At the time of Federation most Australian colonies had introduced income taxes, each with its own rules and administered in its own way. This was further complicated with some jurisdictions recording tax according to a taxpayer’s residence, and other according to where the income was earned. Increasing populations and mobility between states following Federation saw these systems become problematic.
Federal income tax was introduced in 1915, in addition to existing state income taxes, in order to finance involvement in the First World War. The federal tax rates were low and borne largely by higher income taxpayers to minimise double taxation. Once the war had ended, the federal government continued to impose income tax. This meant that two tiers of government – state and federal – shared and competed for taxation revenue, under two different taxing systems that were managed by the separate bureaucracies. It wasn’t until 1942 that a uniform tax system was imposed. This shift towards taxation as a primary provider of revenue for the Commonwealth relieved pressure on Customs as the original source of federal income.