Fairfax v Federal Commissioner of Taxation

(1965) 114 CLR 1
39 ALJR 308

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(Judgment by: Taylor)

FAIRFAX
v FEDERAL COMMISSIONER OF TAXATION

Court:

Judges: Barwick C.J.
Kitto

TaylorMenzies
Windeyer JJ.

Judgment date: 2 December 1965

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Judgment by:
Taylor

The broad question in this case is whether the provisions of Div. 9B of Pt III of the Income Tax and Social Services Contribution Assessment Act 1936-1962, which were introduced into the Act by the amending Act of 1961, constitute a law with respect to taxation. The appellant asserts that it does not on the ground that the substance of the provisions is to impose what is, in effect, a penalty on the trustees of superannuation funds who fail to have a specified proportion of their funds invested, in any income year, in public securities or Commonwealth securities as defined. The basis upon which this is asserted is that, subject to the observance of certain preliminary conditions, the incomes of superannuation funds have for many years been exempt income, that is to say, income which is exempt from income tax, and the denial of the exemption, which is the effect of the impugned provisions, to trustees who fail to satisfy the conditions prescribed by those provisions amounts to a penalty imposed for a failure to follow a prescribed course of conduct.

Questions of this character have received much attention in the United States in a variety of cases and diverse views have been expressed (see e.g. Bailey v. Drexel Furniture Company (1922) 259 US 20 (66 Law Ed 817) ; United States v. Constantine (1935) 296 US 287 (80 Law Ed 233) ; Sonzinsky v. United States (1937) 300 US 506 (81 Law Ed 772) ; and United States v. Kahriger (1953) 345 US 22 (97 Law Ed 754) ). But this Court has consistently maintained that where a challenge is made to a statute on the ground that it is not a law with respect to a particular legislative subject matter it is irrelevant to consider the motives which led to its enactment or to examine the indirect consequences which may, ultimately, result from it; if it be, in substance, a law with respect to a particular subject matter the motives which influenced the legislature or the indirect consequences of the measure cannot operate to change its character.

But there have been two cases in this Court where differences of opinion have arisen in the application of this principle to statutes purporting to impose taxation. I refer to R. v. Barger (1908) 6 CLR 41 and Osborne v. The Commonwealth (1911) 12 CLR 321 . In the earlier case a majority of the Court held that the provisions of the Excise Tariff 1906, which imposed duties of excise on agricultural implements and then exempted from the provisions of the Act goods manufactured under certain conditions as to the remuneration of labour, were not a valid exercise of the taxing power. But in reaching this decision the majority was largely, if, indeed, not wholly, influenced by the doctrine of State reserved powers which was then current but which has long since been exploded. In the later case the same bench unanimously upheld as valid the provisions of the Land Tax Act 1910 notwithstanding the argument that the purpose of the Act, and the associated Land Tax Assessment Act, was to prevent persons resident in the Commonwealth from holding and owning large areas of land and to prevent persons not resident in the Commonwealth from holding and owning any such land. It has been thought that the two cases are irreconcilable (see Legislative, Executive and Judicial Powers in Australia - Wynes 3rd ed. (1962) p. 238) and, indeed, Higgins J., who was a dissentient in the earlier case, observed in Osborne's Case (1911) 12 CLR 321 that if he were able to "accept the view of the majority of the Court in Barger's Case" (1908) 6 CLR 41 he would "find much more difficulty in answering the argument" that the Acts "were not passed for the purpose of raising revenue, but in order to control matters which are essentially within the reserved powers of the States" but he thought it sufficient to say that "as these Acts create an obligation to pay taxes" and, I add, they did no more than this, "they are taxation Acts, whatever conditions they impose, and whatever State subject they affect" (1911) 12 CLR, at p 374 .

I find great difficulty in distinguishing between the two cases though it seems that the majority in Barger's Case (1908) 6 CLR 41 treated the Act under consideration in that case as not being "in substance an exercise of the power of taxation conferred upon the Commonwealth Parliament by the Constitution" (1908) 6 CLR, at p 64 because it was "within the competence of a State legislature to regulate the conditions of labour employed in the manufacture of agricultural implements", that it was "equally clear that a State legislature, having prescribed such conditions, could impose a pecuniary burden upon everyone who did not conform to them" (1908) 6 CLR, at p 74 and that "the exclusive power of the Parliament to impose duties of Excise cannot be construed as depriving the States of the exclusive power to make such enactments" (1908) 6 CLR, at p 77 . But to assert this was, it seems to me, merely to assert that the expression "taxation" in placitum (ii.) of s. 51 of the Constitution was subject to a limitation derived from the doctrine of the reserved powers of the States and it is beyond doubt that once that notion is disposed of, no distinction can be perceived between the two cases. However, that was the basis upon which Barger's Case (1908) 6 CLR 41 was, at the time, decided.

The argument of the plaintiff in the present case is the same as that which was rejected in Osborne's Case (1), except so far as reliance was placed in that case on the doctrine of the reserved powers of the States. It seizes upon what is said to be the purpose which the impugned provisions were intended to serve and then seeks to characterize them as a law, not with respect to taxation, but with respect to the investment of superannuation funds. But the power of the Commonwealth Parliament to make laws with respect to taxation is a power to make laws with respect to a specified subject matter; it is not a power defined by reference to any purpose or purposes. That being so, is it possible to say that a law made under that head of power will be valid or invalid according to whether or not it appears upon enquiry that the legislature has been moved to pass it by some particular motive, or, according to whether or not the legislature had in mind some particular purpose to be served by the legislation? This Court has consistently held that no such enquiry is relevant or permissible. The contention to the contrary "involves a confusion between the operation of the law and the motives of the legislature" (Grannall v. Marrickville Margarine Pty. Ltd. (1955) 93 CLR 55 , at p 79 and Reg. v. Anderson; Ex parte Ipec-Air Pty. Ltd. (1965) 113 CLR 177 , at p 196 ). The object, the purpose and the intention of an enactment made under such a power can be gathered only from an examination of what the legislature has chosen to enact and not from a consideration of extraneous matters. Unrestricted by limitations arising from the doctrine of the reserved powers of the States the power of the Commonwealth to make laws with respect to taxation stands revealed as a head of power subject to no limitations except those prescribed by the Constitution itself. The test of validity must be, therefore, whether an impugned law creates duties, obligations or liabilities which are extraneous to the power.

If it does no more than impose aliability to tax it is such a law and it is not to the point to consider the motives of the legislature in enacting it or to examine the purpose which it was intended to serve. Applying this test to the provisions of Div. 9A there can only be one answer. It imposes no duties, obligations or liabilities upon trustees of superannuation funds other than an obligation to pay income tax in certain events; it imposes no obligation upon them to invest their funds in any particular fashion and no duties, obligation or liabilities which are extraneous to the power. It may be conceded that it offers a substantial inducement to trustees to invest a substantial proportion of their funds in public and Commonwealth securities but this is, by no means, sufficient to enable it to be said that it is not a law with respect to taxation. I am of opinion, therefore, that the question raised by the case stated should be answered in the affirmative.