• The impact of this case on ATO policy is discussed in Decision Impact Statement: Roy Morgan Research Pty Ltd v Commissioner of Taxation (Published 1 November 2011).

ROY MORGAN RESEARCH PTY LTD v FC of T & ANOR

Tribunal:
Full High Court

MEDIA NEUTRAL CITATION: [2011] HCA 35

Heydon J

53. HEYDON J. There is no general duty on private employers to pay superannuation contributions to superannuation funds for the benefit of their employees. But particular obligations to pay superannuation contributions can arise in various ways. They may be created by an award or certified agreement. They may be created by contract. This appeal concerns the legislative validity of an indirect method of ensuring the payment of superannuation contributions ^[80] The relevant circumstances and provisions are described in the joint judgment. .

The legislation

54. Sections 5 and 6 of the Superannuation Guarantee Charge Act 1992 (Cth) impose a superannuation guarantee charge on employers. It is calculated by reference to an employer ' s " superannuation guarantee shortfall " : Superannuation Guarantee (Administration) Act 1992 (Cth), s 17. That shortfall is the difference between nine percent of a given employee ' s total salary or wages for a quarter and what the employer contributed to a retirement savings account or certain types of superannuation fund for the employee ' s benefit ^[81] See ss 19, 22 and 23 of the Superannuation Guarantee (Administration) Act 1992 (Cth). , plus a nominal interest component and an administration component ^[82] See s 17 of the Superannuation Guarantee (Administration) Act 1992 (Cth). . The function of the interest component is to compensate for fund earnings foregone by the failure to pay the nine percent. The function of the administrative component is to recover expenses associated with administering the superannuation guarantee charge. The legislation creates an obligation on the employer to pay that charge to the Commissioner of Taxation which is enforceable as a debt due to the Commonwealth ^[83] See Taxation Administration Act 1953 (Cth), Sched 1, s 255-5(1)(a). . The superannuation guarantee charge is to be paid into the Consolidated Revenue Fund. A similar sum (but without the administration component) is then to be paid out to a superannuation fund for the benefit of the relevant employee ^[84] See Pt 8 of the Superannuation Guarantee (Administration) Act 1992 (Cth). .

The appellant ' s submission in outline

55. The appellant submitted that the superannuation guarantee charge is not a tax within the meaning of s 51(ii) of the Constitution. It contended that the payment into the Consolidated Revenue Fund is directly correlated with the payment out to a superannuation fund for the benefit of the relevant employee. It submitted that the superannuation guarantee charge is not a " tax " because although it might be characterised as an exaction imposed in the public interest, it is not for a public purpose because it confers " a private and direct benefit " on the relevant employee.

56. In
Matthews v Chicory Marketing Board (Vict) ^[85] ((1938) 60 CLR 263 at 276; [ 1938 ] HCA 38 . Latham CJ described a tax as follows: " a compulsory exaction of money by a public authority for public purposes, enforceable by law, and … not a payment for services rendered " . Inherent in the appellant ' s submissions was an acceptance of the fact that the superannuation guarantee charge met every requirement but one of that description - the " public purposes " requirement.

The function of the legislation

57. The superannuation guarantee charge provides an incentive to employers to make superannuation contributions at the rate of nine percent of employees ' wages. It ensures that in relation to the employees of employers who fail to do so there will be payments into approved superannuation funds equivalent to those which the employers did not make. There are significant factors influencing employers to make superannuation contributions directly to superannuation funds for their employees ' benefit rather than pay the superannuation guarantee charge. Direct superannuation contributions are tax deductible ^[86] Income Tax Assessment Act 1997 (Cth), s 290-60; prior to 15 March 2007, Income Tax Assessment Act 1936 (Cth), s 82AAC. ; payments of the superannuation guarantee charge are not ^[87] Income Tax Assessment Act 1997 (Cth), s 26-95; prior to 14 September 2006, Income Tax Assessment Act 1936 (Cth), s 51(9). . Payments of direct superannuation contributions avoid the nominal interest component and the administration component of the superannuation guarantee shortfall. And in other respects the superannuation guarantee charge may be higher than the corresponding direct superannuation contribution. In a perfect world, no superannuation guarantee charge would be levied at all. But it tends to persuade employers to make direct superannuation contributions. This achieves public purposes quite independently of any revenue collected through it. Those public purposes centre on the encouragement of employers to contribute to superannuation funds so as to meet the needs of aged or infirm employees and to reduce the pension burdens which would otherwise have to be funded by the government.

Some authorities

58. In
Fairfax v Federal Commissioner of Taxation , Windeyer J said ^[88] ((1965) 114 CLR 1 at 19; [ 1965 ] HCA 64 . : " Taxes are ordinarily levied to replenish the Treasury, that is to provide the Crown with revenue to meet the expenses of government. " Leaving to one side the " administration component " in the superannuation guarantee shortfall, what is paid into the Consolidated Revenue Fund pursuant to the legislative scheme under consideration is not to meet the expenses of government.

59. The difficulty for the appellant is that even if taxes are ordinarily levied to replenish the Treasury, there are authorities illustrating less ordinary instances where financial exactions have not replenished the Treasury but have been held to be taxes. Thus in
Fairfax v Federal Commissioner of Taxation ^[89] ((1965) 114 CLR 1 . , a law denying tax advantages to employees ' superannuation funds unless their trustees invested in Commonwealth and other public securities was held to be supported by s 51(ii) of the Constitution. Kitto J said ^[90] ((1965) 114 CLR 1 at 11 . :

" it is by no means a settled doctrine that a law which purports to provide for a tax upon behaviour is in substance not a law with respect to taxation if it exhibits on its face a purpose of suppressing or discouraging the behaviour and is to be explained more convincingly as a means to that end than as a means to provide the Government with revenue. "

60. The superannuation guarantee charge is modelled on the Training Guarantee Act 1990 (Cth) and the Training Guarantee (Administration) Act 1990 (Cth). The validity of that legislation was upheld in
Northern Suburbs General Cemetery Reserve Trust v The Commonwealth ^[91] 93 ATC 4118 ((1993) 176 CLR 555 ; [ 1993 ] HCA 12 . . The legislation created a training guarantee scheme. That scheme defined a minimum amount that each employer was notionally required to expend in training its workforce. The legislation imposed a charge corresponding to the amount by which the employer ' s actual expenditure on training fell short of that minimum amount. The employer was liable to pay that amount to the Commissioner of Taxation, ie into the Consolidated Revenue Fund. Provision was made for monies to be taken from the Consolidated Revenue Fund to be expended, among other things, on workforce training pursuant to training guarantee agreements between the Commonwealth on the one hand and the States and Territories on the other on the advice of bodies containing representatives of government, employers and trade unions. The reasoning of this Court upholding the charge as a tax operated on the basis that industrial training is a public purpose. The provision of workplace superannuation is similarly a public purpose.

61. The appellant did not submit that the Northern Suburbs case should be overruled, but did submit that it was distinguishable. The point of distinction relied on was that the scheme in that case did not require the funds that were collected from employers which had not trained their workforces to be spent on training the employees of those particular employers. Instead the funds were, among other things, to be spent by State or Territory governments under training guarantee agreements. That circumstance was used by this Court as the basis for a conclusion that the charge was not a fee for service; it was not crucial in reaching the conclusion that the funds raised were applied for " public purposes " ^[92] ((1993) 176 CLR 555 at 567-568 per Mason CJ, Deane, Toohey and Gaudron JJ, 584 per Brennan J, 587-588 per Dawson J and 596 per McHugh J. . Accordingly the point of distinction relied on is not available.

62. In all other basic respects the two legislative schemes are materially similar. In particular, each scheme contemplated as the preferable and primary course direct payment by the employers rather than payment only through the charges. The charges are only secondary in the sense that the duty to pay them serves as a means of achieving the preferable course of ensuring direct payment by the employers. As Mason CJ, Deane, Toohey and Gaudron JJ said ^[93] ((1993) 176 CLR 555 at 569 (footnote omitted). : " the fact that the revenue-raising burden is merely secondary to the attainment of some other object or objects is not a reason for treating the charge otherwise than as a tax. " The similarity in the two legislative schemes invalidates the appellant ' s reliance on " private and direct benefit " as pointing against the existence of a public purpose. Even if the superannuation legislation confers a " private and direct benefit " , that conferral operates as part of a scheme in which the threat of having to pay the superannuation guarantee charge into the Consolidated Revenue Fund, thereby operating as an indirect source of payments from the Consolidated Revenue Fund in favour of employees ' superannuation funds, is essentially a method of vindicating the primary purpose of influencing employers to make payments directly into superannuation funds. That primary purpose is a public purpose.

63. The question, then, is whether the superannuation guarantee charge, considered as an exaction, is a tax. To the extent that employers make payments directly into employees ' superannuation funds, there will be no exaction; to the extent that they do not, there will be. The legislative scheme uses the threat of the exaction to prevent the need to pay it from arising. But each occasion when the need to pay it arises tends to encourage others later so to arrange their affairs that they do not have to pay it. In the Northern Suburbs case the spending of the exaction on training did not prevent the exaction from being a tax. So here, the spending of the exaction on payments into superannuation funds for the benefit of employees does not prevent the exaction from being a tax.

64. The appellant did not submit that the Northern Suburbs case should be overruled. It cannot be distinguished. It must therefore be applied. Its application leads to the conclusion that the superannuation guarantee charge is a tax.

Luton v Lessels

65. The appellant contended that
Luton v Lessels ^[94] (2002) 210 CLR 333 ; [ 2002 ] HCA 13 . was indistinguishable from the present case. The legislative scheme under consideration in
Luton v Lessels was directed to persons who had defaulted in their existing obligations to make payments of child maintenance. The legislation terminated those obligations. It substituted for them a new right in the person caring for the child to claim payment from the Commonwealth, and gave powers to an official to collect the relevant amounts from the defaulter, including a power to issue garnishee notices to the defaulter ' s employer. This Court held that the legislation did not have to comply with s 55 of the Constitution because it did not provide for the imposition of a tax. Instead it created a new mechanism for the enforcement of an existing private obligation by substituting for the obligation of the defaulter to pay a carer for the child ' s upkeep an obligation of the defaulter to pay the Commonwealth coupled with the creation of new rights in the carer against the Commonwealth.
Luton v Lessels is distinguishable because there the obligation created in the Commonwealth was created in substitution for a former obligation of another person which was terminated. Here no particular obligations of employers to make payments into superannuation funds for the benefit of their employees are terminated, although compliance with those obligations will reduce the charge, and to the extent that payments are made into superannuation funds from the Consolidated Revenue Fund this will eliminate or destroy the quantum of damages which the employees can claim from their employers for breach of these obligations. The duty to pay the superannuation guarantee charge does not depend on the existence of any obligation to make payments into superannuation funds. And no duty is created on employers to make contributions into those superannuation funds. In
Luton v Lessels the legislation created a new legal obligation to do something in substitution for an existing one. Here the legislation merely creates an incentive to do something, whether or not there was any obligation to do it.

66. Finally, the appellant relied on
Luton v Lessels as exemplifying a distinction between " public purposes " as a necessary element in a tax and " the public interest " which was not sufficient to satisfy the " public purposes " element in a tax. The appellant did not demonstrate that the references to " public interest " on which it relied in
Luton v Lessels ^[95] 2002 ATC 4311 (2002) 210 CLR 333 at 343 [ 12 ] and 352 [ 48 ] . were supportive of the proposition that the purposes of the superannuation legislation were matters only of " public interest " , not " public purpose " .

A single characterisation fallacy

67. There is one other difficulty in the appellant ' s submissions. They postulate a distinction between characterising legislation as having " public purposes " and characterising legislation as conferring " private and direct benefits " , as though an instance falling within the second branch of the distinction necessarily prevented it from also falling within the first. That does not follow. In this case the legislative conferral of what the appellant called " private and direct benefits " vindicates public purposes.

Questions not arising

68. For those reasons the superannuation guarantee charge is a tax. It is therefore not necessary to express a view on other issues which arose in argument, such as whether a tax can include an exaction by a non-public authority ^[96] Cf Air Caledonie International v The Commonwealth (1988) 165 CLR 462 at 467; [ 1988 ] HCA 61 ; Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 at 501; [ 1993 ] HCA 10 . ; whether an exaction can be a tax even though it is not for public purposes ^[97] Cf Air Caledonie International v The Commonwealth (1988) 165 CLR 462 at 467 . ; whether the appellant ' s argument must fail because it erroneously treats the way the monies spent out of the Consolidated Revenue Fund as controlling the character of the superannuation guarantee charge; whether
Luton v Lessels ^[98] 2002 ATC 4311 ((2002) 210 CLR 333 . overruled
Australian Tape Manufacturers Association Ltd v The Commonwealth ^[99] (1993) 176 CLR 480 . ; and whether it is a sufficient definition of a tax that it be a compulsory exaction by reference to criteria of sufficiently general application.

Orders

69. The first respondent (the Commissioner of Taxation) took no active part in the argument. The second respondent (the Attorney-General of the Commonwealth) did. The first respondent sought a costs order. The second respondent did not, for the reason that his status as a party arose directly from his intervention before the Full Court of the Federal Court of Australia. That is a stance highly favourable to the interests of the appellant. In the circumstances the appeal should be dismissed, and the appellant should pay the first respondent ' s costs.