Constitutional basis of taxation in Australia

The constitutional basis of taxation in Australia is predominantly found in Sections 51(ii), 90, 53, 55, and 96 of the Australian Constitution. Their interpretation by the High Court of Australia has been integral to the functioning and evolution of federalism in Australia.

The constitutional scheme as well as judicial interpretations have created a vertical fiscal imbalance, whereby the Commonwealth has the revenue-raising abilities while the States have major spending responsibilities. For example, primarily, Australian states fund schools and hospitals. The result of the limitations on state taxing power is that the Commonwealth collects the money through taxes, and distributes that money to states. The power to distribute funds to states, on conditions, is contained in Section 96 of the Australian Constitution. As a result, the sphere of Commonwealth power has expanded through dictating policy through conditional grants. This limits the autonomy and power of the states in controlling policy.

Australia is a federation and legislative power is distributed between the Commonwealth and the States. Section 51 enumerates areas of Commonwealth power. These powers are concurrent, and states can legislate on them, or on any topic not specifically prohibited them by the Constitution (e.g. Section 53 specifically enumerates areas, such as the federal public service, where states may not legislate), but Section 109 provides that Commonwealth laws prevail in circumstances of inconsistency.

Section 51(ii) allows the Commonwealth to enact laws in respect of:

Section 51(xxxi) requires that the Commonwealth not acquire property except on just terms. It is the characteristic as a tax that gives an expropriation in the form of a tax the "just terms". Section 75(v) makes the judiciary the final arbiter of what is or is not a tax.

...
Wikipedia