State of Queensland v. Commonwealth of Australia.

Judges: Gibbs CJ
Mason J
Wilson J
Brennan J
Deane J

Dawson J

Court:
Full High Court

Judgment date: Judgment handed down 3 February 1987.

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Dawson J.

A tax, called a fringe benefits tax, is imposed by the Fringe Benefits Tax Act 1986 (Cth) ("the Tax Act"). It is to be assessed in accordance with the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the Assessment Act"). The tax is imposed in relation to a number of fringe benefits provided directly or indirectly by an employer to an employee, that is to say, benefits provided in addition to salary or wages. It is imposed upon the employer who provides the benefits (in this case the State of Queensland), rather than the employee who receives them, and it is the value of the benefits provided which is included in the taxable amount rather than any reduced value which they might have to the recipient. The legislation is expressed to bind the Crown in right of each of the States. The mechanism by which the tax is imposed has already been described and I shall not set it out again. In this case the challenge to the tax is in its application to two types of fringe benefit only, car fringe benefits and housing fringe benefits, and it is sufficient to refer in general terms to the way in which the Assessment Act deals with these.

The taxable value of a car fringe benefit is calculated upon the value of the car provided or made available to an employee for his private use according to the distance travelled during the year of tax, with provision for a reduction where the car is provided or made available for less than the full year. An alternative method of calculation is provided which is based upon the operating cost of the car, with an allowance, where applicable, for depreciation and for interest upon the depreciated value of the car. The car need not be held or owned by the employer but may be provided by an associate of the employer or another person pursuant to an arrangement with the employer. The taxable value of a housing fringe benefit, which may for present purposes be confined to accommodation in premises owned by the State, is ascertained generally by reference to the market value of the housing right provided, that is, the lease or licence, subject to certain exceptions which are not presently relevant. That, I think, is a sufficient description of the operation of the legislation for the purpose of

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ATC 4044

examining the challenge made to the two types of benefit selected.

The challenge is made under sec. 114 of the Constitution. That section provides:

"A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or 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."

The plaintiff's basic submission is that the fringe benefits tax is imposed upon the State in respect of the provision of its property for the use of its employees and that it is assessed by reference to the value of the property. That, it is said, is the imposition of a tax on property belonging to the State and, as such, is prohibited by sec. 114.

Whilst the questions asked in the case stated relate only to car fringe benefits and housing fringe benefits, the Commonwealth in its submissions sought to place reliance upon the fact that the tax is imposed in relation to a number of other fringe benefits which do not involve the use of property. They include the waiver of debt, the provision of loans, the payment of expenses, the provision of living away from home allowances and the provision of airline transport benefits. This, so the Commonwealth submitted, establishes "the character" of the tax as being upon the provision of benefits rather than upon property.

That submission must be approached with caution because sec. 114 contains a prohibition and the question is not so much how the legislation might be characterised as a whole, but rather whether it does anything which is prohibited by that section. To the extent, if at all, that the legislation in its operation or effect infringes the constitutional prohibition it must be denied validity and the only question will be whether the offending provision or provisions can be severed from the rest of the relevant enactment. This was recognised by Parliament in sec. 7 of the Tax Act, which provides:

"It is the intention of the Parliament that if, but for this section, section 5 of this Act (the section imposing the tax) 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."

However, the tax which sec. 114 prohibits is a tax on property belonging to the Commonwealth or a State and, whatever the correct description of a tax on property, it is clear enough that a tax which in its application does not require as an essential some relationship between the taxpayer and property is hardly likely to be, if it ever can be, a tax on property. As I understand its argument, it was for this reason that the Commonwealth pointed to the fact that the fringe benefits tax applies both where property is involved and where it is not. It is implicit in that argument that only one kind of tax is imposed by the legislation, but no submission was made to the contrary and no reliance was placed by the plaintiff upon the constitutional requirement (sec. 55) that laws imposing taxation should deal with one subject of taxation only.

The Commonwealth, however, also put its argument referring only to the two types of benefit challenged. The first step must be, therefore, to ascertain what constitutes a tax on property. This is a conceptual rather than an empirical exercise. Every tax is, in the end, an exaction of money and, in my view, it is possible to differentiate one tax from another only by reference to the circumstances in which it is made payable. It is the criterion of liability which will distinguish one tax from another and a tax will only be a tax on property where it is tied to property by the circumstances which the legislation makes decisive of the liability to pay it. Cf.
Western Australia v. Chamberlain Industries Pty. Ltd. (1970) 121 C.L.R. 1 at p. 20 per Kitto J. For my part, I do not think it is helpful to say that what is sought is substance rather than form. Of course that is true, but it begs the question for unless it is possible to identify, by reference to its characteristics, the nature of the tax required to fit the given description, such an assertion expresses no more than a faith that one will recognise a particular type of tax, such as a tax on property, when one sees it; a faith which, without more, I do not share.

The point is well illustrated by the elliptical phrase "any tax on property". Property does not pay taxes; individual taxpayers do. See
Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City No. 5 (1951) A.C. 786 at p. 817 ;
Re Proposed Federal Tax on Exported Natural Gas (1982) 136 D.L.R. (3d) 385 at p. 444 ;
Dennis Hotels Pty. Ltd. v. Victoria (1960) 104 C.L.R. 529 at p. 554 ;

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ATC 4045

Gosford Meats Pty. Ltd. v. New South Wales (1985) 155 C.L.R. 368 at p. 412 . But an individual may be liable to pay tax because of some relationship between himself and property and if the relationship between the tax and the property is sufficiently direct and substantial then the tax may be said to be a tax on property. Clearly enough, a tax upon the holding or ownership of property will be a tax upon property, whether or not the tax is actually charged upon the property. Thus municipal rates, whether or not a charge upon the land, are a tax on property:
Municipal Council of Sydney v. The Commonwealth (1904) 1 C.L.R. 208 at pp. 231-232 ;
A.-G. of N.S.W. v. Collector of Customs for N.S.W. (1908) 5 C.L.R. 818 at p. 830 ("the Steel Rails case "). On the other hand, a tax upon a transaction, even if it involves the use of property, is not ordinarily a tax upon property. Thus a payroll tax is not a tax on property:
Victoria v. The Commonwealth (1970-1971) 122 C.L.R. 353 ("the Payroll Tax case "). In one sense every tax involves property since it involves the payment of money which is a form of property, but clearly it is not the funds used to pay the tax, or the source of those funds, which determines what kind of tax it is. Sales taxes and income taxes are taxes imposed upon transactions or activities and there is no direct relationship between them and any property held or owned by the taxpayer in the sense that he is liable to tax because he is the holder or owner of property. On the other hand, a tax which is tantamount to a tax upon the holding or ownership of property, such as a tax upon the proceeds of sale, may provide a sufficiently direct relationship between the tax and the property itself to constitute the tax a tax on property. It was reasoning of this kind which led the Privy Council in
A.-G. for Saskatchewan v. Canadian Pacific Ry. Co. (1953) A.C. 594 to hold that a "business tax", imposed by reference to the floor space used for the purposes of business, was a tax on property rather than a tax upon the activity of carrying on business. The argument was rejected that the space used was nothing more than a yardstick to ascertain the amount for which a taxpayer was liable under the tax.

In
D'Emden v. Pedder (1904) 1 C.L.R. 91 at p. 108 , this Court held that stamp duty on a receipt given to the Commonwealth was not a tax on property within the meaning of sec. 114 because a receipt, "... although undoubtedly it may be described as the property of the Commonwealth for the purposes of a prosecution - say, for stealing - is not property of the kind intended in that section, which appears rather to refer to taxation imposed upon property qua property". This reference to "property qua property" seems to have caused difficulty to some (see
Superannuation Fund Investment Trust v. Commr of Stamps 80 ATC 4392 at p. 4395; (1980) 25 S.A.S.R. 35 at p. 38 ) but in my view it can only mean that there was thought to be insufficient substance in the part played by the property (the receipt) as the means whereby the tax (the stamp duty) was imposed for it to determine the true nature of the tax. No doubt the tax was a tax on the instrument in the sense that, without the instrument being brought into existence, there could be no tax. But the instrument was upon this view no more than the occasion for, or the means of, imposing the tax. The taxpayer was not taxed because he held or was the owner of the piece of paper comprising the instrument, but because of the underlying transaction. Whether the conclusion is justified may be arguable. It appears to have been departed from by the Full Court of the Supreme Court of South Australia in Superannuation Fund Investment Trust v. Commr of Stamps and not to have been accepted by Barwick C.J. in Superannuation Fund Investment Trust v. Commr of Stamps (S.A.) 79 ATC 4429 at p. 4431; (1979) 145 C.L.R. 330 at p. 337. However, the reasoning which lies behind the comment of Griffith C.J. in delivering the judgment of the Court in D'Emden v. Pedder seems to me to be quite clear.

In the Steel Rails case it was held that the levying of customs duties upon steel rails imported by the State of New South Wales was not the imposition of a tax on property within the meaning of sec. 114. There is a clear majority in that case ( Griffith C.J., Barton, O'Connor and Isaacs JJ.) for the proposition that, having regard to its constitutional context, there was an evident intention to confer upon the Commonwealth exclusive power to impose customs duties and to regulate trade and commerce with other countries. Upon that view it followed that the phrase "any tax on property" in sec. 114 did not include customs duties even if otherwise a customs duty would

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ATC 4046

be a tax on goods and for that reason a tax on property.

It is true that O'Connor and Higgins JJ. in that case also concluded that customs duties are not a tax on goods or property, but a tax upon the act of importation. At p. 844, O'Connor J. said: "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." Having regard to the context he preferred this narrower meaning. At p. 854, Higgins J. expressed the view: "A Customs tax is a tax, not on property as such, but on persons in respect of the act of importation." He added: "There is a fundamental difference between taxing men for having property, and taxing men for moving property - and, in particular, for moving property into the country from overseas." Whether Griffith C.J. shared these views is not altogether clear, although at p. 831 he referred to the payment of customs duty as "... an obligation or condition which must be fulfilled before the goods can lawfully form part of the stock or mass of goods in the country, although for convenience they are allowed to be retained in bond in a King's warehouse until payment".

Clearly Isaacs J. was of the contrary view that a customs duty is "a tax on goods, and not on the mere act of importation": p. 845. He regarded the act of importation as the occasion for the tax and, I think, regarded the tax as an imposition upon ownership or possession (although he did not use those terms) in the circumstance of importation. A customs duty is, of course, assessed by reference to the nature and quantity of the goods and the view expressed by Isaacs J. is not without force. Certainly in common parlance a customs duty is a tax upon goods: see Gosford Meats Pty. Ltd. v. New South Wales at p. 414. But the preponderance of opinion upon the point, notwithstanding the somewhat equivocal words of Griffith C.J., seems to be that a customs duty is a tax upon a transaction and not upon property.

The Steel Rails case is, however, more clearly authority for the proposition that a tax on property, in the constitutional context of sec. 114, does not include a customs duty. The approach which led to acceptance of that proposition finds support in
A.-G. of British Columbia v. A.-G. of Canada (1924) A.C. 222 ("the Johnny Walker case "). That case concerned sec. 125 of the British North America Act 1867 (U.K.) (now renamed the Constitution Act 1867 ) which provides:

"No Lands or Property belonging to Canada or any Province shall be liable to Taxation."

It was held that, notwithstanding sec. 125, customs duties might be levied by the Dominion Parliament upon alcoholic liquors imported by the Government of British Columbia for the purpose of sale by it. At p. 225 Lord Buckmaster, delivering the judgment of the Privy Council, said:

"The Dominion have the power to regulate trade and commerce throughout the Dominion, and, to the extent to which this power applies, there is no partiality in its operation. Sect. 125 must, therefore, be so considered as to prevent the paramount purpose thus declared from being defeated."

A comparison of that decision with Re Proposed Federal Tax on Exported Natural Gas is useful. In that case the Supreme Court of Canada, by a majority of six to three, held that a proposed federal government tax upon exported natural gas could not validly be levied upon the export of natural gas owned, produced and transported to the American border by the Province of Alberta. The decision is of limited effect since the proposed legislation was held to amount to no more than a taxing or revenue-raising measure and not to involve any exercise by the Parliament of Canada of its trade and commerce power. Had the latter been involved, it would not have been subordinated to sec. 125. Moreover, the decision on its face goes somewhat further, I think, than would appear upon closer examination. The majority reached their decision upon the basis that to allow the tax would be to allow one level of government to tax away, with impunity, the fruits of property owned by the other. In so holding, they appeared to be prepared to extend the protection of sec. 125 to a tax upon the Province in respect of a transaction affecting its property or on the transaction itself. However they did so for the purpose, so it seems to me, of laying down the proposition that the immunity conferred by sec. 125 cannot be avoided by "the simple device" of making a tax in personam rather than in rem: see p. 444.

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ATC 4047

I do not understand the majority to have been attempting to say more than that the protection afforded by sec. 125 must be a matter of substance rather than of form. Thus, whilst in some circumstances a tax upon a transaction may be substantially the equivalent of a tax upon the ownership of property, ordinarily the distinction between a tax upon a transaction and a tax upon property is a valid and necessary one.

The tax upon car fringe benefits and housing benefits is not, in my view, a tax on property. The circumstance giving rise to the liability to tax is not the holding or ownership of property, rather it is the provision of the benefit itself which, at least in the case of a car fringe benefit, may not involve property owned or held by the employer. The ownership or other right to the property is in a real sense coincidental to the provision of the benefit and it is the provision of the benefit which is taxed. The choice of how the benefit is to be provided, if it is to be provided at all, lies with the employer. True it is that it is the value of the property, although not necessarily the employer's property, which forms an important component of the calculation of the tax in each instance. But that does not, in my view, convert the tax from a tax upon a transaction into a tax on the property involved in the transaction. Whilst the measure of a tax may sometimes indicate the nature of a tax, the two things must be kept distinct and in this case taking the value of the property involved into account is no more than a convenient, perhaps the only practical, method of assessing the worth of the benefit provided.

The tax in my view is a transaction tax rather than a property tax, the transaction being the provision of benefits. The tax does not flow as a matter of course from the holding or ownership of property and it is not a tax upon the use of property which is in substance the equivalent of a tax upon the holding or ownership of property. The provision of benefits is not merely the occasion for the imposition of the tax, it is the reason for the imposition of the tax.

I would only add that no warrant is to be gained for a broader construction of sec. 114 from the function which it performs. As Menzies J. remarked in the Payroll Tax case at p. 393, "s. 114 is not an exhaustive statement of the protection of the Commonwealth or of a State from the taxation laws of the other".

I would answer each of the questions in the negative.

ORDER

Answer the questions as follows:

Whether in the circumstances, apart from the provisions of sec. 7 of the Fringe Benefits Tax Act 1986 (Cth), tax is imposed by the Fringe Benefits 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 Fringe Benefits Tax Assessment Act 1986 (Cth):
• No;
• (b) with respect to the taxable value of a housing fringe benefit within the meaning of Pt III Div. 6 of the Fringe Benefits Tax Assessment Act:
• No.

Order that the plaintiff pay the costs of the stated case.