Birchstone Brief for the week ended 20 October 2023

ATO Updates

Product ruling and addendum issued

The ATO has issued:

  • PR 2023/20 – St. James’s Place International Investment Plan II; and 
  • PR 2020/1A1 – PR 2020/1 – Income tax: tax consequences of investing in equities using Bell Geared Equities Investment (2019 Product Brochure). 



Vanderstock v Victoria [2023] HCA 30 – High Court finds Victorian electric car road user charge unconstitutional 

In a mammoth 384-page decision, a narrow 4:3 majority of the High Court has ruled that section 7(1) of the Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic), which required  registered operators of zero or low emissions vehicles (ZLEV) to pay a charge for the use of their ZLEVs on specified roads based on the number of kilometres travelled per year, was invalid on the basis that it imposed a duty of excise contrary to section 90 of the Constitution

Per section 90 of the Constitution, the Commonwealth has exclusive power to impose customs and excise duties. As such, the imposition of a distance-based ZLEV charge by the State of Victoria would clearly be unconstitutional if it was an excise duty. Victoria argued that the High Court authority of Dickenson’s Arcade Pty Ltd v Tasmania (1974) 130 CLR 177, which held by majority that a tax on goods imposed at the stage of consumption was not an excise, prevented the Court from answering this question in the affirmative. The plaintiffs argued that as section 90 had been intended to grant the Commonwealth a monopoly over the taxation of all goods and the imposition of any tax on goods by a State or Territory was likely to distort the market for such goods (which Federation was intended to eradicate), Dickenson’s Arcade should be reopened and overruled.

In a joint judgment, Kiefel CJ, Gageler and Gleeson JJ ruled that the distance-based ZLEV charge was a duty of excise and therefore constitutionally invalid. Their Honours reasoned that the proposition that a tax on goods imposed the stage of consumption of those goods could not be a duty of excise was an anomalous and unsustainable exception to the understanding of the scope and operation of section 90 adopted in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2](1993) 178 CLR  561 and Ha v New South Wales (1997) 189 CLR 465, and that to the extent Dickenson’s Arcade contradicted that conclusion it should be reopened and overruled. Given this, and the fact that the distance-based ZLEV charge was closely related to the use of ZLEVs and affected them as articles of commerce (including because it tended to affect demand for ZLEVs), their Honours concluded that the charge was a constitutionally impermissible excise.  Justice Jagot reached the same conclusion, holding that there was no sound rationale to say a tax on goods in the hands of a consumer, for that reason alone, was not a tax on goods as articles of commerce. Her Honour also found in favour of the plaintiffs for policy reasons, including that the Victorian Act introduced an obvious distortion into the constitutionally-protected Australian economic union and the national unified free trade area. 

Each minority Justice issued a separate dissenting opinion which strongly disagreed with the majority’s decision. Justice Gordon considered that the approach taken by the majority could not be accepted legally, logically or constitutionally, and was strongly of the view that the principle established by Capital Duplicators and Ha (i.e. that a duty of excise is a tax on the production, manufacture, sale or distribution of goods and not a tax on the use or consumption of goods) should not be abandoned. Justice Edelman expressed considerable regret at the majority’s decision, which he considered had substantially impaired three basic constraints regarding the meaning or application of an excise which had long been applied by the High Court. Justice Steward stated that, even without the authority of Dickenson’s Arcade, it could not be said on any view that the distance-based ZLEVC charge was an excise, because it was not a trading tax on goods. His Honour also said it was impossible to conclude that a regular and ongoing impost charged on the domestic use of a vehicle on public roads fell within the definition of an excise given in Ha (as it was not a tax on a step in the production, manufacture, sale or distribution of a commodity). 



Exposure draft legislation – thin capitalisation amendments

Treasury has released draft technical amendments and associated explanatory materials to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 (Cth). The proposed amendments are in response to a Senate Economics Legislation Committee report that recommended the Bill be passed, subject to technical amendments to the thin capitalisation reforms contained within it. 



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