The Acting Commissioner of Taxation has forwarded the following memorandum for advice:

On 5 December 1916, an Act (No. 15 of 1916) was passed in Western Australia relating to the taxation by the Parliament of the Commonwealth of Australia of salaries, reimbursements, and other moneys paid by the State of Western Australia, and the question arises as to-

1. Whether tax can be collected on income derived during the period 1.7.15 to 30.6.16; or
2. Whether income earned as from 5 December 1916 only is liable to tax, in which case no tax could be collected before 1917-1918 and then only for the period 5 December 1916 to 30 June 1917.

Section 3 of the Act reads as follows:

The taxation by the Commonwealth in common with other salaries earned within the Commonwealth of-

1. The official salaries of officers of the State of Western Australia residing in the said State; and
2. The salaries of the responsible Ministers of the Crown; and
3. The allowances to the President and the Chairman of Committees of the Legislative Council, the Speaker and the Chairman of Committees of the Legislative Assembly and Members of either House of Parliament shall not, if the taxation is not at a higher rate or to a greater extent than is imposed on other salaries of the same amount earned within the Commonwealth, be deemed to be an interference with the exercise of any power of the State.

I shall be glad of your advice as to the law on the two questions raised herein.

Prior to the passing of the State Act on 5 December 1916, the State servants in Western Australia were not subject to the Commonwealth Act.

None of the duties and obligations cast upon the other citizens of the Commonwealth under the Income Tax Assessment Act applied to them.

If the time for lodging returns for the tax due in the financial year 1916-1917 had expired before 5 December 1916, in my opinion, income tax cannot be collected on income derived during the period 1.7.15 to 30.6.16.

Where returns were required to be furnished, the State servants were under no duty to furnish returns, and the subsequent passing of the State Salaries Act does not impose that duty retrospectively, unless there is a clear indication of such retrospective effect in the Act. I cannot find that it was intended that the State Salaries Act should have a retrospective effect. The State servants being under no duty to take the first step towards the assessment of tax, they are exempt from tax in respect of the income earned in 1915-1916. The Commissioner has certain powers with regard to calling for returns after the due date, but I do not think that that power can be exercised in respect of persons who at the time returns were ordinarily due were under no duty at law to furnish returns.

As regards the second question, section 10 of the Income Tax Assessment Act 1915-1916 requires income tax to be paid in a financial year upon the income derived during the previous financial year.

The tax is applied for a certain year, but the basis on which the tax is assessed is the income for the previous financial year.

The State servants are not liable to pay tax until the financial year 1917-1917, but the basis on which they will be taxed will be the income they derived in the financial year 1916-1917.

The date of the passing of the State Salaries Act merely determines the date upon which they became subject to the same duties and obligations as the other citizens of the Commonwealth.

It does not determine the basis on which their tax is to be assessed. That basis, when their tax is to be assessed, is to be the same basis as that relating to the other citizens of the Commonwealth.

In my opinion, State servants in Western Australia will in 1917-1918 be liable for income tax on the income derived by them during the period 1.7.16 to 30.6.17.

[Vol. 15, p. 214]