The Secretary to the Treasury has forwarded me the following minute for advice:

• The Savings Bank of South Australia holds £351,000 of Commonwealth Inscribed Stock maturing on the 15th September, 1923. The Savings Bank has been asked to convert this Stock in accordance with the attached Prospectus of the Commonwealth 5 per cent Conversion Loan 1948, but the Manager of the Bank says that before going into the matter the Trustees of the Bank wish to know what the position is in regard to future taxation.

2. The Treasurer therefore desires me to ask you for advice whether the Commonwealth has authority to tax the income of the Savings Bank of South Australia.
3. You will remember that a question in regard to the taxation of the income of this Institution was raised in 1920.
4. I am attaching for your information the Treasury papers in this matter.
5. As the matter is very urgent, perhaps you would be good enough to furnish advice at an early date.

The Savings Bank of South Australia is an institution established under legislation of that State. The Bank is guaranteed by the State and an appropriation of revenue is made by the Savings Bank Act Further Amendment Act 1912, section 19, to meet any insufficiency of the Bank funds to meet claims of depositors.

It therefore appears that the Bank is in reality a State Institution, the taxing of which by the Commonwealth is forbidden by section 114 of the Constitution.

I accordingly advise that interest on the investments of the Bank in Commonwealth Loans are not subject to Commonwealth Income Tax.

[Vol. 19, p. 485]