O'Meara v Commissioner of Taxation
[2003] FCA 217
•25 MARCH 2003
FEDERAL COURT OF AUSTRALIA
O’Meara v Commissioner of Taxation [2003] FCA 217
CONSTITUTIONAL LAW – legislative power of Commonwealth taxation – section 55 of the Constitution – whether legislation deals with more than one subject of taxation
Constitution s 53, 55
A New Tax System (Goods and Services Tax) Act 1999 (Cth) s 3, 1-2, 9-5, 9-10(1), 9-10(2), 9-40, 9-70, 90-20, 182, 182-1, 195-1
A New Tax System (Goods and Services Tax Imposition – General) Act 1999 (Cth) s 3, 4
A New Tax System (Goods and Services Tax Imposition – Customs) Act 1999 (Cth) s 3
A New Tax System (Goods and Services Tax Imposition – Excise) Act 1999 (Cth) s 3Value-Added Tax Act 1983 (UK)
Value Added Tax Act 1994 (UK)
Excise Tax Act, RSC 1985 (Canada)
Goods and Services Tax Act 1985 (NZ).Explanatory Memorandum for A New Tax System (Goods and Services Tax) Bill 1998
Air Caledonie International v Commonwealth (1988) 165 CLR 462 referred to
Harding v Federal Commissioner of Taxation (1917) 23 CLR 119 applied
Re Dymond (1958-1959) 101 CLR 11 followed
Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279 applied
Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation (1944) 70 CLR 362 followed
State Chamber of Commerce & Industry v Commonwealth (The Second Fringe Benefits Tax Case) (1987) 163 CLR 329 applied
Austin v The Commonwealth of Australia [2003] HCA 3 followedKENNETH IAN O’MEARA v COMMISSIONER OF TAXATION
N 1000 OF 2002
HELY J
25 MARCH 2003
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 1000 OF 2002
BETWEEN:
KENNETH IAN O'MEARA
APPLICANTAND:
COMMISSIONER OF TAXATION
RESPONDENTJUDGE:
HELY J
DATE OF ORDER:
25 MARCH 2003
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The application is dismissed with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 1000 OF 2002
BETWEEN:
KENNETH IAN O'MEARA
APPLICANTAND:
COMMISSIONER OF TAXATION
RESPONDENT
JUDGE:
HELY J
DATE:
25 MARCH 2003
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The applicant claims that the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“the GST Act”) is invalid because it contravenes s 55 of the Constitution. The application was amended at the hearing to include a further claim that the A New Tax System (Goods and Services Tax Imposition – General) Act 1999 (Cth) (“the Imposition Act”) is also invalid because it contravenes s 55 of the Constitution. The respondent accepts that the applicant has locus standi to make these claims.
Section 55 of the Constitution relevantly provides that:
“Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect.
Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only ….”
The purpose sought to be achieved by s 55 of the Constitution emerges from a consideration of s 53. Under s 53 of the Constitution, the Senate can neither originate nor amend “proposed laws … imposing taxation”. The first paragraph of s 55 is designed to prevent tacking of extraneous matter to a tax bill, so as to confine the limitations upon the Senate’s powers imposed by s 53 to provisions actually dealing with the imposition of taxation: Air Caledonie International v Commonwealth (1988) 165 CLR 462 at 471. The second paragraph of s 55 introduces an additional requirement that a law imposing taxation shall deal only with one subject of taxation. Paragraph 2 facilitates the Senate’s scrutiny of a proposed law imposing taxation as a separate bill as a particular kind of taxation which is to be “considered on its merits and not just as an element in an overall package of taxes”: State Chamber of Commerce & Industry v Commonwealth(The Second Fringe Benefits Tax Case) (1987) 163 CLR 329, 342-343. Again, the objective is to prevent tacking or packaging of legislative measures.
In Harding v Federal Commissioner of Taxation (1917) 23 CLR 119 Isaacs J described s 55 of the Constitution in the following terms (at 134):
“The prohibition … was not inserted as a trap for the Commonwealth Legislature, and through them for the Nation. It was intended as a genuine protection to the people of the Commonwealth, by guarding the Senate from compulsive acquiescence in one tax by the moral necessity of passing another distinct tax. To secure that end the test is unity of subject matter of taxation in each measure, so that each proposed tax may be fairly considered on its merits.”
Two questions arise: first, whether the GST Act is a law imposing taxation; second, whether the Imposition Act deals with more than one subject of taxation.
The preamble to the Imposition Act describes the Act as follows:
“An Act to implement A New Tax System by imposing the tax payable under the GST law, so far as that tax is neither a duty of customs nor a duty of excise.”
(emphasis added)
Sections 3 and 4 of the Imposition Act provide as follows:
“3Imposition
(1)The tax that is payable under the GST law (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999) is imposed by this section under the name of goods and services tax (GST).
(2)This section imposes GST only so far as that tax is neither a duty of customs nor a duty of excise within the meaning of section 55 of the Constitution.
4 Rate
The rate of goods and services tax payable under the A New Tax System (Goods and Services Tax) Act 1999 is 10%.”
A New Tax System (Goods and Services Tax Imposition – Customs) Act 1999 (Cth) and A New Tax System (Goods and Services Tax Imposition – Excise) Act 1999 (Cth) impose GST insofar as that tax is a duty of customs, or a duty of excise within the meaning of s 55 of the Constitution. The applicant does not challenge the validity of either of these Acts, presumably because they do not impact upon his personal situation.
“GST” is defined in s 195-1 of the GST Act so as to mean tax that is payable under the GST law and imposed as goods and services tax by any of the three Imposition Acts to which I have referred. “GST Law” is defined in s 195-1 of the GST Act as meaning specified Acts and regulations, and in particular, the GST Act and any Act that imposes GST.
Division 2 of Part 1-2 of the GST Act is an overview of the GST legislation. Section 2.1 is headed What this Act is About. Helpfully, s 2.1 states: “This Act is about the GST.” It then describes in general terms the topics dealt with in subsequent chapters of the GST Act. A note to s 2.1 is as follows:
“Note: The GST is imposed by 3 Acts:
(a)the A New Tax System (Goods and Services Tax Imposition – General) Act 1999; and
(b)the A New Tax System (Goods and Services Tax Imposition –Customs) Act 1999; and
(c)the A New Tax System (Goods and Services Tax Imposition – Excise) Act 1999.”
Under S 182 of the GST Act, notes that follow the provisions of the Act form part of the GST Act.
Whether the GST Act is a law imposing Taxation?
For a law to be one “imposing” taxation, it must be one which creates a liability to tax: Re Dymond (1958-1959) 101 CLR 11, 19. Each of the three Imposition Acts is unquestionably a law imposing taxation: see s 3 of each Act. Each of these sections provides, in terms, for “the actual imposition of tax”: Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279, 288. The provisions of the GST Act referred to in pars [9] and [10] above are an express legislative recognition that the GST is imposed by the three Imposition Acts.
The GST Act deals with a variety of matters. It begins with the basic rules about the GST, it provides for exemptions from the GST and sets out the special rules that can apply in particular cases. The structure of the Imposition Acts, on the one hand, and the GST Act on the other, is in accord with what Fullagar J described in Re Dymond (supra) at 18 as follows:
“By reason of the provisions of s. 55 it has been the invariable practice since the establishment of the Commonwealth, when Parliament has proposed to levy a tax on any subject of taxation, to pursue that object by means of two separate Acts, the one of which actually imposes the tax and fixes the rate of tax, and the other of which provides for the incidence, assessment, and collection, of the tax and for a variety of incidental matters. It is common to refer to the latter Act as the Assessment Act, and to the former as the Taxing Act.”
Mr O’Meara relies upon the following provisions of the GST Act in support of his contention that the GST Act is one which “imposes” taxation:
“Subdivision 9-B – who is liable for GST on Taxable supplies?
9-40 Liability for GST on taxable supplies
You must pay the GST payable on any taxable supply that you make…
Subdivision 9-C How much GST is payable on taxable supplies?
9-70 The amount of GST on taxable supplies
The amount of GST on a taxable supply is 10% of the value of the taxable supply
…
90-20Liability after amalgamation for GST on amalgamating company’s supplies
(1)An amalgamated company must pay the GST payable on a taxable supply if:
(a)apart from the amalgamation, the GST would have been payable by any of the amalgamating companies; and
(b)the GST was not attributable, before the amalgamation, to a tax period applying to the amalgamating company.
(2)This section has effect despite section 9-40 (which is about liability for GST).”
The authorities (eg Re Dymond (supra) at 19) recognise that there is a distinction between:
(i) a law imposing taxation;
(ii) a law dealing with the imposition of taxation; and
(iii) a law dealing with taxation generally.
A law which prescribes, for example, the persons who are to pay the tax and the classes of income in respect of which they are to be taxed, are not laws which impose taxation, but they are laws dealing with the imposition of taxation “because the specification of the persons who are to be liable to taxation and the definition of their liability is part of the denotation of the term “imposition of taxation”: Re Dymond (supra) at 20. Laws within classes (i) and (ii) above could be included in the one taxing Act without offending against s 55 of the Constitution. However, “dealing with the imposition of taxation” is a different thing from “dealing with taxation”, and the former expression does not mean or include “dealing with matters incidental to the imposition of taxation”.
But the important thing for present purposes is that a law may deal with the imposition of taxation and yet not, in itself, directly impose taxation. As Latham CJ noted in Cadbury-Fry-PascallPty Ltd v Federal Commissioner of Taxation (1944) 70 CLR 362 at 373:
“It has been held on several occasions that various Assessment Acts do not impose taxation, and it has been so held though such Acts contain provisions that a person should be liable to pay tax or be chargeable with Tax.”
This passage was applied and approved by Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ in State Chamber of Commerce & Industry v Commonwealth (The Second Fringe Benefits Tax Case) (1987) 163 CLR 329 at 341.
The GST Act proceeds upon the basis that the tax known as the GST is imposed by the Acquisition Acts. The very definition of the goods and services tax (“GST”) incorporates a reference to that fact. Section 9-40 of the GST Act identifies who is liable to pay the tax. The heading to subdivision 9-5 which, by s 182-1, forms part of the Act confirms that this is so. Section 90-20 is a measure which is ancillary to the identification of who is liable to pay the tax in the case of company amalgamations. Section 9-70 identifies the quantum of tax that is payable by providing that the rate imposed by s 4 of the Imposition Act is applied to the value, as defined in s 195-1 of the taxable supply. Thus the reproduction of the rate (10 per cent) is no more than a reference to the rate imposed by s 4 of the Imposition Act and restates the effect of s 4 so that the amount of tax may be calculated. Each of these provisions is a law dealing with the imposition of taxation, but the tax is imposed by the Acquisition Act. The GST Act is not a law imposing taxation, hence s 55 of the Constitution has no operation in relation to the GST Act.
Does the Imposition Act or the GST law deal with more than one subject of taxation?
Mr O’Meara contends that the GST law deals with more than one subject of taxation as it deals with:
(i) goods, and
(ii) services
as subjects of taxation.
GST is payable on the value of a taxable supply. “Supply” is defined in s 9-10(1) as meaning any form of supply whatsoever. Subsection 9-10(2) provides:
“(2) Without limiting subsection (1), supply includes any of these:
(a) a supply of goods;
(b) a supply of services;
(c) a provision of advice or information;
(d) a grant, assignment or surrender of real property;(e)a creation, grant, transfer, assignment or surrender of any right;
(f) a financial supply;
(g) an entry into, or release from, an obligation:(i) to do anything; or
(ii) to refrain from an act; or
(iii) to tolerate an act or situation;
(h)any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).”
In Mr O’Meara’s submission each of the eight matters referred to in pars (a) to (h) of s 9-10(2) is a different subject of taxation. That cannot be right, as GST is payable on the value of a taxable supply and “supply” encompasses any form of supply whatsoever. The matters referred to in pars (a) to (h) are no more than illustrations of types of transactions which are within the concept of “supply”.
In Austin v The Commonwealth of Australia [2003] HCA 3 at 81, Gaudron, Gummow and Hayne JJ extracted the following propositions from earlier cases dealing with s 55:
“(i)in construing the expression "subject of taxation” in s 55 it is not to be supposed that there exists some recognised classification of taxes according to subject matter;
(ii)s 55 is not directed to categories concerned with economic consequences or operation upon the creation, transfer and devolution of legal rights;
(iii)rather, s 55 is concerned with political relations and contemplates “broad distinctions between possible subjects of taxation based on common understanding and general conceptions, rather than on any analytical or logical classification;
(iv)it is for the legislature to choose its own subjects of taxation unfettered by existing nomenclature or by categories adopted for other purposes; and
(v)the test is whether, looking at the subject of taxation selected by the Parliament, it can fairly be regarded as a unit rather than a collection of matters necessarily distinct and separate.”
The Court gives weight to the Parliament’s understanding that its Tax Act deals with one subject of taxation only. That is because the application of the test involves what is in substance a question of fact or value judgment. The Court should not resolve such a question against the Parliament’s understanding with the consequence that the statute is constitutionally invalid unless the answer is clear: The Second Fringe Benefits Tax Case (supra) at 344, Austin v Commonwealth (supra) at [191].
The report of the Taxation Review Committee (the “Asprey Committee”) of 31 January 1975 included an appraisal of the main kinds of tax that already exist in, or which might be introduced into Australia. One of the kinds of tax the subject of that appraisal was a “broad-based” tax levied on very a large range of goods and services, even if not quite all consumption. The British and Continental European systems of value-added taxes were given as examples of that kind of tax.
At the time of enactment of the GST law, a goods and services tax was a tax familiar from the experience of many jurisdictions: see eg Value-Added Tax Act 1983 (UK) and Value Added Tax Act 1994 (UK); Excise Tax Act, RSC 1985 (Canada) and Goods and Services Tax Act 1985 (NZ). There is, as the report of the Asprey Committee confirms, a “common understanding” as to the nature of a broadly-based goods and services tax. That is reflected in the Explanatory Memorandum for A New Tax System (Goods and Services Tax) Bill 1998 (p 5):
“Broadly speaking, the GST is a tax on private consumption in Australia. The GST taxes the consumption of most goods, services and anything else in Australia, including things that are imported.”
In the present case, Parliament has according to “common understanding and general conceptions” imposed a tax on a single subject of taxation, namely on final private consumption in Australia. That is one subject of taxation for the purposes of s 55 of the Constitution. The applicant has failed to discharge the heavy burden of demonstrating that Parliament’s understanding that its taxing Act deals with one subject of taxation only was clearly mistaken.
Mr O’Meara also submitted that the Imposition Act is invalid because it “fails to deal with any subject of taxation”. If that were so, then s 55 of the Constitution could have no relevant operation.
Conclusion
The application should be dismissed with costs.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate:
Dated: 25 March 2003
The applicant appeared in person Counsel for the Respondent: Mr A Robertson, Mr M Leeming Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 10 February 2003 Date of Judgment: 25 March 2003
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