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High Court of Australia |
MacCORMICK v. FEDERAL COMMISSIONER OF TAXATION
CAMAD INVESTMENTS PTY LTD v. THE FEDERAL COMMISSIONER OF TAXATION [1984] HCA 20; (1984) 158
CLR 622
Constitutional Law (Cth)
High Court of Australia
Gibbs C.J.(1), Murphy(2), Wilson(1), Brennan(3), Deane(1) and Dawson(1) JJ.
CATCHWORDS
Constitutional Law (Cth) - Powers of the Commonwealth Parliament - Taxation - Legislative scheme for recoupment of unpaid company tax - Vendors and promoters recoupment Tax - Whether laws with respect to taxation - Whether laws imposing liability on one person to pay tax assessed on another - Whether acquisition of property otherwise than on just terms - Whether incontestable taxes - Certificate of Commissioner conclusive evidence that company tax unpaid - Validity - Whether Acts deal with more than one subject of taxation - The Constitution (63 & 64 Vict. c. 12), ss. 51(ii), (xxxi), 55 - Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth), s. 23(1) - Taxation (Unpaid Company Tax - Vendors) Act 1982 (Cth) - Taxation (Unpaid Company Tax - Promoters) Act 1982 (Cth).*
HEARING
1983, August 2-4; 1984, April 10. 10:4:1984DECISION
GIBBS C.J., WILSON, DEANE and DAWSON JJ. In these actions, which come before the Court by way of demurrer, the plaintiffs attack legislation aimed at the collection of moneys found to be irrecoverable by way of company tax from companies which were stripped of the assets, including profits before tax and any assets representing provisions for tax, from which payment of the tax might otherwise have been made or recovered. Such companies may conveniently be referred to as "target companies". The legislation seeks to impose liability upon the vendors of shares where the sale of the shares was followed by a stripping operation and upon those who promoted the scheme of which the sale formed part. The liability is imposed upon the vendor shareholders by the Taxation (Unpaid Company Tax - Vendors) Act 1982 (Cth) and upon the promoters by the Taxation (Unpaid Company Tax - Promoters) Act 1982 (Cth). In relation to both those taxing Acts there is the one assessment Act, namely, the Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth). In that regard, the trilogy of Acts follow what Fullagar J. described as "the invariable practice since the establishment of the Commonwealth", namely, that the actual imposition and fixing of the rate of tax is effected by a "Taxing Act" while an "Assessment Act" provides for "the incidence, assessment, and collection, of the tax and for a variety of incidental matters" (Re Dymond [1959] HCA 22; (1959) 101 C.L.R. 11, at p.18).2. The Taxation (Unpaid Company Tax) Assessment Act ("the 1982 Assessment Act") provides for the calculation of a primary taxable amount where shares in a company were sold under a scheme between specified dates and under specified conditions. "Scheme" is defined broadly to mean any agreement, arrangement, transaction, understanding or scheme. The conditions which are specified include the requirements that the rights attaching to the shares sold should have conferred control of more than 90% of the voting power in the company, that the total consideration given for the shares should have exceeded the net value of the assets of the company after deducting its liabilities, including its liability for tax, and that an assessment of ordinary company tax or undistributed profits tax should have been made under the Income Tax Assessment Act 1936 (Cth), as amended. There are further conditions that the period for objecting against the assessment should have expired and that any objection against the assessment should have been finalized, leaving unpaid an amount of ordinary company tax or undistributed profits tax, referred to as overdue company tax. A further condition is that there should have been an arrangement or transaction, whether or not part of the scheme, which secured or achieved the result that the target company was unable, having regard to other debts of the company, to pay the overdue company tax.
3. It was stressed on behalf of the plaintiffs that the condition that the consideration given for the shares should have exceeded the net value of assets after deducting liabilities, is so framed that it is likely to be satisfied in the case of some ordinary commercial transactions. The reason for this is that the amount of the "liabilities" to be deducted from the total value of the assets for the purpose of ascertaining the net value of the assets is to be calculated on the basis that there was an existing liability in respect of unassessed primary tax on income which had been earned and in respect of unassessed undistributed profits tax which would be payable only if profits which had been earned were not in fact distributed within a period which had not expired. As a matter of commercial practice, it would seem to be unlikely that, for the purpose of calculating the consideration to be paid for shares in a company, a future liability in respect of unassessed primary tax and a possible future liability in respect of undistributed profits tax which had not been assessed and which might never be payable would be taken into account, without any discount, on the same basis as if they were currently due and payable.
4. Where there is only one vendor shareholder, the primary taxable amount in relation to that person is the whole of the overdue company tax. Where there is more than one vendor shareholder, the primary taxable amount in relation to each person is that proportion of the overdue company tax which is commensurate with the proportion of the total consideration received by that person for the sale of his shares.
5. There are provisions dealing with the situation where the shares sold involve more than one company which we do not find it necessary to set out. Nor do we think it necessary for the purpose of deciding the issues which arise in these cases to set out the provisions which apply where the ownership of the shares involves a trust or trusts.
6. It is provided that there shall be no primary taxable amount in relation to a person where the Commissioner, having regard to certain specified circumstances, considers that the result would be unreasonable. It is also provided that where the primary taxable amount in relation to a person is less than $100 and the Commissioner considers that it should not exist in relation to that person, then it shall be taken not to exist or to have existed in relation to that person.
7. Where a primary taxable amount exists it constitutes, together with any secondary taxable amount (to which we shall refer shortly) a vendors taxable amount. A tax equal to the whole amount is imposed by the Taxation (Unpaid Company Tax - Vendors) Act upon the vendors taxable amount. That tax is referred to in the 1982 Assessment Act as vendors recoupment tax.
8. Where a vendors taxable amount exists in relation to a company and that company has ceased to exist, or where, because of the sale of shares in that company or a holding company, the Commissioner is of the opinion that it would be unreasonable that the company should be liable to pay recoupment tax on the vendors taxable amount or where the Commissioner is of the opinion that recoupment tax payable on a vendors taxable amount by a company is unlikely to be paid, a secondary taxable amount exists. It exists, broadly speaking, in relation to those shareholders who had rights in a capital distribution by the company. The secondary taxable amount in relation to each shareholder is that part of the vendors taxable amount or the unpaid recoupment tax, as the case may be, which is proportional to the shareholders entitlement if a distribution of capital equal to the consideration received for the sale of the shares in the target company had been made immediately before a specified time, ordinarily the time of the sale of those shares. This tracing process is repeated until the liability to pay recoupment tax falls upon individuals or upon companies which are able to and can reasonably be expected to pay the tax.
9. A promoters taxable amount exists where shares in a company were sold in circumstances which are the equivalent of those giving rise to a primary taxable amount. The promoters taxable amount is equal to 20% of the overdue company tax or, where no vendors recoupment tax has become payable or will, in the opinion of the Commissioner, become payable, equal to the overdue company tax. The promoters taxable amount is not, however, to exceed the value of the assets of the company before it was stripped, less the sum of its liabilities including company tax and the total consideration given for the sale of the relevant shares. This limit upon the promoters taxable amount appears to be designed to ensure that a promoter is not liable to be taxed upon an amount which is greater than the amount he received by way of remuneration for his participation in the scheme.
10. The persons liable to pay tax in relation to a promoters taxable amount are those who constitute the eligible promoters class. That class comprises each person who purchased the relevant shares, each person who acted as agent for the purchaser or broker, each person who was an associate of the purchaser at the time of the purchase and a number of other specified persons.
11. Where a promoters taxable amount exists, a tax is imposed upon that amount equal to the whole amount by the Taxation (Unpaid Company Tax - Promoters) Act. This tax is called promoters recoupment tax.
12. The persons included in an eligible promoters class are jointly and severally liable to pay the promoters recoupment tax in relation to which the class exists and, if one such person pays any of that tax, he may recover by way of contribution from any of the other persons included in the class such part of the amount paid as a court considers just and equitable. He may also join as co-defendants the other persons included in the class in any proceedings for recovery of promoters recoupment tax. Where proceedings are taken against a person for recovery of promoters recoupment tax, that person may apply to the Federal Court for a declaration that, by reason of special circumstances, it is not just and equitable that he be included in the eligible promoters class to which the promoters recoupment tax relates. Where such a declaration is made, the person concerned is deemed not to have been included in the relevant eligible promoters class.
13. Provision is made for the reduction of the liability of a person liable to pay recoupment tax where the overdue company tax or recoupment tax is paid by some other person or where there is a payment of promoters recoupment tax based on the same overdue company tax. It is also provided that an amount of promoters recoupment tax will be reduced where a payment of the corresponding company tax is made. There is, however, no provision for the reduction of promoters recoupment tax consequent upon payment of vendors recoupment tax and in this way the liability falls first upon the promoters within the limits provided by the legislation. The purpose of these provisions is evidently to ensure that the amount of the overdue company tax is only collected once and that the benefit of any payment of company tax or recoupment tax will flow through to persons under a related liability. Payment of recoupment tax does not, however, extinguish the liability of the target company for the overdue company tax.
14. Whilst a penalty is imposed for late payment of recoupment tax, provision is made that recoupment tax shall not be increased on account of any additional tax payable by the target company as a penalty for late payment that accrues after the assessment for recoupment tax is made.
15. The Act contains provisions which enable those who may become liable for recoupment tax to contest an assessment of company tax in relation to the relevant target company. A representative class is constituted comprising every vendor shareholder who is a natural person and whose address is known to the Commissioner, every vendor shareholder which is a company still carrying on business and the other persons traceable through a vendor shareholder liable to pay recoupment tax based on the target company's assessment, but if those persons exceed five in number, five of those persons selected by the Commissioner as appropriate representatives of those persons. Where a notice of assessment of company tax payable by a target company has not been served on the company and vendors recoupment tax is payable or, in the opinion of the Commissioner, it is likely to become payable, instead of serving the notice of assessment on the company, the Commissioner is required to serve it on the company by serving it on any of the persons liable, or likely to become liable, to pay the vendors recoupment tax. Where there is more than one such person, the Commissioner is required to serve a copy of the notice on each person (other than the person on whom the notice was served) who is included in the representative class in relation to the vendors recoupment tax.
16. Where there is only one person liable, or likely to become liable, to pay the vendors recoupment tax and notice of the assessment in relation to the target company is served upon that person, that person has the same rights as the company has under div.2 of Pt V of the Income Tax Assessment Act to object to the assessment. Where there is more than one person liable, or likely to become liable, to pay the vendors recoupment tax, one person only from the representative class is entitled to the rights which the company would have had to object to the assessment. That person is required to be nominated by a notice signed by more than one half of the persons included in the representative class.
17. Where a notice of assessment of company tax has not been served on the target company and promoters recoupment tax is payable or, in the opinion of the Commissioner likely to become payable and if payable, is likely to be the only recoupment tax payable, notice of assessment is to be served on the person or any of the persons liable, or likely to become liable, to pay the promoters recoupment tax.
18. Where a notice of assessment of company tax has been served on the target company and vendors recoupment tax is, in the opinion of the Commissioner, likely to become payable, the Commissioner is required to serve a copy of the notice of assessment on the person, if there is no more than one, likely to become liable to the recoupment tax. Where there is more than one such person, the Commissioner is required to serve the copy notice upon any one of them and to serve a copy of the copy notice on each other person included in the representative class. If the notice of assessment was not validly served on the target company, service in this manner is deemed to be service on the company. Where only one person in these circumstances is likely to become liable to pay vendors recoupment tax and he is served with a notice of assessment in this manner, then he is given the same rights as the target company would have had to object to the assessment if the notice had been served on the company on the same day as it was served on that person. Where there is more than one person likely in those circumstances to become liable to pay vendors recoupment tax, one person from the representative class nominated by more than half that class is given a similar right to object to the assessment.
19. Where a notice of assessment of company tax has been served on the target company and promoters recoupment tax is, in the opinion of the Commissioner, likely to become payable and if payable, is the only recoupment tax likely to be payable, the Commissioner is required to serve a copy of the notice upon the person or any of the persons likely to become liable to pay the promoters recoupment tax and if service was not validly effected upon the company, then service in this manner shall be deemed to be service on the company.
20. The 1982 Assessment Act is a complex piece of legislation, but the foregoing brief outline of its substantive provisions is, we think, sufficient for the purpose of considering the argument which was advanced. That argument was that the taxes which the legislation purports to impose are beyond the power of the Commonwealth.
21. Reduced to its simplest formulation, the basic submission is that those taxes are not in reality taxation at all; they are in each case an exaction to satisfy the liability of another to pay company tax. In other words, it is contended that the taxing Acts, when read with the assessment Act, impose a statutory obligation to indemnify the Crown in respect of all or some part of ordinary company tax assessed under the Income Tax Assessment Act which, because of a stripping operation, has not been paid by the company against whom the assessment has been made. Those Acts are not, it is submitted, laws with respect to taxation within the meaning of s.51(ii) of the Constitution and are not otherwise within the legislative power of the Commonwealth Parliament. As aspects of this basic submission it is said that liability to pay recoupment tax is imposed upon persons who have no relevant connexion with the company whose overdue company tax is the measure of the recoupment tax and that the obligation which is imposed upon a person liable to pay recoupment tax is an obligation to pay out of his property a tax which is imposed upon another, namely, the relevant company.
22. These submissions involve, we think, a fundamental misconception.
Although liability to pay recoupment tax arises only where
company tax has not
been paid and the amount of the recoupment tax is quantified by reference to
the overdue company tax, that liability
is separate and distinct from the
liability of the target company to pay the company tax. In fact, as we have
noted above, the payment
of the recoupment tax does not operate to satisfy in
whole or in part the liability of the target company to pay the overdue
company
tax, but even if it did, it would not in our view alter the separate
character of the recoupment tax. As Kitto J. observed in Moore
v. The
Commonwealth [1951] HCA 10; (1951) 82 CLR 547, at p 581:
"Separate obligations to pay money to the
Commonwealth may, no doubt, be so created that each
of them is a tax, notwithstanding that a payment in
respect of one is to operate as pro tanto
satisfying the other, and even notwithstanding that
any excess of one over the other is to be
refunded."
imposition of two taxes is conceivable where one is to be applied in reduction
of the other." Dixon and Kitto JJ. were in that case
speaking of separate
obligations imposed upon the one taxpayer but the strength of their
observations could only be increased if
the separate obligations were, as is
the case here, imposed upon different taxpayers.
23. The separate nature of the overdue company tax and the recoupment tax becomes apparent, we think, upon a proper analysis of the contention that recoupment tax does not amount to taxation within the meaning of s.51(ii) because it is imposed upon a person in respect of a subject matter in which he has no interest or control. A law, it is said, is not a law with respect to taxation unless there is a real connexion between the objects of a tax and its subject matter. That proposition may be doubted: see Fairfax v. Federal Commissioner of Taxation [1965] HCA 64; (1965) 114 CLR 1, at pp 12-13. An attempt was made to find support for it in Morgan v. Deputy Federal Commissioner of Land Tax, N.S.W. [1912] HCA 88; (1912) 15 CLR 661 but that case establishes something different, namely, that a law imposing land tax may go behind a company and impose liability upon its shareholders in respect of land held by the company. The question in that case was not whether there was power to impose the tax but whether the subject of the tax so imposed was land. If it had not been, the law imposing the tax would have dealt with more than one subject of taxation in breach of s.55 of the Constitution. Barton J. at p.668 did make the observation that "the legislature cannot impose a land tax upon any person who has not an interest in land" but in the context that was merely to say that a tax so imposed would not be a tax upon land, not that it would be beyond power because it would not be a tax at all. Similarly when, in Waterhouse v. Deputy Federal Commissioner of Land Tax, S.A. [1914] HCA 16; (1914) 17 CLR 665, at p 679, Gavan Duffy and Rich JJ. in a joint judgment remarked that "Both the arguments and judgments in Morgan's Case are based on the hypothesis that the Commonwealth Parliament has no power to tax a person in respect of land in which he has no beneficial interest", their Honours were referring to an Act which necessarily dealt only with the imposition of a tax upon land. See also p.671 and p.674.
24. However, assuming that the proposition which is put is well founded, its application in this case would not result in the invalidity of the recoupment tax. The assumption which underlies this part of the plaintiffs' argument is that the subject of the recoupment tax is the same as the subject of company tax, that is, company profits. The argument then proceeds upon the basis that there is an insufficient connexion between the relevant target company and its profits and the persons liable to pay recoupment tax in relation to that company. But recoupment tax is not a tax upon company profits. Company tax is such a tax but the basis upon which liability for recoupment tax is imposed is that the company tax is irrecoverable. Recoupment tax is in each instance a tax upon a transaction which resulted in a company being stripped of its assets so as to be unable to pay company tax. The transaction is the subject of the recoupment tax and the objects are those specified persons who are regarded by the legislature as having taken part in or benefited from the transaction directly or indirectly. No suggestion was made that those persons are wholly unconnected with the transaction which forms the subject of recoupment tax; indeed such a suggestion could not be made when the criterion of liability of those persons is the connexion between them and the relevant transaction. The fact, as was urged by counsel for the respective plaintiffs, that the connexion may be remote in some instances or that the tax may operate harshly upon those who received little or no benefit from a transaction is not to the point: see Herald and Weekly Times Ltd v. The Commonwealth [1966] HCA 78; (1966) 115 CLR 418, at pp 436-437. Nor does it matter that the recoupment tax is quantified by reference to the overdue company tax. That does not make the subject of the recoupment tax the same as the subject of the company tax.
25. Perhaps differing only in emphasis is the submission made by the plaintiffs that recoupment tax does not amount to taxation within the meaning of s.51(ii) of the Constitution because it consists of an obligation imposed upon a person to pay out of his property a tax which is imposed upon another, namely, the company tax imposed upon the relevant company. What we have already said is probably sufficient to indicate our view that this submission cannot be sustained but the plaintiffs sought to derive support for it as an independent proposition from the decision of this Court in Waterhouse. That decision was concerned with a section in the Land Tax Assessment Act 1910 which provided that where a husband or wife transferred land to one another they should be deemed to be joint owners of the land unless the Commissioner was satisfied that the transfer was not for the purpose of evading tax. The section was held to be beyond the power of the Parliament because it lacked the character which in the circumstances of the case was essential to its validity, namely, that of a law with respect to land tax. It purported, contrary to the facts, to deem a person to be an owner of land with the consequence that he became liable to pay land tax which was imposed elsewhere in the legislation upon owners of land. The section itself did not operate to impose a tax; it dealt with facts so as to give an existing tax a different incidence. It was for that reason that it was not a law with respect to taxation and not, as was contended in this case, because it purported to impose a land tax upon a person in respect of land which he did not own and so required that person to satisfy the taxation liability of another.
26. A different view of the effect of Waterhouse's Case appears to have been
taken by Barwick C.J., Mason and Jacobs JJ. in Federal
Commissioner of
Taxation v. Barnes [1975] HCA 61; (1975) 133 CLR 483, at p 493, where the former case was
said to establish that
a law which does
no more than require moneys owing
to
the Crown by A to be paid out of property to which B is beneficially entitled
is not a law with
respect to taxation. But even
if that view be correct, it
was recognized in Waterhouse's Case that if the operation
of the section
in
question in that case had
been such as to create a new and separate
obligation, the situation would have been different.
As Isaacs
J. said at
pp.675-676:
"If the purport of the section were to impose aOf course, if the provision had been construed that way, it may have fallen foul of the second paragraph of s.55 of the Constitution.
new pecuniary obligation, by deliberately making a
husband pay a tax in respect of land which is
assumed not to belong to him but to his wife alone,
or as to a wife in respect of what is assumedly her
husband's land, I should think that was new
taxation. It would be immaterial that the tax was
payable as the consequence of or contingent upon a
stated event."
27. The recoupment tax which is in question in this case is, by way of contrast, undeniably a new pecuniary obligation imposed upon vendors and promoters notwithstanding that the obligation arises only upon the failure of a target company to pay company tax. It was suggested, albeit faintly, that the exaction may amount to an acquisition of property within the meaning of s.51(xxxi) of the Constitution so as to import the requirement of just terms. But, if it is in truth a tax, its very nature prevents it amounting to an acquisition of property. It is no more than the imposition of a pecuniary liability. See Moore v. The Commonwealth, above; Commissioner of Taxation v. Clyne [1958] HCA 10; (1958) 100 CLR 246; Federal Commissioner of Taxation v. Barnes, above. It does not matter that the purpose of the tax is to recoup moneys which should have been paid as company tax but were not. The laws in question are not laws providing for the recovery of the debt owing by companies which failed to pay the company tax. They are laws providing for the imposition of a separate tax liability which is in addition to that liability and is not substituted for it. As we have said, we do not think that it would make any difference if the payment of recoupment tax were to reduce or extinguish the liability of the relevant company to pay company tax; the liability to pay recoupment tax would still be a liability separately imposed. But the payment of recoupment tax does not under the legislation have that effect, although payment of the overdue company tax does extinguish the liability to pay recoupment tax.
28. The exactions in question answer the usual description of a tax. They are compulsory. They are to raise money for governmental purposes. They do not constitute payment for services rendered. See Mathews v. Chicory Marketing Board (Vict.) [1938] HCA 38; (1938) 60 CLR 263, at p 276 per Latham C.J; Leake v. Commissioner of Taxation (State) (1934) 36 WALR 66, at pp 67-68 per Draper J. They are not penalties since the liability to pay the exactions does not arise from any failure to discharge antecedent obligations on the part of the persons upon whom the exactions fall. See R v. Barger [1908] HCA 43; (1908) 6 CLR 41, at p 54 per Isaacs J. They are not arbitrary. Liability is imposed by reference to criteria which are sufficiently general in their application and which mark out the objects and subject matter of the tax. See Federal Commissioner of Taxation v. Hipsleys Ltd. [1926] HCA 34; (1926) 38 CLR 219, at p 236.
29. A further submission was made by the plaintiffs that recoupment tax under
the relevant legislation is an incontestable tax and
for this reason is beyond
the power of the Parliament. Recognition is to be found in the cases of the
doctrine that the incontestability
of a tax may go to its validity. The
principle which lies behind the doctrine is a more general one of elementary
constitutional
law. It is simply that the legislature cannot determine
conclusively for itself its power to enact legislation by putting beyond
examination compliance with the constitutional limits upon that power. As was
pointed out in Deputy Commissioner of Taxation v.
Hankin [1959] HCA 2; (1959) 100 CLR 566,
at pp 576-577, the point is "that which was so much discussed in Australian
Communist Party
v. The Commonwealth
[1951] HCA 5; (1951) 83 CLR 1, and which is sometimes
expressed by saying that 'a stream cannot rise higher
than its source'." In
the latter
case,
Fullagar J., at p.258, put the matter clearly when he said:
"The validity of a law or of an administrative act
done under a law cannot be made to depend on the
opinion of the law-maker, or the person who is to
do the act, that the law or the consequence of the
act is within the constitutional power upon which
the law in question itself depends for its
validity. A power to make laws with respect to
lighthouses does not authorize the making of a law
with respect to anything which is, in the opinion
of the law-maker, a lighthouse. A power to make a
proclamation carrying legal consequences with
respect to a lighthouse is one thing: a power to
make a similar proclamation with respect to
anything which in the opinion of the Governor
General is a lighthouse is another thing."
30. In other words, where, as is ordinarily the case under the Commonwealth
Constitution, the validity of the law depends upon its characterization as a
law with respect to a particular subject matter by reference to the
criteria
which the law itself fixes for its operation, the law cannot be so
characterized if, in effect, it goes on to provide that
it will have that
operation regardless of whether those criteria are, in truth, satisfied.
31. The particular doctrine in relation to taxation was expressed by Dixon
C.J. in Deputy Federal Commissioner of Taxation v. Brown
[1958] HCA 2; (1958) 100 CLR 32, at
p 40, in these terms:
"Although there is no judicial decision to thatSee also per Williams J. at p.52.
effect, it has, I think, been generally assumed
that under the Constitution liability for tax
cannot be imposed upon the subject without leaving
open to him some judicial process by which he may
show that in truth he was not taxable or not
taxable in the sum assessed, that is to say that an
administrative assessment could not be made
absolutely conclusive upon him if no recourse to
the judicial power were allowed."
32. For an impost to satisfy the description of a tax it must be possible to differentiate it from an arbitrary exaction and this can only be done by reference to the criteria by which liability to pay the tax is imposed. Not only must it be possible to point to the criteria themselves, but it must be possible to show that the way in which they are applied does not involve the imposition of liability in an arbitrary or capricious manner. In Giris Pty. Ltd. v. Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365, at pp 378-379, Kitto J. pointed out that the expression "incontestable tax" in the sense in which it is used in Hankin and Brown "refers to a tax provided for by a law which, while making the taxpayer's liability depend upon specified criteria, purports to deny him all right to resist an assessment by proving in the courts that the criteria of liability were not satisfied in his case." The purported tax is thereby converted to an impost which is made payable regardless of whether the circumstances of the case satisfy the criteria relied upon for characterization of the impost as a tax and for characterization of the law which imposes it as a law with respect to taxation. Such an incontestable impost is not a tax in the constitutional sense and a law imposing such an impost is not a law with respect to taxation within s.51(ii). It is in this sense that an incontestable tax is invalid.
33. However, the liability which the legislation imposes to pay recoupment tax is not incontestable in this sense. One of the criteria of liability for recoupment tax is a pre-existing, unpaid liability on the part of a target company to pay company tax. The fact that a person not liable to pay company tax but liable to pay a different tax in the form of recoupment tax has a limited right or no right at all to contest the liability of the relevant target company for company tax is not to the point. It is the existence of the overdue company tax which is one of the criteria of liability for recoupment tax and that existence is established once an assessment of company tax is made and any objection has been finalized or the period for objecting has expired and the tax remains unpaid at the relevant time. Liability to pay recoupment tax does not arise until these events have occurred and it arises only upon the assessment of those persons to whom the legislation applies. The assessment of those persons is open to the ordinary processes of review and appeal. This is because the 1982 Assessment Act incorporates the relevant parts of the Income Tax Assessment Act relating to the assessment and collection of tax, including review and appeal.
34. It would not be to the point if no right to contest the liability of a target company to pay company tax were given to those persons liable to pay recoupment tax upon the basis of the overdue company tax. The limited rights given to those persons to contest the liability of the company are, from the point of view of legality, gratuitous. If in a particular case the provisions have the effect that a person liable to pay the recoupment tax is unable to contest the liability of the target company, and the assessment of that liability was in fact incorrect, the result will be plainly unjust, but it will not mean that the recoupment tax is incontestable. Of course, it was not argued, nor could it be argued, that company tax is itself an incontestable tax. Liability to pay that tax arises upon the assessment of a company pursuant to the provisions of the Income Tax Assessment Act and in relation to that assessment the ordinary processes of review and appeal are open. Once those processes are complete or the time for taking them has expired, the existence of the company tax may be proved by recourse to s.177(1) of the Income Tax Assessment Act which provides that production of a notice of assessment shall be conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct. That section does not, of course, apply in proceedings on appeal against the assessment of the company tax. The existence of that section does not make company tax incontestable nor was it suggested that it does.
35. The plaintiffs rely upon s.23(1) of the 1982 Assessment Act for support
of the argument based upon incontestability. That provision
offers
difficulties of construction, mainly because it appears to overlap s.177 of
the Income Tax Assessment Act to which we have
just referred. Section 23(1)
reads:
"For the purposes of this Act, a certificateThe concluding phrase of the sub-section would appear to limit the operation of the exception to the objection and appeal proceedings which persons other than a target company are authorized by s.18 of the Act to take in relation to the liability to tax of that company. They are proceedings "in relation to an assessment in respect of that company tax". As we construe it, the exception serves the limited but necessary purpose of preventing the tender in evidence in such proceedings of a certificate from rendering the assessment to company tax incontestable. Notwithstanding the submission of the Solicitor-General for the Commonwealth to the contrary, the concluding phrase does not in terms refer to an assessment of liability to recoupment tax and we are unable to perceive any justification for so construing it.
signed by the Commissioner, a Second Commissioner
or a Deputy Commissioner and stating that an amount
of company tax specified in the certificate is due
and payable by a company and that, on a date
specified in the certificate, that company tax
remained unpaid, is conclusive evidence of the
matters stated in the certificate except in
proceedings under Division 2 of Part V of the
Assessment Act in relation to an assessment in
respect of that company tax."
36. To construe the exception in the manner suggested by the Solicitor-General would involve giving to the exception an operation which would effectively dispose of the whole sub-section since, if the exception is so construed, it is difficult to ascertain any residual use for the certificate for which the sub-section provides.
37. The true answer to the plaintiffs' argument based on s.23(1) is, however, to be found in the nature, as distinct from the precise scope, of the provisions of the sub-section. Those provisions are of an evidentiary and not of a substantive character. They have no operation at all with respect to the actual imposition of recoupment tax. They are provisions aimed at facilitating the task of the Commissioner in any proceedings after an assessment of recoupment tax has been made. They are plainly severable from the substantive provisions of the 1982 Assessment Act. If the procedural or evidentiary provisions of s.23(1) would, if valid, result in a taxpayer being deprived of any opportunity of challenging whether the criteria by reference to which the recoupment tax is imposed had in fact been satisfied, the consequence would not be that the substantive provisions of the Act imposing the tax were rendered ultra vires the Parliament of the Commonwealth. It would be that the procedural or evidentiary provisions of s.23(1) were, to the extent that they would have that effect, themselves invalid.
38. It is therefore strictly unnecessary to determine, for the purposes of the present case, the question whether the provisions of s.23(1) would, according to their terms, so operate as to have the effect that the recoupment tax became an incontestable tax. Since the matter has been argued however, it is desirable that we indicate that we are of the view that they would. As has been pointed out, the fact that an assessment to recoupment tax may not be challenged on the basis that the underlying assessment of company tax was mistaken does not make the recoupment tax an incontestable tax. The reason is that the relevant criterion for the purpose of the imposition of recoupment tax is the fact, not the underlying correctness, of the assessment of company tax. On the other hand, a further criterion by reference to which the recoupment tax is imposed is that the company tax remains unpaid. A certificate under s.23(1) would, if the sub-section operated according to its terms, effectively preclude a taxpayer from disputing that company tax was due and payable and remained unpaid at the relevant date. It follows that, to the extent that the tender of a certificate under s.23(1) would preclude attack on the assessment of recoupment tax on the ground that the relevant assessment of company tax had already been paid, the provisions of s.23(1) are invalid. It is unnecessary to consider whether the sub-section has any remaining function to perform which is not effectively performed by s.177 of the Income Tax Assessment Act.
39. One final observation may be made in this regard. We have referred to the opportunity which the Act affords to persons other than the target company to contest the assessment of the company to tax. It is to be emphasized that these rights are not in substitution for the rights of the company. What the legislation does is to confer rights which are in addition to the rights which the company has to contest its liability to pay company tax and to confer those rights upon persons, whether in a representative capacity or not, who might be expected to pay recoupment tax assessed by reference to the company tax.
40. Having identified the subject of the recoupment tax as we have, we may briefly dispose of the remaining argument advanced by the plaintiffs. That is an argument based upon s.55 of the Constitution which, so far as is relevant, requires that laws imposing taxation shall deal with one subject of taxation only. So far as vendors recoupment tax is concerned, it is said that the subject of vendors recoupment tax imposed by reference to a primary taxable amount is different from vendors recoupment tax imposed by reference to a secondary taxable amount. Similarly it is argued that promoters recoupment tax imposed by reference to a promoters taxable amount is a tax on different subject matters definable by reference to the discrete activities that qualify a person for membership of the eligible promoters class. But in each instance this is to confuse the object with the subject of the tax. Recoupment tax deals with the transaction which resulted in a target company being stripped of its assets so as to be unable to pay its company tax. Those liable to pay the tax, whether as vendor shareholders, persons traceable through vendor shareholders, or promoters, are the objects of the tax and are liable because of their connexion with the transaction. It might perhaps be argued that the transaction in which a vendor shareholder is involved is a different transaction from that involving a person within the eligible promoters class but, if there is such a difference, the legislature recognizes it by providing two taxing Acts, the Taxation (Unpaid Company Tax - Vendors) Act and the Taxation (Unpaid Company Tax - Promoters) Act, so that the laws imposing the taxes do not deal with more than one subject of taxation. The assessment Act is not a law imposing taxation and is not subject to the restrictions imposed by s.55: Re Dymond, above.
41. In our view the demurrer should in each case be allowed upon the ground that the Taxation (Unpaid Company Tax - Vendors Act and the Taxation (Unpaid Company Tax - Promoters) Act are valid laws of the Commonwealth.
MURPHY J. This case arises out of the widespread tax avoidance industry based on artificial and elaborate schemes which flourished in Australia during the seventies. One of these schemes known as "bottom of the harbour" involved shareholders disposing of shares in a company which had unpaid tax liability (even if not yet ascertained) to promoters. The promoters sold off the assets and then allowed the company either to fall into the hands of "straw" persons or effectively to disappear by registering fictional directors and fictional registered offices.
2. As part of a legislative program to combat these schemes the Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth) ("the Assessment Act"), the Taxation (Unpaid Company Tax - Vendors) Act 1982 (Cth) ("the Vendor's Act") and the Taxation (Unpaid Company Tax - Promoters) Act 1982 (Cth) ("the Promoter's Act") were enacted to replenish revenues lost because of them. The Acts are presumed to fall within the constitutional powers of the Parliament (see Commonwealth v. Tasmania (The World Heritage case) [1983] HCA 21; (1983) 46 ALR 625, 721). The obvious enabling power is the taxation power (s.51(ii)) of the Constitution. Nothing raised in argument has displaced that presumption except in relation to s.23 of the Assessment Act. I agree generally with the views expressed in the joint judgment and add only the following.
3. Section 23 of the Assessment Act provides:
"(1) For the purposes of this Act, a certificate
signed by the Commissioner, a Second
Commissioner or a Deputy Commissioner and
stating that an amount of company tax
specified in the certificate is due and
payable by a company and that, on a date
specified in the certificate, that company tax
remained unpaid, is conclusive evidence of the
matters stated in the certificate except in
proceedings under Division 2 of Part V of the
Assessment Act in relation to an assessment in
respect of that company tax.
(2) A document purporting to be a certificate
referred to in sub-section (1) shall, unless
the contrary is established, be taken to be
such a certificate.
(3) A reference in sub-section (1) to company tax
due and payable by a company and remaining
unpaid at a particular time includes a
reference to notional company tax applicable
in relation to a company at a particular time
in accordance with sub-section 15(11).
4. For the reasons I gave in Actors and Announcer's Equity Association of
Australia and Others v. Fontana Films Pty Ltd [1982] HCA 23; (1982) 40
ALR 609, 642-643,
Parliament cannot provide that proof of one fact is deemed proof of a
different fact, with the consequence
that
the party against whom the second
fact is alleged is prevented from disproving it (see also Seamen's Union of
Australia v. Utah
Development
Co [1978] HCA 46; (1979) 22 ALR 291, 319 and Re Bowen; Ex parte
Amalgamated Metal Workers' and Shipwrights' Union [1980] HCA 42; (1980) 32 ALR 343, 357).
5. Laws which purport to impose incontestable taxes have been described as undermining the judicial power, or infringing the principle against delegation or abdication of legislative power expressed in the metaphor "the stream cannot rise higher than its source" (see Deputy Commissioner of Taxation v. Hankin [1959] HCA 2; (1959) 100 CLR 566, and Giris Pty Ltd v. Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365). In Deputy Federal Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32, Chief Justice Dixon stated "... under the Constitution liability for tax cannot be imposed upon the subject without leaving open to him some judicial process by which he may show that in truth he was not taxable or not taxable in the sum assessed, that is to say that an administrative assessment could not be made absolutely conclusive upon him if no recourse to the judicial power were allowed" (p.40).
6. Section 190(b) of the Income Tax Assessment Act 1936 provides that the burden of proving that the assessment is excessive shall lie upon the taxpayer, but s.23 of the Assessment Act provides for conclusiveness of a certificate not only that company tax is due, subject to review and appeal under Division 5 of the Income Tax Assessment Act, but also that on a date specified the company tax remains unpaid. In so far as s.23 provides conclusive evidence that the tax has not been paid, it is invalid. If the certificate were evidence that the tax was unpaid or raised a rebuttable presumption that it was unpaid, it would be valid.
7. Ordinary presumptions, that is, rebuttable presumptions of fact, are useful, and almost indispensable for the operation of an efficient legal system. Conclusive presumptions are dangerous; they prevent any judicial investigation of the matter conclusively presumed, even where it is disputed. Because of limited federal legislative powers and the existence of the federal judicial power, federal Acts providing for conclusive presumptions will often prove invalid.
8. Section 23(1) is valid, except for the words "and that, on a date specified in the certificate, that company tax remained unpaid,". In all other respects, the Acts are valid. The demurrers should be allowed.
BRENNAN J. The tax imposed by the Taxation (Unpaid Company Tax - Vendors) Act 1982 (Cth) ("the Vendors Act") and assessed under the Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth) ("the 1982 Assessment Act") is defined as "vendors recoupment tax" in s.3(1) of the latter Act. The tax imposed by the Taxation (Unpaid Company Tax - Promoters) Act 1982 (Cth) ("the Promoters Act") and assessed under the 1982 Assessment Act is defined as "promoters recoupment tax" in the same subsection. Vendors recoupment tax is imposed by s.4 of the Vendors Act; promoters recoupment tax is imposed by s.4 of the Promoters Act. Each of the Vendors Act and the Promoters Act incorporates the 1982 Assessment Act and requires that Act to be read as one with it. (Hereafter references to particular provisions are references to the provisions of the 1982 Assessment Act unless otherwise indicated). In the first action, the plaintiff challenges the validity of the Vendors Act or alternatively the validity of the imposition of the vendors recoupment tax imposed by s.4 of the Vendors Act in conjunction with ss.5(1) and 8(1) of the 1982 Assessment Act. In the second action the plaintiffs challenge the validity of the Vendors Act and the Promoters Act or alternatively the validity of the imposition of the vendors recoupment tax imposed by s.4 of the Vendors Act in conjunction with ss.5(1), 6(1) and 8(1) of the 1982 Assessment Act and the validity of the imposition of the promoters recoupment tax imposed by s.4 of the Promoters Act in conjunction with ss.7(1) and 8(2) of the 1982 Assessment Act. The defendant Commissioner of Taxation contends that the Vendors Act and the Promoters Act are valid in their entirety. These proceedings are on demurrer to the statement of claim in each action. The interlocking provisions of the three Acts are extremely complex, but it is possible to give a sufficient description of the leading features of the statutory scheme to consider the challenge to the validity of the Acts imposing the respective recoupment taxes.
2. The quantum of both vendors and promoters recoupment taxes are ascertained by reference to certain "overdue company tax" (see ss.3(1), 5(1)(g) and 7(1)(f)) which a company has been unable to pay or which a company that has gone out of existence would have been unable to pay immediately before it went out of existence: pars.(g) and (h) of ss.5(1) and 5(2), and pars.(f) and (g) of ss.7(1) and 7(2). The amount to be paid by way of recoupment tax is reduced by a payment of the overdue company tax by reference to which the recoupment tax has been ascertained (s.9(1) and (6)). The amount to be paid by way of vendors recoupment tax is reduced also by a payment of a promoters recoupment tax assessed by reference to the same overdue company tax (s.9(7)). There are two categories of vendors recoupment tax (ss.5 and 6), and a reduction is provided for in favour of one category of vendors recoupment tax when a payment is made in respect of another category of vendors recoupment tax (s.9(5)). However, no payment of vendors recoupment tax goes in reduction of the overdue company tax by reference to which the vendors recoupment tax is assessed. A payment of promoters recoupment tax is deemed to be applied in reduction of the overdue company tax by reference to which the promoters recoupment tax is ascertained (s.9(7)). The scheme of the three Acts is that an amount equal to but not exceeding the whole of the overdue company tax will be recouped by payment of the vendors recoupment tax and promoters recoupment tax or by the payment of one or other of those recoupment taxes. If both recoupment taxes are payable and are fully paid, the vendors recoupment tax would yield an amount equal to 80% of the overdue company tax, and the promoters recoupment tax would yield an amount equal to 20% of the overdue company tax (s.7(1)(j)) unless the promoters recoupment tax so calculated would exceed the ceiling prescribed by s.7(3) in which case the vendors recoupment tax would be correspondingly increased. No person who is liable to be assessed to recoupment tax is or would have been liable to be assessed to any part of the company tax by reference to which his liability to pay a recoupment tax is ascertained. The criteria of liability to pay either of the categories of vendors recoupment tax or to pay promoters recoupment tax are such that the income year in relation to which the relevant overdue company tax is assessed may not have closed at the time of the occurrence of the transaction which might expose a person to liability to pay the recoupment tax - namely, a sale of shares in the company (pars.(a) and (b) of s.5(1) and s.7(1)). At the time of the relevant sale, the persons who later become liable to pay recoupment tax might have no grounds for suspecting, much less knowing, that the company would become unable to pay the taxes which it would become liable to pay - taxes which, if due and unpaid become overdue company tax by reference to which the amount of those persons' liability for recoupment tax is ascertained. It will be necessary to return to the several criteria of liability in greater detail after considering the relevant principles which govern the constitutional validity of laws purporting to impose taxation. However, this partial and abbreviated description of the statutory scheme for recouping amounts equal to unpaid company tax may serve to explain the challenges made to the constitutional validity of the Vendors Act and the Promoters Act. They are said not to be laws with respect to taxation and therefore not to be within the taxation power of the Parliament (s.51(ii) of the Constitution) or, if they survive that challenge, they are said to deal with more than one subject of taxation and therefore to offend the second paragraph of s.55 of the Constitution. If, to borrow the metaphor used by Rich and Dixon JJ. in Jolly v. Federal Commissioner of Taxation [1935] HCA 21; (1935) 53 CLR 206, at p 211, the Acts sail away from the Scylla of the first challenge and are not pulled down by the Charybdis of the second, it is then said that they perish on the shoal of s.23 of the 1982 Assessment Act. That section is said to make each of the recoupment taxes incontestable, and on that account the imposition of the recoupment taxes is said to have exceeded the legislative power of the Parliament.
3. The taxation power is the only power relied on to support the enactment of the Vendors Act, the Promoters Act and the 1982 Assessment Act. No other power is available. Laws imposing taxation are within the ambit of the power conferred by s.51(ii) of the Constitution though they do not exhaust it: Moore v. The Commonwealth [1951] HCA 10; (1951) 82 CLR 547; re Dymond [1959] HCA 22; (1959) 101 CLR 11, at p 23. But a law which purports to impose a tax must be in truth a law imposing taxation if it is to fall within the ambit of the power and is thereby to avoid the invalidating effect of the condition attached to s.51(xxxi) of the Constitution. As the imposition of taxation is not an acquisition of property within s.51(xxxi) (Commissioner of Taxation v. Clyne [1958] HCA 10; (1958) 100 CLR 246, at p 263; Federal Commissioner of Taxation v. Barnes [1975] HCA 61; (1975) 133 CLR 483, at pp 494-495; Trade Practices Commission v. Tooth & Co.Ltd. [1979] HCA 47; (1979) 142 CLR 397, at pp 407-408), a law imposing a liability to pay money to the Commonwealth will at once find support in s.51(ii) and fall outside the operation of s.51(xxxi) if the liability imposed is truly a tax.
4. The recoupment taxes purport to be taxes. They satisfy the general conception of taxation: the compulsory exaction of money with legislative authority by a public authority for public purposes by means of contributions from individual persons not being payments for services rendered (see Cam and Sons Pty. Ltd. v. Ramsay [1960] HCA 82; (1960) 104 CLR 247, at p 258; Matthews v. Chicory Marketing Board (Vict.) [1938] HCA 38; (1938) 60 CLR 263, at p 276; Browns Transport Pty. Ltd. v. Kropp [1958] HCA 49; (1958) 100 CLR 117, at p 129; Victoria v. The Commonwealth [1971] HCA 16; (1971) 122 CLR 353, at p 416). But it is said that there are features of the statutory scheme that are inconsistent with a law imposing taxation.
5. First, it is said that the effect of the scheme is not to impose a tax but
to require the overdue company tax owing to the Crown
by the company to be
paid by the persons specified in ss.5, 6 and 7 ("the accountable parties" as I
shall call them) although that tax was not imposed upon them. If a law does
no more than "require
that moneys owing to the Crown by A be paid out of
property to which B is beneficially entitled ... then it is not a law with
respect
to taxation": Federal Commissioner of Taxation v. Barnes, at p 493 per
Barwick C.J., Mason and Jacobs JJ. In so holding, their Honours
cited
Waterhouse v. Deputy Federal Commissioner of Land Tax, S.A. [1914] HCA 16; (1914) 17 CLR 665.
Some of the reasoning in Waterhouse
cannot now
be accepted. The overthrow of
the doctrine of reserved powers
(which played no small part in the reasoning
in Waterhouse)
means
that dealings which were thought to be immune from the
reach of
the federal taxing power may now be selected as the subject
of a
tax
imposed under s.51(ii). As Taylor J. pointed out in Fairfax v. Federal
Commissioner of Taxation [1965] HCA 64; (1965) 114 CLR 1, at p 16:
" Unrestricted by limitations arising from theAickin J. was able to say in General Practitioners Society v. The Commonwealth [1980] HCA 30; (1980) 145 CLR 532, at p 569 that "the tax power is not limited to old or well-known taxes but extends to any form of tax which ingenuity may devise". Nevertheless, the principle seems to be inherent in a majority of the judgments in Waterhouse (at pp.671, 674-675, 678) - and the principle is not affected by the reserved powers doctrine - that a provision that does no more than exact payment of a tax imposed on another is a provision dealing with a matter other than taxation. That principle was affirmed by the judgment of the majority in Barnes. Whether such a provision is invalid because it is not a law "with respect to" taxation, as their Honours held in Barnes or because, though a law with respect to taxation, it does not impose taxation and is struck down by the condition attached to s.51(xxxi), need not detain us. It is established that such a law is outside the powers of the Parliament. Are the three Acts or any of them such a law? In my view, neither the Acts nor particular provisions of the Acts are laws of that kind. They impose a new tax calculated by reference to the company's overdue tax but giving rise to a new and different liability. The company's tax liability remains unaffected by the imposition and assessment of the recoupment taxes. The liabilities imposed respectively upon the company, vendors and promoters co-exist before any payment is made. A payment of vendors recoupment tax does not reduce overdue company tax or promoters recoupment tax; a payment of promoters recoupment tax is deemed to reduce overdue company tax (s.9(7)) and thus vendors recoupment tax (s.9(1)); a payment of overdue company tax pursuant to an arrangement with the Commissioner affects liability for vendors recoupment tax but does not affect liability for promoters recoupment tax (ss.20, 21). The 1982 Assessment Act thus treats as distinct the tax liability of the company, the liability for promoters recoupment tax and the liability for vendors recoupment tax. The obligation to pay a recoupment tax is distinct from an obligation to pay overdue company tax. The circumstance that payments made in discharge of one tax liability may reduce another of those liabilities is quite consistent with according the character of taxation to each of the taxes. As Kitto J. said in Moore v. The Commonwealth, at p 581:
doctrine of the reserved powers of the States the
power of the Commonwealth to make laws with
respect to taxation stands revealed as a head of
power subject to no limitations except those
prescribed by the Constitution itself."
" Separate obligations to pay money to the(See also per Dixon J. at p.568). Upon their true construction, the three Acts do not throw upon the accountable parties the burden of paying the company's overdue tax; they oblige an accountable party to pay the tax imposed upon him. The first argument fails.
Commonwealth may, no doubt, be so created that
each of them is a tax, notwithstanding that a
payment in respect of one is to operate as pro
tanto satisfying the other, and even
notwithstanding that any excess of one over the
other is to be refunded."
6. Next, it is submitted that the imposts are not taxes unless there be a
sufficient connection between the subject of the supposed
taxes and the
objects (the accountable parties) on whom the liabilities are imposed. There
is a terminological difficulty in the
argument. The term "subject of
taxation" is not taken from s.51(ii); it appears to be borrowed for the
purpose of propounding a
test of sufficient connection from the second
paragraph of s.55 of the Constitution. The term "objects" is presumably to be
understood as Higgins J. understood it in Osborne v. The Commonwealth [1911] HCA 19; (1911)
12 CLR 321,
at pp 372-373:
" The prohibition contained in the second clause ofA difficulty arises because of the imprecise denotation of the term "subject of taxation" to which Dixon J. referred in Resch v. Federal Commissioner of Taxation [1942] HCA 2; (1942) 66 CLR 198, at p 223:
sec.55 applies only to a law containing two or
more subjects of taxation. There may be as many
objects of taxation - persons to be taxed - as
Parliament pleases."
" The expression 'subject of taxation' appears
to suppose that some recognized classification of
taxes exists according to subject matter. But in
fact that was never so. Economists and lawyers
have for their different purposes referred taxes
to categories, the one for their incidence and
economic consequences and the other for the legal
mechanism employed to secure their collection and
for their operation upon the creation, transfer
and devolution of rights. But these are not the
considerations to which sec.55 is directed. It
is concerned with political relations, and must
be taken as contemplating broad distinctions
between possible subjects of taxation based on
common understanding and general conceptions,
rather than on any analytical or logical
classification."
7. If the test of validity under s.51(ii) is the sufficiency of a connection
between a "subject of taxation" and the objects upon whom the impost is laid
the relevant subject
of taxation must be identified before the test is
applied. What content can be given to the term "subject of taxation" in this
context?
In ascertaining whether a law imposes a tax, the prescribed criteria
of liability must be considered. Clearly the "subject of taxation"
must be
found among those criteria. For the purposes of the second paragraph of s.55,
it is possible to say of some criteria that they pertain more to a description
of the subject of taxation than to the persons to
be taxed (the objects). But
for the purposes of s.51(ii) the criteria pertaining to objects and criteria
pertaining to the supposed subject of taxation together exhaust the indicia of
a
true tax, and it is difficult to see why the character of the law should not
be found in the criteria as a whole. A test of sufficient
connection requires
the criteria to be divided into categories of subject, object and (perhaps)
connection. No principle was advanced
for placing a criterion in one category
rather than another. Nevertheless, a division of the criteria of liability
prescribed by
ss.5, 6 and 7 was attempted in the present case. It is
convenient to limit the examination of the supposed test to the criteria
prescribed by
s.5 - the section relating to the first category of vendors
recoupment tax.
8. The plaintiffs propounded the subject of taxation to be "a company's undischarged liability to pay overdue tax and/or undistributed profits tax". The objects of vendors recoupment tax were taken to be the vendors of shares. The other criteria can be taken to exhibit whatever connection there may be between the objects and the subject of taxation: liability of the company for overdue company tax (s.5(1)(g)) calculated as though the last relevant year of income ended immediately before the last sale of shares (s.3(10)) and an arrangement or transaction which secures or achieves the result that the company is unable to discharge its tax liability (s.5(1)(h)). Then it was said that there was an insufficient connection between the objects and the subject of taxation because it was not necessary that the vendors of the shares be concerned in any way with, or even know of, the non-payment of overdue company tax or the entering into the arrangement or transaction which resulted in the company's inability to discharge its tax liability. But why should the liability of a company for unpaid tax be selected as the subject of taxation? It could also be said that the subject of the vendors recoupment tax is the sale of shares under a scheme (s.5(1)(a)) carrying certain voting power (s.5(1)(c)); or, a sale of that kind at a price in excess of the amount calculated according to the formula in s.5(1)(d). If a sale of shares were taken to be the subject of taxation, the connection with the vendors of the shares would be obvious and substantial. And so, if sufficient connection were the test of validity, the selection of one criterion rather than another would or might determine the validity of the law. In my opinion, the division of criteria for the purpose of determining whether the law truly imposes taxation is artificial and erroneous. It is artificial because the selection of one criterion as the subject of taxation arbitrarily diminishes the significance of other criteria in ascertaining the character of the law. It is erroneous because the broad concept "subject of taxation" and the notion of a sufficient connection with it are impermissibly translated from the context of the second paragraph of s.55 to the context of s.51(ii). Yet the purpose and function of s.51(ii) and s.55 are quite different. The first requirement of the second paragraph of s.55 is calculated to safeguard the powers of the Senate in relation to bills imposing taxation that originate in the House of Representatives and that may not be amended in the Senate (Constitution, s.53: Harding v. Federal Commissioner of Taxation (1917) 23 CLR 119, at p 134; Resch's Case, at pp.222-223; see also National Trustees, Executors and Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation [1916] HCA 62; (1916) 22 CLR 367, at p 371). That requirement does not affect the scope of the legislative power granted to the Parliament by s.51(ii); it affects the means by which that power is exercised.
9. The second paragraph of s.55 operates only upon a law which is said to
impose two or more taxes. Then the question is whether a general
consideration of the
law "on common understanding and general conceptions"
reveals two or more subjects of taxation broadly distinguishable one from
another.
For this purpose, Dixon J. applied a test of "sufficient connection"
in Resch's Case (at p.224), but the way in which his Honour
stated (at p.223)
the question which the test was propounded to answer treats the insufficiently
connected criteria of liability
as introducing a second subject of taxation,
not as denying the character of taxation to either impost:
" Where the main or substantial subject of theAnd in Waterhouse, if Isaacs J. had held that the impugned provision (s.36(2) of the Land Tax Assessment Act 1910-1911) had imposed a tax, he would have ascertained the subject of taxation by reference to all the criteria of liability. He said (at pp.675-676):
tax has thus been ascertained, then the question
whether particular provisions directed at
defining or widening the area or incidence of the
tax or the liability to it or preventing
avoidance or evasion or facilitating collection
have in truth introduced a new or second subject
must be determined by considering their natural
connection with or relevance to the main
subject."
" If the purport of the section were to impose a
new pecuniary obligation, by deliberately making
a husband pay a tax in respect of land which is
assumed not to belong to him but to his wife
alone, or as to a wife in respect of what is
assumedly her husband's land, I should think that
was new taxation. It would be immaterial that
the tax was payable as the consequence of or
contingent upon a stated event. And such an
imposition could not be called a land tax. ...
If such a new obligation were imposed either
directly, or contingently, I should consider it a
personal tax, or a land transfer tax, but not a
land tax; and this would, in my opinion, at once
bring the Assessment Act within sec.55(2), with
disastrous effect."
10. A search for a sufficient connection between the subject or subjects of
recoupment taxes and the objects would put us on a false
trail. Whether
s.51(ii) supports the three laws as laws imposing taxation depends upon the
whole of the criteria of liability which
they specify. The circumstance that
some of the criteria are unrelated to other criteria (if in truth they be
unrelated) is immaterial
to validity, for the power to impose taxation is not
conditioned upon the selection of related criteria. As the taxation power
extends
to "any form of tax which ingenuity may devise", the Parliament may
select such criteria as it chooses, subject to any express or
implied
limitations prescribed by the Constitution, irrespective of any connection
between them. No doubt the Parliament saw that some vendors and promoters
could be caught within
the net of taxation though they were innocent of any
involvement in the arrangement or transaction that resulted in the company
becoming
unable to pay the company tax due and payable by it. That want of
connection between the criteria of liability may well be productive
of
injustice, but it does not deprive the Parliament of its power to make the
impugned laws. If the tax is found to work injustice,
the remedy is not to
deny its validity; the remedy must be found in the Parliament's power of
amendment.
11. That is not to say that the nature of criteria chosen by the Parliament is irrelevant to the character of a law which purports to impose a tax. If such a law is to escape the annihilating operation of the condition attached to the acquisition power, the criteria must stamp the impost with the character of a tax. The distinction between a tax imposed by a law supported by s.51(ii) and a statutory exaction struck down by the condition attached to s.51(xxxi) need not now be precisely defined, for recoupment taxes clearly fall on the taxation side of the line dividing a tax imposed under s.51(ii) from an acquisition that attracts the operation of s.51(xxxi). Perhaps the distinction adopted in the United States serves also for our purposes. There it has been held that the law must lay the impost upon the community or upon a class in the community by some rule of apportionment, while the exercise of the right of eminent domain operates on an individual without reference to the amount or value exacted from any other individual or class of individuals (People v. Mayor of Brooklyn, 55 Am.Dec.266; 26 Am.Jur 2d. "Eminent Domain" 4, p 642; see also Cooley "Law of Taxation", 3rd ed. (1903), vol.1, pp 411-412). The Acts cannot be characterized as laws for the acquisition of property. They do not transgress any of the limitations expressed in or implied by the Constitution upon the taxation power. No feature of the statutory scheme denies to the recoupment taxes imposed by the Acts the character of true taxes. Scylla is thus avoided, but are the Acts pulled down by the Charybdis of s.55?
12. The Vendors Act imposes taxation upon a "vendors taxable amount" in "an amount equal to the vendors taxable amount" (Vendors Act, ss.4 and 5). "Vendors taxable amount" is defined to mean "an amount that is a primary taxable amount or a secondary taxable amount" (the 1982 Assessment Act, s.3(1)). A primary taxable amount exists in relation to a person where the criteria specified in pars. (a) to (j) of s.5(1) or s.5(2) are met. The chief of those criteria are a sale of shares carrying more than 90% of the voting power of a company for an amount exceeding the value of the net assets of the company taking account of its tax liability assessed on the basis that the company's income year ended immediately before the time of the last sale (except in relation to the distribution period in respect of Division 7 tax), the non-payment of ordinary company tax or undistributed profits tax due and payable by the company, the entry into an arrangement or transaction (not necessarily by the vendors) that resulted in the company being unable to pay to the Commissioner all the company tax due and payable by it and the discontinuance after the time of the last sale of a business previously carried on by the company. A secondary taxable amount exists where the criteria specified in s.6 are met. The chief of those criteria is that a vendors taxable amount exists in relation to a company or in relation to a trustee of a trust estate. Section 6 provides for the existence of a secondary taxable amount in the circumstances specified in the section in relation to persons other than the company or the trustee. Broadly speaking, the persons in relation to whom a secondary taxable amount exists are persons entitled on a distribution of the capital of the company or of the corpus of the trust estate. The effect of s.6, when incorporated into the Vendors Act, is to widen the objects upon whom the liability for vendors recoupment tax is laid beyond those primarily liable under s.5. However the subject of taxation is described in relation to those who become liable by reason of s.5, it is the same subject of taxation when liability is imposed by reason of s.6. I would hold that the Vendors Act does not deal with more than one subject of taxation and does not offend the second paragraph of s.55 of the Constitution.
13. The Promoters Act imposes taxation on a "promoters taxable amount" which is defined in relation to a person or persons as meaning "an amount that is a promoters taxable amount under section 7 in relation to an eligible promoters class in which the person is, or the persons are, included" (the 1982 Assessment Act, s.3(1)). The tax is imposed in an amount equal to the promoters taxable amount (Promoters Act, ss.4 and 5). A promoters taxable amount exists where the criteria specified in pars.(a) to (h) of s.7(1) or s.7(2) are met. The chief of those criteria are a purchase of shares in a company by a person or persons who, immediately after the purchase, is or are capable of controlling more than 90% of the voting power of the company, the non-payment of ordinary company tax or undistributed profits tax due and payable by the company, the entry into an arrangement or transaction that resulted in the company being unable to pay to the Commissioner all the company tax due and payable by it and the discontinuance after the time of the last purchase of a business previously carried on by the company. A promoters taxable amount does not exceed the difference between the value of the net assets of the company immediately before the time of the last purchase and the sum of the amounts of purchase price of the shares and tax paid after the purchase but before 25 July 1982 (s.7(3)). A promoters taxable amount may exist in relation to the persons in any of seven eligible promoters classes specified in s.7(8), including the purchasers of the shares (par.(a)), their agents or brokers (par.(b)), and their associates who gave them financial assistance for the purpose of, or in connection with, the purchase (par.(c)). It was submitted that, as promoters recoupment tax was imposed upon those several classes in relation to whom a promoters taxable amount exists, the Promoters Act deals with more than one subject of taxation. Purchasers, agents, brokers and financiers are, in their several ways, involved in a purchase of shares in a company, but the activities which characterize their respective involvement and expose them to tax liability are different. Are those activities merely descriptive of the objects of the tax or do they identify different subjects of taxation? The question is not to be answered by analytical or logical classification but on "common understanding and general conceptions". The common criterion of the existence of a promoters taxable amount in relation to any person is his involvement, directly or indirectly, in the purchase of shares in a company which, as a result of some arrangement or transaction, becomes unable to pay the whole of the company tax that has become due. That common foundation of liability is a sufficient connection among the several heads under which a person may be assessed to promoters recoupment tax to bring all heads within the same subject of taxation. The criteria to be found in s.7 are not so diverse as to reveal that "very clear demonstration of error" which Isaacs J. thought the Court should perceive before holding that the Act dealt with more than one subject of taxation: National Trustees, Executors and Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation, at pp 378-379.
14. Avoiding both Scylla and Charybdis, the Acts next encounter the perils of
s.23(1) which reads:
" (1) For the purposes of this Act, aBy force of this subsection, two of the criteria of liability for recoupment tax can be made incontestable except in certain objection and appeal proceedings under the Income Tax Assessment Act 1936 (Cth). A certificate issued under s.23(1) can preclude a recoupment taxpayer from challenging that an amount of company tax is due and payable and that it is unpaid-facts which are essential both to the existence of a liability for recoupment tax and to the quantification of that liability. The subsection therefore invites consideration of what Dixon C.J. said in Deputy Federal Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32, at p 40:
certificate signed by the Commissioner, a Second
Commissioner or a Deputy Commissioner and stating
that an amount of company tax specified in the
certificate is due and payable by a company and
that, on a date specified in the certificate,
that company tax remained unpaid, is conclusive
evidence of the matters stated in the certificate
except in proceedings under Division 2 of Part V
of the Assessment Act in relation to an
assessment in respect of that company tax. "
" Although there is no judicial decision to thatA conclusive certificate shrouds the statutory criteria to which it relates, substituting the existence of the certificate for the existence of the criteria. Liability assessed by reference to the certificate may differ in incidence or amount from liability assessed by reference to the actual existence of the criteria. Yet where the Parliament imposes a tax by reference to prescribed criteria, it is for the Courts and not for the Executive to determine whether each of those criteria exist in the particular case. The jurisdiction of the Courts cannot be wholly excluded by a provision which makes the Commissioner's certificate conclusive as to the existence of a fact when the Parliament has prescribed the existence of the fact to be a criterion of the taxpayer's liability. An opportunity to obtain a judicial determination as to the existence of the fact may be validly limited (as it is under the Income Tax Assessment Act) to judicial proceedings on appeal from disallowance of an objection to an assessment, but it cannot be wholly excluded. A further objection to the validity of a conclusive certificate provision could be raised where the criterion of liability to which the certificate relates is essential to give the impost the character of a tax. In such a case, a liability imposed by reference not to the existence of that criterion but by reference to the existence of the certificate would not be an impost of the same character. However, the challenge to the validity of s.23(1) must be founded upon the former, more general, objection.
effect, it has, I think, been generally assumed
that under the Constitution liability for tax
cannot be imposed upon the subject without
leaving open to him some judicial process by
which he may show that in truth he was not
taxable or not taxable in the sum assessed, that
is to say that an administrative assessment could
not be made absolutely conclusive upon him if no
recourse to the judicial power were allowed."
15. Unless the facts in respect of which a s.23(1) certificate may be issued are amenable, upon challenge, to some judicial determination binding upon the Commissioner and the taxpayer, the subsection is invalid. The 1982 Assessment Act does not allow for judicial determination of any of the facts covered by a s.23(1) certificate in appeals in relation to an assessment to recoupment tax. The amount of company tax to which a company is assessed may be challenged in an appeal against that assessment but, for the purposes of the 1982 Assessment Act, only upon appeal by those recoupment taxpayers who are referred to in s.18. If a s.23(1) certificate is issued, a recoupment taxpayer who is not among those given a right of objection and appeal in relation to the liability of the relevant company to pay company tax cannot challenge the existence or amount of that liability. If such a certificate is issued and is not withdrawn, no recoupment taxpayer in proceedings in relation to an assessment to recoupment tax can challenge the fact that the company tax liability of the company is due and payable or that the amount of that liability has not been paid. A certificate issued under s.23(1) shrouds those facts impenetrably.
16. Therefore s.23(1) is invalid, and sub-ss.(2) and (3) fall with it. However, s.23 is clearly severable. Section 23 would facilitate proof of the existence of criteria, in aid of the application of the substantive provisions of the Act to particular cases. Shorn of the invalid section, the remainder of the Act is unaffected in its operation and effect (see s.15A, Acts Interpretation Act 1901 (Cth); Bank of New South Wales v. The Commonwealth [1948] HCA 7; (1948) 76 CLR 1, at p 371). As the validity of the other provisions of the 1982 Assessment Act is unaffected by the invalidity of s.23, the validity of the Vendors Act and the Promoters Act is also unaffected.
17. The demurrers should be allowed, and the actions dismissed with costs.
ORDER
Demurrer allowed.Judgment for the defendant in the action with costs.
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