Clarke v Federal Commissioner of Taxation

The High Court of Australia heard an appeal by a former member of the South Australian Parliament against the Federal Commissioner of Taxation. The dispute concerned the validity of Commonwealth legislation imposing a superannuation contributions surcharge on the appellant's parliamentary pension entitlements. The appellant argued that the surcharge, as applied to his situation, was invalid because it placed an impermissible burden on the State of South Australia, thereby infringing the implied constitutional limitation on Commonwealth legislative power derived from the *Melbourne Corporation* doctrine.

The central legal issue before the Court was whether the *Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997* (Cth) and the *Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997* (Cth) were invalid in their application to the appellant. This question was framed in two ways: first, whether the Acts discriminated against or placed a particular disability or burden upon the operations and activities of the State of South Australia, rendering them beyond the Commonwealth's legislative power; and second, whether the Imposition Act imposed a tax on property belonging to the State contrary to section 114 of the Constitution.

The Court reasoned that the *Melbourne Corporation* doctrine, which protects the capacity of States to function as governments, was engaged. It was critical to a State's ability to function that it retain the power to fix the terms and conditions of service for its legislators. The Court found that the Commonwealth legislation, by imposing a surcharge on contributions to specific "constitutionally protected" superannuation funds, including those for State parliamentarians, significantly interfered with the remuneration arrangements between the State and its legislators. This interference was considered to be a significant burden on the State's exercise of its powers and functions in fixing such remuneration, and therefore beyond the Commonwealth's legislative power.

The appeal was allowed. The Court set aside the orders of the Federal Court and answered question 3(a) in the affirmative, declaring the Imposition Act and the Assessment Act invalid insofar as they purported to create the appellant's liability for the superannuation contributions surcharge in respect of his membership of the Parliamentary Superannuation Scheme, the State Superannuation Benefit Scheme, and the Southern State Superannuation Scheme. The Commissioner was ordered to pay the appellant's costs.