Miscellaneous 2021

The constitutional validity of state royalty schemes and profit-based schemes

Source: Australian Tax Forum Journal Article

Published Date: 1 Dec 2021


The current orthodox view is that state royalty schemes are constitutionally valid. This is based on a narrow reading of s 90 of the Australian Constitution, which prohibits states from levying excise duties. At its most basic, an excise is a tax on goods. This paper argues that, despite the orthodoxy, there are real constitutional question marks over the validity of state royalty schemes. This paper also considers the potential constitutional issues that might arise were a state to implement a profit-based scheme, rather than a royalty scheme. It finds that there would be a significant risk that such a scheme would be struck out on the basis of s 90, given that all parties in the High Court decision in Fortescue Metals proceeded on the basis that such a scheme would levy a tax. It is axiomatic that an excise is a kind of tax. The paper concludes that a High Court decision to this effect might precipitate a more fundamental re-think of how resource taxation is imposed in Australia. In other words, the subject matter of this article is considered to have important practical consequences for the nation, given the importance of our resources sector.

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Miscellaneous 2021

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