State of South Australia & Anor v The Commonwealth of Australia

[1991] HCATrans 114

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A4 of 1991

B e t w e e n -

THE STATE OF SOUTH AUSTRALIA

and THE SOUTH AUSTRALIAN

SUPERANNUATION FUND INVESTMENT

TRUST

Plaintiffs

and

THE COMMONWEALTH OF AUSTRALIA

and THE COMMISSIONER OF

TAXATION

Defendants

Questions reserved pursuant to

section 18 of the Judiciary

Act 1903

MASON CJ

BRENNAN J
DEANE J
DAWSON J
TOOHEY J
GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 3 MAY 1991, AT 11.20 AM

Copyright in the High Court of Australia

Superannuation(2) 1 3/5/91

MR J.J. DOYLE, OC, Solicitor-General for South Australia:

If the Court pleases, I appear with my friend,

MR B.M. SELWAY, for the plaintiffs. (instructed by

the Crown Solicitor for South Australia)

MR D.M.J. BENNETT, QC:  May it please the Court, I appear

with my learned friend, MR D. ROSE, for the

defendants. (instructed by the Australian

Government Solicitor)

MR K. MASON, QC, Solicotor-General for New South Wales: I

appear with my learned friends, MR D.H. BLOOM, QC

and MR J.L.B. ALLSOP, for the Attorney-General for

New South Wales intervening. (instructed by the

Crown Solicitor for New South Wales)

MR G.L. DAVIES, OC, Solicitor-General for Queensland: I

appear with my learned friend, MR B.D. O'DONNELL,
intervening for the Attorney-General for the State

of Queensland, may it please the Court. (instructed

by the Crown Solicitor for Queensland)

MASON CJ:	Mr Solicitor for South Austalia.
MR DOYLE:	If the Court pleases, I hand up our outline of

submissions.

MASON CJ: Yes, Mr Solicitor.

MR DOYLE:	And also, if the Court pleases, some proposed answers to the questions reserved, which might also
just help to indicate to the Court the approach we take to the matter.

I think Your Honours would probably be pleased

to see the proposed action to question 1. I will

explain in a moment why that was in that form, that

is whether SASFIT is the State.

MASON CJ: Yes.

MR DOYLE:  Your Honours, the issues here fall into two broad

areas, first of all whether the imposition of

income tax on the assessable income of SASFIT, as I

will call it, the taxable income as determined

under the Income Tax Assessment Act would

constitute, in relation to certain items of

assessable income, which are set out in

paragraphs 14 and 16 of the special case, the

imposition of a tax on property within the meaning

of section 114 of the Constitution. And then if

one says, "Well, yes, it would be the imposition of

a tax on property" then the issue arises, is the

fund property of the State and, also, is SASFIT the

State?

Superannuation(2) 3/5/91

Your Honours, my learned friend indicated to

me yesterday that the Commonwealth now does not

contend that the Fund is not property of the State,

or to put it affirmatively as I understand him, the

Commonwealth accepts that the assets of the Fund

are property of the State. And Your Honours will

see that our proposed answer to question 2 asserts

that, and while I am not suggesting my friend has

agreed in any way to the precise form of the answer
and it may not be, in any event, what the Court
regards as the appropriate way of answering the

question, there is, as I understand what my friend

has said to me, no issue as between the parties on

that issue now.

In the light of that it seems to us, with

respect, that it is not necessary to analyse

separately the question of whether SASFIT is or is

not the State as the relevant tax, as will be seen,

is imposed on income coming to the Fund which has
been agreed or accepted to be property of the State

and would, of course, be paid from that Fund, not,

of course, that the source from which the tax is

paid is necessarily decisive but at its most

neutral, from our point of view, SASFIT is seen

then merely as a custodian of property belonging to

the State and that on which the tax falls is income

which will be accretions to that property.

So, while it is conceivable, I suppose, that

in the course of the argument for one reason or
another it may again appear necessary to determine

whether SASFIT is the State, at the moment it

appears to us not to be necessary. However, we

have left that material in the outline, partly for

convenience and partly just in case the issue did

arise again. And what we would respectfully

suggest to the Court is that the simplest way to

approach the matter may be for us to approach it on

the basis that it is not necessary to deal with the

answer to question 1 and if it later arises, either

during the argument or after judgment is reserved,

that for some reason it is, then the parties can be

asked to come back to address further submissions.

It was also, Your Honours - and the questions

reflect this, there was also an issue as to whether

amendments made to the relevant legislation in 1989

altered the position. What my friend has said to

us relates to the assets of the fund as from the

commencement of the Act and so no distinction is

drawn by the Commonwealth in agreeing that the

assets of the fund are properly of the State. No distinction is drawn between the Act prior to the

1989 amendment and after it. And so, likewise, in

these submissions, we no longer draw any

Superannuation(2) 3/5/91

distinction between the Act as it was originally

and the Act as amended.

I should also just indicate, by way of explanation further of the answers which will just

narrow the issues a little, paragraphs 14 and 16 of

the case stated set out certain receipts which, it

is said and which are agreed, would otherwise be

assessable income within the meaning of the Income

Tax Assessment Act and, in our proposed answers, we

have formulated answers relating to most of those

receipts.	And I think the sequence is exactly the
same: (a) is interest; (b) is rent received;	(c)
is dividends on company shares;	(d) distributions

from trusts. (e), Your Honours will see in the

stated case, refers to fees paid by third parties

for the provision by SASFIT or by SASFIT and others

for financial accommodation.

Your Honours, we are no longer asking the

Court to deal with item (e). It seemed to us,

first of all on reflection, that it was probably

too broad and would encompass too wide a variety of
we are holding something in reserve, that

situations to admit of a convenient answer. thought

it is not suggested by the plaintiff that the mere

taxation of income is to tax property and that

therefore any income tax is, of necessity, a tax on

property.

And so, while it might later - depending upon

the answer the Court gives, there may still be

dispute between the parties as to some particular

type of fee, it seemed to us, on reflection, for
those reasons, that we are not putting that broad

proposition and, furthermore, the potential breadth

of (e) that it was not convenient to ask the Court

to deal with it here and I understand my friend

also agrees. And so we are simply asking the Court

to ignore income of that general type.

And (f), Your Honours will also see, is not

dealt with in the draft answers, the reason being
that there was a certain amount of confusion as to

the position as to contributions, but it has now

been, in effect, agreed between us that, although

theoretically contributions paid by contributors

would form, if the Act applied, part of the

accessible income of SASFIT, because the Fund is a

fund which the employer supports, the employee

contributors are not eligible to claim a deduction

in respect of their own contributions. It follows

from that that, in ways, I do not need to go into

the detail, by the giving of a notice to the

Commissioner, which has not been given, but would

be given in due course, as a result of the giving

Superannuation(2) 3/5/91

of that notice, the contributions received by

SASFIT would not be taxable contributions within

the meaning of the Act and so while that notice has

not in fact been given, it has been discussed

between my friend and I and we have intimated that

it is intended, in due course, to give the notice

and it is also agreed, on the Commonwealth's side,

that we are entitled to give the notice and it

would have that effect, and so it therefore seemed

little point in asking the Court to deal with

something which will, in fact, be dealt with in

another way by the parties.

And so, in the draft answers, what is now (e) comprises the receipts or items of income referred

to in paragraph 16 of the stated case, and so (e)

and (f) from paragraph 14 have dropped out of sight

for those reasons. My friend points out that he

did not concede expressly that the notice in relation to the contributions would have the relevant effect if served but, nevertheless, we are

quite content, in the light of the discussions, to

leave contributions aside.

Your Honours, perhaps I should also add that

the issues between the parties arise in the context

of two changes to the scheme of the Income Tax

Assessment Act: first, the termination of the

exempt status of superannuation funds under the Act

with effect from 1 July 1988 and secondly, the

imposition of capital gains tax with effect from

20 September 1985 on assets acquired and disposed

of after that date and, as a result of the

termination of the exempt status of superannuation

funds from 1 July 1988, they also then became

liable in relation to capital gains tax.

I should also make the other preliminary point

that although I will refer to capital gains tax as

if it were a separate tax - as Your Honours would

know, it is not actually a separate tax - capital

taxpayer and subject to tax in the ordinary way.	gains are included in the accessible income of a
Your Honours, the approach of our argument or the scheme of it is to look at the matter - - -

DEANE J:  What does that mean, Mr Solicitor? I mean, on one

approach you could have a different answer in

relation to capital gains tax.

MR DOYLE:  Yes. We except there could be a different

answer. I am merely making the point that in

looking at the issue in what I call "Income Tax Act

terms", capital gains tax is not a separate tax.

Capital gains are brought to account and

amalgamated with other items of assessable income.

Superannuation(2) 3/5/91

Certainly we accept that there may be a different

answer for capital gains and the others.

DEANE J:  And we have to look at that?

MR DOYLE:  Yes. Your Honours, the scheme or approach of our

argument is to approach the matter this way: to

first of all, broadly, in terms of the Income Tax

Assessment Act, to inquire what receipts in the

hands of SASFIT are taxable and how does the Income

Tax Assessment Act bring them to account? And then

secondly to inquire what is the nature of those

receipts and the particular receipts which we have

identified and what are the characteristic which
identify those receipts as income, and therefore as

taxable? What characteristics has the legislature fixed on when it brings them to tax, in particular

by the use of the word "income" in section 25?

Now, that part of the argument has nothing

directly to do with section 114, but of course, it

put very much with an eye to the issues under

section 114. In particular, we want to make

submissions as to the connection between the

receipts and the assets which comprise the Fund and

look at the question of whether those receipts

represent the proceeds of the owner exercising rights of ownership or turning his property to

account. And when I say "his" there I mean SASFIT,

using "his" for SASFIT. Or, putting it another

way, are these receipts income and taxable because
they have been derived by the owner from his
property? And so, again, we look at them that way.

And again, putting it slightly differently, is the

fact on which the legislation fixes the income
character of the receipt in the particular case so

tied to property that to tax the receipt can then

be said to tax the property?

So that does mean we have to look with some

care, but not in inordinate detail at the

characteristics which make the various items of

receipt income for the purposes of the Income Tax

Assessment Act because it is those characteristics

that the Act fixes on, either expressly or by use
of the term "income" which can then only be

understood by reference to those characteristics.

So we look at the nature of the receipt which we

say is crucial here. We are not saying, of course,

so broad a proposition as that anything which

happens to be income derived from property is
necessarily immune under section 114, and so while

our argument and submissions are very much in that

area of whether these receipts can be called income
derived from property, I do want to make it clear

at the outset that we are not equating income

Superannuation(2) 6 3/5/91

derived from property for tax purposes with income

which is immune under section 114.

Then we seek to relate that analysis to

submissions in relation to section 114 and what was

said in the Fringe Benefits Tax case, and rather

more more briefly to some things said in the Steel

Rails case.

DEANE J: Is it correct, on understanding what you say, that

you are not suggesting that the receipt itself is

property for the purposes of section 114?

MR DOYLE: That is so, Your Honour, although perhaps we

would just put it slightly differently, that we are

not arguing that the mere fact that what is taxed is a receipt which once it reaches us will become

our property, means that you are attempting to do

something prohibited by section 114. It is

probably a fair comment that in the submissions we

put sometimes property will be used in different

senses but, in our submission, that is inherent

really in section 114 which uses, as the Court has

said in the past, a popular or common concept and

so sometimes money is regarded as property, in our
submission, for one purpose but may not be regarded

as property for another purpose. But I hope to

make that a little clearer as I go on.

BRENNAN J:  Can I just take further the question asked of

you by Justice Deane? What is the concession as to

the ownership of the Fund? Is it is said that that

which is income is owned by the State?

MR DOYLE: That is as I understand the concession,

Your Honour, that - if I could just look back at my draft answer - the way we have expressed it - our

understanding of the concession, and I hope I made

it clear, the words in paragraph 2 of the proposed

answers have not been agreed by my friend, but the

way we understand the concession that the assets

comprising the Fund which was continued in

existence by section 17 of the Act are property

belonging to the State of South Wales, and perhaps

one should say being property within the meaning of

section 114.

Now, as we understand it, it would follow that receipts by the Fund when the relevant receipt

occurs must be accretions to the Fund and,

therefore, immediately also become property of the

State.	Maybe in some cases one would be able to
say that they were before they were received.	But

because the constitutional concept is, "What is a

tax on property?", we are prepared to accept,

perhaps too readily, that merely because the tax

falls on a receipt which once it is there will be

Superannuation(2) 3/5/91

an accretion to the property of the State, we do not argue that that mere fact means that you are

within the constitutional conception and that it is

still necessary to look at the nature of the

receipt and ask, "Is the taxing of that receipt the

taxing of property within section 114?". We do not

suggest that the short and simple answer is that
because the receipt, once it is received, adds to
the property of the State you have therefore tax

property of the State within the meaning of the

section.

MASON CJ: Are you proceeding on the footing that the tax

falls on the receipt before it becomes property of

the State?

MR DOYLE:  No, Your Honour, no.

MASON CJ: It is not a temporal distinction?

MR DOYLE:  No. The question is beginning to make me wonder

whether it is an unwise concession, but the thought

behind the concession is that to tax a receipt is

not to tax property of the State merely because
when the thing is received it will become property

of the State; that the concept behind section 114,

difficult as it may be to elucidate, is a somewhat

narrower one than that.

DEANE J: But the concession on which you are relying can

only be that income, after the point of derivation,

is property of the State.

MR DOYLE:	Yes, I do not - as my friend suggested - - -
DEANE J:	The tax falls at the point of derivation which is

before it becomes property of the State.

MR DOYLE:  Yes. Well, in fact, my friend and I did not

really in our discussions elaborate that particular

point that has been the subject of these questions, but certainly there was not any concession, as Your Honour says. My friend says he is in agreement and

no doubt keen to box me firmly into that position.

I assume there would not be such a ready agreement

otherwise. Maybe over the lunch hour I will try to

box myself out of it.

MASON CJ:  We will wait until we hear you in reply,

Mr Solicitor.

MR DOYLE:	Your Honours, as I said, I think it is necessary for the purpose of our submissions to go relatively
briefly through the Income Tax Assessment Act
provisions and to remind the Court briefly of the
way in which the Act works. As Your Honours will
know, broadly, the scheme of the Act is to require
Superannuation(2)	3/5/91

the taxpayer to file a return and then bring to

account certain types of receipt. They are then

aggregated and certain deductions can be made, but

in our submission, the items of receipt still

remain identifiable. And when they have been

aggregated and the deductions are made, then the

taxable income is determined.

Your Honours, could I then just refer to some

provisions of the Act to remind the Court of the

scheme. By section 17:

Subject to this Act, income tax at the rates declared by the Parliament is levied and shall be paid for the financial year ..... upon the taxable income derived during the year of

income by any person, whether a resident or a

non-resident.

I will not go to the definitions, but ''year of

income" is defined by section 6 and section 6 also

defines "year of tax". So section 17 focuses on

the concept of taxable income. "Taxable income" is defined in section 6 as, in effect, in subparagraph

(a) of the definition -

the amount remaining after deducting from the

assessable income all allowable deductions.

"Assessable income" is also defined in section 6

as:

all amounts which under the provisions of this

Act are included in the assessable income.

So that definition of "assessable income" in turn

takes one back to the body of the Act to find out
what things under the provisions of the Act are

included as assessable income.

A taxpayer also has a duty to lodge a return

of income which is also defined in section 6, that

is -

a return of income, or of profits or gains of
a capital nature, or of both income and such

profits or gains.

And the duty to file the return - and I am not

going to read this section - is imposed by

section 161.

BRENNAN J:  What is the meaning of "person" in section 17?

Is SASFIT a person for the purposes of section 17?

MR DOYLE:  "Person" is defined, Your Honour, widely and we

have taken it as including SASFIT.

Superannuation(2) 9 3/5/91

BRENNAN J: Includes a company?

MR DOYLE:  Yes, "person" includes a company, and "company"

again is given a very wide definition:

"company" includes all bodies or associations
corporate or unincorporate, but does not

include partnerships.

It might be convenient if Your Honours could keep

the Income Tax Assessment Act there, but I took you
very quickly to the legislation which in the light
of the agreement and the question not necessary to
answer becomes of little importance, but just to
link in to the question Your Honour asked of me

there, that is the Superannuation Act which is in

the green book which we have provided to the Court.

Towards the back of it, behind marker No 5, is

the Act as amended and section 11 says:

(1)	The Trust continues in existence.
(2)	The Trust is a body corporate.
(3)	The Trust has full juristic capacity -

Subsection (3a) I mention just by way of

explanation was one of the amendments in 1989.

Section 12 says:

The Trust is responsible for the management

and investment of the Fund.

I should add there is a definition of the Trust

back on page 6 where it says, just below the middle

of the page:

"the Trust" means the South Australian

Superannuation Fund Investment Trust.

And then, section 17 refers to "The Fund" and

provides that:

(1)	The Fund continues in existence.
(3)	The Fund is subject to the management and

control of the Trust.

And subsection (2) which, again, was an addition in

1989, that the assets of the Fund belong both at

law and in equity to the Crown. As I have said, my

friend's agreement relates to the Act from its

inception and so is not only in relation to the

period subsequent to the amendments.

Superannuation(2) 10 3/5/91

"the Fund" is defined on page 5 as meaning,

simply:

the South Australian Superannuation Fund.

And so, probably, in the end I suppose to really

identify it one would have to then - if one really

wanted to know who is this thing "the Fund" one
would have to go to facts and find out what is this

Fund which is continued in existence and referred

to by name. Of course, then by reference to

reports of SASFIT and other things one could soon

do that.

So, Your Honours, having just stepped aside there for a moment, we then go back to the Income

Tax Assessment Act and section 25 to see what is

assessable income. That section provides that:

The assessable income of a taxpayer shall include -

(a) where the taxpayer is a resident -

the gross income derived directly or

indirectly from all sources whether in or out

of Australia -

and as Your Honours know, as is well established,

that really takes one then to the question of what is income according to ordinary concepts. And so,

in our submission, the section operates by

reference to those ordinary concepts as much as if

it had been more particular and had started to

spell out particular items of income.

By section 26 and other provisions, and I am

not going to go to them, Your Honours, the Act

specifically defines "assessable income" to include certain other items or receipts and, in particular, in relation to dividends on shares I will, in due

course, go to the relevant section, but the scheme

of the Act is, in our submission, section 25,

Income According to Ordinary Concepts, and then in

other sections items specifically identified by the

statute as income.

I should then go briefly at this stage to the provisions in relation to capital gains and begin

with section 160Z0 and that is perhaps a good

illustration of the point I just made, that by

section 160Z0(l), where a net capital gain accrued

to a taxpayer in respect of the year of income, the
assessable income of the taxpayer of the year of

income, includes that net capital gain, so there is

something not income according to ordinary concepts

that is treated by the statute as part of the

Superannuation(2) 11 3/5/91

assessable income. If an amount is caught under

this Part, that is Part IIIA, as a capital gain, it

will generally not be assessable under any other

provision, even if it might fall under it. That is

so provided by section 160ZA(4). So, in very

brief, and I will have to come back to capital

gains, that is the way in which capital gains

become part of the assessable income.

As I said, as a superannuation fund, the

income of SASFIT and bodies like it was exempted

from income tax originally by section 23(jaa).

That has now been removed from the Act. When

capital gains tax was first introduced, such bodies

continued to be exempted from its impact by a

section that I will give Your Honours the reference to, but will not read from; that is section 160Z(8)

and the way in which they were exempted from it was

that subsection said, in effect, that a body does
not pay capital gains tax if it is a body referred

to in a relevant exempting provision and that term,

"relevant exempting provision" was itself defined

in section 160K and it might be helpful to look at

that. In 160K is the definition of "relevant

exempting provision" and subparagraph (a) of that

definition previously included a reference to (jaa)

and so, in that way, initially, the exemption of

superannuation funds continued in relation to

capital gains, but that reference has now been

omitted and paragraph (bb) has been inserted in the

same subsection, 160K(l), and Your Honours will see

there is a reference there still to paragraph

23(jaa) and if Your Honours have the CCH copy of the Act there is a history immediately after the

end of that definition, which refers to Act No 105

of 1989, and our understanding of the position,

thanks mainly, I have to say, to Mr CCH, because it

is unbearably complex, but the position seems to

be, as we understand it, that the exemption for

capital gains ceases to be available as from the

year beginning 1 July 1988 and we have taken that

as gospel and I do not think the Court need trouble

itself with precisely how one gets there, because

we do not find the particular transitional

provisions very easy to absorb, but -

DEANE J:  How does that fit in with the ending of the

exemption from income tax?

MR DOYLE: That ended at the same time, Your Honour. In

other words, section 23(jaa) was also removed and

so funds became, as it were, generally liable to

income tax.

DEANE J:  And does that exclude any trouble about the period

when 26A and capital gains tax were both in

operation?

Superannuation(2) 12 3/5/91

MR DOYLE:	I think it does, Your Honour, yes.
DEANE J:	Thank you.
MR DOYLE:	So the exemption for superannuation funds ended

in the way and as from 1 July the position of

superannuation funds is governed by a new Part IX

but - and the reason why I have gone through what I

have gone through is that from time to time the new

Part IX still refers you back to the body of the

Act. Could I go them to Part IX which starts at section 267, and if Your Honours want to torture

yourselves, the transitional provision is set out
in more detail in the CCH version of the Act at the

very beginning of Part IX. Section 268,

Your Honours, provides that:

Where, apart from this section, there is in

relation to a fund no person who is a trustee

of the fund for the purposes of this Part, the

person, or each of the persons, who manages

the fund shall be taken, for the purposes of
this Part, to be the trustee, or a trustee, as

the case requires.

And so that would clearly potentially catch SASFIT.

BRENNAN J: 

Am I right in thinking that in your construction

of the Act you are assuming that SASFIT is a person
both for the purposes of this section and for the

purposes of section 17?

MR DOYLE: 

Yes, Your Honour.

BRENNAN J: That seems to be an interesting assumption if

you have said SASFIT is the State.

MR DOYLE:  Yes, Your Honour. Can I go to section 270, that

is on the question of construction of the Act.

Section 270 provides that:

A reference in this Part to a fund or unit

trust includes a reference to a fund or unit

trust established by:

(a) a law of the Commonwealth or of a State or

Territory; or

(b) a public authority constituted by or under

a law of the Commonwealth or of a State of

Territory.

And section 271 then,in effect,makes an

acknowledgment in the direction of section 114, and

in the light of that we have construed the Act as
purporting to apply to SASFIT, but, of course, Your

Honour's question may mean that this question of

Superannuation(2) 13 3/5/91

the status of SASFIT may have to be dealt with and

I would just like to think a bit further about

that.

BRENNAN J: Well it is an interesting problem to construe

"person" in section 17 by reference to these

provisions later introduced.

MR DOYLE:  Yes. Could I think about that, Your Honour? I

suppose, like any taxpayer, without wanting to be

flippant, if there is a way out the taxpayer does

not like to lightly give it away. Your Honours

will see in section 271(2) a reference to a

"constitutionally protected fund", which makes one

wonder what is the relevance of that. I will not

go to these sections, Your Honour, but I will try

to explain what we think is the significance of

that.

Section 27A(l) refers to a taxed

superannuation fund and that definition is linked

or comes into play in sections 159SM(2) and 159SB.

And the result of all that is that if SASFIT does not pay tax then the recipients of benefits will

pay tax and if SASFIT does pay tax the recipients

of benefits will not pay tax. And so that appears

to us to be the work given to that term

"constitutionally protected fund".

Your Honours, section 267(1) defines a

"complying superannuation fund" and Your Honours

will see references there to the OSS Act - and I

have just forgotten the precise name of it but

anyhow it is something like Occupational

Superannuation. The significance of it is that if

one is a complying superannuation fund you pay tax

at a lower rate, 15 per cent. Government funds, if

I can use that term, are deemed to be complying superannuation funds for the years ended 30 June

1989 and 30 June 1990 by section 14(4) of Act No 97

of 1989.	I am not going to go to it but if
Your Honour has the CCH version that is set out in	CCH at page 28,656. So, SASFIT, on this approach,
is deemed by section 14(4) to be a complying
superannuation fund and as the pleadings disclose, the Commissioner claims that it is such a fund.

Then one goes to the definition of "eligible

superannuation fund", also in section 267(1) and

that includes:

a fund that is a complying superannuation

fund -

and section 278(1) then refers to:

Superannuation(2) 14 3/5/91

The trustee of a complying superannuation fund is liable to pay tax on the taxable income of the fund of the year of income.

And by subsection (2) -

Except as provided by Division llA of

Part III, the income of a complying

superannuation fund of the year of income is

not subject to tax except as provided by this

Part.

That appears to be, in effect, making this Part

more or less a code in relation to superannuation

funds and also to pick up the term "taxable

income". And so I still want to think a little

further about what Your Honour Justice Brennan put

to me but it may be that, in effect, this is

another answer to the issue of section 17, that
there is a separate application here which makes

section 17 not decisive; but I would like to think

about that further.

Section 281 provides that:

the assessable income of a complying

superannuation fund of a year of income

includes taxable contributions made to the

fund -

and I explained a little earlier why it was that,

as we understand it, there is no need for the Court

to concern itself with those contributions and the

answer to that lies in section 274 which refers to

taxable contributions and, in particular,
subsections (3) and (4) which provide for the

giving of the notice to which I alluded at the

outset.

Part IX, Your Honours, also contains provisions in relation to capital gains and they

are in Division 10 of Part IX.

DEANE J:  Mr Solicitor, do we really have to try and

understand the interaction of all these sections?

I mean, cannot an agreed statement of their

essential effect be prepared or, alternatively,

should we remit the matter to somewhere where this nightmare can be resolved so that it is appropriate

to deal with the constitutional question?

MR DOYLE:	Yes.
MASON CJ:	Is there any contest between you and Mr Bennett about this - - -

Superannuation(2) 15 3/5/91

MR DOYLE:  No, Your Honour, I am talking the Court through

them so that the Court does understand, simply, how

the Act brings these moneys to tax.

MASON CJ: Perhaps you and Mr Bennett, at some stage, could

put together an agreed summary of the operation of

these provisions for our benefit?

MR DOYLE:  Yes. I am happy to do that, if the Court

pleases. I have, in fact, virtually come to the

end anyhow and it was only that Division 10 that I

wanted to refer to. So, I am happy to leave it on

that basis, Your Honours.

So, referring to paragraph 6 of the outline,

Your Honours, the effect of that, in our

submission, is that SASFIT will be liable to return

the items set out there as assessable income.

Now, the first item is interest on moneys

loaned or advanced. In our respectful submission,

such a receipt is income under ordinary concepts

and so is caught by section 25(1), and when one

asks oneself what are the characteristics that mean

that it is treated as income, in our submission,
the characteristics are that it is interest on

moneys loaned or invested and that is, simply,

interest according to ordinary concepts. It is

treated as a gain derived from the property,
referring there to the money loaned or invested as

the property, and the tax is imposed in that

situation on a receipt which comes as the produce

of the property. Another way in which it can be analysed is to treat the taxpayer as turning his

property to account, turning it to account by

allowing someone else to use it in such a way that

the taxpayer derives a gain from it. Again,

without wanting to multiply - - -

McHUGH J:  How do you distinguish these matters in

paragraph 6 with income earned from the circulation

of the working capital or the use of a fixed

capital of an organization - State government

organization?

MR DOYLE:  I am not sure if I have understood - - -

McHUGH J: Well, dropping down, take the use of plant or

equipment for the purposes of earning income,

perhaps by way of services.	I see you have income
earned for services.	How do you distinguish

between the use of the funds capital which it lends

out and some other use it might make of it in terms

of using plant and equipment and so on?

MR DOYLE:  Your Honour, we accept that at times the

distinctions may seem and may be artificial, and

Superannuation(2) 16 3/5/91

one that was referred to a little earlier I think

by my learned friend, Mr Bennett, the owner of the

taxi cab. Does one say that the income derived

from the use of the taxi cab is income derived from

property, or does one say that in truth it is
income derived from personal exertion?

In our submission, bearing in mind the nature of the concept that section 114 deploys, if I can

use that term, one has to ask questions like this,

and they perhaps still are endemic in the tax

legislation, although the distinction no longer has

the importance which it used to have. In our

submission one is simply forced in elucidation of

the constitutional concept to go into that sort of

analysis.

McHUGH J: But what is the criteria of the distinction? If

they use a building for the purpose of running a

tourist department and thereby generate income from

the use of the building, is that within 114?

MR DOYLE:  Your Honour, with respect, I would give the same

answer. At this stage we have selected items of

income which are relevant to the position of

SASFIT. Other items of income may raise questions

such as that but, in our submission, those

questions have to be addressed in the application

of section 114.

McHUGH J: Well, can we answer it in the abstract though?

Take rent on letting lands or buildings. Now, it

might be one thing if you have a rent coming from a

ten year lease. It might be a different thing

altogether if they, in fact, make a business of

building buildings and using them for the purposes

of rental.

MR DOYLE:  Yes.

McHUGH J: Is there a distinction between the two cases?

MR DOYLE: Well, Your Honour, I think I have to concede

there could be, and perhaps what Your Honour is

really putting to me is in some senses the

difficulty of the Court answering the questions.

We have come to the Court realizing that difficulty

but endeavouring to postulate simply the simple

situation, just rent as such. So we do realize

that there may be difficulties and the Court may

feel uneasy with answering questions in as general

a manner as we have suggested in our draft answers.

The only alternative, one supposes, is for the

parties to go away and then either lodge returns

disclosing particular types of receipt and say,

"But we do not have to", and for the finer facts to

be investigated.

Superannuation(2) 17 3/5/91

But we do submit that the Court can usefully

and should answer the questions, although the

submissions may disclose that in some respects our

answers are too general, and in a way that would

probably give sufficient guidance to the parties.

If, for instance, the answer of the Court is that

to tax interest on moneys loaned is not to tax

property of the State within the meaning of

section 114, well then, that is that.

McHUGH J: But that is the problem I find. Take shares - an

organization like this is probably buying and

selling shares on the market every day of the week

in large quantities. How do you know whether it is

a business, in effect, or is just a long term

investment?

MR DOYLE:  Yes. Well again, Your Honour, we have only

referred to dividends on shares - - -

McHUGH J:	I appreciate that, yes.
MR DOYLE:	- - - and part of the reason why, on reflection,

we did not pursue the item "fees and other income

earned for services",. is that we realized after a

time that too many issues of that very sort began
to arise but, in our respectful submission, still,

what I might call, the basic issues, can usefully

be addressed and answered by the Court.

McHUGH J: But this is caught up with capital gains, is it

not - Part IIIA - a problem in relation to that

sort of thing.

MR DOYLE:  Yes. Well my response to Your Honour would be

that our proposed answer (e) might - and I only say

might at this stage - require a qualification, for
instance, where the capital gain, for
instance - the qualification in these terms, where
the capital gain is not a gain in the course of the

conduct of a business, because we accept that in

this area - well our argument indicates that we are

basing ourselves on characterization of receipts

and a particular receipt may be characterized in

more than one way or another. So it may be that

such a qualification should be made to our answer

to subparagraph (e) but, in our respectful

submission, it is still an appropriate matter for

the Court to address.

DEANE J: There really is a preliminary question to all of

this, is there not, and that is, whether for the

purposes of section 114, what is properly to be

seen as a tax on income from property is a tax on

property?

Superannuation(2) 18 3/5/91

MR DOYLE:  Does Your Honour mean, can a tax on income from

property be the tax on property?

DEANE J: That is right.

MR DOYLE:	Yes.
DEANE J:	I mean, Mr Bennett's example, the taxi cab, for

example, becomes irrelevant for section 114 if a

tax on income from property is not a tax on

property, using that in the terms of distinguishing

between personal exertion.

MR DOYLE:  Yes, if one says bluntly that to tax income from

property is never to tax property for the purposes
of section 114, then I agree, Your Honour, end of
question, and what I am about to do is, first of

all, to put some submissions as to the nature of

the receipts in paragraph 6 of our outline - other

than those I referred to: contributions from

contributors and fees for services - then to put

our submissions about section 11. So I am really,

I suppose, hovering between paragraph 6 and

paragraph 7, and our submission, if it will help

the Court if I just foreshadow it, is that the
taxation of receipts from property or derived from

property does, in some situations, have so close a
link to the ownership or the enjoyment of the

property or realizing the fruits of it or turning

it to account, that one would say naturally that to

tax that receipt is to tax the property.

DEANE J: But following on what Justice McHugh put to you,

even in that area dividends on shares, for example,

has its problems, in that the fund from which the

dividend is paid may be relevant, and certain

dividends which the technical provisions of the Act

treat as income, would not really be regarded as

income on property in the ordinary sense in that it

is a return of part of the capital of the

corporation.	I am not trying to be difficult,
but one needs to work out exactly - - -

MR DOYLE: No, I understand, Your Honour. Yes, we

appreciate that, Your Honour, and that difficulty.

McHUGH J:  You see, in a sense, what constitutes interest;

what constitutes rent, is all part of the property

of the fund. It is only for accounting purposes

that one divides this off, or for income tax

purposes and one says, "Well, this has got to be

differentiated from this", but the money which

constitutes the interest or rent is the property of

the Fund.

MR DOYLE:  Yes, Your Honour.

Superannuation(2) 19 3/5/91

McHUGH J: 

So it does seem to me that there may be another

question as to whether not what we are calling
interest here, or rent, is not itself property for
the purposes of section 114, but you do not seem to

want to argue that point.

MR DOYLE:  No. As Your Honour says, I do not seem to want

to. I am moved to say "seem to" - my enthusiasm

for that position is beginning to crumble a little.

I think for the moment I have to adhere to the

course I have adopted, Your Honour. For instance,

in relation to the shares, our argument focuses on

the position of the shareholder and so we say,

"Well, he has shares; he receives dividends on his

shares, prima facie that is a return on his
property and to tax it is to tax his property."

Where the payment in respect of which he is taxed

is, in truth, a return of capital, well then again

we acknowledge the answer will be different and

that may again indicate our purported, or our

suggested, answer is too broad.

So, Your Honours, first of all in relation to

interest, we submit that the reason why interest is

caught is that when one goes to section 25 one in

turn is referred to income according to ordinary

concepts and that when one applies ordinary

concepts one identifies interest; when one

identifies a receipt, which is a return to person

on money which he has made available to another for

use by that other, and that return, the interest,

is the fruit from the tree, to use that analogy, it
is the return to the owner of the money, treating

money as property, for allowing his property to be

turned to account, and it is a receipt which is

closely identified with the ownership of property.

We make a similar submission in relation to rent received on the letting of land and buildings

which, again, is brought to tax under section 25 as

income according to ordinary concepts. And, again,

one has to exclude rental which is not, in truth, a
premium and so a capital receipt.	Once again,

rental income is a receipt which one derives or

receives as a gain from one's property for allowing
another the use of the property.

Dividends on shares requires a reference to

Income Tax Assessment Act
that is the section which deals with dividends.

section 44 of the because shareholder as including dividends paid to him by

the company out of profits. And so, while they are

taxed only if paid out of profits, they are still

taxed in their character as dividends. And I

should add, Your Honours, that there is a

definition of "dividend" in section 6 but it is an

Superannuation(2) 20 3/5/91

inclusive definition, in other words, not a

comprehensive definition. It simply includes

certain receipts which otherwise might have been of

a capital nature.

So, again, in our submission, a dividend on

shares, when looking at the matter from the point of view of the taxpayer is a receipt derived from property. It is not a dividend in satisfaction of

his rights; it is the produce of those rights, the

return, again, on the capital subscribed.

In relation to trusts, Your Honours, and unit

trusts, section 97(1):

Where a beneficiary of a trust estate who is

not under any legal disability is present

entitled to a share of the income of the trust

estate -

(a) the assessable income of the beneficiary

shall include -

(i) so much of that share of the net income

of the trust estate as is attributable to a

period when the beneficiary was a resident -

So, in our respectful submission, again, what is

there taxed is a payment to the beneficiary in
respect of his interest in the trust estate. And,

once again, the characteristic of it is that it is

a return to the beneficiary in respect of his share

of the estate in respect of his interest in the

estate.

DEANE J:  Mr Solicitor, if one were to frame all that is

involved in this stated case as being the question

and it is put colloquially, is a tax on income

earned by property a tax on property for the

purposes of section 114, would all the rest be

things that could be worked out by working out

whether a dividend - I mean I am talking about the

deemed dividends here - is in fact a return of

capital or a distribution of profits and so on?

MR DOYLE:  Could Your Honour just give to me again the

opening words of the suggested question?

DEANE J:	As I said, it is a colloquial way of putting it?
MR DOYLE:	Yes.

DEANE J: Is a tax on income earned by property a tax on

property for the purposes of section 114?

MR DOYLE:  I suspect, Your Honour, that that might give

rise, with respect, to similar difficulties to

Superannuation(2) 21 3/5/91

those Justice McHugh was suggesting to me, that
that implies that one has already, to begin with,

characterized the thing as income on property or

income derived from property and not as having

other characteristics.

Now in a sense that would, Your Honour,

because in a sense all we are doing is identifying

particular receipts which, as is agreed, are

receipts made by SASFIT and then arguing from them

to the more general proposition, but I am just not

sure, Your Honour, whether an answer quite as

general as that might not give rise to other

difficulties that just do not occur to me at the

moment.	Could I just add, we have focused on
receipts we know SASFIT gets.	The answer in those

general terms may pick up other receipts which
could, in a sense, be called income from property

but which would raise issues we have not addressed.

DEANE J:  It would leave unresolved the question whether a

tax under the Income Tax Assessment Act on income
is a tax on property at the point of derivation
before it becomes the property of the taxpayer, or

a tax after the point of derivation which would be

a tax on his property, so it would not answer the

question whose property, in one sense, I suppose.

MR DOYLE:	Yes.
McHUGH J:	I have some difficulty, at the moment, with the

distinction between tax on the derivation of income

before it becomes the taxpayer's property. I would

have thought they were one and the same thing even

though you may have more than a chose in action,

for example, to enforce the debt for the interest.

MR DOYLE:	Yes.
McHUGH J:	You do not derive it, I would have thought, until

you have got some legal right to it.

MR DOYLE:  Your Honour, we are quite happy in the interest

situation to say there the relevant property is the chose of action, and then we would say the interest

is again derived from that property. From the

point of view of our contentions, we submit that

you can look at it in various ways. You can call

money property if you wish, and say, "I have

allowed my property to be used by another, and the

interest I earn is income I derive from putting my

property to account that way"; or, you can say,

"My property is the chose in action and the

interest is derived from that property".

In our submission, we can put it in any one of

those ways, but what one keeps coming back to is

Superannuation(2) 22 3/5/91

that the nature of the receipt when one looks at it

is it is a receipt derived from property in that

broad sense, and closely linked to the ownership or

possession of property. And we put it that way

even though we acknowledge, of course, that when

you lend money the money then becomes the property

of the borrower as soon as he receives it. But we

are applying both income according to ordinary
concepts through section 25, and then the notion of
a tax on property in section 114 which again can be
said to be tax on property according to ordinary

concepts.

BRENNAN J: Are you able to identify the characteristic of

each of the receipts which are listed in your

suggested answers to question 3 in such a way as to

link them to property so as to identify the

question of principle which calls for this Court's

determination?

MR DOYLE:  Your Honour, what we would say is the unifying

thread here or the link here is that there is a - I think I have to put aside capital gains tax for the

moment and if I can refer to the others. There is

a gain or income to an owner of property being a

gain or income which is attributable to his

ownership of the property, and which results from

him putting his property to account or putting it
to use, and the putting it to account or putting it
to use with interest, rent or dividend is making it

available to another to use. But we, without now

wanting to go on and on, would submit that that is

just as much putting your property to account as

when you use it yourself.

So the unifying link with the first three is

that there is property which the owner puts to

account or uses, and by that putting to account or

use he derives a receipt which for tax purposes has

an income character. But it is those

characteristics which enable one to identify it as

income. Initially it is just a receipt of money,

when one says, "Why is that income?" in taxation

terms, and relevantly we submit it is income

because it is seen as a gain derived from property.

So that is the unifying link there.

BRENNAN J:  Do you add the words "otherwise than by personal exertion?"

MR DOYLE:  Yes, Your Honour. All along we concede or

acknowledge that, if I can use the taxi driver

example, there may well be income which is derived

in a manner which involves the use of property, but

nevertheless one would not say, in the sense we are

using it, that that income is derived from the

property. We would not however agree that every

Superannuation(2) 23 3/5/91

situation is to be categorized exhaustively as one

or other. There may be situations, because of the

nature of the concepts we are dealing with where

one can say, well that is income derived from

personal exertion or from the conduct of a
business, but it nevertheless remains income
derived from property. I do not want to, as it
were, try to have the best of both worlds here.

What we are acknowledging is that there are

situations where income will be derived, and one

can see the use of property is involved, but one

would not say, in the sense we are saying in (a),

(b) and (c), that it is derived from putting the

property to account. There are situations where,

on the other hand, one will say that, and then

there may be some situations in the middle where

one says, well it really has got each

characteristic, but it nevertheless has the

attributable to property characteristic.

MASON CJ:  Mr Solicitor, the suggestion is that, as a

vehicle for determining the question of principle

you want determined, could we confine the argument

to interest, which does not seem to raise the

problems which have been agitated in discussion

with you?

MR DOYLE:  Yes, Your Honour, I must say - I am just thinking

through - - -

MASON CJ: Interest on moneys lent.

MR DOYLE:  Yes, because for our submissions really, there is

no distinction between interest, rent or dividend, so selecting interest would suffice. I think that

would also apply to interest in trust, because our

argument is that that is a gain again on the

property. I am just wondering about capital gains.

DEANE J:  It would leave you with that up your sleeve, if

you failed on interest, but then of course it may

leave your opposition with capital gains up their

sleeve if you won on interest.

MR DOYLE:  Yes. Would Your Honour pardon me a moment.

Could I, Your Honour, think about capital gains

over lunch, but subject to that - it makes a

pleasant lunch - concentrate my fire on interest

and in the light of that we then move on now to my

submissions as to section 114 and then come back to

capital gains at the end if I think we would want

to.

MASON CJ: Yes.

MR DOYLE: Because, I must say, it did occur to me while

waiting for Your Honours that, in part, I suppose

Superannuation(2) 3/5/91

this case is about where does The Fringe Tax

Benefits Tax case stop or how far does it go and

so, perhaps, it is better to select one item and

focus on that.

Your Honours, on that basis if I could then go

to the submissions which, in our outline, begin at

paragraph 7 - - -

MASON CJ:  Mr Solicitor, could we ask your opponent what his

reaction is to the suggested confinement?

MR BENNETT:  We accept it, Your Honour. I would not have

thought, from our point of view, there was any

difference between the various categories, and the

submissions I want to put are general and we are

perfectly happy to confine it the way Your Honour

suggested.

MASON CJ:	Thank you.
MR DOYLE:	Your Honours, then I focus on interest and I will

not go back and elaborate on the points we made
about the nature of interest. Could I then go to

the section 114 argument.

To begin with, in our submission, it is not

right to approach section 114 as a proviso as I

think was suggested. In our respectful submission,

it is an important principle of reciprocal

immunity, both for the State and the Commonwealth

and, in our submission, it seems a little odd, in a

way, for the Commonwealth, one of the beneficiaries

of the section, to be saying, "It is merely a

proviso and should be interpreted narrowly".

In our respectful submission, the Steel Rails

case and The Fringe Benefits Tax case shows that

the Court has, in a sense, interpreted it narrowly

in any event and not much is to be gained by

saying, "Well, it should be interpreted narrowly or

it should be interpreted broadly", in our

submission, one simply has to approach directly the

question. "What is a tax on property?". In our

submission, it is also worth nothing the somewhat

emphatic use of the term "any property" in the

section and with those preliminary comments we

approach the main issue.

We have provided to the Court some materials,

and we do not suggest that a great deal is gained

from them but there is perhaps one or two points to

be made arising out of them and these are in the

brown covered book, if Your Honours please,

plaintiffs materials.

Superannuation(2) 25 3/5/91

And referring to the first page, we say there

that:

By 1896 all of the colonies except Western

Australia and Queensland imposed land taxes and income taxes ..... These taxes were -

in some official documents -

described as ttproperty taxestt -

and I refer to appendix A, where there is a return

from Western Australia of property taxes in force

in the seven colonies, and there Your Honours will

see we put land, income and dividend taxes.

However, it does appear that, at least here, have

been grouped income taxes, both taxes on income

from personal exertion and taxes on income derived

from property. The distinction appears to have

existed in the colonial legislation. If

Your Honours look at annexure B, at the top of

page 7, Your Honours will see there the definitions

in fairly familiar form of:

Income derived from person exertion -

and -

Income consisting of the produce of property -

and then, over the page, page 8, in section 10, a

different rate of income tax was charged on the two

types of income.

The Victorian Act which is at tag C, made the

same distinction, page 10, and although we have not

extracted for Your Honours the definition of income
derived from personal exertion and income derived

from the produce of property, it is similar to the

South Australian one. So a distinction between

income from personal exertion and income derived

from property existed and we make, simply, this

point from it, that it may well not have been

surprising for someone in that era where that
distinction had already been drawn, to treat a tax

on income from the produce of property as, in substance, the same as a tax on the property.

Your Honours, in the second paragraph we just

make the point that:

Sales and rents of Crown lands were a

significant source of revenue, particularly in

New South Wales -

and it would be surprising, in our submission,

bearing in mind the significance of that source of

Superannuation(2) 26 3/5/91

revenue for the colonies, if such revenue were to

be subject to tax notwithstanding section 114,

simply because of its great importance to the

colonies.

Could I refer to appendix Don that point, and

there is set out in tabular form a table of public
revenue for the years 1899 and 1900 for the various

colonies, and fourth from the right-hand side,

specifically checked that. Certainly, we would

submit that, of course, a payroll tax is a

transactional tax and there is no doubt about that

from the point of view of our submission. But if

one accepts the submission that it is anything which affects property is a property tax, then

there is really nothing left and even if payroll

tax is the only thing left, even if one says,

"Well, there are two things left; payroll tax and

poll tax", they are hardly things likely to have

been in the contemplation of the founding fathers.

Payroll tax, certainly, had not been invented in

1900.

Superannuation(2) 59 3/5/91

So, it is our submission that what must have

been intended is what prima facie one would have
assumed to have been intended when one looks at the

section, and if one simply looks at the section

unadorned by any authority with 1900 eyes one sees

that it simply says, "Nor shall the Commonwealth

impose any tax on property of any kind belonging to

a State" and it has not said, "Nor shall the

Commonwealth impose any tax of any kind on a

State". So, it must have been intending to draw

some distinction and we say there is a very easy

distinction and Steel Rails, which is the closest

case in point of time to the enactment of the

section, specifically refers to it. That is the
distinction between a property tax and a

transactional tax, a simple distinction easy to

understand, maybe hard to apply in some cases,

maybe easy to avoid in some cases, let both those
matters be conceded. But, nevertheless, a

distinction which one can recognize from the words

themselves. And, in my respectful submission, that

is what one must get from the section and that to

take the other view is simply to read out the words

"property of any kind" and saying that the section

is far wider than has been thought and,

incidentally, to overrule the Steel Rails case

which my friend has not sought leave to apply to

have overruled.

BRENNAN J:  Mr Bennett, can I ask you one further question,

what do you say about the meaning of the word

"person" in section 17?

MR BENNETT:	Your Honour, we would submit it does not arise in this case and that Your Honours would not answer
the first question. ·rt does not arise for this reason: that in this case it is clear that the
fund itself is by statute the property of the State
of South Australia. It is therefore, we have taken the view, irrelevant whether or not SASFIT itself has the shield of the Crown, is within the extended
meaning that was discussed in the State Bank case
or not.

But in answer to Your Honour's question, we

would submit that "person" is defined as including

a company, "company" is defined as including -

all bodies or associations corporate or

unincorporate -

and we would submit it includes a State. But even

if it does not, it certainly includes bodies such

as SASFIT which, if necessary, we would submit, is

sufficiently removed from the State not to be

included within it. We have not provided

Your Honours with submissions on that because we

Superannuation(2) 60 3/5/91

have taken the view, and had understood it was

common ground, that it is unnecessary for

Your Honours to answer question 1, and for that

reason we have not addressed submissions in

relation to it.

BRENNAN J: It is common ground that SASFIT is a person for

the purposes of section 17?

MR BENNETT:  I do not know if that is common ground. I

certainly would submit that.

BRENNAN J: Well, if it is not, then the problem simply does

not arise, does it?

MR BENNETT: That is so, Your Honour. It must be implicit

in my friend's submissions that he accepts that

SASFIT is a person.

McHUGH J: Well, sections like 271 seem to indicate that Parliament did intend for the Act to operate in respect of - - -

MR BENNETT: Yes, I am grateful for that. That is so,

Your Honour. And the word "includes", of course,

rather than "means" in the definitions of "person"

and "company".

The only other matter is, Your Honours, that

it has been agreed between the plaintiffs and the

defendants that neither party seeks any order for

costs in this case. That agreement, as

Your Honours know, does not exist in the first

case. May it please the Court.

MASON CJ: Thank you, Mr Bennett. Mr Solicitor.

MR DOYLE:  If the Court pleases, in our submission, the

arguments we put were not based on concepts of

economic equivalents, and I will say no more about

that.

My learned friend suggests in his submissions

that in relation to capital gains tax - this is the

top of page 2 - it is a transaction tax. In the

end, I suppose, to some extent we are all bandying

words, but in our submission one has to go beyond

the mere fact that there is a taxing point which

happens to be an incident, namely, a disposal which
can be called a transaction, and one asks, "Well,

on whom does the tax fall?" and the answer is "An

owner". "Why does it fall on the owner?" "Because

he has disposed of his property." And then, "By

reference to what is the tax levied?" And it is by

reference to the amount to which the property is

converted, although then one does some sums to

arrive at a net capital gain.

Superannuation(2) 61 3/5/91

In our submission, in the end to call that a

tax on the transaction is to ignore what I will

call the underlying features of it, and in truth it

is a tax on ownership.

DAWSON J: This is the problem. At the one end you have a

tax which is not a tax on a transaction unless you

can call ownership enjoyment a transaction. At the

other end you have taxes which bear no relationship

to property of any kind.

MR DOYLE: Quite.

DAWSON J: But in between you have taxes which involve both

property and a transaction, and the problem is to

say whether the tax is more related to the

transaction or to the property.

MR DOYLE:	Yes.
DAWSON J:	Now, no one has given us a test which will answer

that question. Perhaps there is not one. But that

is the problem, is it not?

MR DOYLE:  We would accept there is not a test. There is no

"the test". We submit you have to - - -

DAWSON J: It is just a matter of degree.

MR DOYLE:  Yes, certainly there are issues of degree there

and the critical thing to bear in mind is the

guiding light is, as it were, section 114, not the

precise way in which the relevant taxing Act

approaches the matter. I am not saying by that

that how the taxing_Act approaches the matter is

irrelevant because that would be foolish.

Obviously you start by asking yourself what sort of

tax is it and how does it come to be paid, but in
the end we have to say, looking at, what is taxed

and why it is taxed and when it is taxed and who

pays the tax, is the imposition of that tax, to tax

property of the State. So we keep corning back, in

our submission, to a concept of ordinary language

and that will involve all the gradations of meaning

that can be involved in the concept of ordinary

language, but it is helpful, in our submission, to

look at the nature of the fund or receipt which is

taxed, its origin and the circumstances which make

it taxable and we submit that when you do that in

this case you come reasonably comfortably to the

conclusion that it is a tax on ownership and we

acknowledge, and I think I did in my submissions,

that taxi cab example which my friend gives, we

agree. It will be difficult sometimes to decide

whether you call that a tax on property or a tax on

income derived from personal exertion and you have

to ask the sorts of questions we have.been putting

Superannuation(2) 62 3/5/91

'

before you can answer. You cannot confine your

approach to a fine analysis of the taxing Act

provisions and answer it in that way, by saying,
well, what is, as my friend says, the taxing point,

and then simply saying, "Well that is the moment of

disposal, therefore it is a transaction tax". In

our submission, that ignores the underlying

substance. Again, I am not even there going into

substance form distinctions. I am simply saying

that that is not really even to start asking the

right questions because the right questions arise

under section 114.

My learned friend also in his written outline lays some stress on the fact that what is taxed is a net capital gain because no tax will be paid if

there are off-setting capital losses or on other

unrelated transactions. In our submission, the

deductions do not really matter. What you have to ask yourself is what receipts or gains are brought

to account and the ultimate answer cannot turn on

whether there are or are not sufficient off-setting

deductions for one to say at the end of the day,

"Well, fortunately, I do not have to pay tax." In

our submission, as a general proposition, one can say the deductions simply do not matter. What is

critical is the receipt which is brought to

account.

My learned friend also said in paragraph 3(a)

that for income tax on income from property that

"on" must mean directly, not indirectly on. Well,

the distinction between directly and indirectly is

a difficult one. In our submission, it just does

not help really to introduce words like that. It

is better to, as we submit you should, to explore

the nature of the receipt and the circumstances,

rather than, as it were, preface your explanation

by putting on, what we would suggest, are some not

particularly helpful blinkers at the start.

Just in relation to interest, could I give the

Court a reference to a case to which my attention

was drawn which was not on our list, but it just

contains a short passage which helpfully discusses

the nature of interest as a receipt. It is

Commissioner of Taxation v Myer Emporium,
(1986-1987) 163 CLR 199. It is a judgment of
Your Honour the Chief Justice and

Justices Wilson, Brennan, Deane and Dawson,

page 217 at the very bottom, going over to about

the middle of page 218.

My learned friend also referred to remarks

made by Mr O'Connor in the convention debates -

that is pages 14 and 15 of the book we handed up.

Could I submit to the Court that if they are looked

Superannuation(2) 63 3/5/91

at it is quite clear that the point being made was

that if the Crown leases the land to a private

individual it will be possible to tax the private
individual on his estate or interest in the land

notwithstanding the fact that his landlord is the

Crown; and that was all they were tal~ing about,

that section 114 did not mean that it would, by

reason of 114, become impossible to tax the tenant.

And Mr Barton, after Mr O'Connor said:

I might mention that the property of the

Commonwealth in that land is the reversion upon the lease. The reversion upon the lease would not be taxable, but the interest of the lessee in the property would be taxable.

And that is the point that was concerning them and that was all the concern related to. They are the

only points in reply.

In relation to the provisions of the Income Tax Assessment Act in paragraph 5 of our outline we

set out the prime sections relevant to capital

gains. Could I just mention, in particular, a

section which I think I mentioned before but should

stress section 160C(l)(a) which makes it clear that

capital gains tax falls on the owner who disposes.

And Your Honour Justice Deane, in particular, asked

if the Court could be provided in writing with the

reference to relevant sections and the way this

part of the Act works. Could I perhaps leave it on

the basis that if, on reflection, it seems that the
sections referred to in paragraph 5 of the outline

are insufficient we will supplement what is there?

DEANE J:	I think that query was made at an early stage.
MR DOYLE:	I think it was probably just when I had almost

finished, I think, the capital gains provisions but

I am not sure now just where I had got to when the

query arose. But, anyhow, I am inviting	Your Honours' attention to the sections referred to	there and I am not sure that reference need be made
to any others but could we leave it on the basis
that if we think reference should be made to others we will provide something in writing.

In relation to the point Your Honour

Justice Brennan raised with my learned friend,

Mr Bennett, towards the end, in our submission it

appears that SASFIT would be required to file a

return and that, in particular, by reference to the

provision that was referred to by me and also by

Mr Bennett relating to funds constituted under the

law of the Commonwealth or of a State.

Superannuation(2) 64 3/5/91

BRENNAN J: Well, at all events, you are not arguing that

SASFIT is not a person under section 17.

MR DOYLE:  No.

BRENNAN J: That is all we need to know.

MR DOYLE:  Not for the purposes, I should add, of the

Superannuation Fund provisions which - - -

BRENNAN J:  What about interest?

MR DOYLE: Well, what I mean by that, Your Honour, is that

the relevant part of the Act in relation to

superannuation funds appears to apply to SASFIT

and, as we understand the operation of the

provisions, to, in effect, say, "Well, even if you

wouldn't be caught directly by section 17, you are

to file a return of tax as if section 17 applied to

you". And so it operates in that way, as we

understand it.

BRENNAN J: Well, that came into force in 1989, did it not?

MR DOYLE:	Yes.
BRENNAN J: Well now, you have got two aspects here.	You

have got interest on money and you have got the

capital gains. The question that I was interested

to pursue was whether or not there is any

submission falling for consideration on either of

those branches as to whether SASFIT is a person

upon whom tax is levied under section 17; that is,

whether it is with respect to capital gains, if

that should be the component, or with respect to interest if that should be the only component of

taxable income.

MR DOYLE:  As I understand it, no such submission comes from

the Commonwealth. The Commonwealth submits if

SASFIT is liable it is liable via the provisions of

Part IX and that is also our understanding of the

position and the Court need only concern itself

with the approach through Part IX.

BRENNAN J:  I am sorry, I do not understand that. I thought

that the taxable income was that which attracted the liability to pay, under section 17. Is that

not right? I thought Part IX gave you assessable

income; interest gave you assessable income;

other sections gave you allowable deductions; you

came back then to taxable income; you then went to

section 17 and discovered whether you had to pay

tax.

MR DOYLE:  Your Honour, my understanding of the operation of the Part is that section 268 picks up where there

Superannuation(2) 65 3/5/91

is no trustee, the person who manages the fund, and

then section 272 says:

The taxable income of an eligible entity shall

be calculated as if the trustee were a

taxpayer -

McHUGH J: But Part IX is only a mechanism, is it not, for

calculating your assessable income? It is
section 17 that levies the tax; it imposes the

tax.

MR DOYLE: Well then, section 278(1) and (2) bears on that.

Again, maybe we have misunderstood the operation of

the Act but, as we read it, the way the Act

operates is that the liability arises under Part IX

but the taxable income is calculated as if the

trustee were a taxpayer. So, while the taxable

income is assessed in the usual way, and I suppose

that section 17 is, as it were, applied by

reference, in other words if a certain receipt

would be caught by section 17 in relation to an

ordinary taxpayer, then it is caught in relation to

the trustee by virtue of section 272. And then

section 270 makes it clear that a person such as

SASFIT is caught by this Part IX.

TOOHEY J:  I am not sure that that is right, Mr Solicitor.

It seems to me, on a quick reading of Part IX, that

it assumes that the liability for tax arises

outside the Part but it contains a number of

machinery provisions regulating that liability in

the case of the funds to which it applies.

MR DOYLE: Well, all I can say, Your Honour, is that that,

with respect, is not how we have read it.	Of
course we may be wrong but -

BRENNAN J:  Mr Solicitor, my question was not designed to

promote an argument that you were not wishing to
propound.

MR DOYLE:	No, I understand that, Your Honour.
BRENNAN J:	I just wish to know whether there is anything

which falls for our consideration if you are not

proposing it?

MR DOYLE:  Not on our submission, no. They are our

submissions in reply, if the Court pleases.

MASON CJ: Thank you, Mr Solicitor. The Court will consider

its decision in this matter.

AT 3. 45 PM THE MATTER WAS ADJOURNED SINE DIE ·

Superannuation(2) 66 3/5/91