Bills Digest No. 151 1997-98
Commonwealth Places (Mirror Taxes) Bill 1998
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
Date Introduced:5 March 1998
House:House of Representatives
Portfolio:Treasury
Commencement: On Royal Assent
The Commonwealth Places (Mirror Taxes) Bill 1998 (the
Mirror Taxes Bill) is part of a package of four Commonwealth Bills dealing
with the consequences of the High Court's decision in Allders International
Pty Limited v Commissioner of State Revenue (Victoria) (Allders).(1)
The package of legislation is designed to overcome constitutional obstacles,
so that certain State taxes will continue to apply to Commonwealth places
located within the States and past State revenues are protected.
The four State taxes named in the Bill are stamp duty,
payroll tax, debits tax and financial institutions duty.(2) Other State
taxes may be added by regulation.(3)
The purpose of the Mirror Taxes Bill is to ensure that
Commonwealth places within a State are not immune to State taxing laws
of general application. It does so by endowing the relevant State tax
law with the character of a Commonwealth law to the extent that it applies
in a Commonwealth place within that State.
There are some similarities and some differences to the
recent package of Commonwealth legislation which received Royal Assent
in September 1997(4) and dealt with a pair of High Court decisions which
threatened substantial State revenues, in that case relating to the levying
of excises.(5)
Both the 1998 and the 1997 legislative packages stem
from the Inter-jurisdictional Taxation Agreement (IJTA) settled between
the Commonwealth, States and Territories in 1997. Amongst other things,
the IJTA sought to protect State and Territory revenues from the effects
of recent constitutional decisions by the High Court.
The 1998 package designed to deal with the Allders
decision contains the following main features:
- the use of 'mirror' legislation which, from 6 October 1997 and to
the extent necessary, turns certain State taxes into Commonwealth law,
allowing State Governments to subject 'Commonwealth places' to the same
tax treatment as the rest of the State;
- capacity for both the States and the Commonwealth to adjust the relevant
State tax laws as necessary from time to time;
- scope to add, by regulation, further categories of tax beyond the
four referred to in the package of Bills;
- continued State administration of the relevant taxes, thereby minimising
Commonwealth involvement;
- the protection of past State tax revenues by the use of a 100% windfall
tax to apply to any refunds sought as a result of the Allders
decision;
- disregard for the usual limitations applying to Commonwealth tax legislation
- notably uniformity across the States, separating appropriation from
assessment, and only 'one tax per law' - on the basis that they do not
apply to the Parliament's power over 'Commonwealth places';
- a validation provision which seeks to head off constitutional and
other questions created by overlapping Commonwealth/State jurisdictions;
- consequential amendments designed to ensure that taxpayers as far
as possible are confronted with the same tax regime as operated before
the Allders decision.
Background
The High Court decision in Allders
The Allders case concerned a duty free store located
at Tullamarine Airport. The airport was vested in the Federal Airports
Corporation (FAC), making it a 'Commonwealth place' for the purposes of
section 52(i) of the Constitution. The FAC leased part of the airport
to Allders, to operate a duty free store. The Victorian tax authorities
sought to levy stamp duty on the lease instrument.
Section 52(i) of the Constitution gives the Commonwealth
exclusive legislative power with respect to, amongst other things, 'places
acquired by the Commonwealth for public purposes'. The question for the
High Court was whether the exclusive nature of that power meant State
jurisdiction was completely ousted within such 'federal enclaves' or whether
laws of general application, such as the Stamps Act 1958 (Vic),
could operate because they did not single out Commonwealth places within
the State as their target.
On 14 November 1996, the High Court by a 5-2 majority
adhered to a wide view of section 52(i). It held that even laws of general
application, such as Victoria's stamp duty legislation, could not operate
inside a Commonwealth place. The Commonwealth could have legislated on
the same subject matter - taxation - and this mere legislative potential
was sufficient to oust State jurisdiction, given the exclusive nature
of the power.
The High Court made an additional finding in Allders
on the basis of a four-judge majority, which is significant to the
package of tax bills now before the Parliament. It held that the power
over Commonwealth places in section 52(i) is plenary. In other words it
is not constrained by the limitation which applies to the Commonwealth's
power over taxation contained in section 51(ii). This limitation decrees
that tax laws are 'not to discriminate between States or parts of States'.
The 'mirror tax' regime adopted in this package of Bills
involves the Commonwealth essentially taking State taxing laws as it finds
them. Inevitably different rates and methods of administration apply across
the various jurisdictions. Under the Mirror Taxes Bill, these variations
will find expression in Commonwealth law. This lack of uniformity would
call into question the validity of the package if it was authorised under
section 51(ii). The majority finding in Allders apparently permits
the Commonwealth to implement the mirror tax regime in reliance on section
52(i), even though it may offend the prohibition on discrimination in
the tax power.
A question presumably remains whether mirror taxes levied
under section 52(i) of the Constitution can similarly avoid the requirements
of section 55 of the Constitution. That latter provision requires the
separation of laws imposing taxation from laws dealing with machinery
for its collection. It also requires such laws to deal with only one subject
of taxation. The Explanatory Memorandum says that, on the basis of advice
to the Government, section 55 has no application in this instance.(6)
The Commonwealth's response to Allders
On 6 October 1997, the Treasurer announced that the Commonwealth
would apply taxes which mirror State taxes to businesses located at Commonwealth
places.(7) The announcement applied to stamp duty, payroll tax, financial
institutions duty and debits tax on businesses operating in or on Commonwealth
places.(8) The Treasurer indicated that the regime would be extended to
other State taxes on Commonwealth places if they too are brought into
constitutional question.
In the same announcement, the Treasurer announced that
a 100% windfall tax would apply to all refunds payable due to the invalidity
flowing from Allders. This was designed to deter applications for
refunds and protect past State revenues.
The Treasurer stated that the tax package relating to
Commonwealth places was the second of three elements referred to in the
IJTA, the others being a response to the tobacco excise cases of Ha
and Hammond, and an examination of reciprocal taxation of government
commercial enterprises.
The package of legislation dealing with the excise taxes
also employed a mirror tax regime in order to neutralise the effect of
a High Court decision on State and Territory revenues. However it levied
a uniform rate of tax across the federation, due to the constitutional
prohibition on discrimination between the States.
In the 1998 package of Bills, by relying on section 52(i),
the Commonwealth has decided to embrace differential rates of State taxation
within Commonwealth law and skirt the constitutional prohibition against
discrimination which limits the tax power.
Main Provisions
Clause 4 reflects the fact that the Commonwealth
is refraining from use of the taxation power for reasons set out above,
and instead relies for constitutional validity primarily on section 52(i)
of the Constitution. Other sections of the Constitution are relied on
for subsidiary aspects of the legislation.
Clause 6 is the lynchpin of the Bill. It applies
State taxing laws to Commonwealth places as Commonwealth laws. This general
principle is subject to constitutional and other limitations, two of which
are of particular significance. The first is that such 'applied laws'
have effect subject to any modification by the Commonwealth or by State
Treasurers under clause 8. Secondly, applied laws only take effect
if appropriate administrative arrangements between the Commonwealth and
the State are in place, in accordance with clause 9.
Modifications to applied laws under clause 8 are
subject to procedural and substantive limitations.
Although applied laws are generally taken to apply for
however far into the past and the future as the corresponding State law
has or does, clause 7 limits the retrospective reach of this principle.
Only liabilities which would have arisen on or after 6 October 1997 will
be caught by the mirror tax regime. The windfall tax regime set out elsewhere
in the package of four Bills is designed to deal with liabilities arising
before that date.
Applied laws are laws of the Commonwealth and thus involve
federal jurisdiction. State courts will have jurisdiction to deal with
matters arising under applied laws, as a result of clause 10. Certain
restrictions on appeals from State courts may or do apply. Clauses
11-17 are designed to minimise disruption to court proceedings or
similar anomalies arising from the overlap of Commonwealth/State jurisdiction
under the Bill.
Clause 18 is described in the Explanatory Memorandum
as "a provision to overcome uncertainty".(9) Uncertainty may
arise for a number of reasons including doubt over the identification
of 'Commonwealth places' and the fact that tax authorities will often
deal with businesses whose activities overlap between State and Commonwealth
places within the same State. This clause validates action purportedly
done under the authority of a State taxing law which corresponds to a
Commonwealth mirror taxing law.
Clause 20 is designed to avoid the inappropriate
application of other Commonwealth legislation, while permitting it to
apply where appropriate. Primarily it is intended to allow companion State
legislation such as Evidence Acts and Acts Interpretation Acts to continue
to support State taxing laws which have become 'applied laws'.
Exemptions from Commonwealth taxes and charges could
inadvertently apply to State taxes, once they assume the character of
Commonwealth laws under the mirror tax regime. Clause 21 prevents
this occurring except where it is expressly provided for.
As Commonwealth laws, mirror taxes will cause revenue
to flow to the Commonwealth Consolidated Revenue Fund (CRF). The Commonwealth
has, however, agreed to protect State revenues under the IJTA. Subclause
23(2) therefore requires the Commonwealth to forward revenue
from an applied law to the relevant State. In the meantime the Commonwealth
may have paid refunds due to taxpayers under the applied law. The amount
reimbursed to the States by the Commonwealth will be reduced to take account
of any such refunds paid.
Subclause 23(4) makes an appropriation from the
CRF for reimbursement to the States and refunds to taxpayers.
The State taxing laws to which the Bill applies are set
out in Schedule 1. Other laws may be added by regulation. As the Explanatory
Memorandum points out,(10) inclusion in the Schedule "will give such
laws retrospective effect" because they will be treated as if they
had always been listed in the Schedule.
Endnotes
- (1996) 186 CLR 630.
- Schedule 1.
- Definition of 'State taxing law', paragraph (b).
- See Bills Digest Nos. 23-31 1997-98 regarding the package of 9 Bills
introduced into the House of Representatives on 28 August 1997.
- Ngo Ngo Ha v State of New South Wales; Walter Hammond & Associates
Pty Ltd v State of New South Wales (1997) 146 ALR 355.
- Explanatory Memorandum, 8.
- Treasurer, Press Release, No.109, 6 October 1997.
- In 1995-96, payroll tax constituted 23.3%, stamp duties 13.7% and
financial institutions taxes 6.3% of total State and Territory Taxation
revenue: see Australian Bureau of Statistics figures quoted in 'Federalism
Up in Smoke? The High Court Decision on State Tobacco Tax', Current
Issues Brief, No.1, 1997-98 at p.5. Although the proportion of these
taxes which relate to Commonwealth places is no doubt quite small, these
figures show that the named taxes are clearly amongst the major revenue-earning
taxes of the States and Territories.
- Explanatory Memorandum, 17.
- Explanatory Memorandum, 20.
Sean Brennan
11 March 1998
Bills Digest Service
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