the amount payable is in the form of a licence fee does not preclude the classification of that amount as a tax At 336: the Chicory definition, special categories : The court commented on this general statement: The third [comment] is that the negative attribute not a payment for services rendered should be seen as intended to be but an example of various special types of exaction which may not be taxes even though the positive attributes mentioned by Latham CJ are all present. Thus, a charge for the acquisition or use of property, a fee for a privilege and a fine or penalty imposed for criminal conduct or breach of statutory obligation are other examples of special types of exactions of money which are unlikely to be properly characterised as a tax notwithstanding that they exhibit those positive attributes. As the amounts payable to obtain an abalone fishing licence are of the same character as a charge for the acquisition of property, they do not bear the character of taxes. They are not duties of excise. Dawson, Toohey and McHugh JJ at 336 caution using a blanket approach in public resource contexts: If such an exaction otherwise exhibits the characteristics of a tax it will properly be seen as such. In particular, if the exaction has no discernible relationship with the value of what is acquired... This may be so notwithstanding that the exaction is one means of ensuring the conservation of a natural resource; there are, of course, other ways in which such a resource may be protected. [Drawing the line is difficult] But what is otherwise a tax is not converted into something else merely because it serves the purpose of conserving a natural public resource. EXAMPLE B: exception to disproportionate rule where there is a rational basis on sound economic principles to collect across a wide range of users. Air Services Australia v Canadian Airlines International Ltd (2000) 202 CLR 133 Facts: Civil Aviation Authority established by Civil Aviation Act to perform a regulatory function. The CAA was authorised under s 66 to provide fixed charges for various services or facilities provided to airplanes. Section 67 provided that the amount or rate of the charge should be reasonably related to the expenses incurred by the authority so as not to amount to taxation (trying to prevent s55 breach). Section 69 granted a statutory lien over unpaid charges relating to aircraft (CAA can hold onto aircraft until payment). Act authorised seizure and sale of aircraft after 9 months. Compass was a domestic airline service, went into liquidation owing the CAA charges relating to air traffic services etc. The CAA invoked the statutory lien on all aircraft used by Compass. The aircraft did not belong to Compass, they were leased from Canadian Airlines. Canadian decides to challenge validity of the charges by looking at how Compass was paying far more for its services than other bigger airlines. Therefore they argued, the fees imposed on Compass did not reasonably relate to the expenses incurred and no discernible relationship between the amount paid and the services received by Compass, and accordingly they amounted to taxation and thus were ultra vires. Cth argued that there was a rational basis for the charges which result in smaller airlines paying disproportionately more than large operators, supported by expert evidence which established that the method of calculation was the most efficient. 8

9 Held: 6:1 - this was a fee for service. See McHugh J at [314] [314] In my opinion, the following elements of the statutory context and the circumstances of this case indicate that the charges are properly characterised as fees for services: the position of the statutory authority in providing the services approximated that of a natural monopolist; the services were provided by a statutory authority which had as one of its statutory functions the provision of those services or services of that general type; the statutory authority was (at least impliedly) directed under statute to recover the costs of providing those services from the users of those services; the statutory authority exhibited a large degree of financial independence from the executive government and was intended to operate on a commercial basis; and the pricing structure which gave rise to the lack of a discernible relationship between the value of the services provided on a particular occasion and the charge levied for those services (in this case, Ramsey pricing) was a reasonably and appropriately adapted means of achieving a legitimate public purpose (other than revenue raising) which was related to the functions, powers or duties of the statutory authority. Gleeson CJ and Kirby J [91]-[92] [91] Not all taxation has as its primary purpose the raising of revenue; and some forms of taxation are notoriously inefficient means to that end. An objective of raising revenue is not, therefore, a universal determinant. Even so, the presence or absence of such an objective will often be significant. [92] In this case: the charges were not imposed to raise revenue; the charges were undoubtedly charges for the provision of services and facilities; the charges were imposed to recover the cost of providing such services and facilities across the entire range of users; the charges for categories of services were reasonably related to the expenses incurred in relation to the matters to which the charges related; the services and facilities were, of their nature, part of an activity which must be highly integrated in order to be effective; and there was a rational basis for such discrimination between users as existed. McHugh J at [287] [291]: indicia of a tax vs fee / compulsory [288] reasonably related to the expenses incurred or to be incurred in relation to the matters to which the charge relates this relationship means that the charges are, prima facie, to be regarded as fees for services. However [289] the services were ones which an aircraft operator was required by law to acquire if he or she wished to fly in Australian airspace in a practical sense, the exaction was compulsory and the compulsory nature of the exaction is an indication that a charge is taxation But this does not necessarily prima facie alter the character of the fee or convert it into a tax. [291] Second, and more significantly, the pricing structure employed by the authority was such that it was not possible to identify a discernible relationship at the lowest level between the amount of a particular charge and the value of the particular service received by a particular user as the quid pro quo for the charge. This feature of the charging structure is an indication that the charges are taxation. McHugh J at User-pays and a lack of revenue raising purpose to discernible rel : [312] Where services are provided (on a user pays basis) by a public authority with a natural monopoly and where the statutory context and the surrounding circumstances otherwise fail to indicate a revenue-making purpose for a charge, the lack of a discernible relationship between the value of a particular service received on a particular occasion and the amount of the charge for that service does not necessarily indicate that the charge has the character of a tax. 9