Instructions have been received from the Commissioner of Taxation for a Bill to amend the Income Tax Assessment Act to provide for the above.¹

The following questions of principle arise:

1.  whether, in view of section 55 of the Constitution, the proposal can validly be carried out by amendment of the Income Tax Assessment Act;

2.  if yes to (1), can the proposal be validly included in a Bill containing other amendments of the Income Tax Assessment Act;

3.  can the proposed retrospective provisions be validly made; and

4.  are the proposed retrospective provisions practicable?

The following notes may be of some assistance in considering these questions.

Question 1.

Section 55 of the Constitution provides—

1.  that laws imposing taxation shall deal only with the imposition of taxation, and that any provision therein dealing with any other matter shall be of no effect; and

2.  that laws imposing taxation shall deal with one subject of taxation only.

It would seem that this section is relevant only if the proposed Bill will have the effect of imposing taxation. If it does not itself impose taxation, it seems clear that it ‘deals only with the imposition’ of income tax.

If it does impose taxation, two further questions arise:

(a)  does it deal with a subject of taxation other than income tax; and

(b)  does it include, as well as provisions imposing taxation, provisions other than provisions dealing with imposition of taxation?

If it can properly be said that the Bill will not impose taxation, then none of these questions arise. The argument that the Bill will not impose taxation would be that it is merely machinery for the collection of taxation imposed by the income tax Acts—being the same in principle as the deduction of instalments from wages. Against this it may be said that the Bill will of its own force levy money from the citizen (even though on a temporary basis) and that the incidence and measure of the exaction is so completely unrelated to the incidence and measure of income tax that the exaction is not a bona fide means of collecting income tax. As to incidence, the deduction would be made even where the proceeds of the wool are a capital receipt and not an income receipt, and whether or not the proceeds represented in whole or in part taxable income. Thus the expenses of production might, in theory, be such that there was no profit in the sale. As to measure, the proposal is for a flat rate of 20% on the proceeds. Even if one assumed a fairly constant ratio of profit to gross proceeds, it is obvious that the rates of tax payable by particular growers would vary very greatly. These arguments would, to some extent, be applicable also to the deduction of instalments from wages, but—

1.  it would seem that the regulations would be invalid unless they bore (as they do) a prima facie reasonable relationship to the tax likely to be payable by the particular wage earner;  and

2.  the validity of the instalment provisions themselves has never been decided and is not free from doubt.

Assuming that the law will impose taxation, the taxation seems to be more in the nature of a sales tax than an income tax, and therefore to be a different subject of taxation.

On this basis what is the effect of the second leg of section 55? The correct view may be that the ‘law’ to which section 55 applies is the amending law, and that the existing Act plus the amending Act is not one ‘law’ for the purposes of section 55. On this view it may be thought that the proposals, even if they impose a tax other than income tax, could be carried out by an amendment of the Income Tax Assessment Act, but it must be remembered that the proposals included provision for applying the proceeds of the deduction in payment of income tax. The inclusion of these provisions may render the Bill one dealing with more than one subject of taxation. There is a danger, moreover, that the Court would look at the Principal Act as amended and would regard that as a ‘law’ dealing with more than one subject of taxation.

Question 2.

The inclusion of other amendments of the Income Tax Assessment Act would mean that the Bill itself (without reference to the Principal Act) might deal with more than one subject of taxation.

The conclusion seems to be that unless there is a pretty strong case for the view that the Bill will not impose taxation, it would be risky to draft it in the form of amendments to the Income Tax Assessment Act. If a separate Act is decided on the question arises whether something in the nature of an imposing Act and a machinery Act would be required. It is submitted that one Act would suffice, the better view being that machinery provisions ‘deal with the imposition of taxation’ and may, therefore, properly be included in an imposing Act.

There is, however, another reason why more than one Act may be required if the view is taken that the proposals may involve the imposition of taxation. The proposals include (as well as the proposals for deductions) a requirement that a person who exports wool or sheepskins shall, before exporting them, pay to the Commissioner an amount equal to 20% of the appraised value of the wool or skins. This might be a duty of customs requiring a separate Act.

Question 3.

The proposal is that a producer who has received the proceeds of wool after 28th August will be liable to make a payment to the Commissioner. A further proposal is that the deductions should be made by a person who, after 12th October, 1950, is liable to pay to a wool producer the proceeds of the sale of wool etc. sold on or after 28th August, 1950. However, between 12th October and the date on which the legislation becomes law (assuming that it does become law) a broker holding moneys for a wool grower would have no defence to an action for their recovery, nor would he be committing any offence in paying the moneys over.  Presumably the law will provide that, if a broker has paid the moneys over under legal process, either he shall be exempt from the retrospective obligation or he shall be given a right of recovery against the wool producer. In view of the well-established power to make retrospective laws, it would seem that these retrospective provisions would be as valid as the remainder of the legislation.

Question 4.

As indicated in dealing with question 3, the broker may be placed in a very awkward position. Would it be right to oblige a broker to pay to the Commissioner moneys which he has already been forced by process of law to pay to his client, or even which he has voluntarily paid to his client in accordance with the law in force at the time of payment—even if he is given a right of recovery against the client. The instructions received propose that the producer is liable to pay the amount to the Commissioner unless the amount has already been paid to the Commissioner by the broker. Consideration might be given to making the retrospective application of the law take the form of an obligation on the part of producers to pay over the 20% rather than on brokers to make the deduction. There may, of course, be practical difficulties in recovering from the large number of individual producers.

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This was discussed with A.G. today by the S.G., the P.D. and P.A.P.D. The A.G. decided that the deductions should be treated as a tax; also that the provisions should not be applied retrospectively to brokers. 5/10/50

[Vol. 39, p. 318]

¹ Original opinion is headed: ‘Collection of income tax by deductions from proceeds of sale of wool and sheepskins’.