The bottom of the harbour story is a complicated one. This chapter offers a guide to the way it unfolded and to the chapters recording the principal events.
In 1982, four years after the legislative and administrative battle against tax schemes had begun in earnest, there occurred a series of tax-related events that were highly significant in themselves and profound in their longer term consequences.
They concerned bottom of the harbour schemes, the nature of which has been covered in the preceding chapter. The events of 1982 provided insight into what had been happening over a number of previous years and in the subsequent chapters, that later insight is used in providing an account of what happened in the earlier years.
What follows here is an overview of the events and happenings.
Schemes to strip companies of pre-tax profits first came to light in about 1973 (Chapter 41) and as a result of ATO initiatives were made a specific federal offence in 1980, through enactment of the Crimes (Taxation Offences) Act 1980 (Chapter 42). As Treasurer Howard said later, that Act was 'a conspicuous success' in curtailing bottom of the harbour schemes.
By then, there had been throughout Australia some 7,000 such strips.
Costigan
In 1980, a Royal Commission had been set up by the Australian and Victorian Governments and Frank Costigan QC was appointed to enquire into activities of the Federated Ship Painters and Dockers Union. Commissioner Costigan's initial enquiries led him to seek, and to be granted, extended powers to enquire whether ship painters and dockers had been engaged in activities involving breach of any Commonwealth law.
On 18 December 1981 Costigan submitted an interim report No. 3158158 in which, under the heading 'Slutzkin rides again', he reported coming across bottom of the harbour schemes. The connection with painters and dockers was that they were among the men of straw to whom companies had been transferred following a profit strip. Costigan found that the secrecy provisions of the tax law (section 16) stood in the way of the ATO sharing with him the information it had garnered and sought an amendment of the tax law to remove this obstacle.
This was done by amendments to section 16 contained in the Income Tax Assessment Amendment Act (No. 2) 1982, which came into effect on 2 June 1982.
McCabe/Lafranchi
A few days earlier, on 27 May 1982, a report159 had been tabled in the Victorian Parliament by the Premier and Attorney General, John Cain. This report, by PW McCabe and DJ Lafranchi under the Victorian Companies Act, was into the affairs of some 923 companies which had been the subject of tax-inspired profit strips. The report was on the basis that they were pre-tax profit strips (wet Slutzkins), although it turned out only the smaller part were. The others were accumulated profit strips (dry Slutzkins).
In his tabling statement, the Premier echoed the McCabe/Lafranchi strong criticisms of 'very serious errors and omissions and resigned attitudes on the part of the Australian Taxation Office'.
Coming as it did a few days after Costigan's opening up of the subject - and Howard's statement of 11 May 1982 about trust-stripping160 - this report created an immense media and political storm. The public was outraged. While much had been on public record about bottom of the harbour schemes before then, the naming of over 900 company names by the Victorian inspectors brought a sense of appalled realism that had not previously existed. Media searches at the Companies Office were able to fit the names of the vendor shareholders to the stripped companies. People in public life were identified.
Howard responds
With the bone wrongly pointed at the ATO and to some extent at the Federal Government, on 27 June 1982, Howard (after close enquiry) released a 52-page statement in defence. There were 29 further supporting pages.
This statement was released when parliament was not sitting. Later, on 7 September 1982, the Prime Minister had it incorporated in Hansard. Included in the papers was the advice given to Howard in support of enactment of the Crimes (Taxation Offences) Act - which advice had been tabled by him on 4 December 1980.
In a climate of continuing concern, on 25 July 1982 the government foreshadowed retrospective legislation to recover the unpaid company tax from the vendor shareholders.161
Costigan revelations
Two days later, on 27 July 1982, Costigan submitted a further interim report (No. 4, Volume 1),162 which was released publicly on 24 August 1982. In this report, having had full access to ATO records and staff, he released information which further contributed to public unease and political controversy. What it made clear was that failure to take prosecution action in what could have been a landmark case to bring a stop to pre-tax profit strips lay with the Crown Solicitor's Office, and in particular with the office of the Deputy Crown Solicitor in Perth.
A telephone book
The opposition pressed the matter hard, and as a consequence of Senate action, there was tabled in the Senate a copy of bottom of the harbour-related documents passing between the Treasurer and the ATO from January 1978 to 5 December 1980. Derived from its bulk, this collection of documents attracted the description of 'the telephone book'. The public disclosures and resulting controversy were to lead significantly further.
By the end of 1982 parliament had enacted - in the Taxation (Unpaid Company Tax) legislation - measures to retrospectively make vendor shareholders and promoters of the schemes liable for the company tax evaded in bottom of the harbour strips.
A Special Prosecutor
Flowing from a Costigan recommendation, an office of Special Prosecutor was created by parliament and Roger Gyles QC appointed to pursue prosecutions against participants in the strips.163 Establishment of an independent public prosecutor, the office of Director of Public Prosecutions, followed. Renewed questioning led to section 260 having life breathed back into it by the courts.164 Simply put, but with an element of inaccuracy, the courts, when the matter was taken up to them again, decided that while the Slutzkin decision might stand as authority for 'dry' Slutzkins, it was not authority for vendor shareholders to be tax free in the case of a 'wet' Slutzkin.
All of this, and even further ramifications of the events of 1982, are taken up in later chapters, drawing on the material that emerged in that year.
One thing seemed clear as a result of it all. It was that one could no longer expect around an Aussie barbeque to hear someone bragging about how they had found this or that you-beaut tax scheme.
Sections within Chapters 31-40
Last Modified: Wednesday, 16 June 2010