Victoria v Commonwealth

[1971] HCA 16
(1971) 122 CLR 353
(1971) 45 ALJR 251
[1971] ALR 449
(1971) 2 ATR 249

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(Judgment by: McTiernan J)

Victoria
v Commonwealth

Court:

Judges: Barwick CJ

McTiernan JMenzies J
Windeyer J
Owen J
Walsh J
Gibbs J

Hearing date: 26, 27 and 30 November; 14 December 1970; 1-3 May 1971
Judgment date: 14 May 1971

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Judgment by:
McTiernan J

The State of Victoria claims, as the Crown in right of that State, a declaration that it is not liable to pay pay-roll tax to the Commonwealth, notwithstanding that, according to the Pay-roll Tax Assessment Act 1941-1969 (Cth), the Crown in right of a State is liable to pay such tax to the Commonwealth. The claim is made particularly in respect of pay rolls of government departments. Liability to pay the tax is laid on an employer who pays wages. The tax is levied on the wages and is payable in respect of the wages. The long title of the Pay-roll Tax Act 1941 (Cth) declares that the subject matter of the tax is the "payment of wages". This is repeated by the long title of the Pay-roll Tax Assessment Act 1941-1969 (Cth). The taxpayers under the Acts are employers. Some belong to the private sector of the economy, others to the part of the public sector marked out by the statutory definition of "employer". A State is included under the name of the Crown in the right of a State, in the definition. The term "wages" is also the subject of a statutory definition. This applies generally to wages, salary etc payable to any employee as such whether the employer is a government or a private employer.

The first question is whether the Act is beyond the power which s 51(ii) of the Constitution grants to the Commonwealth Parliament. The statement of claim alleges, as an example of the unconstitutional operation of the Act, that it purports to make the Crown in right of the State of Victoria liable to pay the tax, which the Pay-roll Tax Act 1941 (Cth) imposes, in respect of the remuneration of the staff of the State departments concerned with governmental functions.

A question, raised by the argument put forward on behalf of the State, is whether the Parliament is able to make a law under s 51(ii) binding on the Crown in the right of a State. S 51(ii) is, of course, the taxation power of the Commonwealth. The term "taxation" does not mean in the Constitution only tax paid by a subject. The Commonwealth Constitution Act establishes the supremacy throughout the Commonwealth of all laws validly made under the Constitution. The Act obviously applies to any law validly made under s 51(ii) of the Constitution. The Crown in right of a State is subordinate to the Crown in right of the Commonwealth to the extent of legislative power granted by the Constitution to the Commonwealth Parliament. The Crown is a single juristic person but it has these two capacities respectively. It is clearly consistent with the federal system under the Constitution that the Crown in right of a State should be bound by a law made pursuant to s 51(ii) of the Constitution to pay tax to the Crown in right of the Commonwealth (See the Steel Rails Case (1908) 5 CLR 818 and Sutton's Case (1908) 5 CLR 789). The suggestion that the word "taxation" in s 51(ii) means taxation of subjects only and imposes a limitation on that basis upon the power granted by the placitum to the Commonwealth Parliament, has no force. It is implicit in the judgment of the majority in the Engineers' Case (1920) 28 CLR 129, that the Parliament has power to make a law under s 51(ii) which is binding on the several States. If not, the relevance of the reference in the judgment to the taxation power is not apparent. That judgment contains the following passage, (1920) 28 CLR 129, at p 144 "the legislative powers given to the Commonwealth Parliament are all prefaced with one general express limitation, namely, 'subject to this Constitution', and consequently those words, which have to be applied seriatim to each placitum, require the Court to consider with respect to each separate placitum, over and beyond the general fundamental considerations applying to all the placita, whether there is anything in the Constitution which falls within the express limitation referred to in the governing words of s 51. That inquiry, however, must proceed consistently with the principles upon which we determine this case, for they apply generally to all powers contained in that section". The powers are those granted by s 51 of the Constitution -- and include the taxation power. The question which the Court had to consider in the Engineers' Case was whether the States were bound by a law made under s 51(xxxv).

The pay of a person in the employment of a State government is not beyond the reach of s 51(ii). The person who received the pay can be obliged by a law made under s 51(ii) to pay to the Commonwealth income tax levied on the pay. The present tax is not of the nature of income tax. In my opinion a law of the Commonwealth levying pay-roll tax on the pay of persons in private employment and in the employment of the Crown in right of a State, and providing that the tax be paid by their employers to the Commonwealth, is wholly a law with respect to taxation. The inclusion of the Crown in the right of a State, amongst others, in the definition of "employer" is not contrary to any restriction or limitation imposed by the Constitution upon s 51(ii). The payment by the Crown in right of the State of the remuneration of its officers and employees who work in the State departments of government ought not to be declared immune from the tax here in question. The tax is not laid on the appropriation of revenue to pay for services. If it were, the question would arise whether the tax, so far as it burdened that activity, was, in substance, a law with respect to the States. The Constitution does not grant power to the Commonwealth Parliament to make a law of that kind. Conceding that the functions of the departments mentioned in the statement of claim pertain to affairs which are distinctive of government, the question which then arises is whether upon the true construction of the Constitution there is a necessary implication by which the Commonwealth is restrained from making a law under s 51(ii) levying a tax on the pay of persons employed in the departments and making the State liable to pay the tax. In considering this question it should be borne in mind that the employment of a person to perform services, where the Crown is the employer, is an ordinary transaction such as is engaged in between subject and subject and that payment for services is an activity common to employment by governments and employers in the private sector. It is not unconstitutional to tax equally payment of salaries or wages or other remuneration by private employers and State governments as such.

In my judgment the demurrer should be allowed.