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Federal Charities Law and the Taxation Power: Three Constitutional Problems

Published online by Cambridge University Press:  01 January 2025

Nicholas Aroney Open the ORCID record for Nicholas Aroney [Opens in a new window]
Nicholas Aroney*
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The University of Queensland
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Abstract

The Australian Charities and Not-for-Profits Commission Act 2012 and Australian Charities and Not-for-Profits Commission Regulation 2013 have established a comprehensive regulatory framework for the charities and not-for-profit sector at a federal level. When making the Act and Regulation the Commonwealth relied upon several heads of legislative power in section 51 of the Constitution, the most important of which is the taxation power. This article develops and assesses three arguments why the relevant provisions of the legislative scheme are not supported by the taxation power. These arguments are, firstly, that the Act and Regulations do not have a sufficient connection to the subject matter of taxation, secondly, that they are not reasonably capable of being considered appropriate and adapted to achieving a legitimate purpose or object that falls within the taxation power and, thirdly, that in combination with the Income Tax Act 1986 and Income Tax Assessment Act 1997, they impose an obligation to pay money in a manner that is so arbitrary that they cannot be characterised as laws with respect to the subject matter of taxation. It is concluded that these three lines of argument provide strong reasons why the Act and Regulations are not supported by the taxation power.

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Articles
Information
Federal Law Review , Volume 51 , Issue 1 , March 2023 , pp. 78 - 101
Copyright
Copyright © 2023 The Author(s)

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References

1. Australian Charities and Not-for-Profits Commission Act 2012 (Cth) (‘ACNC Act’).

2. Ibid s 25–5, 45–10, 50–10, 200–5; Australian Charities and Not-for-Profits Commission Regulation 2013 (Cth) (‘ACNC Regulation’).

3. Revised Explanatory Memorandum, Australian Charities and Not-for-Profits Commission Bill 2012 (Cth) 23 [2.2].

4. Ibid 23–8 [2.3]–[2.17].

5. Nicholas Aroney and Matthew Turnour, 'Charities are the New Constitutional Law Frontier’ (2017) 41(2) Melbourne University Law Review 446.

6. John Quick and Robert Randolph Garran, The Annotated Constitution of the Australian Commonwealth (Angus & Robertson, 1901) 935 (referring to ‘charities’ and ‘friendly societies’ as topics falling within the powers retained by the states). See also Nicholas Aroney, ‘Constitutional Choices in the Work Choices Case, or What Exactly is Wrong with the Reserved Powers Doctrine?’ (2008) 32(1) Melbourne University Law Review 1; Nicholas Aroney, 'What remains of the Engineers Case? A centenary appraisal’ (2020) 94(9) Australian Law Journal 684.

7. Biosecurity Act 2015 (Cth) (‘Biosecurity Act’) s 24(3)–(15), alluding to Commonwealth Constitution, s 51 (i), (v), (ix), (x), (xi), (xix), (xx), (xxiiiA), (xxix), s 52 (i), s 122.

8. See Anthony Gray, 'The Australian quarantine and biosecurity legislation: Constitutionality and critique’ (2015) 22(4) Journal of Law and Medicine 788.

9. Biosecurity Act (n 7) s 24.

10. Acts Interpretation Act 1901 (Cth) s 15A; See Pidoto v Victoria (1943) 68 CLR 87, 108–11; Victoria v Commonwealth (1996) 187 CLR 416, 502–3; New South Wales v Commonwealth (2006) 229 CLR 1, 240–3 (‘Work Choices Case’); Spence v Queensland (2019) 268 CLR 355, 414–16 (‘Spence’).

11. Income Tax Act 1986 (Cth) (‘IT Act’); Income Tax Assessment Act 1997 (Cth) (‘ITA Act’). The IT Act and ITA Act are separately enacted to comply with s 55 of the Constitution, which requires that laws imposing taxation shall deal only with the imposition of taxation. See, further, Northern Suburbs General Cemetery Reserve Trust v Commonwealth (1993) 176 CLR 555 (‘Northern Suburbs’), discussed in Part II below.

12. R v Barger (1908) 6 CLR 41.

13. Robert French, ‘Federalism and the Constitution — An Update’ (2019) 34(1) Australasian Parliamentary Review 6, 7–8. For a review of the scope and limits on the power generally, see Richard Krever and Peter Mellor, ‘Legal Interpretation of Tax Law: Australia’ in Robert F van Brederode and Richard Krever (eds), Legal Interpretation of Tax Law (Wolters Kluwer, 2014) 15, 15–22.

14. R v Barger (n 12) 77.

15. Bank of New South Wales v Commonwealth (1948) 76 CLR 1, 183–4.

16. (1965) 114 CLR 1 (‘Fairfax’).

17. Ibid 7 (Kitto J).

18. Ibid 13, quoting Melbourne Corporation v Commonwealth (1947) 74 CLR 31, 79 (Dixon J) (‘Melbourne Corporation’). On ‘multiple characterisation’ see also Herald & Weekly Times Ltd v Commonwealth (1966) 115 CLR 418, 436–7 (Kitto J); Victoria v Commonwealth (Payroll Tax) (1971) 122 CLR 353, 400 (Windeyer J); Murphyores Incorporated Pty Ltd v Commonwealth (1976) 136 CLR 1, 19–20 (Mason J); Actors & Announcers Equity Association v Fontana Films Pty Ltd (1982) 150 CLR 169, 190–4 (Stephen J); Re F; Ex parte F (1986) 161 CLR 376, 387–8 (Mason and Deane JJ); Fisher v Fisher (1986) 161 CLR 438, 453 (Mason and Deane JJ); The Grain Pool of Western Australia v Commonwealth (2000) 202 CLR 479, 492 [16] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ).

19. Fairfax (n 16) 7.

20. Grannall v Marrickville Margarine Pty Ltd (1955) 93 CLR 55, 77; South Australia v Tanner (1989) 166 CLR 161, 167–8; Davis v Commonwealth (1988) 166 CLR 79, 99–100.

21. On the question whether the test is strictly one of ‘reasonable proportionality’ or ‘reasonably capable of being considered appropriate and adapted’, compare the judgments in Nationwide News Pty Ltd v Wills (1992) 177 CLR 1 (‘Nationwide News'); Cunliffe v Commonwealth (1994) 182 CLR 272, Leask v Commonwealth (1996) 187 CLR 579, and see James Stellios, Zines’ The High Court and the Constitution (6th ed; Federation Press, 2015) 56–63.

22. Spence (n 10) 413 [80].

23. See Michelle Gordon, ‘The Commonwealth’s Taxing Power and Its Limits: Are We There Yet?’ (2013) 36(3) Melbourne University Law Review 1037, 1043, 1060–3.

24. Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 365, 379 (‘Giris'); MacCormick v Federal Commissioner of Taxation (1984) 158 CLR 622, 640 (‘MacCormick’).

25. R v Barger (n 12) 114. See also Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation (2011) 244 CLR 97, 104 [16] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ): ‘a legislative objective to raise revenue is not necessarily a determinant that the exaction in question bears the character of taxation’.

26. Osborne v Commonwealth (1911) 12 CLR 321; Fairfax (n 16); State Chamber of Commerce and Industry v Commonwealth (1987) 163 CLR 329 (‘Second Fringe Benefits Tax Case’); Northern Suburbs (n 11).

27. Fairfax (n 16).

28. Ibid 13 (Kitto J), 16 (Taylor J).

29. Nationwide News (n 21) 27 (Mason CJ), 85 (Dawson J); Leask v Commonwealth (n 21) 591 (Brennan CJ), 603 (Dawson J), 608 (Toohey J), 616 (McHugh J), 633 (Kirby J); The Grain Pool of Western Australia v Commonwealth (n 18) 492 [16]; Work Choices Case (n 10) 104 [142] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ); Spence (n 10) 411–12 [75]–[76], 414 [84] (Kiefel CJ, Bell, Gageler and Keane JJ), 435 [135] (Nettle J), 467 [231] (Gordon J), 510-511 [348], 515 [358] (Edelman J).

30. As noted, the IT Act (n 11) and ITA Act (n 11) are separately enacted to comply with s 55 of the Constitution.

31. That is, putting aside s 175–70 of the ACNC Act (n 1), which applies only to the administrative penalties imposed on an entity under the Act.

32. See Osborne v Commonwealth (n 26); Fairfax (n 16); Second Fringe Benefits Tax Case (n 26); Northern Suburbs (n 11).

33. Fairfax (n 16) 8.

34. Northern Suburbs (n 11).

35. Ibid 563. Thus, the two training guarantee statutes bore an analogy to the separate enactment of the ITA Act (n 11) and the IT Act (n 11). However, the same cannot be said of the ACNC Act (n 1) and ACNC Regulation (n 2).

36. R v Sharkey (1949) 79 CLR 121, 151 (Dixon J).

37. Re Dingjan; Ex parte Wagner (1995) 183 CLR 323, 369 (McHugh J) (‘Ex parte Wagner’), citing Melbourne Corporation (n 18) 79 (Dixon J).

38. Fairfax (n 16) 7 citing Bank of New South Wales v Commonwealth (1948) 76 CLR 1, 185–7 (Latham CJ); Huddart, Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330, 409–11 (Higgins J).

39. Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263, 276 (Latham CJ); see also Parton v Milk Board (Vic) (1949) 80 CLR 229, 259 (Dixon J).

40. Air Caledonie International v Commonwealth (1988) 165 CLR 462, 467.

41. See Osborne v Commonwealth (n 26); Fairfax (n 16); Second Fringe Benefits Tax Case (n 26); Northern Suburbs (n 11).

42. (2009) 238 CLR 1 (‘Pape’).

43. Ibid 94 [255].

44. Ibid 155 [453]. This distinguished the case from Moore v Commonwealth (1951) 82 CLR 547, which upheld Commonwealth laws which required wool producers to pay a proportion of the value of wool sold to the Federal Commissioner of Taxation, which payments were credited against the producer’s taxation liabilities, with the producer entitled to repayment of any unapplied amounts. See Pape (n 42) 94 [255].

45. ACNC Act (n 1) s 15-5(1).

46. Ibid s 20-5(2).

47. The purpose of the ACNC Act (n 1) is evaluated in Part III.

48. Melbourne Corporation (n 18) 79.

49. R v Sharkey (n 36) 151, cited in Re Dingjan; Ex parte Wagner (n 37) 369 (McHugh J).

50. Macquarie Dictionary, sv ‘tenuous’.

51. Section 175-70, which deals only with a relatively minor aspect of the ACNC Act (n 1) as a whole. See above (n 31).

52. Sections 15-5(3) and 20-5(2) merely refer to the fact that registration is a prerequisite for an entity to access certain tax concessions (by virtue of s 50-47 of the ITA Act (n 11)). They are not operative provisions that have any specific substantive legal effect in the sense of the ‘rights, duties, powers and privileges which [the law] changes, regulates or abolishes’: Fairfax (n 16), 7 (Kitto J).

53. ACNC Act (n 1) s 20-5(2).

54. See Ibid ss 45-10, 50-10, 200-5.

55. While the High Court has often recognised and applied the distinction between the ‘core’ and the ‘incidental’ scope of a head of power, misuse of the distinction has been criticised as deflecting attention away from the fact that each head of power is a unity. However, there remain cases where the connection with a head of power can be most clearly assessed by identifying the purpose or object of the law and determining whether the law is appropriate and adapted to achieve that objective: Cunliffe v Commonwealth (1994) 182 CLR 272, 318–19 (Brennan J).

56. (1904) 1 CLR 91, 110.

57. 4 Wheat 316 (1819), 421.

58. (1955) 93 CLR 55, 77.

59. Nationwide News (n 21), 29–31 (Mason CJ), 57 (Brennan J), 68–9 (Deane and Toohey JJ), 93–4 (Gaudron J), 101 (McHugh J).

60. (1908) 6 CLR 309 (‘Jumbunna’).

61. s 51(xxxv).

62. Federated Ironworkers' Association of Australia v Commonwealth (1951) 84 CLR 265; Williams v Hursey (1959) 103 CLR 30.

63. As noted, s 15-5(3) also states that ‘registration is a prerequisite for an entity to access certain Commonwealth tax concessions’: ACNC Act (n 1).

64. ACNC Act (n 1) s 25-5(3)(b).

65. Ibid ss 45-10(1) and 50-10(1).

66. Ibid s 45-5(1).

67. Ibid 50-5(1)(a).

68. Ibid s 50-5(1)(b).

69. ACNC Act (n 1) s 20-5(2).

70. Unions NSW v NSW (No 2) (2019) 264 CLR 595, 657 [172] (Edelman J); see also 627 [79] (Gageler J) (‘Unions NSW (No 2)’).

71. Fairfax (n 16) 7.

72. R v Barger (n 12) 118.

73. Fairfax (n 16) 7 (Kitto J) quoting R v Barger (n 12) 118 (Higgins J).

74. Commonwealth v Tasmania (1983) 158 CLR 1, 152 (Mason J).

75. ACNC Act (n 1) Div 25.

76. Ibid Div 30.

77. Ibid Div 35.

78. These are located in other Parts of the ACNC Act (n 1) and ACNC Regulation (n 2).

79. See Unions NSW (No 2) (n 70).

80. (1951) 83 CLR 1 (‘Communist Party Case’).

81. Ibid 206 (McTiernan J); see also 258 (Fullagar J).

82. Australian Constitution s 51(ii).

83. Jumbunna (n 60).

84. (2013) 252 CLR 530 (‘Unions NSW (No 1)’).

85. Ibid 557 [51].

86. Unions NSW (No 2) (n 70) [171] citing Brown v Tasmania (2017) 261 CLR 328, 391–2 [208] (Gageler J).

87. Communist Party Case (n 80) 206 (McTiernan J).

88. Unions NSW (No 1) (n 84) 560 [60] (French CJ, Hayne, Crennan, Kiefel and Bell JJ).

89. Work Choices Case (n 10) 1, 73, 103–4, 116 (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).

90. Communist Party Case (n 81) 175 (Dixon J); Second Uniform Tax Case (1957) 99 CLR 575, 614 (Dixon CJ); Gazzo v Comptroller of Stamps (Vict) (1981) 149 CLR 227, 240 (Gibbs CJ).

91. Spence (n 10).

92. Commonwealth Electoral Act 1902 (Cth) s 302CA.

93. Spence (n 10) 404 [56] (Kiefel CJ, Bell, Gageler and Keane JJ).

94. Ibid 413 [80].

95. Ibid 413 [81].

96. Ibid 413 [82].

97. See Quick and Garran (n 6) 935, which lists ‘charities’ and ‘friendly societies’ as topics over which the States would continue to exercise ‘residuary’ legislative power. See also R D Lumb and K W Ryan, The Constitution of the Commonwealth of Australia Annotated (Butterworths, 3rd ed, 1981) 371.

98. Work Choices Case (n 10).

99. Communist Party Case (n 80) 175 (Dixon J).

100. See Gordon (n 23) 1043, 1060–3, and the cases discussed below.

101. ITA Act (n 11) s 50–47.

102. Ibid s 25-5(3).

103. Ibid s 35-5(1).

104. MacCormick (n 2) 640.

105. (2008) 237 CLR 198 (‘WR Carpenter Holdings’).

106. Ibid 204 [9].

107. Deputy Federal Commissioner of Taxation v Truhold Benefit Pty Ltd (1985) 158 CLR 678, 684 (Gibbs CJ, Mason, Wilson, Deane and Dawson JJ) (‘Truhold’).

108. Giris (n 24) 379 (Kitto J).

109. Ibid.

110. ACNC Regulation (n 2) reg 45.1.

111. Ibid reg 50.1.

112. See, eg, Governance Standard 3, which states that a registered entity must not engage in conduct which may be dealt with as an indictable offence under an Australian law or by way of a civil penalty of 60 penalty units or more. Note that even in the case of Governance Standard 3, the Commissioner is not expressly required to apply criminal standards of proof to a determination that a registered entity has not complied with the standard even when its alleged conduct may be dealt with as an indictable offence: ACNC Act (no 1).

113. ACNC Regulation (n 2) reg 45.10(2). The general and indeterminate nature of Governance Standard 2 is discussed in Aroney and Turnour (n 5) 446–8.

114. Ibid reg 45.10 note 2.

115. Ibid reg 45.10(2).

116. ACNC Act (n 1) s 15-5.

117. ACNC Regulation (n 2) regs 45.1, 50.1.

118. ACNC Act (n 1) s 15-10.

119. Ibid s 15-5.

120. Ibid s 15-10.

121. ACNC Regulation (n 2) regs 45.1, 50.1.

122. Giris (n 24); MacCormick (n 24); Truhold (n 107); WR Carpenter Holdings (n 105).

123. ITA Act (n 11) s 50-50(2).

124. Ibid s 50-47.

125. ACNC Act (n 1) s 35-10(2).

126. Ibid s 35-10(2)(a).

127. The complexity and indeed obscurity of these provisions is further exacerbated by s 65-5 of the ACNC Act (n 1), which requires a registered entity to notify the Commissioner if it has contravened a provision of the Act or not complied with a governance standard or external conduct standard, provided that the contravention or non-compliance is ‘significant’ and the entity is, as a consequence of the contravention or non-compliance, no longer entitled to registration (ACNC Act (n 1) s 65-5((2)). In determining whether the contravention or non-compliance is significant, the ‘nature, significance and persistence of any contravention or non-compliance’ must, inter alia, be taken into consideration (ACNC Act (n 1) s 65-5(3)). Section 65-5 combines these matters into a hierarchy of considerations that is organised differently to the way they are presented in s 35-10(2)(a). Does s 65-5 present the order in which the matters should be taken into consideration for the purposes of the Commissioner’s determination under s 35-10 or only in respect of a registered entity’s duty to notify the Commissioner of its contravention or non-compliance? The ACNC Act (n 1) does not say.

128. ACNC Act (n 1) s 35-10(2)(b).

129. For example, assuming the entity to be a federally regulated entity (see s 205-15), if the Commissioner has issued a written direction to the entity pursuant to s 85-5(1)(b) on the basis of the Commissioner’s ‘reasonabl[e] belie[f]’ that it is ‘more likely than not’ that the entity will not comply with a governance standard, would this fact weigh in favour of revocation or against it, particularly if the entity complies, or is deemed to have complied?

130. See ACNC Act (n 1) s 205-40, which defines contributions as ‘money, property or other benefit[s]’.

131. Ibid s 35-10(2)(c).

132. Ibid s 35-10(2)(d).

133. Ibid s 35-10(2)(e).

134. Ibid.

135. Ibid s 15-10(e).

136. Ibid s 35-10(2)(f).

137. Ibid s 35-10(2)(g).

138. Ibid s 15-10.

139. Ibid s 51-10(b).

140. Ibid s 51-10(d).

141. Ibid s 51-10(e).

142. Ibid s 51-10(h).

143. Giris (n 24) 379; MacCormick (n 24) 640.

144. Gordon (n 23) citing Murray Gleeson, ‘Courts and the Rule of Law’ (Rule of Law Series, The University of Melbourne, 7 November 2001).

145. Joseph Raz, The authority of law: Essays on law and morality (Oxford University Press, 2012) pt III ch 11.

146. Productivity Commission, ‘Contribution of the Not-for-Profit Sector’ (Research Report, January 2010) ch 2.

147. See Osborne v Commonwealth (n 26); Fairfax (n 16); Second Fringe Benefits Tax Case (n 26); Northern Suburbs (n 11).

148. Pape (n 42) 155 [453] (Heydon J).

149. Melbourne Corporation (n 18) 79 (Dixon J).

150. Grannall v Marrickville Margarine Pty Ltd (n 20) 77 (Dixon CJ, McTiernan, Webb and Kitto JJ).

151. Spence (n 10) 413 [80] (Kiefel CJ, Bell, Gageler and Keane JJ).