Fairfax v Federal Commissioner of Taxation
(1965) 114 CLR 139 ALJR 308
(Judgment by: Menzies)
FAIRFAX
v FEDERAL COMMISSIONER OF TAXATION
Judges:
Barwick C.J.
Kitto
Taylor
MenziesWindeyer JJ.
Judgment date: 2 December 1965
Judgment by:
Menzies
The question stated for the opinion of the Full Court is whether s. 11 of the Income Tax and Social Services Contribution Assessment Act 1961 is valid.
The effect of the section is twofold. In the first place, it denies the exemption from income tax accorded by pars. (j) and (ja) of s. 23 of the Principal Act to the investment income of a superannuation fund falling within a particular description unless the Commissioner is satisfied that, at all times during a stated year, or part of a year, of income, the assets of the fund included a certain percentage of public securities including a certain percentage of Commonwealth securities (s. 121C). Secondly, it provides for the taxation of the investment income of such a fund, to the extent to which it is not exempt from income tax under the 1961 Act, at rates to be declared by Parliament (s. 121D).
It is clear, of course, that in consequence of the amending Act the trustees of a superannuation fund affected by the amendment and lacking the percentages of public securities and Commonwealth securities specified, would have to decide whether or not to invest in such securities sufficiently to obtain an exemption from income tax for the investment income of the fund pursuant to the amended Act. Furthermore, the amendment, by affording a conditional taxation exemption, obviously provides a financial inducement to the trustees of superannuation funds affected to invest in public securities and in Commonwealth securities. Full recognition of this does not mean, however, that s. 11 is not what it appears to be, viz. a law with respect to taxation. The giving of taxation advantages to induce investment in Commonwealth securities has long been a feature of the taxation laws of the Commonwealth. Furthermore, participation in certain enterprises is encouraged by holding out tax advantages - e.g. ss. 23 (o) and (p), 73A, 75, 77A, 77AA and 77B of the Principal Act. Indeed, pars. (j) and (ja) of s. 23 provided exemptions to encourage the establishment and maintenance of funds of the kind therein described.
Whether or not a law is one with respect to taxation cannot be determined by looking at its economic consequences, however apparent they must have been at the time of its enactment; nor is an enquiry into the motives of the legislature permissible. There may be laws ostensibly imposing tax which, nevertheless, are not laws with respect to taxation. For example, a special prohibitive tax upon income derived from the sale of heroin or from the growing or treatment of poppies for the production of heroin may not be a law with respect to taxation but rather a law made for the suppression of the trade in that drug by imposing penalties described as taxes for participation in it. The reason for denying to such a law the character of a law with respect to taxation would not be either its economic consequences or the motive behind its enactment. It would simply be that its true character is not a law with respect to taxation. The problem in every case is, therefore, to ascertain from the terms of the law impugned its true nature and character.
In this case, there is no reason - apart from the likely consequences upon the investing of the assets of superannuation funds and the motives imputed to the legislature - for denying to s. 11, which relates to exemption from income tax, the character of a law with respect to taxation. Those consequences and imputed motives, for the reason which I have given, do not deprive the law of its character as such a law.
It was almost conceded that, if the original exemption from income tax conferred by s. 23 (j) and (ja) in favour of superannuation funds had been in more limited terms and extended only to the investment income of funds of which some percentage of the assets were of a particular description, the law would have been a law with respect to taxation. It cannot matter that s. 11 is an amending law which substitutes a more limited exemption for the one which it displaced.
I agree that the Case Stated should be answered, Yes.