Clarke v Commissioner of Taxation
[2009] HCA 33-
The impact of this case on ATO policy is discussed in Decision Impact Statement: Clarke v Commissioner of Taxation & Anor (Published 26 May 2011).
(Judgment by: Hayne J)
Clarke
vCommissioner of Taxation
Judges:
French CJ
Gummow J
Hayne JHeydon J
Kiefel J
Bell J
Subject References:
Constitutional Law (CTH)
Powers of Commonwealth Parliament
Taxation
Superannuation contributions surcharge
State parliamentary pensions
Implied limitation on Commonwealth legis-lative power
Melbourne Corporation doctrine
Where appellant former member of South Austra-lian Parliament
Where appellant eligible for parliamentary pension
Whether Acts assessing and imposing superannuation contributions surcharge invalid in application to appellant
Relevance of fact that State Acts passed in response to surcharge
'Curtailment of capacity of the States to function as governments'
'Dis-crimination'
'Special burden'
Legislative References:
Constitution - s 7; s 9; s 10; s 15; s 25; s 29; s 30; s 31; s 41; s 51(ii); s 95; s 107; s 108; s 111; s 123; s 124
Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 - s 5; s 8; s 9; s 11; s 15(6); s 15(7); s 38
Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 - s 4
Superannuation Guarantee (Administration) Act 1992 - The Act
Parliamentary Superannuation Act 1974 (SA) - The Act
Southern State Superannuation Act 1994 (SA) - The Act
Statutes Amendment (Commutation for Superannuation Surcharge) Act 1999 (SA) - s 4
Statutes Amendment (Miscellaneous Superannuation Measures) Act 2004 (SA) - s 14
Superannuation (Benefit Scheme) Act 1992 (SA) - The Act
Case References:
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Judgment date: 2 September 2009
Judgment by:
Hayne J
[90] I agree with Gummow, Heydon, Kiefel and Bell JJ that, for the reasons they give, the appeal should be allowed and consequential orders made in the form proposed.
[91] The appellant's argument gave greater prominence to the Parliamentary Superannuation Scheme ("the PSS") than to the other two schemes: the State Superannuation Benefit Scheme ("the SBS") and the Southern State Superannuation Scheme ("the Southern Scheme"). There were at least two reasons for the focus of argument falling upon the PSS. First, the amounts at stake in relation to the appellant's membership of the PSS were much larger than the amounts referable to the other two schemes. Secondly, membership of the PSS was evidently related to the appellant's membership of a State legislature whereas membership of the other two schemes was not. The SBS and the Southern Scheme each embraced a wide range of State government employees.
[92] It is important, however, to recognise that the fact that membership of the SBS and the Southern Scheme was not confined to parliamentarians or others "at the higher levels of government" [137] is not relevant to the question that arises in this matter. The principle that is engaged directs attention to whether the laws in issue interfere with, or impair, the governmental capacities of the States [138] (in this case, a State's capacity to decide the terms and conditions under which members of the State Parliament serve).
[93] As pointed out in Austin v Commonwealth , [139] that inquiry "turns upon matters of evaluation and degree" and "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'". The matter of evaluation and degree in this case concerns the effect of imposing a surcharge on superannuation entitlements of State parliamentarians which, as explained in the reasons of Gummow, Heydon, Kiefel and Bell JJ, created an obligation to pay a deferred compounding tax when the superannuation benefits in question become payable.
[94] In explaining why a State's capacity to choose the way in which State parliamentarians are remunerated is constitutionally significant, it is necessary to begin by recalling that, as pointed out in Austin , [140] the principle which is engaged in this matter is necessarily expressed in negative terms and at a high level of abstraction. But as the plurality reasons in Austin also show, examination of the application of the relevant principle must begin from an understanding of what was said about that principle in Melbourne Corporation v Commonwealth . [141]
[95] The root of the relevant principle is found in the proposition, often quoted from the reasons of Dixon J in Melbourne Corporation , [142] that "[t]he 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." This proposition, and particularly the reference to the continued existence of independent polities, must be understood in the context of the reasons as a whole.
[96] The law in question in Melbourne Corporation in effect required States and their authorities (including local government authorities) to conduct their banking business only with the Commonwealth Bank or a State bank. A central thrust of the argument advanced by counsel for the plaintiff (Mr Garfield Barwick) against the validity of that law was that it was not properly to be characterised as a law with respect to banking "because it discriminates against (in the sense that it is "aimed at") the States and State authorities". [143] This argument, in so far as it was founded on ascribing a single characterisation to the law in question, was rejected [144] by Dixon J:
Speaking generally, once it appears that a federal law has an actual and immediate operation within a field assigned to the Commonwealth as a subject of legislative power, that is enough. It will be held to fall within the power unless some further reason appears for excluding it. That it discloses another purpose and that the purpose lies outside the area of federal power are considerations which will not in such a case suffice to invalidate the law.
But the law was held invalid. The hinge about which the reasons of Dixon J turned is found in the contrast drawn [145] between recognition that a law may be characterised in more than one way, and the implication, drawn from the structure of the Constitution, that "a law which discriminates against States, or a law which places a particular disability or burden upon an operation or activity of a State, and more especially upon the execution of its constitutional powers", is beyond power. The contrast was expressed [146] by Dixon J in the following terms:
But it is one thing to say that a federal law may be valid notwithstanding a purpose of achieving some result which lies directly within the undefined area of power reserved to the States. 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.
As Dixon J went on to say: [147]
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.
And with that in mind it is necessary, as was also said [148] in Melbourne Corporation , to distinguish "between a law of general application and a provision singling out governments and placing special burdens upon the exercise of powers or the fulfilment of functions constitutionally belonging to them".
[97] The laws in question in this matter and in Austin were directed only to those who were to receive benefits from "constitutionally protected" funds. They were not laws of general application. They did not impose taxes upon the States but they did single out those "at the higher levels of government": [149] in this case State parliamentarians; in Austin , State judges. The laws in issue in this matter imposed on those persons a special and legally different taxation regime from that which generally applied to those who were to receive pensions or superannuation benefits. Under the generally applicable regime, a surcharge was imposed on the amount of tax deductible contributions made to superannuation funds by those identified as "high income earners". That surcharge was payable by superannuation providers, not members of the fund. The laws now in issue required those who were to receive retirement benefits to which the laws applied to pay the surcharge on what the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) ("the Assessment and Collection Act") identified [150] as the "surchargeable contributions" of the recipient.
[98] If, as with the SBS and the Southern Scheme, there were amounts contributed by an "employer" for the appellant, to a constitutionally protected superannuation fund that was a complying superannuation fund within the meaning of s 45 of the Superannuation Industry (Supervision) Act 1993 (Cth), those contributions were part of the surchargeable contributions of the appellant. [151] And if, as with the PSS, the appellant was a member of a defined benefits superannuation scheme, the surchargeable contributions were [152] "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 relevant financial year.
[99] Satisfaction of the obligation to pay the surcharge could be deferred until receipt of the benefits [153] but interest accrued and compounded in respect of each annual assessment. [154] As pointed out in Austin , [155] the choice whether to pay the surcharge as it accrued necessarily chanced fortune. And, as also discussed in Austin , [156] the use of actuarial calculations to determine the value of benefits accruing to a member of a defined benefits superannuation scheme did not always accurately reflect the position of any particular member.
[100] As remarked in Austin , [157] there is an apparent incongruity in singling out for the same impost those who are entitled to concessional deductions for contributions to superannuation funds and those in the public sector whose superannuation arrangements are non-contributory. But whether, or to what extent, the features of the legislation just mentioned lead to a result that members of constitutionally protected superannuation funds are taxed in a way that provides some measure of economic equivalence with the position of "high income earners" [158] made subject to a surcharge payable by their superannuation funds is not to the point.
[101] What is important is that the laws now in issue, by their effect on how States may choose to remunerate their parliamentarians, place a special disability or burden upon the exercise of powers and the fulfilment of functions of the States. It is for a State to decide how and in what amount its parliamentarians are to be remunerated. Is it to be by salary, with or without funded or unfunded retirement benefits, or other forms of benefit? Are some or all of those benefits to be provided with or without contribution by the beneficiary? Are any or all of the benefits to be defined or are they to be an accumulation of whatever is contributed with interest? Are benefits to be paid by pension or in lump sum? The legislation imposing the surcharge in issue in this matter impairs the capacity of a State to choose between these various forms of remuneration of its parliamentarians in one particular but important respect: the State has no real choice but to adopt a method of providing retirement benefits that will enable parliamentarians to meet the tax liability specially imposed on them.
[102] That a State may have made particular choices about these matters in the past, and the effect of the surcharge on the arrangements chosen, is not to the point. Whether a State has chosen to administer the superannuation entitlements of State parliamentarians through one or more separately established schemes, or in conjunction with other superannuation arrangements for other State "employees", does not alter the effect of the surcharge upon the capacity of the State to fix the terms and conditions under which State parliamentarians serve. The effect of the surcharge on that capacity remains the same, no matter whether, before the enactment of the legislation imposing the surcharge, the State had chosen to provide retirement benefits for parliamentarians through a separate unfunded parliamentary pension scheme providing defined benefits, or had chosen to do so through one or more general public sector schemes providing undefined benefits.
[103] And if, as here, a part of the overall retirement benefits provided for parliamentarians is attributable to contributions which the State makes to a superannuation fund in satisfaction of an obligation imposed on all employers to make not less than a minimum superannuation contribution, there remains the question about the effect of the surcharge on the capacity of the State to fix the terms and conditions upon which the State parliamentarians serve. Even if the law imposing an obligation on employers to make contributions is a law of general application (an issue not examined in this matter) the tax imposed on members of constitutionally protected funds is not. The tax imposes a special burden on the exercise of powers or the fulfilment of functions of the State.
[104] Neither the destination of any superannuation contributions made by the State of South Australia in respect of the appellant's service as a parliamentarian, nor the reason or occasion for making those contributions, affects the assessment of the impact of the relevant provisions upon the capacity of the State to function as a government. That some of the benefits provided for State parliamentarians are defined benefits and others are not is likewise irrelevant. The necessary impairment of the governmental functions of the State was demonstrated in respect of the whole of the amounts at issue in this case.
[105] The appeal should be allowed.