COMMONWEALTH IMMUNITY FROM STATE LAWS
WHETHER POWER EXISTS TO EXEMPT FROM STATE INCOME TAX COMPENSATION PAID TO COMMONWEALTH OFFICERS
CONSTITUTION, ss. 51 (vi). (xxxix). 52. 109
The Secretary to the Department of Defence has forwarded for advice the following memorandum:
I desire to inform you that the Cabinet has approved of a scale of compensation payments to be made to members of the permanent civil and military staff of this Department, who are to be retired under the retrenchment scheme.
- These payments are to be calculated on the basis of period of service and rate of pay to each member concerned.
- The question has arisen as to whether exemption from Federal and State income tax should be provided for in connection with these payments.
- The Minister considers this should be arranged and is desirous of including, in the Bill to be presented to Parliament in this regard, a provision exempting these payments from income tax (Federal and State).
- I am directed to request the favour of your opinion as to whether such a provision would legally cover exemption from State income tax (all States).
- Would you kindly reply as early as possible as the matter is one of urgency.
The question is whether an enactment of the Commonwealth Parliament exempting from payment of State income tax amounts of compensation received in accordance with the scheme mentioned above would be valid.
Parliament has no express power under the Constitution to provide for the payment of the compensation in question. The provision of compensation for officers who are retired is, however, ancillary to powers given to the Commonwealth under the Constitution, e.g. sections 51 (vi) and 52.
I am of opinion that a provision exempting any such compensation from State income tax may reasonably be regarded as incidental to the power of the Commonwealth to compensate its officers. And if any inconsistency occurs between the Act containing such provision and a State Act, the former is valid by virtue of section 109 of the Constitution.
I think, therefore, that power exists to exempt from State income tax compensation paid to officers retired from civil and military defence staffs, and I am, therefore, of opinion that the proposed provision would legally cover the exemption desired.
[Vol. 18, p. 456]