Parliament has granted the Commissioner significant powers to gather information and evidence for the purposes of the various taxation laws which he has responsibility to administer.
Generally, the most relevant such powers are contained in sch 1 to the Taxation Administration Act 1953, which allow the Commissioner to do the following for ‘the purposes of a taxation law’:
- s 353-10 ‘Notice power’ in 3 parts (information or evidence may be required to be provided under oath and/or orally or in writing):
a) to give information
b) to attend and give evidence, or
c) to produce documents
- s.353-15 ‘Physical access power’ in 4 parts (occupier required to give ‘reasonable facilities and assistance’):
a) may enter and remain on any land, premises or place
b) full and free access to documents, goods or other property
c) may inspect, examine, make copies of, or take extracts from, any documents, and
d) may inspect, examine, count, measure, weigh, gauge, test or analyse any goods or other property, etc.
For a useful discussion of what may constitute ‘reasonable assistance’, and when a person may have ‘custody or control’ and finding that limited lawful defences are available, see Australia and New Zealand Banking Group Limited v Konza  FCAFC 127.
Under either power, a person with knowledge, custody or control may be prosecuted for failing to comply with that power, see the ATO’s media release on the recent McDonald’s case on the notice power.
Critics say that these powers are quite sweeping and lack many of the procedural restrictions and controls that law enforcement agency search warrant powers most frequently feature.
Statutory context for these powers
In an important recent case on ATO information gathering, CUB Australia Holding Pty Ltd v FC of T (No 2) 2021 ATC ¶20-799;  FCAFC 171 (the CUB decision), Middleton, McKerracher and Griffiths JJ stated at 
Every statutory power, however widely expressed, is limited by the text, subject matter, scope and purpose of the statute. The purpose of the grant of a power or the purpose for which the power may be exercised and the outer limits of the exercise of the power are generally speaking, to be derived from the statute conferring it: Northern Land Council (at 233) and Haneef v Minister for Immigration and Citizenship  FCA 1273; (2007) 161 FCR 40 (at ).
Looking at the statutory context for giving the Commissioner such powers, the ATO needs to have sufficient information to properly assess taxpayers on the liabilities imposed by Parliament. This concept may be seen reflected in the framing of assessment provisions as follows.
In the statutory context of the Commissioner’s powers, the income tax assessment power under s 166 of ITAA 1936 refers to ‘any other information in the Commissioner’s possession’, which by necessary implication requires that the Commissioner have the ability to obtain such information – ‘for the purposes of a taxation law’, ie s 166 for income tax.
Similarly, in that statutory context, s167 of ITAA 1936 can also be seen as requiring such information to give the Commissioner that ‘reason to believe’ or to make the Commissioner ‘not satisfied with the return furnished’ in order to activate that ‘default assessment’ power ‘for the purposes of a taxation law’, ie s167.
What is covered by such a notice and how should it be interpreted?
In practice, it is important for advisors to carefully review such notices to ensure they are within power and that subject person has the required knowledge and/or custody or control of information or documents to be able to comply.
Cases like Fieldhouse v FC of T  FCA 397; (1989) 25 FCR 187 and FC of T v Australia and New Zealand Banking Group Ltd  HCA 67; (1979) 143 CLR 499 tell us that a notice has to be sufficiently clear about what is required to allow the recipient to comply.
However, it is worth noting that this should not involve too narrow an analysis seeking to find some ambiguity (see Hill J in Fieldhouse at 208).
While the term ‘relevance’ is not used in either of these provisions, the courts have been willing to imply a relevance test – see the access power case, JMA Accounting Pty Ltd & Anor v Carmody & Ors 2004 ATC 4916;  FCAFC 274.
However, it is also clear that the Commissioner can engage in a ‘fishing expedition’ to make enquiries without having to specify a particular taxpayer to use these powers – see FC of T & Ors v The Australian and New Zealand Banking Group Ltd. 79 ATC 4039 at 4058. Similarly, in Sharp v DFC of T 88 ATC 4259 while not expressing a final view, the court found that the Commissioner was not limited to the affairs of any named or identified persons.
Legal professional privilege – the friction point in the system
The rationale for legal professional privilege (LPP) was seminally described in Grant v Downs (1976) 135 CLR 674, per Stephen, Mason and Murphy JJ at 85 as being:
The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline.
The privilege is granted to ensure that the client can consult his lawyer with freedom and candour, it being thought that if the privilege did not exist “a man would not venture to consult any skilful person, or would only dare to tell his counsellor half his case”: Greenough v. Gaskell (1833) 1 My & K 98, at p 103  EngR 333; (39 ER 618, at p 621).
Perhaps inevitably, the use of the Commissioner’s access or notice power not infrequently collides with this doctrine of LPP. This has frequently required the Courts to balance the administrative efficiency for the ATO to make assessments of tax with the fundamental civil liberties underlying this privilege.
The effect of LPP in practice allows the non-disclosure of confidential communications between a client and lawyer, and it is up to the courts to adjudicate such disputes — see the CUB decision, per Middleton, McKerracher and Griffiths JJ, at 
The doctrine of LPP affords an immunity from providing certain documents or information concerning legal matters, the production of which might otherwise be compellable: Glencore International AG v Federal Commissioner of Taxation  HCA 26; (2019) 265 CLR 646 (at  and -). In the absence of a specific statutory regime, it is for a court of competent jurisdiction to determine the validity of disputed LPP claims: Commissioner of Australian Federal Police v Propend Finance Pty Ltd  HCA 3; (1997) 188 CLR 501 (at 590) and Fieldhouse v Commissioner of Taxation  FCA 397; (1989) 25 FCR 187 (at 202 and 217).
Similarly, in Binetter v DFC of T  FCA 704 at :
… it would be open to a taxpayer to maintain a refusal to produce the document or information, and then raise the privilege as a defence to any prosecution for failing or refusing to comply with the terms of the notice.
ATO pro forma templates
Over the years, the ATO has developed templates for claimants to articulate their privilege claims on a ‘voluntary’ basis. However, recently, the ATO appeared to have taken the step of issuing a second s 353-10 notice asking much the same questions as are contained in the ATO pro forma templates – see the CUB decision at 
The entire process of the exchanges between CUB and the Commissioner revealed commendable attempts by which the parties might have been able to resolve the question of privilege without a formal challenge in court.
Considering the challenge to that information gathering notice which essentially followed the terms of the template the Court said in the CUB decision at :
That the Notice was ultimately issued in the form it was is consistent only with fact that after considerable efforts, the parties could not agree as to the quantity of information that should be supplied by CUB.
The Court therefore went on to reject the argument put by CUB that the Commissioner was attempting to use that second notice to adjudicate the LPP claims, rather than exercising the notice power ‘for the purposes of a taxation law’, and allowed the notice to stand.
Risks of waiver
However, what about potential waiver of privilege through disclosing too much information in response to such a notice (or even ‘voluntarily’ through completing the requested pro forma template)?
In Mann v Carnell  HCA 66; 201 CLR 1; 168 ALR 86; 74 ALJR 378 at  it was said:
It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege
As Tamberlin J said in Nine Films and Television Pty Ltd v Ninox Television Ltd (2005) 65 IPR 422 at 447, at para , “questions of waiver are matters of fact and degree.”
As a result, many practitioners are of the view that there are real risks of unintentional waiver of the privilege when giving information about the relevant advice or communication.
These risks may manifest in negotiations to try to settle a dispute, in formulations like: ‘We rely on counsel’s advice in our position that …’, rather than ‘We have taken advice and independently formed the view that …’. The former refers to the content of that advice, while the second refers to having taken advice but formed that view. For a practical example of this risk, see Osland v Secretary to the Department of Justice  HCA 37.
However, in the context of the Commissioner’s access and information gathering powers, such risks may also arise through providing ‘too much’ information on the contents or nature of privileged communications. In other words, in attempting to articulate the defence of claimed privilege, a party might unintentionally waive the very privilege over the communications that they are trying to protect.
ATO LPP protocol
While it may seem a good idea for all parties to have some clarity about how LPP claims against the exercise of the Commissioner’s access and information gathering powers will be managed, there is a risk that the current expression of a preferred approach may try to mandate actions that would run contrary to the client maintaining the required confidentiality and [unintentionally] result in the client waiving their privilege.
The challenge is getting the right balance between asking for ‘just enough’ and ‘too much’ information. Several professional associations have raised concerns about how well the ‘voluntary’ provision of such information about the relevant communications over which privilege is being claimed. The following submissions are all important contributions to this debate:
- In its draft submission ATO Legal Professional Privilege Protocol - 19 November 2021, the Law Council of Australia raised concerns about the potential clash between ethical duties owed by lawyers to their clients, along with the risk of unintentional waiver of that privilege.
- The Tax Institute in Draft Legal Professional Privilege Protocol - 16 November 2021 commented that the system could potentially be damaged if taxpayers do not feel that they can freely communicate with their legal advisors, on the risks that ‘too much’ information might be requested and on the costs of complying with the proposed process.
- According to the Australian Financial Review article Lawyers accuse ATO of threats over privilege claims, the Law Institute of Victoria went a bit further, even suggesting that the protocol over-reached by appearing to induce lawyers to breach their ethical duties.
Overall, it seems that taxpayers, their advisors and the ATO are all going to see further developments as these principles are tested in practice in future litigation. Hopefully, the resulting case law will help to:
- protect the fundamentals of LPP
- provide an appropriate mechanism to determine such claims involving these ATO powers, and
- maintain an effective administration of the key elements of the tax system for both taxpayers and the ATO.
These are not new issues and the challenges are as real now as they were back in 2008 – see the Australian Law Reform Commission, Privilege in Perspective: Client legal privilege in federal investigations (ALRC Report 107, February 2008).
Finding the right balance may be difficult, but is essential for everyone in our tax and legal systems.
To find out more, join Bruce Collins from Tax Controversy Partners for a live webinar as he explores recent ATO access and information gathering power litigation matters. Wednesday 23 February 2022, 10.30am – 11.30am AEDT, 1.0 CPD. Click here for more info