Opinion Number. 1465


Collection of State Tax state income tax on salaries of commonwealth employees: collection of tax by commonwealth

Key Legislation


The Secretary, Prime Minister

The Secretary, Prime Minister’s Department, has forwarded me the following minute for advice:

The Bill relating to the assessment of Unemployment Relief Tax now only awaits the acceptance by the Legislative Assembly of certain formal amendments inserted by the Legislative Council.

Under the Bill, the tax in respect of the salaries of Commonwealth Public Servants will (unless legislation is introduced by the Commonwealth Government) be levied by means of an annual assessment and will be payable in one amount within thirty days after the issue of the assessment.

It is understood that there are some 16,000 permanent and temporary Commonwealth employees in New South Wales. It would, therefore, be of considerable assistance to the Department in the collection of the tax if arrangements could be made for the Commonwealth Government to legislate for the deduction of this tax from the salaries of Commonwealth officials in the same manner as the deduction will be made by State Departments and private employers.

It is thought that this action would also be of assistance to the employees themselves, as the deduction of the tax fortnightly would be a more convenient method of payment than to make the payment in a lump sum for the year, and this may influence the Commonwealth Government in considering the matter.

The legislation by the Commonwealth Government could, it is thought, take the form of a short amendment of the Commonwealth Salaries Act, 1907. A clause might, perhaps, be added to this Act to provide that Commonwealth Departments may deduct any tax levied by a State on Commonwealth salaries in the same manner as, and to the same extent to which the law of a State levying the tax requires the deduction of the tax by Government Departments of the State or by private employers. This merely suggests the extent of the legislation, but in the event of the co-operation of the Commonwealth being obtained, the actual form of the amendment would necessarily have to be determined by the legal officers of the Commonwealth.

It might be added that legislation by the Commonwealth as suggested would probably be of assistance to the other States as it is understood that legislation similar to the New South Wales Unemployment Relief Tax is under consideration in Queensland and South Australia. It may also assist Victoria, but owing to the form of the legislation in that State, possibly not to the same extent as in the case of New South Wales.

I should be glad if the matter could be placed before the Colonial Treasurer with a view to urgent representations being made to the Commonwealth Government.

Copies of the Commonwealth Salaries Act 1907, and of the Bill for the Prevention and Relief of Unemployment are attached hereto.

The Bill does not impose, and could not legally impose, any obligation on the Commonwealth for the collection of the tax.

Clause 14 of the Bill defines ‘employer’ for the purpose of Part III as including the Crown in right of the State of New South Wales, thus impliedly excluding the Crown in right of the Commonwealth.

Clause 16 of the Bill imposes, inter alia, a tax–(a) on the net assessable income of every person, and (c) on the income from employment derived by every person.

While the definition of ‘income’ is general, the definition of ‘income from employment’ excludes all such assessable income received from any employer to whom the provisions of clause 23 of the Bill do not apply.

Clause 23 of the Bill is a machinery clause providing for the deduction by employers of the unemployment relief tax payable on income from employment. In view of the definition of ‘employer’, clause 23 of the Bill does not apply to the Commonwealth or to employees of the Commonwealth. Therefore, while employees of the Commonwealth are subject to tax under paragraph (a) of clause 16, they do not appear to be subject to tax under paragraph (c) of that clause, and therefore it would not appear to be proper for the Commonwealth to pass the legislation asked for.

This advice is based on the Prevention and Relief of Unemployment Bill as introduced into the Legislative Assembly on 21 May 1930.

[Vol. 24, p. 622]