Opinion Number. 1655


Gold excise: proposed calculation of official price of gold by deducting excise from actual price: effect on contractual and other obligations dependent on price of gold: power to declare official price of gold

Key Legislation

National Security (Monetary Control) Regulations reg 7: National Security (Gold Excise) Regulations reg 4: National Security Act 1939

The Secretary, Department of the Treasury

The Secretary, Department of the Treasury, has forwarded to me a letter received by him from Sir Walter Massy-Greene and has asked for my advice on the suggestion therein made. The letter is as follows:

As you are aware when the question of the taxation of gold arose I raised the question whether the official price of gold could not be declared as being the current world price at the time, less the amount of the tax, which, as it was deducted at the source and was never at any time part of the price received by the vendor of the gold, seemed the easiest way by which the various legal contracts of one sort and another, which are based upon the price of gold, could be adjusted.

The matter outstanding in my mind at the time was the award governing wages in the gold-mining industry in Western Australia. There are, however, other contracts which depend upon the price of gold. A large class of these are Tributors’ contracts which, as you no doubt know, are governed by legislation in the various States.

As far as I can see the State Governments will have to alter their laws or tributes will have to be terminated in a number of instances.

Then there are the contracts under which leases are in course of transfer under option in which the gold won is a material factor. It is very questionable whether the optionee could deduct the tax.

All these difficulties could be overcome, & there may be others that do not at the moment occur to me, if the official price of gold could be declared as the price less the tax.

I understand South Africa, which Dominion has levied this type of taxation for a long time, handles its official price of gold in this way and it does not appear that there is any technical difficulty in the way of its being done here.

As there is probably a fairly wide range of contracts of various kinds which rest upon the price of gold, and in which the difficulties arising can only be rectified by legislation, in almost every State, I suggest for your consideration that it would be more simple and settle all argument if the South African practice were followed and the nett price were to become the official price.

I assume this could be done by a simple proclamation.

The matter is one of some urgency and I would be glad if it could be given attention as early as possible.

On 22nd September, 1939, a resolution was moved in the House of Representatives for the imposition of a duty of excise on gold produced in Australia (including its Territories) and delivered to the Commonwealth Bank of Australia (or its agent) after nine o’clock in the forenoon on the 15th September, 1939. The amount of the duty is one half of the amount by which the amount payable by the Bank in respect of gold so produced and delivered exceeds an amount calculated at the rate of £9 for each ounce of fine gold produced and delivered.

By regulation 7 of the National Security (Monetary Control) Regulations, any person who has any gold in his possession is required to deliver it to the Commonwealth Bank (or its agent). Apart from this regulation, there would be no obligation to deliver gold to the Bank. Under sub-regulation (4.) of regulation 7, gold delivered to the Bank vests in the Bank and the person delivering it is entitled to receive payment therefor at a price fixed by the Board. Under sub-regulation (5.) the price so fixed must be based on the price of gold in London at the time when the price is fixed.

The collection of the excise duty on gold is provided for by regulation 4 of the National Security (Gold Excise) Regulations, under which the duty on any gold is to be deducted by the Bank from the amount payable in respect thereof under regulation 7 of the National Security (Monetary Control) Regulations, and is to be paid by the Bank to the Commonwealth.

Sir Walter Massy-Greene, in his letter, sets out difficulties which may occur with respect to certain contractual and other obligations by reason of the effective price of gold being, not the actual price thereof, but the net price remaining after deduction of the excise duty from the actual price. He suggests that these difficulties would be overcome if the Commonwealth were to declare an official price of gold, being the actual price less the duty. He assumes that this could be done by a simple proclamation. I know, however, of no authority by which the Commonwealth, by proclamation or otherwise, is empowered to declare an official price of gold. Nor am I satisfied that such a declaration, if made, would remove the difficulties, since I think it likely (although I am now speaking without having any of the relevant documents before me) that the obligations to which he refers are based upon the actual price of gold and not upon some notional price which might be fixed by the Commonwealth or any other authority.

The question arises, however, as to whether an official price of gold could be declared by regulation under the National Security Act 1939. In my view it is very doubtful whether a regulation to this effect would be within the powers given by that Act. Such a regulation, if made, would purport to mend or affect the operation of State laws or to modify the obligations of individuals under contracts. It is competent for a regulation validly made under the National Security Act to do this. I do not think, however, that a regulation fixing an official price of gold would be a regulation for the public safety and defence of the Commonwealth or for the more effectual prosecution of the war.

I may add that before I can advise more definitely on the matter submitted, it will be necessary for copies of, or relevant extracts from, the documents in question to be made available to me.

[Vol. 32, p. 406]