FEDERAL COURT OF AUSTRALIA

Halliday v The Commonwealth of Australia [2000] FCA 950

TAXATION ‑ Goods and Services Tax legislation ‑ Validity ‑ Whether passed by validly elected Senate ‑ Writs for election of Senators issued by State Governors appointed by Queen ‑ Whether Queen empowered to appoint State Governors ‑ Whether withholding provisions impose civil conscription ‑ Whether laws with respect to taxation ‑ Whether obnoxious to s 118 of Constitution ‑ Whether impose differential taxation ‑ Whether interference with free trade and commerce between States ‑ Whether prohibit free exercise of religion ‑ Application to strike out challenge to validity as disclosing no reasonable cause of action.

The Constitution ss 12, 51(ii), (xxiiiA), 106, 116, 118

Australia Act 1986 ss 7, 10

A New Tax System (Goods and Services Tax) Act 1999, ss 7‑1, 9‑5, 9‑40

A New Tax System (Pay As You Go) Act 1999, ss 12‑190, 16‑25, 16‑70

British Medical Association v The Commonwealth (1949) 79 CLR 201 cited

Alexandra Private Geriatric Hospital Pty Ltd v The Commonwealth (1987) 162 CLR 271 cited

Rogers v The Queen (1995) 64 SASR 280; 130 ALR 635 cited

Tricontinental Corporation Ltd v Commissioner of Taxation [1988] 1 Qd R 474 …

Burton v Honan (1952) 86 CLR 169 cited

Commissioner of Taxation v Clyne (1958) 100 CLR 246 cited

R v Barger (1908) 6 CLR 41 at 70 applied

W R Moran Pty Ltd v Deputy Federal Commissioner of Taxation (NSW) (1940) 63 CLR 338 applied

Cole v Whitfield (1988) 165 CLR 360 applied

Krygger v Williams (1912) 15 CLR 366 applied

Adelaide Company of Jehovah’s Witnesses Inc v The Commonwealth (1943) 67 CLR 116 considered

Attorney‑General (Vict); Ex rel Black v The Commonwealth (1981) 146 CLR 559 considered

Minister for Immigration and Ethnic Affairs v Lebanese Moslem Association (1987) 17 FCR 373 cited

United States v Lee 455 US 252 (1982) considered

ROBERT JOHN HALLIDAY, AUDREY MAY HALLIDAY, LEONARD WILLIAM CLAMPETT, ALFRED ELWYN MATTHEWS, CECIL RONALD RHODES, CAROLYN DORIS RUDDICK-COLLINS, TREVOR JOHN CHAPMAN and BRUCE RICHARD SOCKHILL v THE COMMONWEALTH OF AUSTRALIA, PETER HOWARD COSTELLO (Minister of State for the Treasury) and MICHAEL JOSEPH CARMODY (Commissioner of Taxation)

V 456 of 2000

SUNDBERG J

14 JULY 2000

MELBOURNE

THE COURT ORDERS THAT:

1.                  The Application be dismissed as disclosing no reasonable cause of action.

2.                  The applicants pay the respondents’ costs of the Application, including the costs of the motion notice of which was filed on 5 July 2000, and the costs of the applicants’ abandoned application for interlocutory relief, on an indemnity basis.

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

REASONS FOR JUDGMENT

THE APPLICANTS’ CLAIMS

1                     The applicants seek declarations that “the Acts establishing the New Taxation System and the Goods and Services Tax” are invalid.  Thirty three Acts and three regulations are challenged.  In the pleadings they are called “the Acts”.  They are listed in the schedule to these reasons.

2                     The statement of claim discloses seven grounds of attack, though only six are pursued.  The first is that the Acts were not passed by a validly elected Senate as required by the Constitution.  The steps in the argument are expressed as follows:

·               Section 10 of the Australia Act 1986 (Cth), which came into operation on 3 March 1986, terminated the responsibility of the United Kingdom Government in relation to what the pleading describes as “State matters”.

·               Notwithstanding this, on 14 February 1986 the Government of the United Kingdom issued in the name of the Sovereign in Parliament under the Great Seal of the United Kingdom Letters Patent creating the Office of Governor in the States of Queensland, Victoria, Tasmania, South Australia and Western Australia.

·               After 3 March 1986 these States “gazetted into effect” those Letters Patent contrary to ss 10, 13 and 14 of the Australia Act.

·               After 3 March 1986 the appointment of the then Governor of New South Wales was continued in effect pursuant to a Commission issued by “Her Majesty as Sovereign ‑ in Parliament of the United Kingdom” on 15 December 1981, contrary to s 10 of the Australia Act.

·               At all federal elections after 3 March 1986 writs for the election of Senators for the States were issued by Governors “appointed to offices established under a legal authority no longer operative” within Australia.

·               Accordingly, the writs were invalid and the persons presenting themselves for election to the Senate were not elected in accordance with the provisions of the Constitution and the Commonwealth Electoral Act 1918.

3                     The second ground of challenge is that the Acts impose civil conscription and that the Commonwealth Parliament has no power under s 51 of the Constitution to make a law having that effect.  In explanation of the term “civil conscription”, the Particulars claim that under the Acts “every member of the population is required without payment or reward under threat of punishment to collect taxation owed by other persons to forward it at their own expense to the Commonwealth”.

4                     The third ground is that the Acts impose civil conscription “contrary to the common law right of the people enshrined in s 118 of the Constitution”.  The claim is that s 118 requires the laws of the States, including the common law, to be given full faith and credit.  The common law defends the rights of free citizens to conduct their relationships in peace and with goodwill.  The Acts infringe the common law “by creating a form of compulsory enslavement to the requirements of the State”.

5                     The fourth ground is that the Acts impose “differential taxation” between the States and parts of the States contrary to s 51(ii) of the Constitution.  It is said that since all prices in remote areas include an extra transport component, the tax on any manufactured goods subject to the Acts is greater in remote parts than in more central locations.

6                     The fifth ground is that the Acts interfere with free trade, commerce and intercourse among the States contrary to s 92 of the Constitution.  This is said to be a consequence of the differential taxation the subject of the preceding ground.  There is an impediment to free commerce between the States “since the taxation acts as an extra price barrier to goods imported from other States by comparison with goods manufactured close to the point of consumption”.

7                     The sixth ground is that the Acts contravene s 116 of the Constitution in that they “force certain citizens to impose on others measures and demands contrary to their religion”.  The example given in the Particulars is that those of the Muslim faith are enjoined “to not tax, tithe or charge interest”.  In the course of argument it became apparent that the Muslim religious objection is not to the payment of tax but to the collection of tax payable by another for transmission to the Commissioner.

8                     The respondents have applied under Order 20 rule 2 of the Federal Court Rules for an order dismissing the proceeding on the ground that it discloses no reasonable cause of action.

SCHEME OF LEGISLATION

9                     The A New Tax System (Goods and Services Tax) Act 1999 sets out the transactions on which the goods and services tax (the GST) is imposed.  The GST is payable on taxable supplies and taxable importations (s 7‑1).  A “taxable supply” is defined in s 9‑5 as a supply made for consideration, in the course or furtherance of an enterprise, by a person who is registered or required to be registered, where the supply is connected with Australia.  The person liable to pay the GST is the person who makes the taxable supply (s 9‑40), not the person to whom the supply is made (ie the supplier of goods and services and not the buyer or recipient).  The GST is imposed by the A New Tax System (Goods and Services Tax Imposition‑General) Act 1999, in so far as it is not a duty of customs or excise.  Separate imposition Acts impose the tax in so far it is a duty of customs and a duty of excise.  The A New Tax System (Pay As You Go) Act 1999 (the PAYG Act) requires persons making payments to withhold amounts (to be remitted to the Commissioner of Taxation) from payments made to persons in a variety of contexts, including payments of salary, social security payments, compensation and sickness payments, and payments arising from investments where a tax file number is not quoted.  The PAYG Act provides that where a supply is made by an entity that does not quote an Australian Business Number, the recipient must generally withhold an amount from the payment it makes for the supply (s 12‑190).  Failure to withhold is an offence (s 16‑25).  Withheld amounts must be forwarded to the Commissioner (s 16‑70).

GROUND 1 - SENATE ELECTIONS

10                  Central to the argument described in par 2 is the claim that s 10 of the Australia Act prevents the States having Governors appointed by the Queen.  Because they have been so appointed, the Senate elections, which involve those Governors, are invalid.  The claim misunderstands the effect of s 10, which provides:

“After the commencement of this Act Her Majesty’s Government in the United Kingdom shall have no responsibility for the government of any State.”

Legislation in each State provides for a Governor to be appointed by the Queen.  For example, s 6 of the Constitution Act 1975 (Vict) provides that there shall be a Governor of the State of Victoria who shall hold office during Her Majesty’s pleasure.  Section 106 of the Commonwealth Constitution provides for the continuation of State Constitutions, subject to the Commonwealth Constitution.  There is nothing in the Commonwealth Constitution which is inconsistent with the States having Governors appointed by the Queen.  Section 12 of the Constitution provides that the Governor of any State may cause writs to be issued for elections of Senators for the State.  Section 7 of the Australia Act recognises the role of the Queen in appointing State Governors.  It provides in part as follows:

“(1)     Her Majesty’s representative in each State shall be the Governor.

(2)               Subject to subsections (3) and (4) below, all powers and functions of Her Majesty in respect of a State are exercisable by the Governor of the State.

(3)               Subsection (2) above does not apply in relation to the power to appoint, and the power to terminate the appointment of, the Governor of a State.

…

(5)               The advice to Her Majesty in relation to the exercise of the powers and functions of Her Majesty in respect of a State shall be tendered by the Premier of the State.”

Sub‑section (3) makes clear that the Governor is appointed by the Queen.  Consistently with sub‑section (5), s 10 then provides that after the commencement of the Act the United Kingdom Government has no responsibility for the government of any State.  Especially when s 10 is read together with s 7, it is clear that it does not prohibit the States from having Governors appointed by the Queen.  The applicants’ claim to the contrary is so obviously untenable that it cannot possibly succeed.

GROUND 2 ‑ CIVIL CONSCRIPTION

11                  The only restriction on the Commonwealth’s power to make laws imposing civil conscription is found in s 51(xxiiiA) of the Constitution.  The power to legislate to provide medical and dental services is limited by the phrase “but not so as to authorize any form of civil conscription”.  This prohibition applies only to the provision of medical and dental services, and not to the other benefits etc mentioned in par (xxiiiA): British Medical Association v The Commonwealth (1949) 79 CLR 201; Alexandra Private Geriatric Hospital Pty Ltd v The Commonwealth (1987) 162 CLR 271 at 279.

12                  The validity of the GST laws, including those provisions requiring persons to withhold amounts and remit them to the Commissioner, depends on whether they are laws with respect to taxation within s 51(ii).  If they are, the fact that they may impose “civil conscription” (a concept considered in the British Medical Association Case at 248‑250, 255, 262, 283‑284, 287, 292‑293) is irrelevant.  The attack is limited to the withholding tax provisions in the PAYG Act.  Section 12‑190 requires a payer to withhold an amount from a payment it makes to another person if the payment is for a supply the other has made or proposes to make and none of the exceptions in the section applies.  One of the exceptions is where the other person quotes an Australian Business Number.  The payer must remit the withheld amount to the Commissioner.  The power to make laws with respect to taxation is not restricted to laws dealing with the imposition and collection of tax.  It extends to measures that will enable the system of taxation to function effectively.  It extends to measures intended to prevent the evasion of taxation, be that evasion by the concealment of income or assets with a view to avoiding the imposition of liability to pay taxation or with a view to avoiding the payment of taxation that has become due to the Commonwealth.  See Rogers v The Queen (1995) 64 SASR 280 at 287‑288; 130 ALR 635 at 642.  The withholding provisions are designed to prevent the avoidance of tax by a payee who does not quote an ABN.  In my view the provisions fall within the core of the subject matter of s 51(ii).  Cf Tricontinental Corporation Ltd v Commissioner of Taxation [1988] 1 Qd R 474 at 482.  If they do not, they are provisions that fall within the implied incidental power, as matters which are necessary for the reasonable fulfilment of the legislative power.  See Burton v Honan (1952) 86 CLR 169 at 177 and Commissioner of Taxation v Clyne (1958) 100 CLR 246 at 262.  The claim that the GST laws are invalid because they impose civil conscription has no prospect of success.  Because they are valid laws under s 51(ii), it is not necessary to decide whether they do impose civil conscription.

GROUND 3 ‑ SECTION 118

Section 118 provides:

“Full faith and credit shall be given, throughout the Commonwealth, to the laws, the public Acts and records, and the judicial proceeding of every State.”

13                  On the assumption that the common law defends the rights of free citizens to conduct their relationships in peace and with goodwill, and that the withholding tax provisions of the GST laws infringe their rights, those provisions are not obnoxious to s 118 of the Constitution.  In requiring full faith and credit to be given to the laws of every State, s 118 does not prevent the Commonwealth Parliament altering the common law by a law otherwise within power.  As I have said, the GST laws, including their withholding tax provisions, are laws with respect to taxation.  This ground misunderstands the operation of s 118 and is quite untenable.

GROUND 4 ‑ DISCRIMINATION

14                  The Commonwealth has power to legislate with respect to taxation “but not so as to discriminate between States or parts of States”.  A law with respect to taxation does not infringe that qualification if its operation is general throughout the Commonwealth, even though, by reason of circumstances existing in one or more States, or parts of States, it may not operate uniformly.  See R v Barger (1908) 6 CLR 41 at 70 and W R Moran Pty Ltd v Deputy Federal Commissioner of Taxation (NSW) (1940) 63 CLR 338 at 348‑349.  The rate of tax imposed by the GST law is uniform throughout the Commonwealth, and the fact that regional conditions such as those pointed to by the applicants may mean that its actual effect differs from region to region, does not mean that the tax is discriminatory for the purposes of s 51(ii).  In the light of the established construction of s 51(ii), the contrary is not seriously arguable.

GROUND 5 ‑ S 92

15                  The claim that the GST laws infringe s 92 has no prospect of success.  That section precludes the imposition of burdens discriminatory against interstate trade and commerce in a protectionist sense: Cole v Whitfield (1988) 165 CLR 360.  As I have said, the GST laws are not discriminatory since they operate uniformly throughout the Commonwealth.  Nor do they impose burdens of a protectionist kind on interstate trade.

GROUND 6 ‑ S 116

16                  Section 116 provides that

“The Commonwealth shall not make any law for establishing any religion, or for imposing any religious observance, or for prohibiting the free exercise of any religion, and no religious test shall be required as a qualification for any office or trust under the Commonwealth”.

The presently relevant part of the section is that which precludes the Commonwealth making a law “prohibiting the free exercise of any religion”.  As I have said, the claim is that to require a Muslim to collect taxes payable by another for transmission to the Commissioner is a prohibition of the free exercise of religion.

17                  In Krygger v Williams (1912) 15 CLR 366 it was held that a law obliging all men to perform military service applied to a person whose religious beliefs were opposed to military service.  Griffith CJ at 369 said:

“Sec 116 of the Constitution provides that ‘the Commonwealth shall not make any law for … prohibiting the free exercise of any religion’ ‑ that is, prohibiting the practice of religion ‑ the doing of acts which are done in the practice of religion.  To require a man to do a thing which has nothing at all to do with religion is not prohibiting him from a free exercise of religion.  It may be that a law requiring a man to do an act which his religion forbids would be objectionable on moral grounds, but it does not come within the prohibition of sec 116 ….”

See also per Barton J at 372‑373.

18                  The comparable provision to s 116 in the United States Constitution (the First Amendment) is that Congress “shall make no law … prohibiting the free exercise [of religion]”.  In Adelaide Company of Jehovah’s Witnesses Inc v The Commonwealth (1943) 67 CLR 116 at 127‑131 Latham CJ examined a number of then recent decisions of the United States Supreme Court on the First Amendment, and concluded [at 128] that “the general protection given by the Constitution to the freedom in question leaves it to the court to determine whether a particular measure which in fact limits complete freedom involves an ‘undue’ infringement of that freedom”.  The Chief Justice then referred to American cases that had been decided before the Commonwealth Constitution was drafted which, he said

“quite clearly determined that such protection was not absolute and that it did not involve a dispensation from obedience to a general law of the land which was not directed against religion. [at 129]

…

There is, therefore, full legal justification for adopting in Australia an interpretation of s 116 which had, before the enactment of the Commonwealth Constitution, already been given to similar words in the United States.  This interpretation leaves it to the court to determine whether a particular law is an undue infringement of religious freedom. [at 131]”

His Honour was however able to decide the case on a more narrow basis.  In the course of so doing he observed that the word “for” in the expression “for prohibiting the free exercise of any religion” showed that the purpose of the legislation in question may be taken into account in determining whether or not it is a law of the prohibited character.

19                  In Attorney‑General (Vict); Ex rel Black v The Commonwealth (1981) 146 CLR 559 several members of the Court considered the import of the word “for” in the expression “for establishing any religion”.  Barwick CJ (at 583) thought the word indicated that the law must be intended and designed to set up the religion as an institution of the Commonwealth.  Gibbs J (at 598) said the word “for” looked to the purpose of the law rather than to its relationship with a particular subject matter, though at 604 his Honour referred to the “purpose or effect” of the law.   Mason J (at 615‑616) was of the view that “for” connoted a connection by way of purpose or result with the subject matter which was not satisfied by the mere fact that the law touches or relates to the subject matter.  Wilson J (at 653) said that “for establishing” conveyed the sense of “in order to establish” and spoke quite specifically of the purpose of the law in terms of the end to be achieved.  There is no reason to think that the meaning attributed to “for” in the expression “for establishing any religion” should not apply to the word in the expression “for prohibiting the free exercise of any religion”.  See Minister for Immigration and Ethnic Affairs v Lebanese Moslem Association (1987) 17 FCR 373 at 388.  Cf Latham CJ in the Jehovah Witness Case at 132.

20                  A case which is in some respects like the present is the decision of the United States Supreme Court in United States v Lee 455 US 252 (1982).  Lee was a member of the Old Order Amish.  During certain years when he employed other Amish in his business he failed to withhold social security taxes from his employees or to pay the employer’s share of such taxes because he believed that payment of the taxes and receipt of benefits would violate the Amish faith.  The Court held the First Amendment did not justify his conduct.  It said:

“Not all burdens on religion are unconstitutional.  … The state may justify a limitation on religious liberty by showing that it is essential to accomplish an overriding governmental interest … because the social security system is nationwide, the governmental interest is apparent.  The social security system in the United States serves the public interest by providing a comprehensive insurance system with a variety of benefits available to all participants, with costs shared by employers and employees.

… The design of the system requires support by mandatory contributions from covered employers and employees.  This mandatory participation is indispensable to the fiscal vitality of the social security system.

…

The remaining inquiry is whether accommodating the Amish belief will unduly interfere with fulfilment of the governmental interest.  … The difficulty in attempting to accommodate religious beliefs in the area of taxation is that ‘we are a cosmopolitan nation made up of people of almost every conceivable religious preference’ [Braunfield v Brown 366 US 599 at 606].  The Court has long recognized that balance must be struck between the values of the comprehensive social security system, which rests on a complex of actuarial factors, and the consequences of allowing religiously based exemptions.  To maintain an organized society that guarantees religious freedom to a great variety of faiths requires that some religious practices yield to the common good.  Religious beliefs can be accommodated …, but there is a point at which accommodation would ‘radically restrict the operating latitude of the legislature’.”

The Court went on to conclude that:

“Because the broad public interest in maintaining a sound tax system is of such a high order, religious belief in conflict with the payment of taxes affords no basis for resisting the tax.”

21                  The GST laws (including the withholding provisions) do not prohibit the doing of acts in the practice of religion any more than did the military service law in Krygger v Williams.  At most they may require a person to do an act that his religion forbids.  But that is not within s 116.  If the matter be approached by asking whether the law is a law “for prohibiting the free exercise of any religion”, in the sense that it is designed to prohibit or has the purpose of prohibiting  that free exercise, the answer must be in the negative.  It is plainly a law of general application with respect to taxation.  There is no hint of a legislative purpose to interfere with the free exercise of a Muslim’s or anyone else’s religion.  Nor is it a law that has the result or effect of prohibiting the free exercise of any religion.  A person professing the Muslim faith can avoid committing the sin of acting as a tax collector by ensuring that he deals only with suppliers who quote an ABN.  On the view espoused in Lee, the importance of maintaining a sound tax system is of such a high order that religious belief in conflict with the withholding of GST tax is not protected by s 116.  When Latham CJ asked whether freedom of religion has been unduly infringed by a law, he was in my view asking a similar question to that posed by Lee.  There is no undue interference here.  Especially is this so when a person can avoid acting as a tax collector by dealing only with suppliers who quote an ABN.  I have canvassed the various “tests” that can be distilled from the cases.  But the essential point, in my view, is that the withholding tax provisions do not prohibit the doing of any act in the practice of religion.  The claim that the GST law offends s 116 has no prospect of success.

CONCLUSION

22                  None of the grounds has any prospect of success, and the Application should be dismissed.  The respondents have sought costs on an indemnity basis.  An order on that basis entitles a party to recover all costs except in so far as they are of an unreasonable amount or were unreasonably incurred: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59 at 74 and Helljay Investments Pty Ltd v Deputy Commissioner of Taxation (1999) 166 ALR 302 at 310.  Indemnity costs can be awarded when it appears that a proceeding has been commenced or continued in circumstances where an applicant, properly advised, should have known there was no chance of success.  See Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401.  The present is such a case.  In this connection I note that the applicants did not seek to support the first of their claims, and abandoned their claim for interlocutory relief, even though the latter claim was the basis upon which they obtained an early hearing on the ground of supposed urgency. 

Associate:

Dated:              14 July 2000

S C H E D U L E

A New Tax System (Pay As You Go) Act 1999

A New Tax System (Tax Administration) Act 1999

A New Tax System (Goods and Services) Regulations 1999

A New Tax System (Goods and Services Tax) Amendment Regulations 2000 (No 2) 2000 No 77

A New Tax System (Goods and Services Tax) Amendment Regulations 2000 (No 3) 2000 No 89

A New Tax System (Aged Care Compensation Measures Legislation Amendment) Act 1999

A New Tax System (Australian Business Number Consequential Amendments) Act 1999

A New Tax System (Bonuses for Older Australians) Act 1999

A New Tax System (Closely Held Trusts) Act 1999

A New Tax System (Compensation Measures Legislation Amendment) Act 1999

A New Tax System (End of Sales Tax) Act 1999

A New Tax System ((Family Assistance) (Administration) Act 1999

A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No 2) 1999

A New Tax System (Family Assistance) Act 1999

A New Tax System (Fringe Benefits Reporting) Act 1999

A New Tax System (Goods and Services Tax Administration) Act 1999

A New Tax System (Goods and Services Tax Imposition ‑ Customs) Act 1999

A New Tax System (Goods and Services Tax Imposition ‑ Excise) Act 1999

A New Tax System (Goods and Services Tax Imposition ‑ General) Act 1999

A New Tax System (Goods and Services Tax) Act 1999

A New Tax System (Income Tax Laws Amendment) Act 1999

A New Tax System (Indirect Tax Administration) Act 1999

A New Tax System (Luxury Car Tax Imposition ‑ Customs) Act 1999

A New Tax System (Luxury Car Tax Imposition ‑ Excise) Act 1999

A New Tax System (Luxury Car Tax Imposition ‑ General) Act 1999

A New Tax System (Luxury Car Tax) Act 1999

A New Tax System (Medicare Levy Surcharge ‑ Fringe Benefits) Act 1999

A New Tax System (Personal Income Tax Cuts) Act 1999

A New Tax System (Trade Practices Amendment) Act 1999

A New Tax System (Ultimate Beneficiary Non‑Disclosure Tax) Act (No 1) 1999

A New Tax System (Ultimate Beneficiary Non‑Disclosure Tax) Act (No 2) 1999

A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999

A New Tax System (Wine Equalisation Tax Imposition ‑ Customs) Act 1999

A New Tax System (Wine Equalisation Tax Imposition ‑ Excise) Act 1999

A New Tax System (Wine Equalisation Tax Imposition ‑ General) Act 1999

A New Tax System (Wine Equalisation Tax) Act 1999