Clarke v Commissioner of Taxation [2008] FCAFC 106 (13 June 2008)

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 112 OF 2007

BETWEEN:	RALPH CLARKE Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	BRANSON, SUNDBERG AND DOWSETT JJ
DATE OF ORDER:	13 JUNE 2008
WHERE MADE:	ADELAIDE

1. The third of the questions of law referred to the Court be answered as follows:

2. The proceeding be otherwise stood over to 3 July 2008 or such later date as the Court may advise for the purpose of the making of further orders giving effect to these reasons including any order as to costs.

3. The parties provide to the Associate to Branson J by 27 June 2008 an agreed minute of the orders to be made and, if agreement has not by then been reached, the minutes of orders for which they will respectively contend and brief outlines of submission in support of the orders.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 112 OF 2007

BETWEEN:	RALPH CLARKE Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	BRANSON, SUNDBERG AND DOWSETT JJ
DATE:	13 JUNE 2008
PLACE:	ADELAIDE

1 From 11 December 1993 until 8 February 2002 the applicant served as a Member of the House of Assembly, the Lower House of the South Australian Parliament. Throughout such service he was a member of a parliamentary superannuation scheme (the "PS Scheme") established pursuant to the Parliamentary Superannuation Act 1948 (SA) and continued under the Parliamentary Superannuation Act 1974 (SA) (the "PS Act"). From 11 December 1993 until 30 June 1998 he was also a member of a superannuation benefit scheme (the "SB Scheme") established under the Superannuation (Benefit Scheme) Act 1992 (SA) (the "SBS Act"). The Southern State Superannuation Act 1994 (SA) (the "SSS Act") established the Southern State Superannuation Scheme (the "SSS Scheme"). On 1 July 1998 the SBS Act was repealed by the Southern State Superannuation (Merger of Schemes) Amendment Act 1998 (SA) (the "Merger Act"). Pursuant to that legislation members of the SB Scheme became members of the SSS Scheme. The applicant remained a member of the latter scheme throughout the balance of his service as a Member of Parliament. Since ceasing to be a Member he has derived benefits from both the PS and the SSS Schemes. In the latter case the benefit was "rolled over" into another scheme.

2 In 1997 the Commonwealth Parliament enacted the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) (the "CP Assessment Act") and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) (the "CP Imposition Act"). Broadly speaking, that legislation imposed a surcharge upon contributions actually or notionally paid in a tax year for the purpose of providing retirement benefits for individual taxpayers, the surcharge being payable by the taxpayer in question. In the applicant’s case payments were said to have attracted the surcharge in connection with his membership of each of the PS, the SB and the SSS Schemes. The respondent (the "Commissioner") has assessed the applicant’s tax liability for each of the financial years ended 30 June 1997 to 30 June 2001, including in the taxable income for each year amounts by way of surcharge pursuant to the CP Assessment Act. In the case of the PS Scheme, a surcharge amount was included in the assessment for each of those years. In the case of the SB Scheme, surcharge amounts were included in the assessments for the years ended 30 June 1997 and 30 June 1998. In the case of the SSS Scheme, surcharge amounts were included in assessments for the years ended 30 June 1999, 30 June 2000 and 30 June 2001.

3 The applicant wrote to the Commissioner on 25 November 2003 asserting that the assessments were "invalid on the grounds that the [CP Assessment Act] is unconstitutional." This may or may not have been a valid objection. However, on 9 December 2005, the applicant applied for an extension of time in which to lodge appropriate objections. Such extension of time was granted by letter dated 27 February 2006. The objections were, however, disallowed. The applicant then applied to the Administrative Appeals Tribunal (the "AAT") for review of the Commissioner’s decisions.

4 In the course of those proceedings the AAT referred the following questions of law to this Court for decision:

(a) on the ground that they so discriminate against the State of South Australia or so place a particular disability or burden upon the operations and activities of the State of South Australia, as to be beyond the legislative power of the Commonwealth; or

(b) on the ground that the [CP Imposition Act] imposes a tax on property belonging to the State of South Australia contrary to section 114 of the Commonwealth Constitution?

5 The parties have prepared a Statement of Agreed Facts which is attached to these reasons.

6 Notices were issued pursuant to s 78B of the Judiciary Act 1903 (Cth). Only the Attorney-General of South Australia has chosen to intervene.

7 The questions are primarily to be answered by identifying the inter-relationship between the CP Assessment Act on the one hand and the PS Act, the SBS Act and the SSS Act on the other. However, before examining that legislation, we should say something about the circumstances in which the CP Assessment Act and the CP Imposition Act were enacted.

8 On 20 August 1996 the Federal Treasurer announced that the Government proposed to impose a so-called "Superannuation Contributions Surcharge for High Income Earners". The legislation giving effect to this proposal included the Superannuation Contributions Tax Imposition Act 1997 (Cth) and the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth). The surcharge was, in a broad way, imposed upon amounts paid in any tax year to a superannuation fund for the benefit of an employee. The surcharge was payable by the trustee or manager of the relevant superannuation scheme. In other words it was paid from the fund. However the holders of certain public offices, particularly Judges, and Members of Parliament, had statutory entitlements to future retirement benefits which would not be derived from funds to which contributions were made during their working lives, the benefits being charges upon the consolidated revenue of the Commonwealth or of a relevant State or Territory. Further, the funds supporting some relevant superannuation schemes were, in effect, the property of a State, raising concerns that the imposition of the surcharge might be contrary to s 114 of the Constitution. The regime established by the CP Imposition Act and the CP Assessment Act was designed to deal with these problems by:

• imposing the surcharge on the relevant beneficiary rather than the relevant superannuation fund; and

• in the case of certain schemes, described as "defined benefit" schemes (which were generally non-contributory), identifying a notional annual contribution to the ultimate superannuation benefit to be derived by the relevant beneficiary.

9 Relevant sections of the CP Assessment Act, particularly ss 9 and 38, were amended (the "1999 Amendments") by the Superannuation Contributions and Termination Payments Taxes Legislation Amendment Act 1999 (Cth) (the "1999 Act"). Those amendments were made with effect from 7 December 1997, the date upon which the CP Assessment Act, in its original form, received the Royal Assent and commenced. In other words the 1999 Amendments had retrospective effect from such commencement. In the applicant’s submissions it was assumed that the Act, in its original form, had been in effect for some period. Counsel therefore addressed the Act in its original and amended forms. As far as we can see, the assumption was incorrect. However, in any event, counsel for the applicant conceded that the 1999 Amendments had no relevant effect for present purposes.

10 Section 4 of the CP Imposition Act imposed the surcharge "on a member’s surchargeable contributions for a financial year ... ." Section 11 of the CP Assessment Act provided that the relevant member, and not the fund trustee or manager, was liable to pay the surcharge. Section 8(1) of the CP Assessment Act provided that the surcharge was payable on "a member’s surchargeable contributions" for a relevant financial year, subject to presently irrelevant exceptions identified in s 8(2) and (3). The term "member" was defined in s 38 of the CP Assessment Act to mean "a member of a constitutionally protected superannuation fund and includes a person who has been a member of such a fund." We note incidentally that the words commencing "and includes ..." were added by the 1999 Amendments which, as we have observed, had retrospective effect. The Shorter Oxford Dictionary relevantly defines "member" to mean "Each of the individuals ... belonging to or forming a society or assembly; ... . A participant." In some cases, the legislation establishing relevant superannuation schemes or funds identified those entitled to be members. Broadly speaking, we understand the term to describe those who (or whose dependants) would benefit pursuant to the scheme or fund in question. We will return to the words "a constitutionally protected superannuation fund" at a later stage.

11 Section 9 defined the term "surchargeable contribution". In so doing it distinguished between two different kinds of superannuation scheme, defined benefits superannuation schemes and others to which we will refer as "accumulation schemes". Sections 9(2) and (3) dealt with the latter category, while subss (4), (5) and (6) dealt with the former. Sections 9(2) and (4) were the primary provisions. The reason for the distinction lay in the purpose of the legislative scheme, namely to tax superannuation benefits as they accrued. In accumulation schemes such benefits resulted from periodic payments made by employers, employees or both. The desired tax result could be achieved by taxing the amounts so paid. To avoid the problem of taxing state funds, the surcharge was imposed on the relevant office-holders or employees. However some defined benefits schemes could not be so treated. It was decided to tax a potential beneficiary under a defined benefits scheme upon an actuarial valuation of the extent to which the anticipated ultimate benefit under the scheme was attributable to the beneficiary’s service during the relevant year. That approach necessarily started with identification of the ultimate benefit. That benefit was generally tied to the relevant beneficiary’s salary at, or prior to, the termination of his or her employment.

12 Questions 1 and 2 assume that the SB Scheme and the SSS Scheme were not defined benefits superannuation schemes. Those questions do not concern the PS Scheme which was a defined benefits superannuation scheme. Question 3 concerns the constitutional validity of the CP Imposition Act and the CP Assessment Act as they operated upon all three schemes.

13 In order to understand the submissions in this case we must have regard to numerous definitions, most of which were found in s 38 of the CP Assessment Act. Many of those definitions, however, depended upon other statutes. Although its operation is not contentious for present purposes, for the sake of completeness we commence with the term "defined benefits superannuation scheme". In s 38 that expression was defined to mean:

... a member entitled, on retirement or termination of his or her employment, to be paid a benefit defined, wholly or in part, by reference to either or both of the following:

public sector superannuation scheme means a scheme for the payment of superannuation, retirement or death benefits, where the scheme is established:

17 We have previously referred to the definition of the term "member" as meaning "a member of a constitutionally protected superannuation fund and includes a person who has been a member of such a fund". Section 38 provided that the term "constitutionally protected superannuation fund" "has the same meaning as constitutionally protected fund has in Pt IX of the Income Tax Assessment Act." Part IX of the Income Tax Assessment Act 1936 (Cth) was concerned with the taxation of superannuation business. The term "constitutionally protected fund" was defined to mean: "A fund that is declared by the regulations to be a constitutionally protected fund". Regulation 177 ("reg 177") of the Income Tax Regulations 1936 (the "Regulations") provided:

For the definition of "constitutionally protected fund" in section 267 of the Act, each of the following funds is declared to be a constitutionally protected fund:

18 Schedule 14 ("sch 14") of the Regulations specified the PS Act, the SB Act and the SSS Act as being Acts for the purposes of reg 177. It follows that a fund established by any of those Acts was a constitutionally protected fund for the purposes of Part IX of the 1936 Act. In Austin v The Commonwealth of Australia (2003) 215 CLR 185 ("Austin") at [92]-[110] the High Court concluded that the definition of "constitutionally protected superannuation fund" in the CP Assessment Act had a broader meaning. We will return to Austin at a later stage.

19 As previously mentioned, the surcharge was imposed upon "surchargeable contributions". Section 9 of the CP Assessment Act relevantly defined the term "surchargeable contributions" as follows:

9(1) Application. This section explains what are the surchargeable contributions of a member for a financial year and how they are to be worked out.

9(2) Member other than a member of a defined benefits superannuation scheme.

the surchargeable contributions of the member for the financial year are the sum of:

9(4) Member of defined benefits superannuation scheme. The surchargeable contributions for a financial year of a member of a defined benefits superannuation scheme are the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year.

20 Section 9(3), (5) and (6) expanded upon the general provisions of subss (2) and (4). We are, in any event, concerned only with subs (2). Section 38 defined the term "contributed amounts" to mean:

21 The effect of s 9(2)(c) and (d) of the CP Assessment Act was that some, but not all, of the amounts included in subpara (a)(i) of the above definition, and all of the amounts included in subparas (a)(ii) and (iii), were surchargeable contributions. Whether particular amounts were contributed amounts was to be determined by reference to the s 38 definition, particularly subpara (a)(i). Whether such contributed amounts were surchargeable contributions depended upon s 9(2).

22 We turn to the South Australian legislation establishing the three relevant schemes.

23 The Parliamentary Superannuation Act 1948 (SA) established the PS Fund. That fund continued in existence under the PS Act when it was enacted in 1974. We have been provided with two versions of the PS Act, the first, as at 31 October 1974 and the second, as at 24 August 1995. According to s 8(2) of the 1974 version:

24 With the Treasurer’s consent the Fund could borrow money and otherwise incur liabilities. Its liabilities were guaranteed by the Treasurer. Any liability arising under the guarantee was to be satisfied out of the General Revenue of the State. The President of the Legislative Council, the Speaker of the House of Assembly and the Under Treasurer were, pursuant to s 13 of the PS Act, constituted as a body corporate called "The Trustees of the Parliamentary Superannuation Fund". The Fund was vested in, and managed by, the Trustees.

25 Pursuant to s 14 every Member of either House of Parliament was a member of the Fund and obliged to contribute to it at the rate of 11.5% per annum of salary. A member who was in receipt of additional salary might make further contributions. Additional salary was additional salary received by virtue of any ministerial or parliamentary office, or otherwise declared by proclamation to be additional salary. In addition to the amounts payable by members pursuant to s 14, the Treasurer was obliged, pursuant to s 15, to pay into the Fund monthly amounts equal to the monthly contributions by members, together with such other additional sums as the Public Actuary might consider to be necessary in order to make provision for payment out of the Fund of benefits payable under the Act. In other words both the Treasurer and Members of Parliament were to contribute to the Fund.

26 Sections 16 and 18 regulated the circumstances in which a member was entitled to receive a benefit and the amount of such benefit. The minimum annual pension payable was 41 and % of the salary payable immediately before the pensioner ceased to be a Member of Parliament. A further amount of of 1% was payable for each whole month of service exceeding eight years of service, with an absolute cap of 75% of salary. Sections 21 and 21a dealt with commutation of the pension. Depending upon age, a member who was entitled to a pension could commute a percentage of the pension at the rate of $10 for each dollar of annual pension so commuted, the pension being reduced accordingly. The maximum percentage for a person aged 45 years or less was 75% and, for a person aged 60 years or more, 30%, save that for a member with not less than 20 years service the latter percentage was 40%.

27 Section 23 provided that, in certain circumstances, payments could be made to the personal representative of a deceased member. Sections 24, 25 and 26 provided for pensions to spouses. Sections 27, 28, 29 and 30 provided for the payment of benefits to children. Section 35 made provision for adjustments of pension rates by reference to the consumer price index.

28 In the 1995 version of the PS Act, the incorporated trustee was replaced by an incorporated Board, the South Australian Parliamentary Superannuation Board (the "Parliamentary Board"). However the Parliamentary Board did not hold funds. Pursuant to s 14 every member was liable to make contributions to the Treasurer, such contributions being 11.5% of salary and additional salary, if any. For any member whose period of service equalled or exceeded 20 years and one month, the rate of calculation was 5.75% of basic salary and 11.5% of additional salary, if any. The applicant made payments pursuant to s 14. Section 16 provided that a member who retired involuntarily with not less than six years of service was entitled to a pension for life in an amount to be calculated in accordance with the Act. The applicant was such a person. Sections 17 and 17A fixed the amount payable by way of pension. Section 17 dealt with "old scheme" members, and s 17A dealt with "new scheme" members. Pursuant to s 5 an old scheme member was a member who first became a member prior to the commencement of the 1995 amending legislation. A new scheme member was a member who first became a member after that date. Section 35A permitted an old scheme member to elect to transfer to the new scheme, but such election had to be made on or before the day prior to the general election next following the commencement date of the 1995 amending legislation.

29 Section 39 required that contributions be paid to the Consolidated Account. The Public Finance and Audit Act 1987 (SA) (the "Finance Act") established this account. The nature of such an account was described in Austin at [47]. Pursuant to s 11, the Treasurer was authorized to invest moneys under that officer’s control. Moneys payable pursuant to the PS Act were payable from the Consolidated Account. Unlike the earlier version of the PS Scheme, there was no provision for contributions by the Treasurer although that officer, in effect, guaranteed payment of benefits. However the applicant and, presumably, other Members of Parliament were able to receive the benefit of government contributions under the SBS Act to which we now turn.

30 Unlike the PS Fund, membership of the SB Scheme was not limited to parliamentarians. This scheme appears to have been established in order to deal with the impact of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the "Guarantee Act") pursuant to which employers were obliged to make contributions designed to provide superannuation benefits for their employees. Any person in relation to whom any South Australian government agency was liable to make a payment under the Guarantee Act was to be a member of the SB Scheme. The agencies were to make contributions by payments to the Treasurer, presumably in discharge of their obligations under the Guarantee Act. Benefits were to be paid from the Consolidated Account. With one exception there was no provision for employee contributions. The exception concerned "rollover" payments from other funds. See s 28. Members of Parliament were eligible for membership of the SB Scheme. The applicant became a member on 11 December 1993.

31 The South Australian Superannuation Board (the "Superannuation Board") had been established prior to the enactment of the Superannuation Act 1988 (SA) (the "Superannuation Act"). That Act provided retirement benefits for public sector employees in South Australia. The Superannuation Board continued in existence under the Superannuation Act with responsibility for the administration of all aspects of that Act, save for management and investment of the fund established under it. Under s 7 of the SBS Act it was also responsible for keeping superannuation accounts in the names of all members of the SB Scheme, crediting to such accounts annual superannuation contributions by employers and interest, and deducting administrative charges. The amount payable to a member by way of superannuation was generally the amount standing to his or her credit at the time at which employment ceased. The Superannuation Board had numerous other functions under the SBS Act, but it did not hold money. As we have said, contributions were paid to the Treasurer. Members’ benefits, including accumulated interest calculated pursuant to ss 7 and 10, were paid from the Consolidated Fund. In effect, the Treasurer paid interest on contributions. No doubt such contributions were used either for government purposes or invested pursuant to the Treasurer’s power under s 11 of the Finance Act.

32 The Southern State Superannuation Fund (the "SSS Fund") was established by the Southern State Superannuation Act 1994 (SA) (the "SSS Act"). Persons who were entitled to be members of the SB Scheme or the scheme established under the Superannuation Act (the "State Scheme") could elect to join the SSS Fund. It seems that the SB Scheme held employers’ contributions while the State Scheme held employees’ contributions. The SSS Fund held both, but in different accounts and subject to different conditions. It is not necessary to say anything more about the SSS Fund in its original form.

33 The SSS Act was substantially amended by the Merger Act, which Act also repealed the SBS Act. By that time the SSS Fund was known as the SSS Scheme. Pursuant to s 14 members of the SSS Scheme were persons "in relation to whom the Crown, or an agency or instrumentality of the Crown, is liable to pay a superannuation guarantee charge under the [Guarantee Act] ... ." Members of the SB Scheme became members of the SSS Scheme. The Merger Act inserted Schedule 3 into the SSS Act. Clauses 2, 3, 4 and 5 provided for the effective conversion of the accounts of former SB Scheme members to accounts in the SSS Scheme. This process was, to some extent, facilitated by the fact that the Superannuation Board, which had previously kept individual accounts for each scheme, continued to keep the accounts for the SSS Scheme.

34 Section 4 established the Southern State Superannuation Fund (the "SSS Fund"). That Fund belonged "both at law and in equity" to the Crown. It was made up of members’ (as opposed to employers’) contributions with accretions. The members paid contributions to the Treasurer who paid similar amounts to the SSS Fund. The SSS Fund was to be invested by the Superannuation Funds Management Corporation of South Australia (the "Management Corporation"). That corporation continued in existence under the Superannuation Funds Management Corporation of South Australia Act 1995 (SA). Its function was to invest and manage public sector superannuation funds pursuant to strategies which it was to formulate. The SSS Fund, but neither the PS Scheme nor the SB Scheme, was a public sector superannuation fund. The Superannuation Board also had various functions in connection with the SSS Fund, including keeping accounts for members.

35 Section 9 of the SSS Act established the Southern State Superannuation (Employers) Fund (the "SSS (Employers) Fund"). This fund was to receive payments from the Treasurer of amounts received from employers pursuant to Div 4 of Pt 3 of the SSS Act. That Division fixed the amounts of the employers’ contributions. It was also to receive from the Treasurer amounts transferred pursuant to cl 4 of sch 3. These were amounts representing employers’ contributions and accretions under the SBS Act. Again, the Superannuation Board was to keep "employer contribution accounts" for members. See s 27. The SSS (Employers) Fund was quite separate from the SSS Fund. Although the latter was said to be the property of the Crown (at law and in equity), no such assertion was made concerning the SSS (Employers) Fund. Presumably, it was thought to be unnecessary. The SSS Fund was to be invested by the Management Corporation, but that corporation had no responsibility for the SSS (Employers) Fund. However s 27 contemplated investment of the latter fund, and that employees would have a choice of investment categories. As far as we can see, these expectations must have been based upon the assumption that the Treasurer would invest such funds pursuant to s 11 of the Finance Act. There was some debate about whether, in fact, the Treasurer had paid contributions received from employers to the SSS (Employers) Fund. In the end we understood the applicant to concede that such payments were made.

36 Pursuant to s 12, benefits payable under the SSS Scheme were to be paid by the Treasurer out of the Consolidated Account. In the event that a payment included an "employee component", the Consolidated Account was to be reimbursed from the SSS Fund. If it included an "employer component" reimbursement was to be from the SSS (Employers) Fund.

37 It is appropriate, at this stage, to discuss the decision of the High Court in Austin to the extent that it is relevant to Questions 1 and 2. It will be necessary to return to it again in considering Question 3. For the purposes of Questions 1 and 2, the relevant passage appears in the reasons of Gaudron, Gummow and Hayne JJ, at [92]-[110] under the heading "Construction Issues". At [3] Gleeson CJ agreed with this aspect of their Honours’ reasons, as did McHugh J at [206].

38 The CP Assessment Act and the CP Imposition Act commenced on 7 December 1997. The first plaintiff in Austin was a judge of the Supreme Court of New South Wales, appointed after that date. The second plaintiff was a master of the Supreme Court of Victoria, appointed prior to that date. It was necessary for the High Court to determine whether, on the proper construction of the CP Assessment Act and the CP Imposition Act, either of the plaintiffs was liable to the surcharge and, if so, whether those Acts were valid enactments of the Commonwealth Parliament. Section 7 of the CP Assessment Act provided that "This Act does not apply to a person who is a member because he or she is a judge of a court of a State at the commencement of this Act." We have previously demonstrated that a "member" was a member of a constitutionally protected superannuation scheme. Their Honours concluded that even if the second plaintiff were such a member, she was, at the commencement of the CP Assessment Act, a judge of a court of a State. For that reason her case is of no present relevance.

39 Their Honours then considered whether the first plaintiff was, on the proper construction of the Assessment Act, liable to the surcharge. Pursuant to relevant New South Wales legislation, the first plaintiff, upon his retiring, having completed a prescribed period of service and attaining the prescribed age, was entitled to a pension. He was not required to make any financial contribution towards the provision of such pension, nor was there any segregated fund from which the pension would be paid. It was to be paid from the Consolidated Fund. As Gaudron, Gummow and Hayne JJ observed at [48], such a legislative scheme seemed not to answer the general description of a superannuation fund.

40 The first plaintiff submitted that his situation was not such as to attract the surcharge, identifying four bases for that assertion:

• that he was not a member of a constitutionally protected superannuation fund;

• that for the purposes of the operation of ss 8(1) and 9(4) of the CP Assessment Act he was not a member of a defined benefits superannuation scheme, primarily because he was a statutory office holder and not an employee;

• that he was not a defined benefit member of a defined benefits superannuation fund because the amount of his pension would not be determined, wholly or in part, by reference to his salary at the date of retirement; and

• that for the purposes of s 9(4), no benefit accrued to him in respect of any financial year prior to his retirement or termination of service.

41 The second, third and fourth points related only to defined benefits superannuation schemes. Questions 1 and 2 concern only the SB Scheme and the SSS Scheme which were not defined benefits superannuation schemes. The High Court’s views regarding the second, third and fourth points are therefore of no direct relevance in answering Questions 1 and 2. However the first point is directly relevant for present purposes.

42 The first plaintiff’s argument was, essentially, that reg 177 identified as constitutionally protected funds only funds in the usual sense of that word. His pension scheme had no such fund, being a non-contributory fund, financed from the Consolidated Fund. Thus, he submitted, it was not a constitutionally protected fund for the purposes of reg 177 or s 271A of the 1936 Act, and therefore not a constitutionally protected superannuation fund for the purposes of the CP Assessment Act.

43 Gaudron, Gummow and Hayne JJ identified, in the Second Reading Speech for the CP Assessment Act and in the Act itself, an intention that the surcharge apply to members of constitutionally protected superannuation funds and a "reluctance to admit of exceptions or qualifications to a particular revenue-raising policy." Their Honours observed that many of the schemes established pursuant to the legislation identified in sch 14 were funded by contributions, but others were not. Some had segregated funds, but others did not. In some cases relevant funds belonged to the State. In others, benefits were paid from consolidated revenue. Their Honours noted that pursuant to s 267 of the 1936 Act and reg 177, a fund would be a constitutionally protected fund if:

• such fund was established under legislation, or a specified provision of legislation, specified in sch 14.

44 They pointed out that s 271A was an exempting provision, relieving the income of constitutionally protected funds from tax liability which would otherwise be imposed by Part IX of the 1936 Act. It applied only where such a fund would otherwise be liable to tax pursuant to Part IX. In the absence of a fund, there would be no income to which Part IX could apply, regardless of s 271A. In those circumstances, the inclusion in sch 14 of "schemes" which did not involve funds created by relevant legislation posed no problem. Such inclusion was capable of explanation as being "for more abundant caution". When the drafter chose to frame the definition of "constitutionally protected superannuation fund" in s 38 of the CP Assessment Act by reference to the 1936 Act, an anomaly emerged. The list of legislation in sch 14 seemed to reflect the purpose of the CP Assessment Act as outlined in the Second Reading Speech. However that purpose would have been largely frustrated if the term "constitutionally protected superannuation fund" were to include only funds according to the usual meaning of that word. At [101], their Honours observed:

However, the phrase "the same meaning" [in s 38] is to be taken as used at the semantic level appropriate to the respective subject matters of the two statutes. To read the definition as excluding non-contributory arrangements under a range of particular State laws would not conform to the scheme of the [CP Assessment Act]. The definition is not to be given the same literal application as it has in Pt IX of the [1936 Act] if to do so would cause to miscarry the hypothesis upon which it is adopted by the other statute.

What is significant for the purposes of the definition in the [CP Assessment Act] is the treatment as "funds" of the arrangements established by the State legislation listed in Sch 14. This includes the New South Wales legislation upon which the first plaintiff relies for his pension entitlements.

46 Thus it was held that the statutory scheme which provided non-contributory and unfunded pensions to New South Wales Judges was a constitutionally protected superannuation fund for the purposes of the Assessment Act.

47 In considering the relevance of Austin for present purposes, it is necessary that we keep in mind the problem with which that case was concerned. It arose out of the distinction drawn in ss 9 and 38 of the CP Assessment Act between defined benefits superannuation schemes and accumulation schemes. Whereas members of defined benefits superannuation schemes were to be taxed on actuarial calculations of notional benefits accruing in the relevant year, members of accumulation schemes were to be taxed upon contributions actually made. If unfunded defined benefits schemes were beyond the operation of the CP Assessment Act, then the intention to impose the surcharge upon members of such schemes would have been defeated. The prescribed mechanism for actuarial calculation of the annual benefit derived by such members would have been without purpose. Such considerations are not directly relevant to the operation of the CP Assessment Act as it applied to accumulation schemes. Nonetheless it is clear from the extrinsic material referred to in Austin that it was also intended that members of identified accumulation schemes (including the SB Scheme and the SSS Scheme) be subject to the surcharge. Section 9(2) was designed to identify the subject matter upon which members of such schemes were to be taxed.

48 We turn to the questions posed for our consideration. As Questions 1 and 2 have, in effect, cumulative operation, it will be convenient to consider both questions as they apply to each of the two relevant schemes, taken individually.

49 This question concerns the meaning of the term "contributed amounts". The definition of "contributed amounts" in s 38 referred to a "superannuation provider" who either received amounts paid for, or by a member, or otherwise credited or attributed amounts to a member’s account. The term "superannuation provider" was defined to mean "a trustee of a constitutionally protected superannuation fund". The term "trustee" meant, in relation to such a fund:

50 Section 12 of the CP Assessment Act contemplated the superannuation provider supplying relevant information to the Commissioner to enable assessment of the surcharge. Although the surcharge was assessed in each tax year, payment could be deferred until the member became entitled to a benefit. When a benefit became payable the superannuation provider was to give notice to the Commissioner. The Commissioner was then to notify the member of his or her liability to pay the surcharge. It was payable within three months of the notice or such extended time as might be allowed by the Commissioner. Whilst an assessment was outstanding, it bore interest.

51 In his written submissions the applicant submitted that there was no relevant superannuation provider for the SB Scheme, and that, therefore, there could be no contributed amounts as defined in s 38. The Commissioner identified the Superannuation Board as being the relevant superannuation provider. In written submissions in reply, the applicant’s argument became more complex. It was submitted that:

• the word "fund" in the definition of "superannuation provider" in s 38 did not include an unfunded scheme;

• in the absence of a fund there could be no trustee within the ordinary meaning of that word; and

• the Superannuation Board’s involvement in management of the Scheme did not mean that it managed it.

52 These submissions seemed to pay less than lip service to the decision in Austin. In particular, they ignored the conclusion in that case that "the arrangements established by the State legislation listed in sch 14" must be treated as constitutionally protected superannuation funds. In other words, Parliament had expressly identified members of the SB Scheme as persons whose surchargeable contributions to such Scheme were to attract the surcharge. It would hardly be consistent with that purpose to construe the legislative mechanism for calculating the surchargeable contributions in such a way that there could be none.

54 We do not understand there to be any challenge to the proposition that the applicant was a member of the SB Scheme. In light of the decision in Austin, we see no basis for doubting that it was a constitutionally protected superannuation fund. After the commencement of the CP Assessment Act, amounts were paid pursuant to the SBS Act in the years ended 30 June 1997 and 30 June 1998. The question is whether those payments were contributed amounts for the purposes of para (a)(i) of the definition of that term in s 38 of the CP Assessment Act. Such payments were made for the purpose of securing superannuation benefits for the applicant. In that sense they were paid for him. The payments were received and held by the Treasurer, but interest accrued pursuant to the SB Act (ss 7 and 10). Benefits were to be paid from the Consolidated Account or other special account established by the Treasurer for that purpose.

55 The next question is whether the Treasurer was trustee of a constitutionally protected superannuation fund. For the moment we assume that the SB Scheme was the relevant fund. We see no good reason for characterizing as a trust the statutory scheme established by the SBS Act. In Commissioner of Stamp Duties (Qld) v Livingstone [1964] UKPC 2; [1965] AC 694 at 712, Viscount Radcliffe, in delivering the judgment of the Privy Council, rejected the proposition that "... for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in property, the legal and the equitable." His Lordship continued:

When the whole right of property is in a person, as it is in an executor, there is no need to distinguish between the legal and equitable interest in that property, any more than there is for the property of a full beneficial owner. What matters is that the court will control the executor in the use of his rights over assets that come to him in that capacity; but it will do it by the enforcement of remedies which do not involve the admission or recognition of equitable rights of property in those assets. Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.

56 We note that the learned authors of Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed) at [4-060], advise that this observation should not be taken too literally. The SBS Act imposed a statutory obligation upon employers to pay money to the Treasurer, and a statutory obligation upon the Treasurer to pay benefits conferred by that Act to those who became entitled to them. The SB Scheme involved statutory rights and duties. Equitable assistance was not required in order to vindicate a member’s rights. It follows that the Treasurer was not a trustee in the ordinary meaning of that word. There was no basis for so describing the Superannuation Board.

57 In the absence of a trustee, the next inquiry must be whether there was a person who managed the SB Scheme. Both the Treasurer and the Superannuation Board had duties to perform in connection with it. The verb "manage" means "Conduct or carry on (a war, a business, an undertaking, an operation); ... control and direct the affairs (of a household, institution, State, etc)." (Shorter Oxford Dictionary). We see no reason to construe the expressions "superannuation provider", "trustee" or "the person who manages" as necessarily being limited to one person. The Acts Interpretation Act 1901 (Cth), at s 23(b) suggests otherwise. It was not necessary that a superannuation provider actually provide superannuation. It was only necessary that such a person manage a constitutionally protected superannuation fund, in this case, the SB Scheme.

58 Austin establishes that the "arrangements" established by the legislation identified in sch 14 were constitutionally protected superannuation funds as defined in s 38. For present purposes the relevant arrangement was the superannuation benefits scheme established pursuant to the SBS Act. The receipt of contributions by the Treasurer and the payment of benefits by that officer were critical aspects of the arrangement. The SB Act conferred various powers, discretions and duties upon the Superannuation Board. Those powers, discretions and duties were also important aspects of the arrangement. In particular the Superannuation Board maintained individual members’ accounts. That function included "crediting" or "attributing" the amounts of employers’ contributions. Both the Treasurer and the Superannuation Board controlled or directed aspects of the SB Scheme. Both performed managerial functions in connection with it and, to that extent, managed it. It cannot be seriously submitted that in order to have been a superannuation provider a relevant person or corporation must have performed all managerial functions in connection with the arrangements in question.

59 We are inclined to the view that both the Treasurer and the Superannuation Board managed the SB Scheme and were therefore superannuation providers in connection with it. It would follow that contributions paid to the Treasurer for the benefit of the applicant were contributed amounts, as were amounts credited to his account by the Superannuation Board. However we understand the Commissioner to submit only that the Superannuation Board was a superannuation provider for present purposes. For this reason we conclude that the Superannuation Board was a superannuation provider as defined in s 38 and that it credited or attributed amounts to an account for the applicant for the purposes of that section.

60 We understood the Commissioner also to concede that the SB Scheme had no associated fund which might have been a constitutionally protected superannuation fund. The correctness of that concession would only be relevant in the event that we have misunderstood the decision in Austin. We are inclined to think that there was a fund established by the SBS Act for the purposes of reg 177. Contributions were paid to the Treasurer. That officer was, pursuant to the Finance Act, obliged to pay such contributions to the Consolidated Account, assuming that they were within either s 5(d) (borrowed funds) or s 5(e) (other revenue of the Crown) of that Act. Assuming that the contributions did not become trust moneys, it would seem that they must have been one or the other. Under the SBS Act the Treasurer was, in effect, to pay interest on such contributions. Upon retirement of a member, the Treasurer was obliged to pay to that member the amount of his or her account as maintained by the Superannuation Board. Whilst the contributions and accumulated interest might have been "mixed" with other funds in the Consolidated Account, there can be no doubt that the amounts thereof were readily identifiable at any time.

61 The most appropriate definition of "fund" in the Shorter Oxford Dictionary is "A stock or sum of money, esp. as set apart for a particular purpose." Funds are generally used to generate income. As indicated in [18] above, for present purposes reg 177 required only that a fund be established by relevant legislation. It did not require that such fund be held in a segregated account belonging to a superannuation scheme, in the sense that the scheme, or somebody on its behalf, had proprietary rights in it. We see no reason why the contributions received, held and eventually accounted for, by the Treasurer should not be described as a fund. In view of our conclusion that the SB Scheme was a constitutionally protected superannuation fund it is not presently necessary that we consider whether, absent s 271A, Part IX of the 1936 Act would have applied to such fund. Nor need we consider whether the applicant was a member of that fund.

62 We must now consider whether the contributed amounts referred to above were surchargeable contributions. The applicant submitted that such amounts were not taxable contributions pursuant to s 274 of the 1936 Act as required by s 9(2)(c) of the CP Assessment Act. However, before considering that matter, we should deal with s 9(2)(b). It provided that contributed amounts would only be surchargeable contributions if the relevant constitutionally protected superannuation fund was a complying superannuation fund. Pursuant to s 38 that term had the meaning given by s 45 of the Superannuation Industry (Supervision) Act 1993 (Cth) (the "SIS Act"). Only subs (6) is presently relevant. It provided:

Despite subsection (1), if, at all times during a year of income when a fund was in existence, the fund was, or was part of, an exempt public sector superannuation scheme, the fund is a complying superannuation fund in relation to the year of income for the purposes of Part IX of the [1936 Act].

63 The words "Part IX of" were deleted by par 358 of Schedule 1 of the Superannuation Legislation Amendment (Simplification) Act 2007 (Cth). (The limitation of purpose in s 45(6) should not be construed as excluding its application for the purposes of the CP Assessment Act. The whole of the definition in s 45 was for the purposes of Part IX.) In s 10 of the SIS Act, the term "exempt public sector superannuation scheme" was defined to mean "a public sector superannuation scheme that is specified in regulations made for the purposes of this definition". Schemes established by, or operated under, the SBS Act were so specified. Section 45(6) clearly distinguished between a fund and a superannuation scheme, perhaps suggesting that only a fund, and not an unfunded scheme, could be a complying superannuation fund. The Commissioner submitted that we should, nonetheless, treat the SB Scheme as being a complying superannuation fund, arguing by analogy to the treatment of the reference in s 38 of the CP Assessment Act to the definition of "constitutionally protected fund" in Austin. In fact the High Court observed at [60] in that case that:

The only complying superannuation funds within the meaning of s 45 of the SIS Act that are unfunded are public sector superannuation schemes.

64 This statement, accepted at face value, suggested that an unfunded exempt public sector superannuation scheme was a complying superannuation fund. It is not clear that their Honours actually decided that question. It seems that they were rather citing a passage from the Case Stated as agreed by the parties. However the proposition is consistent with their Honours’ reasoning concerning the definition of "constitutionally protected superannuation fund". One might reasonably have expected that they would have expressed any reservation which they entertained concerning the application of their reasoning to s 45, given the close connection, for the purposes of the CP Assessment Act, between the Part IX of the 1936 Act and that section. The applicant has not submitted that the SB Scheme was not a complying superannuation fund. In those circumstances we conclude that it was such a fund.

65 Other aspects of the wider legislative framework support that conclusion. Section 46 of the SIS Act provided:

An exempt public sector superannuation scheme is taken to be a complying superannuation scheme for the purposes of the [Guarantee Act].

66 This provision was necessary because the Guarantee Act treated complying superannuation funds and complying superannuation schemes differently. Section 7 of that Act provided:

A superannuation fund or scheme is a complying superannuation fund or scheme (as the case may be) in relation to a period for the purposes of this Act if it is a complying superannuation fund in relation to that period for the purposes of Part IX of the Income Tax Assessment Act 1936.

67 The reference to Part IX of the 1936 Act was to an earlier definition of "complying superannuation fund" in that Act which, in turn, referred to s 12 of the Occupational Superannuation Standards Act 1987 (Cth) (the "OSS Act"), the predecessor of the SIS Act. It seems that the term "complying superannuation scheme" was not used in the OSS Act. However the concept of compliance with certain requirements, which was the basis for classification as a complying superannuation fund in the SIS Act, was also found in the OSS Act. A superannuation scheme, for the purposes of the Guarantee Act included a defined benefits scheme (s 6). The point is that s 7 of the Guarantee Act suggested that for its purposes, a scheme (as opposed to a fund) might have been a fund for the purposes of Part IX of the 1936 Act. The inclusion of s 46 in the SIS Act seems to have recognized that schemes, for the purposes of the Guarantee Act, might have been funds for the purposes of s 45 of the SIS Act.

68 Further support for the proposition that an unfunded exempt public sector superannuation scheme might nonetheless have been a complying superannuation fund for the purposes of s 45 may be found in the definition of "superannuation fund" in s 10 of the SIS Act as:

a scheme for the payment of superannuation, retirement or death benefits, where the scheme is established:

70 Finally, s 274 of the 1936 Act is important in applying s 9(2) of the CP Assessment Act to accumulation schemes. A term of particular relevance used in that section is "resident superannuation fund". That term was defined in s 6E of the 1936 Act. Relevantly, subs (1)(b)(ii) required, inter alia, that in order that a fund be a resident superannuation fund, "any asset of the fund at the relevant time be situated in Australia". Use of the expression "any asset" rather than "all assets" suggested that the word "fund" did not necessarily denote an entity having identifiable assets.

71 Our conclusion that the SB Scheme was a complying superannuation fund means that the applicant’s surchargeable contributions for each relevant financial year included the sum of those contributed amounts, paid in that year, which were identified in ss 9(2)(c) and (d) of the CP Assessment Act. We are not presently concerned with the amounts identified in paras (c)(ii) (employees’ contributions) or (iii) (roll-over amounts), or with those identified in para (d).

72 Contributed amounts pursuant to subpara (a)(i) of the s 38 definition of that term would satisfy s 9(2)(c)(i) if they were taxable contributions pursuant to one of numerous identified paragraphs or subparagraphs of s 274(1) of the 1936 Act. Section 274 was contained in Part IX of the 1936 Act which part was, as we have observed, concerned with taxing the income of superannuation business. Pursuant to that Part taxable contributions were to be included in the assessable income of a superannuation fund (ss 281 and 288). Thus the test prescribed by s 9(2)(c)(i) of the CP Assessment Act required the identification for taxation, pursuant to that Act, of amounts which, absent s 271A, would have been liable to tax as income in the hands of superannuation funds under Part IX of the 1936 Act.

73 Part IX was inserted into the 1936 Act by s 9 of the Taxation Laws Amendment Act (No 2) 1989 (Cth). The relevant explanatory memorandum was that issued in connection with the Taxation Laws Amendment Bill (No 6) 1988. That explanatory memorandum suggested that apart from taxing the income of superannuation funds, purposes of the proposed legislation included:

• denying deductions to employers who made superannuation contributions for the benefit of employees where such contributions were not actually paid to superannuation funds, but merely segregated in the hands of such employers; and

• by use of differential tax rates, encouraging superannuation funds to become complying, rather than non-complying superannuation funds for the purposes of the SIS Act.

74 In s 274(1) there were references to a "PST" and an "RSA". A "PST" was a pooled superannuation trust. An "RSA" was a retirement savings account. Neither concept is presently relevant.

Subject to this Division the following amounts paid to an eligible entity ... in the year of income ("the contribution year") are taxable contributions in relation to the contribution year:

76 In argument, the parties focussed on the requirement that taxable contributions have been paid to an eligible entity. We will discuss that term in a moment. However payment to such an entity was not the whole of the test prescribed by s 274(1). The subsection identified six different categories of eligible entity, certain categories of payment to which were to be taxable contributions. In other words, not all payments to all eligible entities were taxable contributions. Further, pursuant to s 9(2)(c)(i) of the CP Assessment Act only contributed amounts which were taxable contributions pursuant to s 274(1)(a)(i), (b)(ii), (ba)(i), (ba)(iv), (d) or (e) of the 1936 Act were surchargeable contributions. The identified payments and eligible entities under those provisions were:

• payments of employers’ contributions to eligible entities being resident superannuation funds (s 274(1)(a)(i));

• payments of government "top-up" contributions under the Guarantee Act to eligible entities being complying superannuation funds (s 274(1)(b)(ii));

• certain payments to eligible entities being retirement savings accounts (s 274(1)(ba)(i) and (iv));

• payments to eligible entities being approved deposit funds (s 274(1)(d)); and

77 We are not concerned with payments to the entities identified in s 274(1)(ba)(i) or (iv) or (d) or (e). The payments identified in s 274(1)(b)(ii) are also presently irrelevant. For present purposes a payment was a taxable contribution if it was, pursuant to s 274(1)(a)(i), made by an employer to an eligible entity which was a resident superannuation fund.

79 Section 267 also provided that the term "eligible superannuation fund" meant "a fund that is a complying superannuation fund, or a non-complying superannuation fund, in relation to the year of income ...".

80 The applicant submitted that there were no payments to an eligible entity, the only payments having been made to the Treasurer who was not an eligible entity.

81 The term "complying superannuation fund" had the meaning given by s 45 of the SIS Act. We have concluded that the SB Scheme was a complying superannuation fund. It was, therefore, an eligible entity. The next question is whether contributed amounts were paid to it. They were, in fact, paid to the Treasurer. In light of the decision in Austin, the reference to a "scheme" in s 45(6) of the SIS Act should be understood as a reference to the superannuation arrangements comprising that scheme. The reference to an "eligible entity" in s 274 should be similarly understood. The South Australian Parliament, in designing the SB Scheme, co-opted existing state institutions to perform functions involved in the effective operation of the Scheme. The Treasurer and the Superannuation Board were two such institutions. The Treasurer had obligations under the Finance Act which touched upon the functions to be performed under the SB Act. In our view performance by the Treasurer and the Superannuation Board of their respective functions under the SBS Act were parts of the relevant arrangement. The Treasurer and the Superannuation Board were parts of such arrangement. The Treasurer’s function was to receive contributions paid for the purposes of the SB Scheme, receiving such contributions for the purposes of the scheme. In that sense the contributed amounts were paid to the SB Scheme and were surchargeable contributions, subject only to SB Scheme being a resident superannuation fund. We have previously referred to the definition of that expression in s 6E of the 1936 Act. We see no reason why the SB Scheme should not have satisfied the definition. However we do not consider that we should consider that question. It was not ventilated in argument.

82 In view of our conclusion that the SB Scheme was a complying superannuation fund, it is not necessary to consider whether the fund held by the Treasurer was also capable of being so described.

83 We are concerned only with contributions made to the SSS (Employers) Fund. Paragraphs 41-45 of the Statement of Agreed Facts assert:

84 The applicant was a member of the SSS Scheme from 1 July 1998 until he left Parliament on 8 February 2002. The relevant payments were those made to the Treasurer pursuant to s 26 of the SSS Act. The Treasurer was obliged to maintain a separate fund (the SSS (Employers) Fund) containing employers’ contributions. The SSS Act contemplated that members would receive returns upon contributions made for their benefit, presumably as the result of investment by the Treasurer pursuant to s 11 of the Finance Act. Benefits were to be paid from the Consolidated Account and recouped, where appropriate, from the SSS (Employers) Fund. Amounts were kept by the Superannuation Board.

• the Treasurer was not trustee or manager of any pool of money in the SSS Scheme;

• the Superannuation Board may have been involved in management of the SSS Scheme but that involvement did not mean that it managed that Scheme.

86 A number of interesting semantic arguments were advanced in support of these propositions. Some, at least, seemed to overlook the fact that the decision in Austin established that an unfunded superannuation scheme for the purposes of reg 177 and sch 14 was a constitutionally protected superannuation fund for the purposes of the CP Assessment Act.

87 The applicant submitted that the word "otherwise" in the definition of "contributed amount" indicated that the definition implicitly assumed that any payment to a superannuation provider would be either by physical payment or by book entry. This argument seems to have been designed to exploit the fact that in the present case, contributions were paid to the Treasurer but credited to relevant accounts by the Superannuation Board. It was said that the definition did not contemplate such a division of functions. We see no justification for such an approach. The proper approach to the definition is to ask whether a particular factual situation met the relevant criteria. If contributions were paid to a superannuation provider for the applicant, or if amounts were otherwise credited or attributed to an account for the applicant by a superannuation provider, then the definition was satisfied. It did not matter that in a particular case, both limbs of the definition may have been satisfied.

88 The applicant submitted that it in some way strained language to describe the Superannuation Board as a manager or superannuation provider. We see no merit in that argument given the relatively clear definitions of the words in question. When one has in mind the clear purpose of the legislation, any such strain is readily understandable. The drafter sought to deal with numerous schemes which had various structures, choosing language which, with the accompanying definitions, allowed a degree of generalization based upon the common features of such schemes.

89 For reasons which we have given in connection with the SB Scheme, we conclude that the SSS Scheme was a constitutionally protected superannuation fund, and that the Superannuation Board, as a body which managed the Scheme, was a superannuation provider. Again, we are inclined to the view that the Treasurer, as a recipient of contributions and payer of benefits, also managed the Scheme and was also a superannuation provider. We also consider that the SSS (Employers) Fund may have been a constitutionally protected superannuation fund. However we need not consider those matters. It follows that payments made to the Treasurer by the House of Assembly were contributed amounts as defined in s 38 of the CP Assessment Act.

90 The applicant submits that the only contributed amounts were paid to the Treasurer who was not an eligible entity for the purposes of s 274 of the 1936 Act. We consider that the Treasurer, in receiving employers’ contributions, was acting as part of the arrangement constituting the SSS Scheme. In that sense such contributions were paid to the SSS Scheme which was a complying superannuation fund for the purposes of s 9(2)(b) of the CP Assessment Act and an eligible entity for the purposes of s 274 of the 1936 Act. Such amounts were surchargeable contributions, provided that the SSS Scheme was a resident superannuation fund.

91 Again, it is not necessary to consider whether the SSS (Employers) Fund (as opposed to the SSS Scheme) was an eligible entity.

92 The applicant contends that the CP Assessment Act and the CP Imposition Act are invalid insofar as they purport to impose a tax on a State parliamentarian because they discriminate against the State or operate so as to place a particular disability or burden upon the operations of the State, and are thus beyond the ambit of the power to make laws with respect to taxation.

93 The discrimination is said to arise out of the fact that the House of Assembly is an essential organ of the constitutional structure of the State, and the Commonwealth legislation singles out, and discriminates against, members of constitutionally protected funds by imposing on them a different regime from that imposed on high income earners under the general superannuation surcharge legislation.

94 It is submitted that the ‘singling out’ inheres in the fact that the legislation imposes the surcharge on the member rather than on a superannuation provider. It is also said to impose it not on actual contributions but on notional contributions calculated by an actuary, which may overestimate any benefit actually received. The member must pay the surcharge whether or not a benefit is in fact received. Thus, it is claimed, the legislation singles out members of constitutionally protected funds and imposes on them a special burden that is not imposed on anyone else.

95 In addition the applicant claims that the legislation undermines the State’s parliamentary pension arrangements which are designed to benefit parliamentarians and encourage people to put themselves forward for election. The effect of the legislation is said to be to dictate to the State how it is to provide for the retirement of parliamentarians. It is claimed that the Commonwealth legislation in effect compelled the State either to set up a special parliamentary pension fund into which contributions are actually paid, or to legislate to allow commutation of pensions to enable members to meet their surcharge liabilities.

96 It is submitted that the practical effect of the legislation is to achieve through indirect means a tax upon the property of a State which is prohibited by s 114 of the Constitution. The applicant claims that the only reason State parliamentarians and other members of constitutionally protected funds have been singled out and discriminated against is that the Commonwealth considers it cannot tax the State as a superannuation provider in the same way as it taxes private superannuation providers. Section 114 of the Constitution is said to preclude this course.

97 The applicant relies on the following passage from Re Australian Education Union; Ex parte Victoria [1995] HCA 71; (1995) 184 CLR 188 at 233:

... critical to a State's capacity to function as a government is its ability, not only to determine the number and identity of those whom it wishes to engage at the higher levels of government, but also to determine the terms and conditions on which those persons shall be engaged. Hence, Ministers, ministerial assistants and advisers, heads of departments and high level statutory office holders, parliamentary officers and judges would clearly fall within this group. The implied limitation would protect the States from the exercise by the Commission of power to fix minimum wages and working conditions in respect of such persons and possibly others as well.

98 It is common ground that the applicant, as a member of the South Australian Parliament, is engaged "at the higher levels of government".

99 The applicant also relies on the observations of Starke J in Melbourne Corporation v The Commonwealth [1947] HCA 26; (1947) 74 CLR 31 at 75:

It is a practical question, whether legislation or executive action thereunder on the part of [the] Commonwealth or of a State destroys, curtails or interferes with the operations of the other, depending upon the character and operation of the legislation and executive action thereunder. No doubt the nature and extent of the activity affected must be considered and also whether the interference is or is not discriminatory but in the end the question must be whether the legislation or the executive action curtails or interferes in a substantial manner with the exercise of constitutional power by the other.

100 It is said that the legislation here substantially impairs the capacity of the State to decide what arrangements it makes with or in relation to the members of its Parliament, and in that way impairs its capacity to act as a government. The legislation imposes a special, differential, fiscal burden on parliamentarians which is impermissible because it interferes with the arrangements the State has made for the remuneration of its parliamentarians. In this connection the applicant refers to the enactment of s 21AA(1) of the PS Act (inserted by the Statutes Amendment (Commutation for Superannuation Surcharge) Act 1999 (SA) (the "Commutation Act") which came into operation on 1 April 1999). This section enabled a person in his position to commute so much of his pension as was required to provide a lump sum equivalent to the amount of his deferred superannuation contributions surcharge.

101 The Attorney-General for South Australia intervened in support of the applicant and made submissions limited to Question 3. The Attorney’s submissions were substantially based on the application to this case of what had been said by a majority of the High Court in Austin.

102 In that case the Court held invalid the CP Assessment Act and the CP Imposition Act insofar as they applied to a judge of the Supreme Court of New South Wales on the ground that they interfered with, or impaired, the State’s capacity to function as a government and thus infringed the implied limitation on federal legislative power.

103 The judicial pension scheme in Austin had neither employee nor employer contributions. The benefit of membership was a pension payable on satisfaction of certain statutory criteria. Pension payments were made out of consolidated revenue. There were no member accounts whereby specific funds were allocated to the benefit of individual members.

104 It was not in dispute in Austin that the legislation treated a person in the position of the judge differently from the manner in which other high-income earners and federal judges were treated. Gleeson CJ at [11] explained the position:

Federal judges in respect of whom the surcharge applies have their pensions, when they ultimately become payable, reduced, at the time of each pension payment, by a certain amount. No personal liability is incurred; no accumulated debt is payable by the judge; and there is no possibility that surcharge liability could exceed benefits. As to other high income earners, in their case the tax is imposed on the superannuation provider, no doubt in the expectation that it will be passed on to the member in the form of reduced benefits.

105 All members of the majority in Austin were of the view that the bare fact that a federal law requires a State in the performance of its functions to bear a burden or suffer a disability to which others are not subject does not necessarily spell invalidity: at [24], [139], [164]. What is required to invalidate is an interference in or impairment of the State’s capacity to function as a government. As it was put in the joint judgment at [124]:

The question presented by the doctrine in any given case requires assessment of the impact of particular laws by such criteria as "special burden" and "curtailment" of "capacity" of the States "to function as governments".

106 In determining whether there has been an impermissible interference, the court does not have regard only to matters of form, but also to the substance and operation of the law: at [28]-[29] and [124].

107 The interference, curtailment or impairment must be significant or substantial in practical terms before the limitation is infringed. As the joint judgment said at [168]:

... the "practical question" identified by Starke J in Melbourne Corporation ... is whether, looking to the substance and operation of the federal laws, there has been, in a significant manner, a curtailment or interference with the exercise of State constitutional power.

It is plain, and was accepted in the Australian Education Union Case, that quite apart from the consideration that they are not employees, the conciliation and arbitration power does not extend to enable the Parliament directly or indirectly to dictate to the States the terms and conditions of engagement of judges. An attempt to do so would be an impermissible interference with the capacity of States to function as governments. For the same reason, the Parliament's power to make laws with respect to taxation does not extend to enable it to legislate to single out State judges for the imposition of a special fiscal burden. Judges, like other citizens, are subject to general, non-discriminatory taxation, and the mere fact that the incidence of taxation has a bearing upon the amount and form of remuneration they receive does not mean that federal taxation of State judges is an interference with State governmental functions. It is otherwise when, as here, a federal law with respect to taxation treats State judges differently from the general run of high income earners and federal judges, and to their practical disadvantage. That differential treatment is constitutionally impermissible, not because of any financial burden it imposes upon the States, but because of its interference with arrangements made by the States for the remuneration of their judges. The practical manifestation of that interference is in its capacity to affect recruitment and retention of judges to perform an essential constitutional function of the State. Evidence of that capacity is to be found in the legislative response which the State of New South Wales was, in effect, forced to make. The Parliament could never have compelled the State of New South Wales to alter the design of its judicial pension scheme. ... But the State scheme was substantially altered as a result of the practical necessity that followed from the subjection of State judges to a discriminatory federal tax.

109 Gaudron, Gummow and Hayne JJ at [168] posed the question for decision as whether there was "in a significant manner, a curtailment or interference with the exercise of State constitutional power". Four matters led their Honours to conclude that there was:

• if Austin J were to pay the surcharge during the tenure of his office, the interest of the State in providing an adequate level of remuneration would, to a significant degree, have been denied

• the provisions for accumulation of indebtedness supplied a disincentive to the judge to meet the public interest of the State in retaining his judicial services for the maximum possible time

• if the judge were to remain in office until final retirement age, the interest of the State in providing remuneration at what it regarded as an appropriate level was again undermined by the imposition of a very large lump sum debt

• one tendency of the legislation was to induce the State to vary the method of its judicial remuneration, thereby impairing its liberty of action in this respect, that being an element of the working of its governmental structure

• the New South Wales Parliament responded to the imposition of the surcharge on judges by amending the Judges’ Pensions Act 1953 (NSW) so as to provide for the commutation of pensions for the purpose of the payment of the surcharge.

110 The reasoning of McHugh J at [229] to [233] is to the same effect as that in the joint judgment. His Honour’s conclusion that the legislation interfered in a significant respect with the States’ relationships with their judges was supported by quantitative calculations. The passage quoted at [115] is illustrative.

111 The applicant submits that, in respect of the PS Scheme, the legislation imposes the surcharge on notional, and not actual, contributions calculated by an actuary, which may overestimate the benefit (if any) actually received. It is said that the actuarial calculations are based on assumptions regarding matters such as mortality, age of retirement and marriage, which will often bear no relation to the actual position of the taxpayer, thus discriminating "as against other high income earners not associated with constitutionally protected funds".

112 It is true that the surcharge is calculated on notional rather than actual contributions, so that a member must pay the surcharge regardless of any benefits which may actually be received. However, that does not single out high income earners of constitutionally protected funds from high income earners in other superannuation funds. The PS Scheme is a defined benefit superannuation scheme within the definition in s 38 of the CP Assessment Act: see [13], [26] and [28]. The surcharge for members of all defined benefit schemes is determined on a notional basis: see s 8(3) to (5) of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth), which are to the same effect as s 9(4) to (6) of the CP Assessment Act described at [11] and [19]. In this connection it is to be remembered that the undisputed starting point in Austin was that the Commonwealth legislation treated a Supreme Court judge differently from other high income earners. There is no comparable starting point in the present case. So far as defined benefit schemes are concerned, to which alone the notional contribution submission relates, there is a level playing field.

113 In Austin at [28] Gleeson CJ said that the practical manifestation of the interference with arrangements made by the States for the remuneration of their judges caused by the differential treatment of the judges as opposed to other high income earners lay "in its capacity to affect recruitment and retention of judges to perform an essential constitutional function of the State". His Honour said that evidence of that capacity was to be found in the legislative response the State was, in effect, forced to make.

114 The joint judgment at [169] pointed out that the provisions of the legislation for accumulation of indebtedness supplied a disincentive to Austin J to meet the public interest of the State in retaining his judicial services for the maximum possible time.

Thus, if the first plaintiff were to serve beyond the age of sixty-two, when he can retire with a judicial pension, it will result in him incurring a debt of an additional $240,000 if he should remain until he is seventy-two. Hence, the federal legislation operates to provide a strong incentive for the first plaintiff and other State judicial officers to retire as soon as they are entitled to a pension. ... Thus, the legislation operates so as to hamper the capacity of State governments to retain the services of their judicial officers.

116 In the present case the State submits that the Commonwealth legislation created "a significant incentive for experienced parliamentarians [who were members of the PS Scheme] to retire early". However, unlike the position in Austin, no evidence was led as to any impact the surcharge may have on parliamentarians’ decisions about retirement, or as to whether any such impact was "significant". The facts referred to by McHugh J at [231]-[232], those at [8] of the Chief Justice’s reasons and those at [89] and [169] of the joint judgment, are derived from the case stated that was before the Court. There is no comparable material in the agreed facts here. The State’s claim that the legislation created a significant incentive for parliamentarians to retire early is speculative.

117 The applicant contends that the Commonwealth legislation undermines the State’s parliamentary pension arrangements designed to benefit members of Parliament and encourage people to put their names forward for election to Parliament. The State submits that the legislation acts as a "disincentive for persons seeking high public office". The High Court in Austin had before it material from which it inferred an adverse effect on recruitment of judges. There is no comparable material here in relation to parliamentarians. Further, the judges in Austin had long experience in the legal profession and on the bench which enabled them to speak with authority about the likely effects of the legislation on recruitment and retention of judges. In the present case there is no evidence that the legislation is likely to deter people from standing for Parliament. Unlike the position in Austin, which in terms of recruitment involved a small group of senior members of the legal profession, those interested in standing for Parliament come from all walks of life, with different backgrounds, occupations, financial circumstances and levels of remuneration. In the absence of evidence here of the type provided in Austin, we have no basis upon which to decide whether the disincentive to which the State refers, or the discouragement to which the applicant refers, are well founded.

118 The applicant and the State rely on the amendment of the PS Act and the SSS Act as evidence in support of the "recruitment" submission. We deal with this at [123].

The feature of the Acts which is of greatest significance to a judge in the position of the first plaintiff is the incurring and accumulation of a liability to pay a substantial capital sum, on retirement, in discharge of an accrued superannuation contributions surcharge debt, at a time when payment of the pension is commencing. The relationship between the debt, and the amount of the pension payments, has been referred to above. The difference between the position of State judges, and that of federal judges, who face a reduction in the amount of their periodical pension payments, or that of other high income earners, who incur no personal liability, and who may be entitled to lump sum benefits, or who may be able to commute their entitlements in whole or in part, is obvious.

120 It was this differential treatment accorded to State judges that led the majority in Austin to conclude that the legislation impermissibly interfered with arrangements made by the State for the remuneration of its judges.

121 The applicant’s position under the PS Scheme differs from that of the judge in Austin. As appears from [26], a member entitled to a pension could commute a percentage of the pension at the rate of $10 for each dollar of annual pension so commuted, the pension being reduced accordingly. The maximum percentage for a person aged 45 years or less was 75%, and for a person aged 60 years or more, 30%. The percentage applicable to the applicant was 60%. The applicant was thus in the same position as "other high income earners ... who may be able to commute their entitlements in whole or in part" to whom Gleeson CJ referred in the passage quoted at [119]. Accordingly the applicant derives no assistance from Austin in relation to the PS Scheme.

122 Under the SB Scheme and the SSS Scheme the applicant was entitled to lump sum benefits. In fact he elected to carry over his entitlement to another superannuation fund. Thus he was, to use Gleeson CJ’s words, in the same position as – "other high income earners ... who may be entitled to lump sum benefits". Accordingly the applicant derives no assistance from Austin in relation to the SB Scheme or the SSS Scheme.

123 In Austin at [170] the joint judgment said that one tendency of the federal laws was to induce the State to vary the method of its judicial remuneration. The State’s "liberty of action ... in these matters, that being an element of the working of its governmental structure, thereby is impaired". Their Honours referred to the Judges’ Pensions Amendment Act 1998 (NSW) (the "1998 Act") which provided for the commutation of pensions to enable pensioners to pay the surcharge. They also examined the second reading speech for the bill relating to the 1998 Act which said that "a pension may be commuted only to the extent necessary to meet the liability for the superannuation contributions surcharge": at [173]. The 1998 Act, therefore, sought to alleviate the effect of the federal legislation. This, the joint judgment said, disclosed "a state of affairs well beyond the speculative and the uncertain".

124 Gleeson CJ took the same approach at [28] to [29]. The enactment of the 1998 Act was "evidence" of the capacity of the interference effected by the Commonwealth legislation to affect the recruitment and retention of judges. The Act made a "substantial alteration to the design of [the State’s] judicial pension scheme", the need to make which "demonstrates the interference".

So serious was the likely effect on the relationship between State judicial officers and the State of New South Wales that the State felt compelled to enact the Judges’ Pensions Amendment Act 1998 (NSW). ... Thus, the result of the present federal legislation ... is that the State of New South Wales and other States have been forced for practical reasons to enact legislation to pay a lump sum to their judges who retire so that they can if they wish commute part of their benefits to pay the surcharge debt.

126 In the present case the applicant and the State rely on amendments made to the PS Act and the SSS Act in 1999 and 2004 respectively as evidence of impermissible interference.

127 Section 21AA of the PS Act was introduced by the Commutation Act to ensure that members with an accumulated surcharge debt have at retirement a method of obtaining a lump sum to expunge the debt. It is not clear why the section was inserted when there was already a right of commutation under s 21. The existence of s 21 makes it difficult to see the addition of s 21AA as something the State was compelled to do as a result of the surcharge legislation. The State contends that s 21AA was enacted because the existing right of commutation was inadequate to cover members’ surcharge liabilities. According to the agreed facts at par 28, that is not so. Actuarial calculations establish that:

• the applicant’s right of partial commutation under s 21(1) would have been sufficient to cover his actual or potential surcharge liability or liability in respect of his membership of the PS Scheme at all times from the introduction of the surcharge until his exit

• the right of partial commutation under s 21(1) would have been sufficient to cover the actual or potential surcharge liability in respect of membership of the PS Scheme at the time of exit for all members who exited during the period in which the surcharge applied

• the right of partial commutation under s 21(1) would have been sufficient to cover the actual or potential surcharge liability in respect of membership of the PS Scheme at 30 June of each year during the period in which the surcharge applied for all members of the scheme

• had the surcharge continued to apply indefinitely into the future in its original form, the right of partial commutation under s 21(1) as it is currently defined would have been sufficient to cover the actual or potential surcharge liability in respect of membership of the PS Scheme on future exit for all members of the scheme.

128 The State’s submission derives no support from the second reading speech where the reason for the introduction of s 21AA is explained. If the existing s 21 was thought inadequate to cover the surcharge liability of members, one would have thought that reason would have featured in the speech. This is in marked distinction to the position in Austin in relation to the 1998 Act. See [123] above. In any event, the matter is foreclosed by the agreed facts.

129 The Commissioner suggests that s 21AA may have been introduced to enable members to achieve a lump sum on commutation that is "the assessed actuarial equivalent to the amount of pension forgone (based on certain economic and demographic assumptions)". Support for this is to be found in par 31 of the agreed facts:

130 The Commissioner’s explanation for the introduction of s 23AA, having regard to the existence of s 21, is also supported by the second reading speech:

The amendments ... will permit pension to be commuted to a lump sum, under special terms and conditions established for persons with a surcharge debt. As the lump sum is to be used solely for the purpose of paying a Commonwealth tax, the conversion factors to be used will be determined on an ‘unbiased’ or full actuarial basis.

131 In our view the reason for the enactment of s 21AA is that given in par 31 of the agreed facts, and not because the existing right in s 21 was inadequate to cover members’ surcharge liabilities. It remains true that the State was not compelled by the surcharge legislation to make the amendment. Section 21 substantially dealt with the problem. Section 21AA was a piece of fine tuning to achieve the object described in par 31 of the agreed facts.

132 This is in contrast to the position in Austin. There the method of payment of superannuation benefits was substantially altered from payment solely by way of pension to one that permitted a lump sum payment. In the present case there was no need to alter the method of payment because of the existence of s 21 and because the SSS Scheme provided benefits as a lump sum.

133 The applicant, though not the State, appeared to rely as evidence of interference on the insertion of s 35AA of the SSS Act by the Statutes Amendment (Miscellaneous Superannuation Measures) Act 2004 (SA) (the "2004 Act"), which enables a member who is liable for a deferred superannuation surcharge to apply to receive part of the lump sum benefit in the form of a commutable pension and to fully commute the pension. It is clear, however, as the Commissioner and the State agreed, that s 35AA was inserted to allow members to minimise the tax payable on their benefits. The second reading speech to the Bill that became the 2004 Act makes this clear. Accordingly, s 35AA did not bring about a change to the essential nature of the superannuation scheme, and was not designed to provide members with the wherewithal to pay the surcharge, as was the case in Austin.

134 For the foregoing reasons, we do not consider that either of the amendments evidences any significant interference with the exercise of the State’s constitutional power to determine the method of the remuneration of its parliamentarians. There has been no substantial or significant alteration in the design of the pension scheme: cf Austin at [29] per Gleeson CJ.

assessment of the impact of particular laws by such criteria as "special burden" and "curtailment" of capacity of the States to "function as governments" ... inevitably turns upon matters of evaluation and degree ....

136 The applicant has not established that the impact of the surcharge adversely affected the State’s interests in recruiting parliamentarians and retaining their services. Unlike the position in Austin, the applicant’s case did not in this respect go beyond speculation. In addition, the impact of the surcharge on South Australian parliamentarians is substantially less significant than was the case with the judge in Austin. When the surcharge was imposed, parliamentarians were already entitled to lump sum benefits, either as of course under the SBS Scheme and the SSS Scheme, or by commutation under the PS Scheme. Finally, the amendment to the PS Act to introduce s 21AA was not made for the same reason as the amendment in Austin. The change does not reveal any degree of practical compulsion to circumvent the payment problem that arose in Austin. Accordingly the applicant’s impermissible interference claim fails.

137 Part (b) of Question 3 asks whether the CP Imposition Act imposes a tax on property belonging to the State contrary to s 114 of the Constitution. We can deal with this issue shortly. In Austin at [6] Gleeson CJ said the surcharge legislation did not infringe s 114. In the joint judgment at [66] it was said that the CP Imposition Act "is drawn so as to avoid any operation of s 114 by imposing liability for the impost not upon the States but the plaintiffs themselves". That observation disposes of the applicant’s submission recorded at [96]. We do not need to go into the question whether, had the surcharge been imposed on the State, that would have infringed s 114. Gleeson CJ, Gaudron, Gummow and Hayne JJ doubted that it would. See [16] and [69].

138 The third of the questions of law referred to this Court will be answered, No. However, having regard to the terms of the first and second questions of law, we entertain some uncertainty as to the appropriateness of simply answering them, Yes. The parties will therefore be given the opportunity to make further submissions on the appropriate answers to these questions having regard to these reasons for judgment. It may be, although we express no concluded view on the question, that the parties will wish to give consideration to approaching the AAT with respect to the wording of, at least, question 2.

I certify that the preceding one hundred and thirty-eight (138) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson, Sundberg and Dowsett.

Counsel for the Applicant:	Mr PA Heywood-Smith QC with Mr A Tokley

Solicitor for the Applicant:	Johnston Withers

Counsel for the Respondent:	Dr M Perry QC with Ms M Wall

Solicitor for the Respondent:	Australian Government Solicitor

Counsel for the Intervener:	Mr M Wait with Ms A Harris

Solicitor for the Intervener:	Crown Solicitor for South Australia

Dates of Hearing:	6, 7 & 8 November 2007

Date of Judgment:	13 June 2008

Federal Court of Australia - Full Court

Clarke v Commissioner of Taxation [2008] FCAFC 106 (13 June 2008)