South Australia v Commonwealth

South Australia v Commonwealth
South Australia v Commonwealth
Court	High Court of Australia
Full case name	The State of South Australia v The Commonwealth; The State of Victoria v The Commonwealth; The State of Queensland v The Commonwealth; The State of Western Australia v The Commonwealth
Decided	23 July 1942
Citation(s)	[1942] HCA 14, (1942) 65 CLR 373
Case opinions
	(5:0) The Income Tax Act 1942 was valid under the taxation power.Contents Facts ; Decision ; Aftermath ; See also ; References ; (4:1) The State Grants Act 1942 was valid under the section 96 grants power.; (per Latham CJ, Rich, McTiernan & Williams JJ.; Starke J dissenting. (5:0) Section 221 of the Income Tax Assessment Act 1942 was valid.(3:2) The Income Tax (Wartime Arrangements) Act 1942 was valid under the defence power.; Rich, McTiernan & Williams JJ.; Latham CJ & Starke J dissenting.
Court membership
Judge(s) sitting	Latham CJ, Rich, Starke, McTiernan and Williams JJ
	Overruled by
	Victoria v Commonwealth ; (Second Uniform Tax case)

Last updated February 23, 2019

South Australia v Commonwealth ("the First Uniform Tax case")^[1] is a decision of the High Court of Australia that established the Commonwealth government's ability to impose a scheme of uniform income tax across the country and displace the State. It was a major contributor to Australia's vertical fiscal imbalance in the spending requirements and taxing abilities of the various levels of government, and was thus a watershed moment in the development of federalism in Australia.

The High Court of Australia is the supreme court in the Australian court hierarchy and the final court of appeal in Australia. It has both original and appellate jurisdiction, the power of judicial review over laws passed by the Parliament of Australia and the parliaments of the states, and the ability to interpret the Constitution of Australia and thereby shape the development of federalism in Australia.

The Government of Australia is the government of the Commonwealth of Australia, a federal parliamentary constitutional monarchy. It is also commonly referred to as the Australian Government, the Commonwealth Government, Her Majesty's Government, or the Federal Government.

An income tax is a tax imposed on individuals or entities (taxpayers) that varies with respective income or profits. Income tax generally is computed as the product of a tax rate times taxable income. Taxation rates may vary by type or characteristics of the taxpayer.

Facts

In 1942, during the Second World War, the Commonwealth government needed extra revenue for the war effort. At the time, income taxes were levied at both the State and federal level. The Commonwealth requested the States to transfer their taxing powers for the duration of the war to allow one uniform national income tax system, with grants given back to the states to compensate for the lost revenue. Doubting that the powers would be returned, the states rejected the request. In response, the Commonwealth moved to occupy the field unilaterally. As s51(ii) of the Constitution only allows the Commonwealth to impose federal taxation for federal purposes, it could not cover the field of taxation with any law. Nevertheless, the Commonwealth introduced a uniform income tax through an intricate scheme of four pieces of legislation.

The Constitution of Australia is the supreme law under which the government of the Commonwealth of Australia operates, including its relationship to the States of Australia. It consists of several documents. The most important is the Constitution of the Commonwealth of Australia, which is referred to as the "Constitution" in the remainder of this article. The Constitution was approved in a series of referendums held over 1898–1900 by the people of the Australian colonies, and the approved draft was enacted as a section of the Commonwealth of Australia Constitution Act 1900 (Imp), an Act of the Parliament of the United Kingdom.

The Income Tax Act 1942,^[2] raised income tax levels to the existing state levels, setting it at such a rate that made it politically impossible for states to impose their own income taxes. The amount raised was enough to cover the war effort and grants for the states
The States Grants Act 1942,^[3] provided a grant for each state equal to what it would have raised on its own income tax, on the condition that it did not raise its own income tax
Section 221 of the Income Tax Assessment Act 1942,^[4] required taxpayers to meet their Commonwealth tax liabilities before state tax liabilities
the Income Tax (Wartime Arrangements) Act 1942,^[5] required that the states transfer to the Commonwealth all state staff, offices, furniture and records used to collect income tax

The laws were challenged by the states of South Australia, Victoria, Queensland and Western Australia.

South Australia is a state in the southern central part of Australia. It covers some of the most arid parts of the country. With a total land area of 983,482 square kilometres (379,725 sq mi), it is the fourth-largest of Australia's states and territories by area, and fifth largest by population. It has a total of 1.7 million people, and its population is the second most highly centralised in Australia, after Western Australia, with more than 77 percent of South Australians living in the capital, Adelaide, or its environs. Other population centres in the state are relatively small; Mount Gambier, the second largest centre, has a population of less than 30,000.

Queensland is the second-largest and third-most populous state in the Commonwealth of Australia. Situated in the north-east of the country, it is bordered by the Northern Territory, South Australia and New South Wales to the west, south-west and south respectively. To the east, Queensland is bordered by the Coral Sea and Pacific Ocean. To its north is the Torres Strait, with Papua New Guinea located less than 200 km across it from the mainland. The state is the world's sixth-largest sub-national entity, with an area of 1,852,642 square kilometres (715,309 sq mi).

Western Australia is a state occupying the entire western third of Australia. It is bounded by the Indian Ocean to the north and west, and the Southern Ocean to the south, the Northern Territory to the north-east and South Australia to the south-east. Western Australia is Australia's largest state, with a total land area of 2,529,875 square kilometres, and the second-largest country subdivision in the world, surpassed only by Russia's Sakha Republic. The state has about 2.6 million inhabitants – around 11 percent of the national total – of whom the vast majority live in the south-west corner, 79 per cent of the population living in the Perth area, leaving the remainder of the state sparsely populated.

Decision

The High Court held the laws were valid, despite the practical result being the inability of the states to impose income tax.

The Income Tax Act 1942,^[2] was held to be valid despite the fact the rate was so high as to preclude the states from imposing income tax. As taxation is a non-purposive power, regardless of the object of the law, the subject matter was taxation, and hence valid under section 51(ii) of the Constitution.

The States Grants Act 1942,^[3] was held to be valid, despite its coercive effect. The Commonwealth can use the section 96 grants power to induce a state to exercise its own powers as well as abstain from using its powers. Hence the Commonwealth can do such things to encourage or discourage a state from exercising its powers, which are technically not coercion. Indirect compulsion is constitutional. While the Act made it almost impossible for the States to continue taxing, Chief Justice John Latham noted that the states still had the choice not to accept Commonwealth grants. Justice Edward McTiernan also considered the Act valid under the defence power.

Chief Justice of Australia presiding justice of the High Court of Australia

The Chief Justice of Australia is the presiding justice of the High Court of Australia and the highest-ranking judicial officer in the Commonwealth of Australia. The incumbent is Susan Kiefel, who is the first woman to hold the position.

Sir John Greig Latham GCMG QC was an Australian lawyer, politician, and judge who served as the fifth Chief Justice of Australia, in office from 1935 to 1952. He had earlier served as Attorney-General of Australia under Stanley Bruce and Joseph Lyons, and was Leader of the Opposition from 1929 to 1931 as the final leader of the Nationalist Party.

Sir Edward Aloysius McTiernan, KBE, was an Australian lawyer, politician, and judge. He served on the High Court of Australia from 1930 to 1976, the longest-serving judge in the court's history.

Section 221 of the Income Assessment Act 1942,^[4] was held to be valid pursuant to section 51(ii) or was at the least valid under the implied incidental power. The subject matter of the law and the purpose of the law were both with respect to matters of taxation. McTiernan justified this section as valid under the defence power.

The Income Tax (Wartime Arrangements) Act 1942,^[5] was upheld by a majority under the defence power.

Aftermath

The decision in relation to section 221 of the Income Assessment Act 1942 was subsequently overturned by the High Court in the Second Uniform Tax case.^[6]

Related Research Articles

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Australian constitutional law is the area of the law of Australia relating to the interpretation and application of the Constitution of Australia. Several major doctrines of Australian constitutional law have developed.

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References

↑ South Australia v The Commonwealth [1942] HCA 14 , (1942) 65 CLR 373 (23 July 1942), High Court.
1 2 "Income Tax Act 1942". Commonwealth of Australia.
1 2 "State Grants (Income Tax Reimbursement) Act 1942". Commonwealth of Australia.
1 2 "Income Tax Assessment Act 1942". Commonwealth of Australia.
1 2 "Income Tax (Wartime Arrangements) Act 1942". Commonwealth of Australia.
↑ Victoria v Commonwealth (Second Uniform Tax case) [1957] HCA 54 , (1957) 99 CLR 575(23 August 1957), High Court.

Gerangelos, P; et al. (2013). Winterton's Australian federal constitutional law: commentary and materials (3rd ed.). Thomson Reuters. ISBN 9780455230412.

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[1] South Australia v The Commonwealth [1942] HCA 14 , (1942) 65 CLR 373 (23 July 1942), High Court.

[Tax-2] 1 2 "Income Tax Act 1942". Commonwealth of Australia.

[Grants-3] 1 2 "State Grants (Income Tax Reimbursement) Act 1942". Commonwealth of Australia.

[Assessment-4] 1 2 "Income Tax Assessment Act 1942". Commonwealth of Australia.

[Wartime_Arrangements-5] 1 2 "Income Tax (Wartime Arrangements) Act 1942". Commonwealth of Australia.

[Vic_v_Cth-6] Victoria v Commonwealth (Second Uniform Tax case) [1957] HCA 54 , (1957) 99 CLR 575(23 August 1957), High Court.