A conversation with a legend in tax
|Tony Slater QC|
After 45 years in tax practice, and more than 40 years as a member of The Tax Institute, Tony Slater QC recently announced his retirement. I spoke with Tony about his illustrious career and asked his opinions about changes in the tax profession and in tax administration.
In the early 1970s, Tony was inspired to commence a career in tax when he completed an Arts/Law double degree at the University of Sydney. His tax lecturers, Ross Parsons and Tom Magney, were particularly encouraging. He then joined the firm of Greenwood Challoner & Co, Chartered Accountants, in 1972.
Although admitted as a Barrister to the Supreme Court of NSW in 1975, he continued as a Partner at Greenwoods until 1981, at which time he came to the NSW Bar. He was appointed as Queens Counsel (NSW) in 1992.
Changes in tax practiceI asked Tony about the most significant changes he has seen in the tax profession during his career.
“In practice, the biggest thing that changed was that, until the late 1970s, tax was a matter for accountants,” he said. “Very few lawyers were involved in tax work, but some became interested, partly as a result of Ross Parsons' work and partly because an increasing number of people attained qualifications in both law and accounting.
“From the late 1970s, led by Kevin Burgess and Tom Magney, lawyers began to go into tax practice. Allens made Tom an offer and Stephen Jacques poached Kevin to establish tax divisions within those firms.”
The size and shape of the biggest legal firms, and the tax divisions within these firms, have also changed.
“In the 1970s the biggest legal firms in Sydney were Minters, Allens and Freehills, each of which had about 10 partners. They were considered mega-firms – a bit too big to be manageable.
“Law firms have now grown from such small entities that comprised pure professionals to large businesses that have a CEO, a finance manager and a great many people called partners (who are functionally employees).”
Changes in tax administrationThe administration of tax has also changed considerably since the 1970s.
“Forty-five years ago, the Australian Taxation Office had assessors and appeals officers,” Tony said. “Tax returns were filed on paper. The assessors in the Tax Office would check each item, tick it off, add it up and produce an assessment, which was then typed and sent to you. Then, if you had a dispute, it would be dealt with by the Appeals office.
“The exception was sales tax, which was self-assessing and was 'cowboy' territory, in the sense that an awful lot of people who ought to have been taxpayers simply didn't pay. There were also sales tax officers who took the view that they were a law unto themselves because, in the 1970s, there were no appeal provisions in relation to sales tax. You couldn't object to a tribunal or a board of review and they claimed that, if you challenged the assessment in the Supreme Court, the sales tax officer could produce the assessment as conclusive evidence that it was right."
Tony reflected on the late 1970s when ‘tax fell into disrepute’.
“This was partly due to a lack of action by various Labor Treasurers,” said Tony, “who made noises about tax avoidance but didn’t do anything about it.
“It was a grim period, from the late 1970s through to the early 1980s, when the Tax Office gave up, in effect, trying to enforce section 260. But then Trevor Boucher was appointed as Commissioner of Taxation, and he had a very peremptory attitude. He was there to clean up the mess and took a pretty tough line. As a result, however, relations between the Tax Office and the tax profession broke down.
“The next Commissioner, Michael Carmody, was much better in terms of getting back to positive relationships, so the profession and the Tax Office started working together again. It got back to a position where a professional could ring the Tax Office and say "We've got a problem - how can we sort it out?" which is the way it used to be.
“A relatively recent positive change is the decision to have relationship managers within the Tax Office for major taxpayers (both corporate and individual). Now, when a large taxpayer wants to do something, his or her accountant can ring the Tax Office and say "We're contemplating doing this. Do you agree the consequence will be such-and-such? If not, can we sort it out?" You lay out what you're going to do, so the Tax Office doesn't get it all as an unpleasant surprise 18 months later.”
“Self-assessment and automatic assessment have made a big difference, because commerce has become more complex. In 1970, derivatives were unknown. In the 1980s, there was even litigation as to whether a futures contract was unlawful (as a gambling contract). Justice Rogers decided it wasn't, but that was new law then. The sorts of practices that caused the GFC were then unknown.”
The most satisfying caseWhen I asked Tony about the cases that represent his most satisfying career achievements, he mentioned Murry, a case for the Commissioner involving the nature of ‘goodwill’.
“It involved a taxi driver, who sold his licence and called it goodwill,” Tony said.
“I enjoyed arguing it mostly because it was a topic on which I had delivered a paper for the Institute in 1994 and had developed a somewhat novel thesis. Julian Block, the Administrative Appeals Tribunal’s Deputy President looking at the case, had read the paper, and he thought my argument was the same as the one in the paper, and found for the taxpayer. But I was actually arguing something different.
“John Logan and I took an appeal to the Full Court, then to the High Court, and, I think against their inclinations, persuaded them to give us special leave. We succeeded in the High Court, with a joint judgment written, I think, by Justice Michael McHugh.
“This judgment was probably the best exposition of an area of law that I have ever been involved with, because he took the materials we gave him and, although he didn't entirely agree with us, wrote a comprehensive, authoritative judgment on the nature of goodwill in law, which is still the leading judgment.”
Frustrating casesOn the other hand, Tony told me about two frustrating cases, one of which was Hepples v Commissioner of Taxation.
“I had the Commissioner's brief in that. We stated a case from the Tribunal to the Full Court and then the taxpayer appealed to the High Court, the members of which gave seven different judgments on sections 160M(6) and 160M(7), all arriving at different combinations of answers on the two subsections (which Kevin Burges called 'the terrible twins'). The parties had to go back and re-argue it for a day to decide who had won.
“If you look at the report, you’ll see there are two judgments. The first is a judgment from each member of the Court individually. The second is a judgment about how to assemble the result out of the judgments in the first decision.”
Another exasperating case was Bamford v Commissioner of Taxation.
“We got special leave to argue that case on the basis that the law on Division 6 was in a complete mess,” Tony said.
“I was funded by the Commissioner to appear for the taxpayer to argue that case in the Full Court and the High Court. We both emphasised the fact that the High Court had all the materials necessary to give a judgment that would have sorted out the mess of Division 6, about how to deal with accounting balances that become income, but aren't represented by assets.
“At the last minute, somebody in the Tax Office decided to run a ridiculous argument, and the High Court didn't address any of the material it was given, but instead just criticised the Commissioner. That was disappointing because, if the case had been done properly, we wouldn't have experienced the last 10 years of stalled attempts to rewrite Division 6, because nobody knows how to deal with it.”
The futureI asked Tony about the areas of tax that he believes may experience the most significant change over the next decade.
He said that Treasury and the ATO are both inclined to dispense with tax returns for wage and salary earners and simple investors. The ATO could remove the need to file a tax return by basing assessments on information provided by employers and investment bodies.
Tony is, however, sceptical about the possibility of this coming to fruition, due to a negativity that currently permeates federal politics and impacts any opportunity for tax reform or simplification.
“Any sensible tax reform measures are likely to be reflexively, unthinkingly opposed by whoever is in opposition, no matter how good it is for the country. So I expect that, if Treasury could propose a formula for abandoning tax returns and making it optional to do them, as it is in the UK, the response from the opposition of the day would be 'Let's find somebody who is disadvantaged by $10 by this and use that to oppose it'."
Membership of The Tax InstituteTony joined The Tax Institute in 1976, so he is one of our longest-serving members. He has also been a wonderful contributor, having provided more than 75 presentations, papers and articles for our events and publications.
I asked him how his membership had impacted his career.
“In the 1970s, being a member of the Institute was an enormous advantage,” he said, “because you went to conferences and got to meet a wide range of people. I felt that fell away in the 1990s, because professional bodies introduced mandatory continuing education and the big accounting and legal firms, as a matter of economy, started holding their own internal continuing education programs. They therefore stopped sending their intermediate and senior-level people to Institute conferences. As a result, those people stopped getting feedback from other people and became a bit insular.
“Eventually, the firms learnt that not participating in cross-firm and cross-discipline functions wasn't to their advantage. So my impression is that a higher proportion of Institute event attendees now come from the four major accounting firms and four major legal firms.”
I also asked Tony why and how his contribution to the Institute could be so substantial, especially in terms of the quantity and quality of technical papers delivered?
“First, for me, it was not such a big commitment,” he said. “I've always been able to write quickly. And I usually write about something I know about.
“Why do I do it? I suppose it was something instilled in me by mentors. My father taught me always to do things properly. Neville Challoner and Graham Hill, my professional mentors, were both writers. Neville wrote the text book on tax and revised it on a weekly basis. Graham always wanted to improve the law and get things right, rather than just win. So I picked up some of that. I like to contribute, to the extent you can as a barrister or writer, to getting things right.”
Advice for aspiring tax professionalsI asked Tony what advice he might have for a young, aspiring tax professional today?
“I'd say, first, do a good post-graduate course in tax,” he said. “This gives you the right grounding in the law. Then work for a good firm.
“In terms of dealing with specific tax questions that come up, try to avoid the biggest failing of tax advisers, which is starting with an idea about a legal point and then trying to make the case fit the idea.
“Instead, there are three things you should do as a tax professional:
- Read the statute. Then read it again, and identify the critical point in the statute for your case. It's all about the statute – there isn’t really a common law of tax, because there was no common law obligation to pay it – the obligation has always and only been statutory.
- Identify the right question. You need to identify the question that really matters. If you're an advocate, you hope to find a question you can win on and persuade the judge that that's the question he or she should answer. If you’re an adviser, you need to identify the question the judge, or the Tax Office, will regard as critical. Many cases and much advice goes astray because people ask the wrong question.
- Get the facts – the primary facts, the real facts. Don't choose the facts that fit your idea. Work out what the facts are and see if your idea fits the facts. This is the area that tax advisers (as opposed to tax litigators) most often fall down on.
* Noel Rowland is The Tax Institute’s Chief Executive Officer. An abridged version of this article first appeared in the July issue of the Institute’s Taxation in Australia journal.