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General Interest Charge (Imposition)
Date Introduced: 10 December 1998
House: House of Representatives
Commencement: Upon the Royal Assent
The purpose of
the General Interest Charge (Imposition) Bill 1998 (the Bill) is to
impose the proposed tax deductible general interest charge as a tax
to the extent to which the charge cannot validly be imposed
otherwise than as a tax.
1. Taxation Laws Amendment Bill
Taxation Laws Amendment Bill (No.5) 1998,
amongst other things, will implement a new regime governing the
late payment of taxes (the general interest charge) from 1 July
The Bill accompanies Taxation Laws Amendment
Bill (No.5) 1998 to formally impose the general interest charge if
it cannot validly be imposed otherwise than as a tax.
2. Constitutional restrictions
on federal income tax law create necessity for separate taxation
The Constitution contains a number of
restrictions on the federal government's powers to levy and collect
2.1 Section 55 creates necessity for
imposition Act to be separate from other legislation
One of these restrictions, in section 55 of the
Constitution provides that laws 'imposing taxation shall deal only
with the imposition of taxation and any provision therein dealing
with any other matter shall be of no effect.' It is for this reason
that the Act imposing the general interest charge must be separate
to the Act providing for the incidence of the charge. This assumes,
of course, that the charge is actually a tax and not a fine or
2.2 Charge may not validly be able to be
imposed otherwise than as a tax or at all
The fact that the Bill imposes the general
interest charge as a tax, only to the extent to which the general
interest charge cannot validly be imposed otherwise than as a tax,
raises two questions:
- What is the charge if it isn't a tax and how is it proposed to
be validly imposed?
- If the charge cannot be validly imposed as intended without
having recourse to imposing it as a tax, would it be properly
characterised as a tax in any event?
2.2.1 What is the charge if it isn't a tax and how is it
proposed to be validly imposed?
Presumably, the charge is considered to be
either a payment incidental to a tax or a penalty that is something
less than additional tax, for example the current late payment
If the charge is 'with respect... to taxation'
in accordance with section 51(ii) of the Constitution, the
Commonwealth has power over such matters and can provide for the
incidence of such a charge.
The fact that the Bill provides for the facility
to impose the charge as a tax indicates that there is a possibility
that it may be characterised as a payment in the nature of a tax.
In this event section 55 of the Constitution asserts that laws
imposing taxation shall only deal with the imposition of taxation.
This is the reason for the separate Bill.(1)
2.2.2 If the charge cannot be validly imposed as
intended without having recourse to imposing it as a tax, would it
be properly characterised as a tax in any event?
This matter is raised as an indicator of the
sorts of issues canvassed with the introduction of any tax. For the
valid exercise of Commonwealth power under section 51(ii) of the
Constitution, the legislation must be 'with respect to
A tax is a payment demanded as a contribution to
revenue irrespective of any legality or illegality in the
circumstances upon which liability depends.(2)
The conventional view is that whilst taxes are
formally, at least, distinguished from financial penalties, section
51(ii) can be used to support legislation which will have the
effect of regulating behaviour over a wide social and economic
spectrum provided that the legislation imposes a legal obligation
to pay taxation.(3)
A question, therefore, is whether the general
interest charge would be seen as a financial penalty or a tax.
If the general interest charge were determined
to be a financial penalty, that is, if it were a payment, for
example, 'claimed as solely a penalty for an unlawful act or
omission rather than the non-payment of or incidental to a tax',(4)
the Bill would be an invalid exercise of Commonwealth power.
The general interest charge relates to
approximately 30 sections of the Income Tax Assessment Act
1936 and 20 sections of other Acts. If it were to be
characterised as a penalty for an unlawful act or omission and not
a payment incidental to tax, its validity in respect of those
sections may be in doubt.
If the general interest charge cannot validly be
imposed as intended, the Bill by merely asserting that it is to be
imposed as a tax does not of itself make the charge a tax and
Subclause 3(1) imposes the
general interest charge as a tax, but only to the extent to which
that charge cannot validly be imposed otherwise than as a tax.
Subclause 3(2) confirms that
general interest charge means the charge worked out under Division
1 of Part IIA of the Taxation Administration Act 1953.
1. Taxation laws are
characterised by their legal operation.
It is sufficient for the purposes of this digest
to merely raise the question as to the intended operation of the
general interest charge and to state that consideration must be
given to the nature of the rights, duties, powers and privileges
which an enactment changes, regulates or abolishes in order to
determine if it is a tax or a financial penalty.(5)
It should be noted that the general interest
charge replaces current penalty provisions, the validity of which
have not been challenged.
For Constitutional purposes, the distinction
between a tax and a charge is not clear.
2. Bills Digest for the Taxation
Laws Amendment Bill (No.5) 1998
For further information in relation to the
operation of the general interest charge and other related matters
please refer to the Bills Digest for the Taxation Laws Amendment
Bill (No.5) 1998.
- In Re Dymond, Ex parte The Debtor (1959) 33 ALJR 48,
the Full Court of the High Court was divided on the question
whether provisions normally included in Assessment Acts - eg the
imposition of liability to additional tax on persons in default -
came within the expression 'laws imposing taxation'.
- R v Barger (1908) 6 CLR 40, 99.
- Fairfax v Commissioner of Taxation (1965) 114 CLR 1
and Northern Suburbs General Cemetery Trust v Commonwealth
(1993) 176 CLR 555.
- R v Barger (1908) 6 CLR 40, 99 (Isaacs J).
- Fairfax v Commissioner of Taxation (1965) 114 CLR 1,
15 February 1999
Bills Digest Service
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