Decision impact statement

Clarke v Commissioner of Taxation & Anor

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Venue: High Court
Venue Reference No: A35/2008
Judge Name: French CJ, Gummow, Hayne, Heydon, Kiefel and Bell JJ
Judgment date: 2 September 2009
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• N/A

Subject References:
constitutional law
superannuation contributions surcharge
superannuation contributions tax

Précis

Whether the superannuation contributions tax was constitutionally valid in its application to members of Parliament who were members of Constitutionally Protected Superannuation Funds.

Decision Outcome:

Adverse

Brief summary of facts

The case concerned whether the Commonwealth law imposing superannuation contributions tax (commonly known as "superannuation surcharge") validly applied to a former Member of Parliament of South Australia who was a member of certain public sector superannuation schemes that were Constitutionally Protected Superannuation Funds (CPSFs) for surcharge purposes.

The taxpayer attracted liability to pay surcharge by being an accruing member of three South Australian CPSFs at various times due to being a Member of Parliament: the Parliamentary Superannuation Scheme (the "PS Scheme"), the State Superannuation Benefit Scheme and the Southern State Superannuation Scheme (the "SSS Scheme"). These schemes had differing features. In particular, under the PS Scheme, the taxpayer was to become entitled to a defined benefit pension (which he had a limited ability to commute to a lump sum). Under the SSS by contrast, he was to become entitled to a lump sum benefit based on accumulated contributions and earnings in the fund.

The taxpayer relied on the decision of the High Court in Austin v The Commonwealth (2003) 215 CLR 185, in which a majority of the High Court held that the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 were constitutionally invalid in their application to a New South Wales Supreme Court Judge on the ground that it placed such a particular burden on the operations of the State of New South Wales as to be beyond the legislative power of the Commonwealth.

The taxpayer argued that such an impermissible burden was also placed on South Australia in relation to his membership of the relevant CPSFs. Several of the State Attorneys-General intervened in support of the taxpayer's arguments. In response the Commonwealth Attorney-General (whose submissions the Commissioner of Taxation adopted) argued that there were grounds to distinguish the taxpayer's position from that of the taxpayer in the Austin case.

Issues decided by the court

The surcharge legislation cited above was invalid in its application to the taxpayer on the ground that it so discriminated against the State of South Australia, or so placed a particular disability or burden on the operations and activities of that State, as to be beyond the Commonwealth's legislative power.

Tax Office view of Decision

It follows from the High Court's decision that the superannuation surcharge legislation is invalid in its application to each member of a CPSF who was at the higher levels of government, whatever the member's individual superannuation entitlements and whatever the particular features of the CPSF in question (for example, whether or not the fund offered defined benefits; whether the benefits were pensions or lump sums; whether the member was already able to elect to commute a pension benefit into a lump sum).

Most CPSFs were in South Australia and Western Australia. The majority of taxpayers affected by the Clarke decision are likely to be in those two States. The full list of CPSFs appeared in Schedule 14 to the Income Tax Regulations 1936 (now revoked).

The decision has no impact on members of funds that are not CPSFs. For taxpayers who were members of both CPSFs and of other superannuation funds, the decision affects only so much of their surcharge liability as related to their membership of CPSFs.

The decision has no impact on Commonwealth or Territory officials, or on members of private sector superannuation funds.

"Higher levels of government"

The Tax Office has previously considered the question of who was at the "higher levels of government" in dealing with objections following the Austin decision. We maintain the view that not all members of CPSFs are at the "higher levels of government", but only a relatively restricted range of officials with certain high level responsibilities relevant to the constitutional functioning of the relevant State.

Officials at the "higher levels" of State government include Governors and their assistants and advisors, Members of Parliament, Ministers and ministerial advisors, judges, magistrates and heads of public service departments or similar instrumentalities. Also included are certain statutory officers with high-level responsibilities such as Directors of Public Prosecutions, Commissioners of Police, Auditors-General and the like.

However, government officials and employees in general are not at the higher levels of government. The mere fact that a taxpayer's adjusted taxable income was high enough to attract superannuation surcharge in a given year under the impugned legislation does not of itself entail that that taxpayer was at the higher levels of government.

Administrative Treatment

List of Rulings and Determinations Affected

None

Implications on current Public Rulings & Determinations

None

Implications on Law Administration Practice Statements

None

Court citation:
[2009] HCA 33
72 ATR 868
(2009) 258 ALR 623
(2009) 240 CLR 272

Legislative References:
Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997
7
8
9
11
12
14
38

Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997
4

Case References:
Austin v Commonwealth of Australia
215 CLR 185
2003 ATC 4042
51 ATR 654