The Harbour

The promoter would help the owners of a company first transfer the assets to a new company which was to continue the business, then the owners sold the old company to the promoter for the value of the untaxed accumulated profits, less an amount representing a fee or commission.

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For the owners this was the sale of a capital asset and hence untaxed being prior to Capital Gains Tax. The promoter would have the company pay to the promoter a dividend of the money it had left, then the promoter on-sold the now empty shell to someone else.

The way the promoter paid the owners for undistributed profits was similar to a dividend strip operation. In any case the amount the promoter paid was a tax deduction since the promoter would be in the business of buying and selling shares and the dividend would be taxable income , leaving just the promoter's commission taxable, not the whole original company profit.

The "harbour" in the expression was usually taken as referring to Sydney Harbour which is adjacent to the financial district , though obviously the sense is also quite general.

Bottom of the harbour tax avoidance

The actual origin of the name and the practice is not clear. Rod Todman, a senior investigations officer in Perth , found a scheme involving about 50 companies and selected one for investigation. By , he had assembled evidence which was referred to the Deputy Crown Solicitor DCS in Perth for possible prosecution as a test case. The DCS was uncertain of the prospects for the case, but in late had a Queen's Counsel opinion strongly recommending charges of conspiracy to defraud the Commonwealth be brought against the promoter and two other individuals.

The Harbour

There then followed delay upon delay, duplicated investigations, ill-prepared reports by inexperienced officers, and even a DCS officer deliberately avoiding contact with the ATO. After five full years, in April , and based on miscommunication, the Crown Solicitor in Canberra advised the ATO that the evidence was insufficient and the case was dropped. It might well have been that it was not strong enough, but that decision was not arrived at in a well-considered way.

The performance of the various DCS officers was later the subject of scathing criticism, with problems arising primarily from overworked and underskilled staff, and bad management. The abandoned case only came to light in in the Costigan Royal Commission investigating activities of the Federated Ship Painters and Dockers Union.

The Harbour Episode 1

The Commission came upon bank account transactions for millions of dollars, and the "paper trail", as it was called, led eventually, and among other things, to the bottom drawers of the DCS Perth. One of those other things the commission found was that the wife of one of the senior case officers at the DCS Perth was running an escort service , and that she was a company secretary at several companies which were involved in bottom of the harbour schemes.

There was no suggestion her husband improperly used his position, but the connection was close enough to be extremely embarrassing for all concerned, and the officer was dismissed. In , the Crimes Taxation Offences Act put an end to bottom of the harbour schemes. Under the act it became a criminal offence for any person to make a company or trust unable to pay tax debts income tax , sales tax , etc.

The act thus caught both those in the schemes and the promoters of such schemes. It made it unnecessary to go through the crime of defrauding the Commonwealth that had been so poorly handled at the Deputy Crown Solicitor above. Start your free trial. Find showtimes, watch trailers, browse photos, track your Watchlist and rate your favorite movies and TV shows on your phone or tablet! Keep track of everything you watch; tell your friends. Full Cast and Crew.

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