The Secretary to the Treasury has forwarded for advice a letter dated 7 February 1920 received from the Governor of the Commonwealth Bank. The questions upon which advice is desired are as follows:

1. Are debentures or stock issued by the Commonwealth Bank liable to stamp duty under the laws of the respective States?
2. Is the income from debentures or stock issued by the Commonwealth Bank liable to income tax under the laws of the respective States?
3. Is such income liable to income tax under Commonwealth law?
4. Are debentures or stock issued by the Commonwealth Bank and held by residents in Great Britain liable to stamp duty under British law?
5. Is the income from such debentures or stock held by residents in Great Britain liable to income tax under British law?

In so far as these matters relate to State or Imperial law, two points arise:

1. whether there is constitutional power to impose taxes on the objects in question; and
2. whether as a matter of statutory construction taxes have in fact been imposed.

I propose to deal only with the first of these points. The second involves a lengthy search of the Acts of the respective States and of the United Kingdom, and is not, I understand, the matter upon which advice is particularly desired.

Question (1): The answer to this question depends on whether the imposition by State law of stamp duty on the debentures and stock is such an interference with a Commonwealth instrumentality as to be impliedly forbidden by the rule laid down by the High Court in D'Emden v. Pedder 1 C.L.R. 91, at p. Ill, that-

. . . when a State attempts to give to its legislative or executive authority an operation which, if valid, would fetter, control, or interfere with, the free exercise of the legislative or executive power of the Commonwealth, the attempt, unless expressly authorized by the Constitution, is to that extent invalid and inoperative.

The debentures and stock referred to are debentures and stock issued or proposed to be issued in pursuance of the Commonwealth Bank Act 1911-1914. That Act, by section 5, establishes the Bank. By section 9 it is provided, inter alia, that the capital of the Bank shall be Ten million pounds and shall be raised by the sale and issue of debentures in pursuance of the Act. Section 53 empowers the Bank from time to time to issue debentures to such amount as it thinks necessary, with a limit of Ten million pounds as the amount which may be current at any one time.

In my opinion, the imposition by a State of stamp duty on debentures or stock issued by the Commonwealth Bank would be an interference with the operations of a Commonwealth instrumentality, and therefore unconstitutional.

Question (2): This matter has not yet, so far as I am aware, been judicially determined in Australia. But on the principle laid down in American cases cited in

Willoughby on the Constitution, Vol. 1, p. 107-a principle which, in my opinion, is applicable to the Commonwealth Constitution and is a development of the principle laid down by the High Court in D'Emden v. Pedder-I am of opinion that the income from the debentures and stock in question is not liable to State income tax.

Question (3): This question stands on a somewhat different footing from the other questions in that it involves a consideration solely of Commonwealth law.

In the absence of the express exemption of such income from the definition of income in the Income Tax Assessment Act 1915-1918, I am of opinion that the income from the debentures and stock in question is income within the meaning of that Act and therefore liable to income tax.

Questions (4) and (5): These questions may be dealt with together.

In so far as Imperial legislation is concerned, there is no question as to the power of the Imperial Parliament to make debentures or stock issued by the Commonwealth Bank and held by residents in Great Britain liable to stamp duty, and the income from such debentures and stock liable to income tax.

The only other question then to be determined is whether the laws in question do in fact impose such taxes. As already mentioned, I understand that advice is desired particularly on the constitutional aspect, and not on the matter in so far as it involves a consideration of the statute law of the respective States or the United Kingdom, and this question need not be answered at present.

[Vol. 16, p. 396]