JOINT OPINION

IN THE MATTER OF THE INCOME TAX (WAR-TIME ARRANGEMENTS ACT

and

IN THE MATTER OF THE INCOME TAX ASSESSMENT ACT

Proposed new clause two hundred and twenty-one

We have considered the above two proposed Acts and make the following observations.

Income Tax (War-time Arrangements) Act.

This proposed Act has been amended in pursuance of suggestions made by ourselves and Melbourne Counsel. We think the proposed Act as now drafted is valid except as to sections 12, 13 and 17(b) in relation to which we make our comments as hereinafter set out.

We think section 17(a) is not invalid but we think it is in practice unworkable and we think the authorities at Canberra should see if some alternative can be devised which will make it workable.

We refer now to sections 12 and 13. These sections propose to allow the Commonwealth to make an agreement with the States providing for the assessment and collection by the Commonwealth on behalf of the States of arrears of income tax and of other current taxes imposed by the States.

It is true that under section 11 of the Income Tax Assessment Act 1922–1934 such power was given to the Commonwealth and similar power is given to the Commonwealth under section 15 of the Income Tax Assessment Act 1936–1941.

We are not ourselves aware of any power in the Constitution enabling the Commonwealth in times of peace to enter into such agreements with the States for the collection of State income tax. Although section 15 is contained in the Income Tax Assessment Act, it is not within section 51(ii), the taxation power, because it is not legislation with respect to Commonwealth taxation. If it is competent at all to the Commonwealth we think it could be conferred upon the Commonwealth by the States under section 51(xxxvii) which gives power to the Commonwealth to legislate with respect to matters ‘referred to the Parliament of the Commonwealth by the Parliament or Parliaments or any State or States’. So far this power has not been referred to the Parliament of the Commonwealth by the Parliaments of the States.

The power seems to have been exercised in Western Australia but under what authority except section 11 of the earlier Act we do not know.

At the present time the States other than Western Australia have their Assessment and Collection Acts and the Executive Governments of the States would have no authority to enter into arrangements with the Commonwealth for the purposes specified in sections 12 and 13 of the proposed Act.

The further question has to be considered whether although there may be no authority in time of peace for the States and the Commonwealth to make such arrangements as are mentioned the Commonwealth could confer such an authority upon the Executive Governments of the States in time of war.

We think that even in time of war a mere option to the States to make an agreement or not to make an agreement would not reasonably be regarded as a war measure because it accomplishes nothing. Moreover at the present time it could accomplish nothing because the States under their own Assessment Acts have provided otherwise for the collection of their arrears of tax and of current tax.

We come now to deal with the second portion of section 12. This provide that arrears of State income tax to be collected by the Commonwealth under agreement with the States are to be collected only on the condition that when collected they are to be invested in the name of the State in Commonwealth loans. This portion of the proposed section 12 was referred to by Melbourne Counsel and it was said that ‘the Commonwealth authority to receive these funds as loans with the consent of the States is to be found in the borrowing power i.e. section 51 (IV);’ but if the real position is that the States are acting under practical compulsion at the point of the pistol because—

(a)  by the commandeering of their staffs, accommodation and records they have been rendered practically unable to collect these arrears for themselves, and

(b)  they rest under threat that unless they do agree to invest these arrears in war loans they will not get one penny of compensation for being excluded from their field of taxation then it may be held that compulsory loans exacted under such pressure are not made with the consent of the States and not covered by section 51(IV).

We think sections 12 and 13 would not be competent in peace time and that they are of doubtful validity in the present circumstances and that in their existing form they should be omitted.

If it is desired, however, to let them stand they are severable and would not affect the remainder of the Act.

So far as section 17(b) is concerned this section 17(b) incorporates section 12 as an essential condition of the grant of financial assistance. Whilst we think that it is conceivable that the grant to the States of financial assistance as compensation for being excluded from the field of taxation of incomes may aid defence as incidental to and part of a general plan for expansion of Commonwealth resources in war time we do not quite see how it can aid the defence of the Commonwealth to say to the States that they can have an option to make an agreement for the collection of their arrears by the Commonwealth under penalty of being deprived of the whole of their financial assistance if they do not make such agreement and allow their arrears to be impounded for Commonwealth loan.

We think as it stands Section 17(b) may be held not to have any real connection with the war effort and that the so called grants of assistance are to some extent colourable and designed not merely to grant assistance to the States but also to act as a lever for obtaining money from the States. If it is said that Section 96 of the Constitution enables the Parliament to grant financial assistance to the States on such terms and conditions as the Parliament thinks fit then this, of course, is true but we do not think it was contemplated that the Federal Parliament could exact a compulsory loan to itself as the price or part of the price of its financial assistance to the States.

We do not feel ourselves able to say that the denial to the States of any grant of financial assistance except upon compliance with section 17(b) is sufficiently connected with the war effort. We doubt its validity, it is not severable, if it falls it brings the whole plan down with it and we think it should be omitted.

We now turn to Section 17(a). We have stated that we do not think Section 17(a) invalid but we think it is unworkable.

Section 17(a) makes it a condition of the grant of financial assistance that the Treasurer has to be satisfied that a State has not imposed a tax upon incomes in respect of the financial years in which the War-time Arrangements Act is in operation. We pointed out in our further supplementary opinion¹ that there will be practical difficulties in making this work because the States or some of them have already passed Acts imposing Income Tax not only for the current year but also for future years and these State Income Tax Acts will operate automatically to impose Income Tax for the coming years unless altered by the legislatures of the States so that unless there is legislative action by the States to alter or suspend these Acts we do not see how the Federal Treasurer can be satisfied ‘that a State has not imposed a tax upon incomes’ whilst the condition exists as above stated that there is upon the State Statute Book an Income Tax Act which automatically imposes such Tax until altered or suspended. We referred to Income Tax Act No. 47 of 1941 (N.S.W.) Section 2 and to the notes in Mr. Gunn’s Book on Taxation, page 1079.

We repeat that we do not think Section 17(a) invalid but we do not see how it will work. We should add that the State Statute Books contained not only Acts which will automatically impose taxes for future years but the Statute Books also contain assessment Acts which direct the assessment and collection of such taxes.

Section 17(a) could be altered of course so as to read ‘in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes or will not collect a tax upon incomes’ etc—but this addendum carries the matter no further. It may get rid of the Act imposing taxation but it leaves the Assessment Act still standing in the way. The authorities in Canberra if they agree with our comments may be able to find some other alternative or they may be able to say that our objections do not really create the difficulties indicated. It may be that consideration should be given to a section which will during the term of the War-time Arrangements Acts suspend the operation of any State Acts amending income taxation for the relative years or providing for the assessment or collection of such income tax for those years.

Income Tax Assessment Act 1942. New (Proposed)

Section 221

We think that as a war measure this section is valid but we think the words in brackets in sub-section (3) should be slightly expanded and the sub-section should read as follows:

(3.) This section (the purpose of which is to aid the defence of the Commonwealth and of the several States and to facilitate the collection of revenue required for the efficient prosecution of the present war) shall have operation etc.

Note: The date ‘15/11/42’ appears in the Opinion Book. However, it must be erroneous. The Bills to which the opinion relates came into force on Royal Assent on 7 June 1942. The opinion was clearly written during preparation of the Bills. The opinion is referred to in Opinion No. 1756 dated 18 May 1942 and so was written before that date. Furthermore, it is apparently the opinion mentioned in the notes of a telephone conversation on 13 May 1942 which are reproduced at the end of Opinion No. 1756; those notes refer to the opinion as having been ‘supplied to us this morning’. Opinion No. 1755 also refers to ‘our further supplementary opinion’. This is Opinion No. 1754, which was also written in May 1942. Therefore Opinion No. 1755 was apparently written In May 1942 before 13 May. The same counsel provided two earlier opinions on the proposed uniform federal income tax scheme—Nos 1696 and 1699.

¹ Opinion No. 1754.