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Commonwealth v State of Queensland

Commonwealth v State of Queensland

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Case Copied 6 December 1920 47 min read

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29 CLR 1

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THE COMMONWEALTH AND THE ATTOR-

NEY-GENERAL FOR THE COMMON- WEALTH

THE STATE OF QUEENSLAND AND THE

COMMISSIONER OF INCOME TAX (QUEENSLAND) Commonwealth Stock and Bonds-Interest-Prohibition of taxation by State-

State income tax-Rate of tax dependent on amount of interest received- Validity of State Act-Validity of Commonwealth legislation-Remedy--Action - by Attorney-General of Commonwwealth-Declaration of invalidity of State Act MELBOURNE, Jurisdiction of High Court-The Constitution (63 &64 Vict. c. 12), sec. 51 (iv.) Oct. 18, 19, --Commonwealth Inscribed Stock Act 1911-1918 (No. 20 of 1911-No. 7 of 1918), sec. 52B-Income Tax Acts 1902-1920 (Qd.) (2 Edw. FII. No, 10-10 Geo. v. No. 35), secs. 7 (1), (12), 12.

Sec. 52B of the Commonwealth Inscribed Stock Act 1911-1918 provides that " The interest derived from stock or Treasury bonds shall not he liable to Isaacs, Higgins, income tax under any law of the Commonwealth or a State unless the interest is declared to be so liable by the prospectus relating to the loan on which the interest is payable.

Sec. 7 (1) of the Income Tax Acts 1902-1920 (Qd.) imposes income tax in respect of the annual amount of the incomes of all persons at progressive rates which, in the case of income from property, begin at 12Tobod on the first £1

29 CLR 2

of income over £200 and rise to 36d. in the £ on each £ exceeding £4,000. See, 7 (12) provides that "The amount of the taxpayer's income which is exempt from tax under" par. "(viii.) of section twelve of this Act shall, notwithstanding anything in this Act or any other Act contained, be taken to be part of the taxpayer's gross income, and shall be returned in the taxpayer's return; and the rate of tax shall be calculated as if the amount so exempted were part of his taxable income," &. Sec. 12 provides that there shall be exempt from income tax, inter alia, "(viii.) Income arising or accruing from debentures, stock, bonds, certificates, or Treasury bills issued by the Government of Queensland or of the Commonwealth of Australia.

Held, by Knox C.J., Isages, Higgins and Rich JJ. (Gavan Duffy and Starke JJ. dissenting), that the effect of sec. 7 (12) of the Income Tax Acts 1902-1920 is to make interest derived from Commonwealth stock or Treasury bonds "liable to income tax within the meaning of sec. 52B of the Commonwealth Inscribed Stock Act 1911-1918, and that the sub-section is to that extent

Held, also, by Knox C.J., Isaacs and Rich JJ. (Higgins J. dissenting), that an action lies by the Attorney-General of the Commonwealth for a declara- tion that sec. 7 (12) of the Income Tax Acts 1902-1920 is invalid pro tanto,

Attorney-General for New South Wales v. Brewery Employees' Union of New South Wales, 6 C.L.R., 469, followed.

Held, further, by Knor C.J., Isaacs, Higgins, Rich and Starke JJ., that sec. 52B of the Commonwealth Inscribed Stock Act 1911-1918 is valid under the power conferred by sec. 51 (iv.) of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1920] HCA 79
Decision Date: 6 December 1920

CaseChat Overview and Summary

The Commonwealth and its Attorney-General brought an action against the State of Queensland and its Commissioner of Income Tax in the High Court of Australia. The dispute concerned the validity of a Queensland state income tax provision that, in effect, increased the tax burden on individuals who received interest from Commonwealth stock or Treasury bonds. The Commonwealth sought a declaration that the Queensland provision was invalid and an injunction to prevent its enforcement.

The court was required to determine two primary legal issues. First, whether section 7(12) of Queensland's Income Tax Acts 1902-1920 contravened section 52B of the Commonwealth Inscribed Stock Act 1911-1918, which stipulated that interest from Commonwealth stock or Treasury bonds should not be liable to income tax unless declared so in the loan's prospectus. Second, if a contravention was found, whether section 52B of the Commonwealth Act was a valid exercise of the Commonwealth Parliament's legislative power under section 51(iv) of the Constitution, which grants power to legislate with respect to borrowing money on the public credit of the Commonwealth.

A majority of the High Court held that section 7(12) of the Queensland Act did contravene section 52B of the Commonwealth Act. The Court reasoned that while the Queensland Act did not directly tax the interest from Commonwealth bonds, it used the receipt of such interest as a factor in calculating a higher rate of income tax on other income. This indirect method of increasing the tax burden due to the receipt of Commonwealth bond interest was considered to be within the prohibition of section 52B, which was interpreted to mean that the receipt of such interest should not be the occasion for any additional tax liability. The Court further held that section 52B of the Commonwealth Act was a valid exercise of the Commonwealth's constitutional power to legislate with respect to borrowing money on its public credit, as it was a necessary incident of that power to protect the terms of its borrowing arrangements from state taxation.

The Court ordered that section 7(12) of the Queensland Income Tax Acts 1902-1920 was invalid in so far as it related to income arising from Commonwealth securities, and granted an injunction restraining the defendants from enforcing that provision.

Orders