State of Queensland v. Commonwealth of Australia.

Members:
Gibbs CJ
Mason J
Wilson J
Brennan J
Deane J
Dawson J

Tribunal:
Full High Court

Decision date: Judgment handed down 3 February 1987.

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Gibbs C.J.

The question which falls for decision in these proceedings is whether the State of Queensland is liable to pay the tax imposed by the Fringe Benefits Tax Act 1986 (Cth) ("the Tax Act") in respect of certain benefits provided by the State to its employees, and in particular in respect of the benefits provided when motor vehicles owned by the State are used by, or available to, its employees and when dwelling houses and other places owned by the State are occupied by its employees under lease or licence.

By sec. 5 of the Tax Act, tax is imposed in respect of the fringe benefits taxable amount of an employer of a year of tax. The expression "fringe benefits taxable amount" is defined in sec. 136(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the Assessment Act"), which, by sec. 3 of the Tax Act is incorporated with, and to be read as one with, the Tax Act. By sec. 136(1), "`fringe benefits taxable amount', in relation to an employer in relation to a year of tax, means the sum of the taxable values, in relation to the year of tax, of all the fringe benefits in relation to the employer in relation to the year of tax". Section 136(1) also contains the following definition of "fringe benefit":

"`fringe benefit', in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit -

• (a) provided at any time during the year of tax; or
• (b) deemed to be provided in respect of the year of tax,

being a benefit provided, or originally provided, as the case may be, to the employee or to an associate of the employee by -

• (c) the employer;
• (d) an associate of the employer; or
• (e) a person (in this paragraph referred to as the `arranger') other than the employer or an associate of the employer under an arrangement between -
  • (i) the employer or an associate of the employer; and
  • (ii) the arranger or another person,

in respect of the employment of the employee, but does not include..."

Then follow certain exceptions, which are immaterial for present purposes. The taxable values of fringe benefits of various kinds are calculated in accordance with rather complicated formulae laid down in certain sections of the Assessment Act, to some of which it will be necessary to make more detailed reference. The State owns certain property, both real and personal, which is made available to many of its employees in connection with their employment. In

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particular, cars owned by the State are used or available for use by its employees, e.g., by being garaged at an employee's place of residence or, even if not so garaged, by being available for an employee's private use. Dwelling houses and other places which are able to be used for accommodation, and are owned by the State, are occupied by employees of the State under lease or licence. The circumstances in which these benefits are provided are such that their use or availability constitutes a fringe benefit within the Assessment Act and that there is a taxable value of car fringe benefits and of housing fringe benefits respectively within the meaning of the Assessment Act.

By sec. 66(1) of the Assessment Act, subject to that Act, tax imposed in respect of the fringe benefits taxable amount of an employer of a year of tax is payable by the employer. The Tax Act and the Assessment Act both contain expressions of an intention to bind the Crown in the right of each of the States (see sec. 4 of the Tax Act; sec. 163(3) of the Assessment Act) but the Tax Act contains in sec. 7 a severability provision in the following terms:

"It is the intention of the Parliament that if, but for this section, section 5 of this Act would impose a tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution, section 5 of this Act shall have effect as if it did not impose that tax."

Section 114 of the Constitution, so far as it is material, is in the following terms:

"A State shall not, without the consent of the Parliament of the Commonwealth... impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State."

If a tax in respect of the fringe benefits taxable amount in relation to the State of Queensland, as an employer, in so far as it consisted of the sum of the taxable values of the car fringe benefits and the housing fringe benefits which it has provided for its employees, would be a tax on property belonging to the State, sec. 7 would have the effect that the Tax Act does not operate to impose such a tax on the State. The question therefore is whether such a tax would be a tax on property belonging to the State.

It will have been seen from what has been said that the fringe benefits tax is a tax imposed on an employer (in this case the State) on the taxable value of the fringe benefits provided by the employer (or by an associate of the employer, or a person acting under an arrangement with the employer or with an associate of the employer) to the employee or to an associate of the employee. By sec. 136(1) of the Assessment Act "associate" has the same wide meaning in relation to a person as is given to that expression in relation to a person by sec. 26AAB of the Income Tax Assessment Act 1936 (Cth), as amended. "Benefit" is also widely defined in sec. 136(1); it includes "any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility...". The particular cases of benefit specifically dealt with in Pt III of the Assessment Act illustrate the width of the definition - they expressly include, besides car benefits and housing benefits, cases where debts are waived, loans are made, payments are made for expenses, an allowance is paid to an employee for living away from home, a person employed by an airline operator or travel agent (or the employee's associate) is provided with airline transport, board or property is provided or "non-deductible exempt entertainment expenditure" is incurred, but those instances are not exhaustive: see sec. 6 and Div. 12 of Pt III of the Assessment Act. The subject of the tax is the value of the benefits provided by the employer, and not the value of the benefits received by the employee; a benefit to the employee within the meaning of the Assessment Act will have been provided notwithstanding that the benefit was surplus to the needs or wants of that employee, and notwithstanding that the benefit is offset by some inconvenience or disadvantage: see sec. 148(1)(c), (e) of the Assessment Act.

Car fringe benefits are dealt with in Div. 2 of Pt III of the Assessment Act. Section 7(1) of the Assessment Act provides as follows:

"Where -

• (a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this sub-section referred to as the `provider') -
  • (i) is applied to a private use by the employee or an associate of the employee; or

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  • (ii) is taken to be available for the private use of the employee or an associate of the employee; and
• (b) either of the following conditions is satisfied:
  • (i) the provider is the employer, or an associate of the employer, of the employee;
  • (ii) the car is so applied or available, as the case may be, under an arrangement between -
    • (A) the provider or another person; and
    • (B) the employer, or an associate of the employer, of the employee,

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee."

Subsections (2) and (3) then provide that in certain circumstances a car shall be taken to be available for the private use of the employee or associate as the case may be. A car is "held" by a person if it is owned by, leased to or otherwise made available to that person: sec. 162 of the Assessment Act. The taxable value of a car fringe benefit is to be calculated in accordance with a formula set out in sec. 9 of the Assessment Act, unless the employer elects that sec. 10 of that Act shall apply in relation to all the car fringe benefits in relation to the employer in relation to a year of tax that relate to that car; if such an election is made sec. 10 will apply. The provisions of these sections are convoluted, and an understanding of them necessitates constant recourse to the definitions in sec. 136(1), but their effect may be stated simply, and ignoring irrelevant detail, as follows. The formula provided by sec. 9 starts by taking the "base value" of the car, which, if it has been owned for no more than four years, will be the cost price (as defined in sec. 136(1)), and if it has been owned for a longer period, is two-thirds of the cost price. The base value is multiplied by a "statutory fraction", prescribed by sec. 9(2)(c); the fraction (in relation to a standard year of tax) decreases by stages from 0.24, in a case where the car has travelled less than 15,000 kilometres in a year, to 0.06 where the car has travelled more than 40,000 kilometres in a year, apparently on the assumption that the greater the distance travelled, the smaller the proportion of private use is likely to be. The statutory fraction is reduced by an appropriate proportion if the car has been held for less than a year. Similarly a proportion of the total reached by applying the statutory fraction to the base value is taken if the car fringe benefit has been provided for less than a year. From the total so reached the amount, if any, of the payment made by the recipient is deducted to give the taxable value of the fringe benefit. Under sec. 10 the taxable value is based on the operating cost of the car, which is the sum of all relevant expenses and includes, in a case where the car is owned by the provider, the amount of depreciation that is deemed to have been incurred by the provider in respect of the car in respect of the year of tax and the amount of interest that is deemed to have been incurred by the provider in respect of the car in respect of the year of tax. Section 11 provides for the calculation of depreciation (at a rate of 22.5 per cent) and interest on the depreciated value of the car; these items are likely to be comparatively large.

The taxable value of a housing fringe benefit is ascertained in accordance with the provisions of sec. 26 of the Assessment Act. It is sufficient to consider the ordinary case in which the accommodation is located in a State or Territory and does not consist of a caravan, mobile home, hotel, motel, hostel or guest house. In such a case the taxable value is "the statutory annual value of the recipient's current housing right" reduced by an appropriate proportion if the housing right has not been enjoyed for the whole year. The "statutory annual value of the recipient's current housing right" is, in respect of a base year of tax, calculated by ascertaining the market value of the housing right proportionately reduced if the number of days in the tenancy period is less than a full year. If the year is not a base year the statutory annual value for the base year is taken as a basis and an indexation factor arrived at in accordance with sec. 28 of the Assessment Act is applied to give the taxable value. In determining the market value of a housing right, where the recipient is entitled, pursuant to the housing right, to require a second person in discharge of an obligation of the recipient to make a payment to a third person in respect of expenditure incurred by the recipient, or to reimburse a recipient in respect of an amount of

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expenditure incurred by the recipient, the entitlement shall be disregarded: sec. 27(1) of the Assessment Act. Similarly, any onerous conditions that are attached to the housing right and that relate to the recipient's employment are to be disregarded: sec. 27(2). Special provision is made by sec. 29 of the Assessment Act in the case of remote area accommodation; subject to the exercise of a right of election, the taxable value is calculated according to a formula which is in no way based on the actual value of the premises or the housing right.

In short, the taxable value of a car fringe benefit is based on the value of the car if sec. 9 is applied, but the employer may elect that sec. 10 shall apply, and in that case the taxable value is based on the operating cost, although the value of the car will be not unimportant in calculating the amount of depreciation. In some, but not in all, cases the taxable value of a housing benefit is based on the benefit of the housing right, that is of the lease or licence.

The sum of the taxable values of all fringe benefits in relation to the employer, in respect of which the tax is paid, may include the value of benefits other than car fringe benefits and housing fringe benefits, and those other benefits may not have resulted from any use made by the employer of his property. The fringe benefits taxable amount may also include the value of benefits provided by someone other than the employer. However, in the present case, the fringe benefits taxable amount in respect of which the tax is (subject to sec. 7 of the Tax Act) intended to be imposed upon the State includes the sum representing the taxable value of benefits provided by the State to its employees when it made its property (its cars and places of accommodation) available for their use or occupation. If a tax which was imposed only in respect of those sums would be a tax on property belonging to the State, it would not lose that character because it formed part of a larger package of taxation. The prohibition enacted by sec. 114 of the Constitution cannot be evaded by combining other taxes with a tax on property belonging to a State.

The expression "tax on property" is of course ambiguous and elliptical. A tax may be paid out of property but it obviously cannot be paid by property. What is meant by a tax on the property belonging to a State is a tax payable by the State by reason of and by reference to some relation between the State and its property. In
Dennis Hotels Pty. Ltd. v. Victoria (1959-1960) 104 C.L.R. 529 , Fullagar J., when discussing the proposition that an essential feature of a duty of excise is that it must be a tax upon goods, pointed out, at p. 554, that the expression a tax "upon goods" is ambiguous. He said:

"Goods as such cannot pay taxes: there must be a person to pay them. And what is meant by saying that a tax is a tax upon goods is that the person by whom the tax is payable is charged by reason of, and by reference to, some specific relation subsisting between him and particular goods. A tax will be rightly regarded as a tax upon goods if the person upon whom it is imposed is charged by reason of and by reference to the fact that he is the owner, importer, exporter, manufacturer, producer, processor, seller, purchaser, hirer or consumer of particular goods."

In
H.C. Sleigh Ltd. v. South Australia (1976-1977) 136 C.L.R. 475 at p. 491 , I expressed my complete agreement with that statement. It is consistent with the view which was expressed in A.-G. for
Saskatchewan v. Canadian Pacific Ry. Co. (1953) A.C. 594 , where the Privy Council held that a statutory provision that certain property of the Canadian Pacific Railway Company should be "forever free from taxation..." operated to relieve the railway company from a business tax assessed at a rate per square foot of each building used for business. Viscount Simon said at pp. 615-616:

"Notwithstanding that the exemption provided by the clause is conferred on the physical property there mentioned, all taxes are exacted from and paid by persons, and the question comes to be whether the respondent company, as the owner and user of the properties mentioned, is free from taxation in respect of them. Mr Leslie and Lord Hailsham argue that the business tax imposed by the City Act, 1947, of Saskatchewan was imposed on persons and companies carrying on a business and not upon their property or upon their ownership or user of property. On this view, the provision that the liability to business tax of a taxpayer was measured by the floor-space or area which he used while carrying on his business was nothing more than a

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`yardstick' to ascertain the amount for which the taxpayer was liable under the tax. There are, no doubt, many instances in which it is important to distinguish between the nature of the tax imposed and the measure of the amount of tax to be paid.... But where the measure of the tax is the extent of the taxpayer's property used in his business, and this property when so used is `forever free from taxation' the tax so measured cannot be regarded as something lying outside the exemption."

A similar approach was taken by the majority of the Supreme Court of Canada in
Re Proposed Federal Tax on Exported Natural Gas (1982) 136 D.L.R. (3d) 385 . It was there held that a proposed federal law under which a levy was to be imposed on the receipt of merchantable pipeline gas by a distributor would be beyond power with respect to the interest of the Province of Alberta as the owner and deemed distributor of gas. Section 125 of the Canadian Constitution Act provides:

"No lands or property belonging to Canada or any Province shall be liable to Taxation."

The majority of the Supreme Court held that the immunity provided by sec. 125 would be infringed by the proposed legislation. They said at p. 444:

"Of course, as Lord Reid observed in
Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City (No. 5) , (1951) A.C. 786 at p. 817 , `no tax literally falls on `property' only as opposed to `persons". All taxes are physically paid by persons. The substance of the matter is an attempt to exact a tax from the provincial Crown in respect of its property. That property is being made `liable to taxation' within the meaning of s. 125."

It is clear that sec. 114 gives to a State immunity from taxation which is sought to be imposed on the State with respect to its property. The relation between a State and its property which is sufficient to invoke the immunity would, if the words of sec. 114 are given the full meaning of which they are capable, include not only ownership, but also use, of the property. The question arises whether the section should be given a narrower meaning.

The effect of sec. 114 has been considered in a number of cases in this Court. In the first case,
D'Emden v. Pedder (1904) 1 C.L.R. 91 , it was held that a receipt given by a federal officer for his salary was not the property of the Commonwealth, and that sec. 114 of the Constitution would not exempt such a receipt from stamp duty. Griffith C.J., speaking for the Court, said at p. 108, that although the receipt might be described as property of the Commonwealth, it was "not property of the kind intended in that section, which appears rather to refer to taxation imposed upon property qua property". The meaning of that cryptic expression was not explained and I share the difficulty expressed by King C.J. in
Superannuation Fund Investment Trust v. Commr of Stamps (S.A.) (No. 2) 80 ATC 4392 at p. 4395; (1980) 25 S.A.S.R. 35 at p. 38 , in knowing what it means.

In the same year, it was held that to levy a municipal rate upon Commonwealth property was to impose a tax within sec. 114:
The Municipal Council of Sydney v. The Commonwealth (1904) 1 C.L.R. 208 . Once it was held, as the Court there held, that sec. 114 applied to taxes imposed by municipal councils under power granted by the State, as well as to taxes imposed by the State itself, the section presented no difficulty. Griffith C.J. rejected an argument based on the fact that the rates were not a charge upon the land, and said at pp. 231-232:

"All such taxes primarily impose a personal liability upon individuals, and it is, in my opinion, immaterial whether the land does or does not itself become subject to a charge in the nature of an encumbrance. In either case the tax is in substance a `tax on property' in the sense in which these words are commonly understood, and certainly in the sense in which they are used in sec. 114 of the Constitution."

The effect of sec. 114 on a law which levied a rate was also considered in
Essendon Corporation v. Criterion Theatres Ltd. (1947) 74 C.L.R. 1 , where Latham C.J., at pp. 13-14, expressed the view that a rate assessed in respect of the value of the occupation by the Commonwealth of land which it occupied under the National Security (General) Regulations would be invalid by reason of sec. 114. The other members of the Court did not accept that view and the only relevance of the

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case lies in a remark made by Latham C.J. at p. 14:

"Even where a tax is assessed by reference to a percentage of the capital value, the tax may still be a tax upon the interest of the occupier..."

Stephen and Mason JJ. referred to those remarks in
Bevelon Investments Pty. Ltd. v. Melbourne City Council (1976) 135 C.L.R. 530 and said at p. 544 :

"His Honour was directing his remarks to s. 265(b) of the 1928 Act which, in his view, imposed a liability for the rate on the Commonwealth as the occupier of land. Where the tenant or occupier is liable for the rate and it is imposed in respect of the annual rental value of the land or on a percentage of the annual capital value, as in
City of Montreal v. Attorney-General (Canada) [ [1923] A.C. 137 ] , it may be correct to say that the rate is levied upon the interest of the occupier. But it is otherwise where, as here, the occupier is not liable for the rate and the owner is made liable."

In that case the owner of a building occupied by the Commonwealth challenged the validity of a section of a State Act which provided that a rate was to be levied on the occupier, unless the occupier was the Commonwealth, in which case it was levied on the owner. It was held that the section did not impose a tax on property of the Commonwealth.

More important is the decision in
A.-G. of N.S.W. v. Collector of Customs for N.S.W. (1908) 5 C.L.R. 818 ("the Steel Rails case "). It was held in that case that the levying of duties of customs was not the imposition of a tax on property within sec. 114. The decision of the majority of the Court ( Griffith C.J., Barton, O'Connor and Isaacs JJ.; Higgins J. doubting) was that having regard to the context provided by other sections of the Constitution, and particularly having regard to the provisions of the Constitution which give the Commonwealth power with regard to taxation and external affairs, and to those which expressly refer to the imposition of duties of customs, the word "tax" in sec. 114 did not include duties of customs: see at pp. 829-832, 837-839, 843-844, 848-851, 855. A second reason, accepted by Griffith C.J. and O'Connor J. (see at pp. 831, 843-844) was that sec. 114 applied only to a tax on property within the Commonwealth and that a duty of customs was not a tax of that kind. Neither of those reasons for the decision can be applied in the determination of the present question. However, there were certain dicta upon which the learned Solicitor-General for the Commonwealth relied in argument in the present case. O'Connor J., after expressing his entire concurrence with the judgment of Griffith C.J., said at pp. 843-844:

"In the widest sense of the word no doubt a Customs duty is a tax, but in the circumstances under consideration it is in its nature and essence more properly a charge made in respect of the landing of the goods in Australia. But, used in relation to property and in the expression `tax on property', there is a narrower meaning of the word well known and recognized. A tax on property in the strict and narrower meaning is an exaction made in respect of the holding or ownership of property. That meaning would not include Customs duty on goods imported."

He held that the word was used in sec. 114 in that narrower meaning. Higgins J. at p. 854 echoed the suggestion made in D'Emden v. Pedder that sec. 114 refers to "taxation of property as property" and held that a customs duty is "a tax, not on property as such, but on persons in respect of the act of importation". Isaacs J. expressed a contrary view. He said that if a customs duty is a tax it is one which "is intended to fall, and does fall, on the goods in the same sense as is ordinarily understood by a tax on goods, and not on the mere act of importation" and that customs duty is "imposed upon the goods themselves" and that if it were a tax within the true meaning of the section the case would come within sec. 114: see the discussion at pp. 845-848. For reasons that I have already given I agree that a customs duty is a tax on property. The decision can in my opinion be supported by the fact that the context provided by the Constitution shows that "tax" in sec. 114 was not intended to include duties of customs. With all respect I consider the reasons of Higgins J. cannot be supported.

In
A.-G. for Queensland v. A.-G. for the Commonwealth (1915) 20 C.L.R. 148 it was held that a Commonwealth Act which imposed a land tax on leasehold estates in Crown lands was not invalid by reason of sec. 114. Griffith C.J., at p. 162, rejected the suggestion that the

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question of the ultimate incidence of the burden of the tax had any bearing on the construction of sec. 114. Isaacs J. at pp. 174-175 said:

"The Steel Rails case [1908] 5 C.L.R. 818 decided that `property', within the meaning of the section, meant merely the physical substance of the thing possessed. But whether that is so or not, the tax, as already pointed out, is not placed on the State, or in respect of any interest remaining in the State. It is placed on the lessee alone, and in respect of what he himself possesses."

In
Victoria v. The Commonwealth (1970-1971) 122 C.L.R. 353 the Court held that a payroll tax - a tax on wages paid or payable by the Crown in right of a State to its employees - was not a tax on the property of a State within sec. 114: see at pp. 369, 393, 413 and 426. Only Barwick C.J. gave reasons for this conclusion. He said at p. 369:

"It is neither a tax upon any property of the employers nor upon any property of a State. It is not, as submitted, a tax upon those `revenues' of the State out of which the State may choose to pay the amount of the tax any more than it is a tax upon that income or capital of an employer out of which he may pay the tax. In my opinion, s. 114 is not infringed by the imposition upon the State of the pay-roll tax."

These words suggest that the decision was based upon the character of the tax in question rather than upon the construction of sec. 114 which was nowhere discussed.

Finally, in
Superannuation Fund Investment Trust v. Commr of Stamps (S.A.) 79 ATC 4429 ; (1979) 145 C.L.R. 330 it was decided by a majority that sec. 114 was no barrier to the conclusion that conveyances or transfers to the Superannuation Fund Investment Trust (a body corporate set up under Commonwealth law) were chargeable with stamp duty under State law. Stephen and Aickin JJ. held that the Trust was not the Crown in right of the Commonwealth, so that sec. 114 did not apply and Mason and Murphy JJ. held that the stamp duty was imposed with the consent of the Commonwealth. Barwick C.J., who dissented, held that sec. 114 applied. He said at ATC p. 4431; C.L.R. p. 337:

"If stamp duty were payable it would be payable by the Commonwealth. It is an exaction falling on the Commonwealth. Further, in form it is a tax upon the document by which the Commonwealth acquires the land to which the instrument relates. It falls upon the document when the document has itself become the property of the Commonwealth. Unless the document is stamped, i.e., the tax upon it paid, its function as a document is largely, if not indeed entirely, stultified... Thus, even in the most technical sense, the duty, in my opinion, is a tax upon the property of the Commonwealth. It falls squarely, in my opinion, within the operation of sec. 114, which is expressed in universal terms, `any tax on property of any kind'."

That dictum was followed and applied by the Supreme Court of South Australia in the later case of Superannuation Fund Investment Trust v. Commr of Stamps, decided after the Commonwealth Act setting up the trust had been amended so as to exempt the trust from taxation to which the Commonwealth is not subject.

It cannot be said that the decisions of this Court contain a clear exposition of the meaning and scope of sec. 114. What is clear, however, is that the dicta of O'Connor and Higgins JJ. in the Steel Rails case did not express the ratio of that decision and that no later decision has been based on the reasoning which commended itself to those Justices. I have already indicated that I find it difficult to understand exactly what is meant by a tax on property as property, or a tax on property as such. Section 114 refers to a tax on property and it is patently obvious that if the impost in question is not a tax, or if the impost is not imposed on, i.e., in respect of, property, the section has no application. The words "as property" or "as such" add no meaning to the expression they are intended to qualify. There is no warrant for restricting sec. 114, as O'Connor J. did, to make it refer to an exaction in respect of the holding or ownership of property. In the first place the section contains no indication that it is intended to be restricted in that way. Moreover, if the section did not render State property immune from taxation in respect of its use, the protection given by the section would be quite illusory. What advantage would it be to a State if a tax could not be imposed in respect of its ownership of property used for the purposes of, say, State schools or police stations, if a tax could validly

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be imposed in respect of the use of that property for those purposes? In my opinion a tax imposed in respect of the use by a State of its property will be struck down by sec. 114.

The critical question then is whether the Tax Act and the Assessment Act impose a tax on the State in respect of the use of its property. As I have said, the tax imposed by those Acts on the State, as employer, is measured by the taxable value of the fringe benefits provided to its employees. The tax is attracted by the giving of the benefits. Not all of those benefits are given by the State (although typically they are) and not all those benefits are provided by the State out of its property (although some car fringe benefits and housing fringe benefits are so provided). However, where the car is the property of the State the tax which is exacted from the State is exacted because the car is applied or made available by the State as employer to the employee or to an associate of the employee. Similarly, where the housing accommodation is the property of the State, the tax is exacted because the State has granted a lease or licence to an employee or an associate of an employee. In other words, so far as the car fringe benefits and housing fringe benefits provided by the use of property of the State are concerned, the tax is imposed on the State by reason of the particular manner in which it has used its property and by reference to that use. The measure of the tax is the value of the benefit conferred calculated in accordance with the provisions already outlined; it is the value of the benefit provided by the State, and not the value of the benefit received by the recipient. In so far as the values of the car fringe benefits and housing fringe benefits are taxed, the tax in its true nature is one in respect of the use, under certain circumstances, of the property of the State. It is a tax on property belonging to the State within sec. 114. As I have said, the fact that the Acts tax other benefits as well does not save the impost so far as it is now challenged. If it matters, it should be added that the tax on the property of the State used to provide the car fringe benefits and the housing fringe benefits is not a mere incidental concomitant of another tax; what is incidental is the tax on the provision of the benefits by associates or arrangers or a tax on the use of property not owned by the State.

In reaching this conclusion I do not find it necessary to decide whether regard should be had to the practical effect of the impost or to the criterion of liability laid down by the taxing statutes. If the substance of the operation of the Acts is regarded, it seems to me to be very clear that the Acts operate to tax the State by reason of and by reference to the use by the State of certain of its property. If regard is had to the criterion of liability the same conclusion is reached, since, once one threads one's way through the maze of the verbiage of the Assessment Act, one finds that the tax is imposed on the State by reason of the fact that it has used some of its property to provide benefits to its employees and by reference to the value of the benefit which it has provided by the use of its property. This conclusion as to the legality of the tax does not involve any judgment as to its merits, since that question is of course no concern of this Court.

The questions of law referred to the Full Court for determination are whether in the circumstances, apart from the provisions of sec. 7 of the Tax Act, tax is imposed by the Tax Act on property of any kind belonging to a State within the meaning of sec. 114 of the Constitution:

• (a) with respect to the taxable value of a car fringe benefit within the meaning of Pt III Div. 2 of the Assessment Act; and
• (b) with respect to the taxable value of a housing fringe benefit within the meaning of Pt III Div. 6 of the Assessment Act.

I would answer those questions "Yes", in so far as the benefit is provided by the use of property belonging to the State.