Federal Charities Law and the Taxation Power: Three Constitutional Problems
| Author | Nicholas Aroney |
| DOI | http://doi.org/10.1177/0067205X221146330 |
| Published date | 01 March 2023 |
| Date | 01 March 2023 |
| Subject Matter | Articles |
Article
Federal Law Review
2023, Vol. 51(1) 78–101
© The Author(s) 2023
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DOI: 10.1177/0067205X221146330
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Federal Charities Law and the
Taxation Power: Three
Constitutional Problems
Nicholas Aroney*
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
adaptedto achieving a legitimate purposeor object that fallswithin the taxationpower and, thirdly,that
in combination with the Income Tax Act 1986 and Income Tax Assessment Act 1997,theyimposean
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 n ot supported by the taxation power.
Received 4 November 2021
I Introduction
In 2012, the Commonwealth Parliament enacted the Australian Charities and Not-for-Profits
Commission Act (‘ACNC Act’).
1
The Act established a comprehensive regulatory framework for the
charities and not-for-profit sector at a federal level. The Act also empowered the Governor-General
to make regulations prescribing particular standards that entities must meet in order to be registered
under the Act and enjoy the resulting tax benefits.
2
As was acknowledged at the time, the
Commonwealth does not have legislative power under the Constitution to regulate the charities and
not-for-profit sector as such.
3
However, it was proposed that the taxation, communications,
* Professor of Constitutional Law, The University of Queensland.
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].
corporations, external affairs and territories powers would support different aspects of the Act, either
individually or in combination with each other.
4
An earlier article undertook a general evaluation of
these claims.
5
In this article, the question whether the ACNC Act and ACNC Regulation are
supported by the taxation power is closely examined. It is concluded that there are strong arguments
to suggest that the taxation power does not support the legislation.
The ACNC Act and ACNC Regulation resemble many other Commonwealth laws that rely on
combinations of federal heads of legislative power for constitutional support, enabling the
Commonwealth to regulate topics that may be regarded as having been reserved to the states.
6
A
topical example is the Biosecurity Act 2015 (Cth) (‘Biosecurity Act’), which appears to rely on at
least 11 heads of power.
7
Recognising that the constitutional basis for the law is questionable,
8
the
Biosecurity Act has a severance clause which provides that it is to have the effect it would have if its
operation was limited to its constitutionally valid operation under any one of these alternative heads
of power.
9
The ACNC Act has no such provision. If aspects of the law were found to be lacking in
constitutional support the implications for the Act as a whole would depend on general principles of
severance and the operation of s 15A of the Acts Interpretation Act 1901 (Cth).
10
The taxation power is the most important of the heads of power relied upon to support the ACNC
Act and ACNC Regulation. Two key provisions are ss 15-5(3) and 20-5(2) of the ACNC Act, which
recite (but do not effectively provide) that registration under the ACNC Act is a prerequisite for an
entity to access certain Commonwealth tax concessions under the Income Tax Act 1986 (Cth) (‘IT
Act’) and the Income Tax Assessment Act 1997 (Cth) (‘ITAAct’).
11
Those tax concessions are legally
enacted by the combined operation of ss 5(1) and 7 of the IT Act, which impose the duty to pay
income tax, and ss 50-1, 50-5 and 50-47 of the ITA Act, which exempt the income of registered
charities from income tax, but also provide that ‘ACNC type’entities are not exempt unless
registered under the ACNC Act. The practical point of contact between these provisions and the
ACNC legislation is provided by s 25-5 of the ACNC Act, which entitles an entity to registration
under certain conditions, and s 35-10, which empowers the Commissioner to revoke an entity’s
registration on various grounds, including where a registered entity has not complied with a
governance standard or external conduct standard. These standards constitute the core of the
obligations imposed on registered entities by the ACNC legislation. Sections 45-10, 50-10 and 200-
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; Victoriav 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
Aroney 79
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