Constitutional Analysis: Cash Flow Boost – Learning the Lessons of the Past

We are in unique times that necessitate speed of enactment of laws. The catch cry of politicians is that the times are unprecedented. Some commentators have pointed out the need to be very careful in relation to the Cash Flow Boost payment. This care is directed to ensuring that notionally eligible businesses and their agents do not enter into schemes for the sole or dominate purpose of creating or increasing a cash flow boost payment.

I agree with the consensus that these provisions are complex. In my view however, the warning in relation to schemes to obtain the cash flow boost inappropriately is a little premature. This is because a tax specialist practitioner should first take a step back and consider the constitutional validity of the purported tax law. The special constitutional framework applying to these types of laws coupled with the unprecedented circumstances we find ourselves in make this imperative. These circumstances present a novel solution to an economic problem by attempting to use the tax system. We should not forget the lessons of the GFC and the case of Pape v Commissioner of Taxation (2009) 238 CLR 1 (“Pape’s case”) and subsequent authority.

If these laws are accepted without careful analysis, given the context, the profession may inadvertently overlook constitutional problems with how these laws are enacted until it comes to enforcing them. The constitutional problems won’t necessarily become apparent until consideration of the overpayment measures of this bill are used by the Commissioner.

The Lesson in Pape’s Case and Subsequent Authority

Where the Tax Office applies an overpayment under subsection 9(2) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (“The Act”) this could create an incentive to challenge the laws validity. This is provided an argument is reasonably open to the party subject to both an overpayment decision and a cash flow boost decision.

The logic in Pape’s case is that such a challenge would not be confined to just the cash flow boost payments and overpayment liability being presently considered by the court. The challenge would logically also apply over the entire cash flow boost stimulus itself.

This is not the end of the road. Williams v Commonwealth (2012) 248 CLR 156 (“William’s case”) makes it clear that a grant of Commonwealth expenditure must fall within a head of power in order to be constitutionally valid. This should be borne in mind when this current stimulus was designed.

Characterising the Cash Flow Boost

The cash flow boost is defined in subsection 5(1) and 6(1) of the Act. The character of these payments may be ambiguous in terms of what head of constitutional power is being used to enact the particular law of the Commonwealth authorising these payments. This is the first of two constitutional issues with the recently enacted law. To be clear, the Cash Flow Boost payments themselves will be the subject of appropriation from consolidated revenue under section 81 of the Australian Constitution. This does not mean that the power to appropriate those funds is not then subject to a power to expend the funds or limited by the powers granted under that same constitution as made clear in Pape’s case and William’s case.

The most obvious head of power that may apply to the expenditure is arguably the taxation power under subsection 51(ii) of the Australian Constitution. The two cash flow boost payments themselves are clearly non-assessable non-exempt income in the hands of parties receiving them pursuant to section 59-90 of the Income Tax Assessment Act 1997 (Cth). This provision was inserted by schedule 3 of the Coronavirus Economic Response Package Omnibus Bill 2020. The secondary head of power under the Australian Constitution that may potentially apply is subsection 51(ix) which is the quarantine power.

The quarantine power is a simple power that has fewer restrictions on the way a law may be enacted and administered in comparison to the tax power. The provisions of the Act should be reviewed to determine whether they solely rely upon this head of power or the taxation power or both. The second constitutional issue arises when examining possible imposition of an overpayment liability because of the cash flow boost and the fact that these amounts are both included in the Act.

This second constitutional issue may not ring alarm bells on a prima facie review of the Act. However, when an experienced tax practitioner thinks more deeply about it and the cases in the area, the strict separation in Australia of the imposition of taxation from the laws governing expenditure and other subject matters of taxation indeed may cause alarm.

Cash Flow Boost – The First Problem

The lesser problem is the constitutional characterisation of the Cash Flow Boost being an item of expenditure of the Commonwealth. The issue is that it is unclear whether this expenditure payment is made under the quarantine power, the taxation power or both. On a careful reading of the Act, a strong inference exists that the entire law was intended to be sourced in the taxation power.

The first reason is that, pursuant to section 3 of the Act, the general administration of the Act is by the Commissioner of Taxation. This reason doesn’t just support the characterisation because the Commissioner of Taxation ordinarily is responsible for taxation laws, it is also because, statutorily, Acts that the Commissioner has general administration of are defined as tax laws. This is pursuant to the definition of ‘taxation law’ in section 995-1 of the Income Tax Assessment Act 1997 (Cth).

The second reason is the review rights for decisions made under the Act. The Act, under section 12 makes it clear that these rights are to be contained within Part IVC of the Taxation Administration Act 1953 (Cth). The Act even refers to any decisions made, albeit indirectly, as a taxation decision. This presumably includes the decision to pay the cash boost as well as to impose a liability because of overpayment.

This is issue can be demonstrated with review of the historical common law definition of tax in Australia, taken from the often cited privy court decision Lower Mainland Dairy Products Sales Adjustment Committee v Crystal Dairy Ltd [1933] AC 168 is as follows:

“It is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered.”

The problem with the Cash Flow Boost expenditure is that although it may derive its power from the taxation head in the constitution, the only exaction of money conceivable would be by way of overpayment and subsequent general interest charged. Thus, the cash flow boost, where it is valid constitutionally, is undeniably an item of expenditure (the other side of the coin).

There are two other alternatives for validity. Firstly, the exercise of a power that would be incidental to the execution of the tax or quarantine power pursuant to subsection 51(xxxix) of the Australian Constitution. Secondly, the nationhood power.

Imposition of Tax and Expenditure in the same Act

The next, more serious, hurdle to validity is the rule sourced in section 55 of the Australian Constitution. This section is reproduced as follows:

“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.


Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only.”


The problem here is that subsection 9(2) of the Act makes a person liable to the Commissioner of Taxation based on not being eligible to a cash flow boost but being paid it by mistake. This appears to meet the definition of the imposition of a tax. The amount would certainly statutorily be a tax related liability pursuant to item 142 in the table after subsection 250-10(2) of schedule 1 of the Taxation Administration Act 1953 (Cth). This provision was inserted by schedule 3 of the Coronavirus Economic Response Package Omnibus Bill 2020.

This is important because the machinery creating entitlement to the cash flow boost expenditure and the imposition of the overpayment liability, are contained within the same Act.

Even where both the cash flow boost and the overpayment are sourced from the taxation power of the constitution or one of them is from a different power, a real question would arise as to whether they deal with the one subject matter of taxation only. The risk is clear that the law may fall foul of section 55 of the Australian Constitution.


These issues could be fatal to the validity of the law even where the cash flow boost payments themselves are sourced in the quarantine power or a power incidental to it. The only potential cure for this invalidity would be if the imposition of the overpayment is also sourced in the quarantine power or a power incidental to it. The wording of the bill should be explicit in the head of power being used to enact the law in cases of ambiguity such as this.

A sensible view of the provisions runs the risk of forming a very tortured construction of the Act when attempting to force validity on the provisions by way of construction at law. Where a liability is owed to the Commissioner described as a tax related liability in the statute, it may be entirely unreasonable to say the source of the law giving rise to this liability was derived by the quarantine power or a power incidental to it. Similarly, my view is that, cash flow boost expenditure based on the tax power cannot credibly be seen as the same subject of taxation as the imposition of overpayment liability.

The common practice of Parliament for enacting tax laws is to have both an act with the machinery for the expenditure, assessment and imposition of tax to be in separate acts. An example is the Taxation Administration Act 1953 (Cth) as opposed to the Income Tax Assessment Act 1997 (Cth).

Considering the quantum at stake, it may be best to revisit this law. The tax profession owes it to the community and to Parliament to advise of this risk and learn the lessons of the previous cases in the area.