In brief
PwC Australia recently represented G Global 120E T2 Pty Ltd as trustee for the G Global 120E AUT and G Global 180Q Pty Ltd as trustee for the G Global 180Q AUT (G Global) in the High Court.
The High Court decision is G Global 120E T2 Pty Ltd as trustee for the G Global 120E AUT v Commissioner of State Revenue; G Global 180Q Pty Ltd as trustee for the G Global 180Q AUT v Commissioner of State Revenue; G Global 180Q Pty Ltd as trustee for the G Global 180Q AUT v Commissioner of State Revenue; Francis Stott v The Commonwealth of Australia & Anor [2025] HCA 39.
At a general level, the case is about the constitutional validity of additional land tax payable under State land tax legislation on certain foreign owned land in Queensland and Victoria (foreign surcharge or foreign surcharge laws).
More specifically, it is about the ability of the Commonwealth Parliament to pass a law operating back in time (retroactive law) to remove an inconsistency between a Commonwealth law and a constitutionally invalid State tax law, thereby validating and reviving the operation of the State tax law.
In a unanimous judgement, the Full Court of the High Court held that such a Commonwealth retroactive law was effective to revive the operation of constitutionally invalid State land tax foreign surcharge laws in Queensland and Victoria.
The case is a significant contribution to constitutional jurisprudence as the High Court reopened and overruled the earlier High Court decision of University of Wollongong v Metwally1 (Metwally) and ruled on three different constitutional issues.
In detail
Background
The High Court dealt with the G Global and Stott proceedings together, because they raised largely the same questions.
The first of the proceedings concerned G Global (G Global proceedings). G Global refers to two entities indirectly owned and controlled by a company in Germany. The entities owned land in Queensland. G Global appealed to the Supreme Court of Queensland against assessments of the foreign surcharge in Queensland for the 2021 and 2022 financial years. On the application of the Queensland Attorney-General under the Judiciary Act 1903 (Cth), the appeals were removed into the High Court.
The remaining proceeding concerned Mr Francis Stott (Stott) (Stott proceeding) who is a citizen of New Zealand. In February 2024, Stott commenced representative proceedings in the Federal Court seeking restitution of the foreign surcharge paid in Victoria for the 2016 to 2024 land tax years. In July 2024, Stott commended proceedings in the High Court seeking declaratory relief to the effect that the foreign surcharge was invalid under s 109 of the Constitution.
Under the G Global proceedings, the foreign surcharge was imposed contrary to the provisions of a ‘double tax treaty’ agreement between Australia and Germany (German Agreement).
Under the Stott proceeding, the foreign surcharge was imposed contrary to the provisions of a ‘double tax treaty’ agreement between Australia and New Zealand (New Zealand Convention).
The German Agreement and the New Zealand Convention each contained a similar non-discrimination article.
For Stott, under the article, a national of a Contracting State (New Zealand) must not be subjected in the other Contracting State (Australia) to any taxation which is other or more burdensome than the taxation to which a national of the other Contracting State (Australia) in the same circumstances, particularly with respect to residence, may be subjected.
For G Global, under the article, an enterprise of a Contracting State (Australia), the capital of which is owned or controlled directly or indirectly by a resident of the other Contracting State (Germany) must not be subjected by the first mentioned State (Australia) to any taxation which is other or more burdensome than the taxation to which other similar enterprises of the first mentioned State (Australia) in similar circumstances may be subjected.
Normally, ‘double tax’ treaties deal only with income tax and like taxes. But in these two cases, the non-discrimination article applied to taxes of ‘every kind and description’, including taxes imposed by State legislation. Only a small number of Australia’s other ‘double tax’ treaties, and notably the one with Japan, contain a non-discrimination article with this feature; most do not.
Prior to 8 April 2024, the German Agreement and the New Zealand Convention were given force of law by a Commonwealth Act, s 5(1) of the International Tax Agreements Act 1953 (Cth) (ITAA).
In effect, this meant that G Global and Stott had, prior to 8 April 2024, Commonwealth law protection from the imposition of a discriminatory tax, including a discriminatory State tax, based on residence (Commonwealth Non-Discrimination Tax Protection).
Under the Land Tax Act 2010 (Qld) (QLTA), G Global was assessed to the foreign surcharge because of its residency. It was a foreign owner (German resident) of land in Queensland.
Under the Land Tax Act 2005 (Vic) (VLTA), Stott was assessed to the foreign surcharge because of his residency. He was a foreign owner (New Zealand citizen) of land in Victoria.
Section 109 of the Constitution provides that when a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail and the former shall, to the extent of the inconsistency, be invalid.
It became apparent that the foreign surcharge imposed under the QLTA and VLTA (State tax laws) was inconsistent with the ITAA (Commonwealth law).
This was because G Global and Stott had to pay the foreign surcharge under the QLTA and VLTA because they were each a foreign owner (resident) of land in the State. They were subject to more burdensome taxation than the taxation to which a domestic owner in similar circumstances was subject. G Global and Stott also had Commonwealth Non-Discrimination Tax Protection under the ITAA.
Thus, there was an inconsistency between a Commonwealth law conferring immunity or protection from tax discrimination, and a State law infringing it (s 109 Constitution issue). Section 109 of the Constitution therefore applied to resolve that inconsistency.
To the extent of the inconsistency, the foreign surcharge laws under the QLTA and VLTA were invalid (inoperative) and the ITAA prevailed. At the High Court proceedings, this was agreed between the parties. However, as questions of the validity of a law cannot be decided by agreement between the parties, the High Court officially ruled in the proceedings that prior to commencement of the Commonwealth Amending Act (defined immediately below), the foreign surcharges were invalid (inoperative) under s 109 of the Constitution because of its inconsistency with the ITAA.
To address the s 109 Constitution issue, on 8 April 2024, s 5 of the ITAA was amended by the Treasury Laws Amendment (Foreign Investment) Act 2024 (Cth) (Commonwealth Amending Act), which inserted s 5(3), relevantly as follows:
The operation of a provision of the [German Agreement and New Zealand Convention] is subject to anything inconsistent with the provision contained in a law of…a State that imposes a tax other than Australian tax [defined to be, in effect, federal income and fringe benefits taxes].
The effect of s 5(3) was to confine the Commonwealth Non-Discrimination Tax Protection to federal income and fringe benefits taxes and to exclude its operation on State taxes and federal taxes other than income tax and fringe benefits tax. That is, the Commonwealth Non-Discrimination Tax Protection did not operate where a State land tax law operated and discriminated between taxpayers based on residence (such as the foreign surcharge).
The s 5(3) amendment was said to apply in relation to:
a. taxes other than an Australian [federal income and fringe benefits] tax payable on or after 1 January 2018, and
b. taxes other than an Australian [federal income and fringe benefits] tax payable in relation to tax periods that end on or after 1 January 2018.
Also, to address the s 109 Constitution issue, in Victoria on 4 December 2024 the VLTA was amended and in Queensland on 28 February 2025, the QLTA was amended (State Foreign Surcharge Amendments), along with amendments of each of the State Taxation Administration Acts. The State Foreign Surcharge Amendments were engaged if the foreign surcharge was purportedly imposed, the foreign surcharge was purportedly payable on or after 1 January 2018 and before 8 April 2024, and the purported imposition of the foreign surcharge was invalid under s 109 of the Constitution because of an inconsistency with a ‘double tax’ agreement (for example, the German Agreement and New Zealand Convention) that had the force of Commonwealth law under s 5(1) of the ITAA.
In that event, under the State Foreign Surcharge Amendments, the foreign surcharge was again imposed. The foreign surcharge was taken to have always arisen at the same time as liability for the purported foreign surcharge would have arisen if valid, was taken to have always been payable as if it had been validly imposed, and was taken to have always been the same amount.
The technique of the Commonwealth Parliament passing the Commonwealth Amending Act, followed by the Victorian and Queensland State Parliaments passing the State Foreign Surcharge Amendments to address the s 109 Constitution issue found support in the majority decision of the High Court in Metwally. This was to the effect that, although the Commonwealth Parliament cannot itself undo the previous invalidating effect of s 109, it can clear the way for the State Parliament to make a fresh Act to apply retrospectively on the same terms. Thus, both Parliaments can legislate retrospectively so that a fresh State law would come into existence with present legal force.2 In this way, it was thought the effect of the s 109 inconsistency could be remedied.
The correctness of Metwally is discussed further below.
As the matter was one arising under the Constitution, the Attorney-General of the Commonwealth and the various States intervened in the High Court proceedings and advanced submissions on the issues.
Issues
The issues before the High Court were:
- first, whether the Commonwealth Amending Act is supported by the appropriate constitutional head of power, s 51(xxix) of the Constitution, the external affairs power (Head of Power issue);
- second, whether, having regard to the Metwally decision, the amendments made to the ITAA by the Commonwealth Amending Act have retroactive effect to remove the inconsistency (thereby remedying the s 109 Constitution issue) that existed prior to 8 April 2024 between s 5(1) of the ITAA and the QLTA and VLTA provisions that imposed the foreign surcharge from 1 January 2018 (Metwally issue), and
- third, whether, having regard to the effect of the amendments made by the Commonwealth Amending Act on G Global and Stott’s rights to recover the foreign surcharges that were paid on or after 1 January 2018, the Commonwealth Amending Act is a law with respect to the acquisition of property under s 51(xxxi) of the Constitution and therefore invalid as just terms were not provided for the acquisition (Acquisition of property issue).
Head of power issue
The external affairs power under the Constitution empowers the Commonwealth Parliament to enact laws that are reasonably capable of being considered appropriate and adapted to implementing a treaty affecting taxation.
G Global (and Stott) argued that s 5(3) of the ITAA was not supported by the external affairs power because by limiting the scope of s 5(1), the Commonwealth Non-Discrimination Tax Protection, s 5(3) was not reasonably capable of being considered appropriate and adapted to implementing the treaty under the German Agreement. It was therefore submitted to be invalid.
G Global said it was beyond the limits of the Commonwealth external affairs power to permit a State law to operate in a manner inconsistent to a substantial extent with the operation of the German Agreement. Under the German Agreement, the Commonwealth Non-Discrimination Tax Protection originally applied to taxes of every kind and description, including taxes imposed by State legislation. G Global said that the combined effect of s 5(1) and s 5(3) was that the Commonwealth Non-Discrimination Tax Protection now prohibited discrimination in Australian taxes (federal income and fringe benefits taxes) and at the same time permitted discrimination in any other kind of tax (including State taxes), contrary to the obligation imposed on Australia under the German Agreement.
The court agreed that s 5(3) limited the scope of s 5(1), the Commonwealth Non-Discrimination Tax Protection, but said this was not an ‘inconsistency’ of the kind which invalidated s 5(3). This was because s 5(1) continued to incorporate into domestic law the Commonwealth Non-Discrimination Tax Protection and s 5(3) merely reduced its ambit.
It was held that s 5(3) of the ITAA should not be considered in isolation. Considered together, s 5(1) and s 5(3) remained reasonably capable of being considered appropriate and adapted to implementing the German Agreement.
Metwally issue
The High Court considered the Metwally issue in 3 parts: First, did s 5(3) of the ITAA revive the foreign surcharge laws purportedly imposed by the QLTA and VLTA, without regard to the State Foreign Surcharge Amendments? Second, if yes, was that precluded by Metwally? Third, if yes, should Metwally be reopened and overruled?
Did the Commonwealth Amending Act revive the pre-existing foreign surcharge laws?
Submissions on this varied.
Stott relied primarily on the Acquisition of property issue to argue that the Commonwealth Amending Act was constitutionally invalid. But if that was not successful, it argued that the effect of Metwally was that s 5(3) of the ITAA could not undo the previously existing inconsistency under s 109 of the Constitution, and Metwally should not be overruled. G Global made a similar argument.
Victoria submitted that the effect of Metwally was that s 5(3) could not revive the previously existing foreign surcharge laws prior to commencement of the Commonwealth Amending Act but could operate on the State Foreign Surcharge Amendments made after that time. Victoria said that s 5(3) was effective to clear the way for the State Foreign Surcharge Amendments to operate free from any Commonwealth law inconsistency. Queensland made a similar argument.
The Commonwealth submitted that s 5(3) had both a retroactive and retrospective operation. In its retroactive operation, it said this was effective to remove the inconsistency and revive the previously existing foreign surcharge laws. To the extent Metwally precluded this, it was wrongly decided and should be overruled. Western Australia supported this.
The submissions raised an issue of how s 5(1), as amended by s 5(3) of the ITAA, should be construed, particularly its temporal operation. Did s 5(3) have retroactive operation in respect of the State foreign surcharge laws – that is, operating backwards to change the law from what it was thereby reviving the foreign surcharge laws from the time they were imposed? Or did it have retrospective operation in the sense of authorising the State Foreign Surcharge Amendments, enacted after the Commonwealth Amending Act, to impose fresh State land tax foreign surcharges payable on or after 1 January 2018 or applying to tax periods ending on or after 1 January 2018, free of the Commonwealth Non-Discrimination Tax Protection?
The High Court said the issue was not necessarily one of ascribing a label to a law having retroactive or retrospective operation because there may be degrees of each. Rather, the issue is: what is the statute’s temporal operation in a particular context?
The court said the text of s 5(3) was more consistent with the retroactive construction, construed in context and in light of its purpose. That is, s 5(3) restricted retroactively the scope of s 5(1), the Commonwealth Non-Discrimination Tax Protection, prior to 8 April 2024. But did that revive the previously existing State foreign surcharge laws?
As a matter of principle, the court reasoned that it is accepted that a Commonwealth law cannot of its own force deny validity to a State law. A Commonwealth law can show an intention not to exclusively operate on a subject matter and allow State laws not inconsistent with a Commonwealth law to operate. But a Commonwealth law showing an intention not to exclusively operate on a subject matter cannot avoid or eliminate an inconsistency when a Commonwealth law and a State law are inconsistent or contradictory on the same topic making it impossible to obey both laws - that is when s 109 of the Constitution is engaged. However, if a Commonwealth legislative intention not to exclusively cover a particular subject matter were expressed to operate retroactively and that Commonwealth law would operate not inconsistently with a State law such that both laws could be obeyed, why should that retroactively not avoid any inconsistency so as to engage s 109 of the Constitution?
Subject to the Metwally principle (see immediately below), s 5(3) of the ITAA would otherwise be effective to retroactively remove and avoid any inconsistency between s 5(1) of the ITAA and the foreign surcharge laws, sufficient to revive the foreign surcharge laws.
Was the revival of the foreign surcharge laws precluded by Metwally?
In a High Court decision preceding Metwally, the High Court found that a NSW anti-discrimination Act was inconsistent with a racial discrimination Commonwealth Act because the Commonwealth Act was intended to be a complete statement of the law relating to racial discrimination. The Commonwealth Parliament amended the Commonwealth law by inserting a provision which said that the Commonwealth law was not intended “and shall be deemed never to have been intended” to exclude or limit the operation of the NSW State law.
In Metwally, the High Court majority held that this amendment did not have a valid operation during any period prior to coming into force. The Commonwealth Parliament could not retroactively undo or alter the invalidating effect that s 109 previously had upon a State law.
Metwally was taken to stand for the principle that a Commonwealth law cannot retrospectively [or retroactively] avoid the operation of s 109 of the Constitution on a State law that was inconsistent with a Commonwealth law.
It followed that the Metwally principle would preclude s 5(3) of the ITAA from reviving the foreign surcharge laws.
Should Metwally be reopened and overruled?
In Metwally, the majority held in effect that once s 109 of the Constitution is engaged, its application is fixed and immutable from that point onwards and any attempt to retroactively change the Commonwealth law or the effect of s 109 is ineffective. An attempt by the Commonwealth to do so was characterised as involving a ‘fiction’ that would deny the ‘truth’ or the ‘objective fact’ of the inconsistency.
The High Court in G Global and Stott said this significantly undermined the Commonwealth Parliament’s capacity to enact effective retroactive laws.
The High Court preferred the minority reasoning in Metwally, particularly in relation to their temporal approach to s 109 – when it is sought to apply s 109, then at that time the question must be asked whether there is an inconsistency between the State law and the Commonwealth law by reference to the legislation as it stands including any retroactive effect that it may purport to have.
The High Court said that Metwally should be reopened and overruled.
As Metwally was reopened and overruled, it followed that s 5(3) was effective to remove the inconsistency that previously existed between the State foreign surcharge laws and the Commonwealth Non-Discrimination Tax Protection given force of law by s 5(1) of the ITAA.
Acquisition of property issue
G Global and Stott submitted that s 5(3) was invalid because it affected their rights to recover the foreign surcharges paid, such as rights to support a refund claim or claim based on unjust enrichment, and was therefore a law with respect to an acquisition of property under s 51(xxxi) of the Constitution without the provision of just terms.
Stott submitted that his restitutionary claim to recover the foreign surcharges paid in Victoria was a chose in action, and a chose in action is a form of property. Property is in many instances understood as a bundle of rights against another (chose in action), and a right to claim restitution is a property right.
Stott submitted that the retroactive operation of s 5(3) extinguished, sufficiently impaired or “leached the economic value” of his restitutionary claims and gave Victoria a benefit or gain. This gave the retroactive operation of s 5(3) an acquisitive character. G Global’s submissions were to similar effect, except that they also submitted that their appeal rights to the Supreme Court of Queensland against the disallowance of their objection constituted property.
The Commissioner of State Revenue in Victoria and Queensland submitted that s 5(3) was not a law with respect to the acquisition of property because it only removed an obstacle to the State foreign surcharge laws applying; that is, it merely revived the previously invalid foreign surcharge laws and nothing more.
The High Court held that s 5(3) was not a law with respect to the acquisition of property because State laws imposing taxation do not effect an acquisition of property.
In coming to this conclusion, the court noted that when read with the opening words of s 51 of the Constitution, s 51(xxxi) provides that the Commonwealth Parliament shall, subject to the Constitution, have power to make laws… with respect to “the acquisition of property on just terms from any State or person for any purpose in respect of which the Commonwealth has power to make laws”.
There were two relevant elements to the s 51(xxxi) head of power in the Constitution. The first element is that it confers a legislative power to make laws with respect to the acquisition of property conditional on providing just terms. The second element is that it abstracts the power to support a law for the acquisition of property at least from the other legislative powers in s 51 of the Constitution.
Relevantly, focusing on the second element, the court observed that laws to do with taxation, supported by the taxation power in s 51(ii) of the Constitution, served the purpose of compulsorily acquiring money for public purposes and so laws relating to the imposition of taxation will rarely, if ever, amount to a law with respect to the acquisition of property within the meaning of s 51(xxxi).
The court reasoned that if a Commonwealth law imposing genuine taxation is not properly characterised as a law with respect to the acquisition of property, it must follow that a Commonwealth law that revives the operation of a State law (also imposing genuine taxation) is also not properly characterised as a law with respect to the acquisition of property. This is so even if the Commonwealth law that revives the State law imposing genuine taxation is supported by a head of power other than s 51(ii) of the Constitution (for example, the external affairs head of power) and even if the Commonwealth law can also be characterised as extinguishing a chose in action for the recovery of payments made under previously invalid State tax laws imposing foreign surcharges.
It followed that s 5(3) of the ITAA, in its retroactive operation on the rights of G Global and Stott to recover amounts paid under the foreign surcharge laws, was not a law with respect to the acquisition of property and was not invalid under s 51(xxxi) of the Constitution.
The takeaway
Practical implications for taxpayers
Notices of assessment issued by the Commissioner of State Revenue in Victoria and Queensland are constitutionally valid in respect of the foreign surcharges payable on or after 1 January 2018, and payable in relation to tax periods that end on or after 1 January 2018.
Any argument that the foreign surcharge taxes are not payable in Victoria or Queensland because they are invalid under the Constitution by reason of a double tax treaty is no longer sustainable; they are properly payable.
Any objection to an assessment issued by the Commissioner of State Revenue in Victoria or Queensland on this ground is likely to be disallowed. Withdrawal of an objection may otherwise be considered.
The utility of the State Foreign Surcharge Amendments is now questionable as the insertion of s 5(3) of the ITAA was effective to revive the operation of the original foreign surcharge laws that had been rendered inoperative by s 109 of the Constitution prior to 8 April 2024.
Broader implications
By overturning the longstanding Metwally precedent, this case marks a shift in constitutional jurisprudence concerning the retroactive application of Commonwealth legislation. The Commonwealth Parliament can retroactively change a law to remove an inconsistency with a State law rendered inoperative under s 109 of the Constitution, thereby reviving the State law. Contrary to the suggestion in Metwally, it is unnecessary for the Commonwealth Parliament to make retrospective laws to ‘clear the way’ for the State Parliament to make fresh retrospective laws not inconsistent with the Commonwealth law.
The Commonwealth has power to implement international tax treaties in a manner that limits their scope in substantial respects. For example, it may make laws, including retroactive or retrospective laws, overriding original federal tax treaty obligations provided that the resulting law remain reasonably capable of being considered appropriate and adapted to implementing the treaty.
Finally, by the Commonwealth making a retroactive law, it may have the effect of extinguishing a restitutionary right in respect of a State tax law without being one with respect to ‘the acquisition of property’ which invokes a constitutional requirement for compensation on ‘just terms’. This is because a law with respect to ‘genuine taxation’ (whether Commonwealth or State) is rarely, if ever, likely to have this character.
Footnotes
1 (1984) 158 CLR 447.
2 Metwally, per Murphy J (and Deane J).
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Jonathan Woodger
Partner, Tax Controversy and Dispute Resolution, PwC Australia
Andrew Korlos
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Partner, State Taxes, PwC Australia
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