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General Interest Charge (Imposition) Bill 1998
Bills Digest No. 112 1998-99
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.
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.
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 1999.
The Bill a ccompanies 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 Acts.
The Constitution contains a number of restrictions on the federal government's powers to levy and collect income tax.
One of these restrictions, in section 55 of th e 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 financial penalty.
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 v alidly 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 penalty tax.
If the charge is 'with respect… to taxation' in accordance wi th 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 introductio n of any tax. For the valid exercise of Commonwealth power under section 51(ii) of the Constitution, the legislation must be 'with respect to …taxation.'
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 therefore valid.
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 .
It is sufficient for the purposes of this digest to merely raise the question as to the intende d 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.
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 Co mmissioner of Taxation (1965) 114 CLR 1, 7.
15 February 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.