• Guidelines to accessing professional accounting advisors' papers

    1. Introduction

    The Commissioner of Taxation is charged to administer Australia's taxation laws in a fair and impartial manner. Reflecting the wider public interest, Parliament has granted the Commissioner and his authorised officers powers to ensure that they are able to review documents and other information to ascertain a taxpayer's compliance with the tax laws.

    Subject to legal professional privilege, which is dealt with in other guidelines, the right of access to books, documents and other papers is limited only by the requirement that the power must be exercised in good faith and for the purposes of the taxation laws. Also, where the taxpayer and Australian Taxation Office (ATO) are engaged in litigation, limits applicable to the courts and the AAT procedures in relation to documents apply, also see Part 5.2.

    It is accepted that there is a class of documents which should, in all but exceptional circumstances, remain within the confidence of taxpayers and their professional accounting advisors. In respect of such documents the ATO acknowledges that taxpayers should be able to consult with their professional accounting advisors on a confidential basis in respect of their rights and obligations under taxation laws to enable full and frank discussion to take place and for advice to be communicated on that basis.

    These guidelines describe how that acknowledgement applies in practice. They are an administrative concession and will be adhered to by ATO officers provided that taxpayers and their professional accounting advisors use these guidelines in the spirit in which they were formulated.

    The restrictions contained in these guidelines do not apply to the extent that a taxpayer decides to make available to the ATO any documents covered by these guidelines.

    These guidelines apply only to documents prepared by external professional accounting advisors who are independent of the taxpayer.

    These guidelines apply to requests for access to documents that are made in the course of all ATO income tax audits. They are equally applicable to any access request made for any other purposes of the Income Tax Assessment Act (ITAA) or any other Act administered by the Commissioner.

    In addition, the guidelines are to be used as a guide in determining the appropriate circumstances for requesting external professional accounting advisors to furnish information or produce their papers etc. in accordance with section 264 of the ITAA or its equivalents.

    The guidelines have been compiled in consultation with members of the Commissioner's Taxation Liaison Group which includes, inter alia, the Australian Society of Certified Practising Accountants, the Institute of Chartered Accountants in Australia, the National Institute of Accountants and the Taxation Institute of Australia. ATO officers will follow these guidelines in dealing with access to papers prepared by professional accounting advisors. For their part, the professional bodies will encourage their members and clients to positively assist in meeting requests, made in accordance with these guidelines, from ATO officers.

    All of the professional bodies involved in the compilation of these guidelines have indicated their willingness to discuss with their respective members, on an individual basis, any specific points of disagreement that they may have with the ATO in the interpretation of these guidelines. In circumstances where there is disagreement, the ATO encourages taxpayers and their professional advisors to approach the relevant professional body (of which the advisor is a member) to seek clarification on interpretation of the guidelines.

    2. Types of documents

    2.1 Source documents

    In order for the Commissioner to carry out his responsibilities under the tax laws it is essential for ATO officers to have full and free access to all documents which record a transaction or arrangement entered into by a taxpayer. These documents, which are referred to in these guidelines as 'source documents', include papers prepared in connection with the conception, implementation and formal recording of a transaction or arrangement and which explain the setting, context and purpose of the transaction or arrangement. These documents are source documents because, in effect, they explain the basis and form part of the fabric of the transaction or arrangement.

    Documents and papers of this nature can be an integral part of the process leading up to a transaction or an arrangement or to the recording of a transaction or an arrangement in the formal books of account or the tax return.

    Traditional accounting records such as ledgers, journals, working papers for financial statements (including consolidated financial statements), profit and loss accounts, balance sheets are obvious source documents. However, books of account and working papers in themselves may not necessarily give a clear picture of the tax consequences of a transaction or arrangement. For example not all papers prepared in connection with the conception, implementation and the completion of the transaction, including matters leading up to the recording of the transaction or arrangement will be represented in the formal accounting records. In addition some provisions of taxation law require ATO officers to examine the purpose of a transaction, in which event the rationale for entering into a transaction may be relevant.

    Documents comprising the permanent audit file held by an professional accounting advisor performing a statutory audit are source documents, as they either explain or lead to an understanding of the taxpayer's organisation and operations. However, in the first instance, such information will be sought from the taxpayer. Where such information is sought from a professional accounting advisor, the advisor may ask for the request to be in writing. The permanent audit file contains papers of a continuing interest to an independent auditor over many years of audit of the same client. Documents expected to be found within this file include:

    • those outlining an organisation's history
    • those outlining an organisation's structure
    • those outlining an organisation's chain of command
    • a company's memorandum and articles
    • the chart of accounts, and
    • copies of an organisation's continuing contracts (eg leases).

    Tax working papers are also considered to be source documents because they are used in assembling and compiling information preparatory to the completion of tax returns. These papers may include those compiled in preparing trial balances and reconciliation statements. As these papers serve to reconcile the information in the taxation return with the taxpayer's records, they are, in essence, an extension of the taxpayer's own records. Any files or collection of documents which have been created and maintained for the purposes of satisfying any record retention requirements of the self-assessment system are considered to be tax working papers.

    2.2 Restricted source documents

    Advisings and advice papers prepared by an external professional accounting advisor solely for the purpose of advising a client on matters associated with taxation would fall within the key concept contained in part 2.1 above where they are prepared in connection with the conception, implementation and completion of the transaction or arrangement. For example, advice given to a taxpayer on how to structure or record a transaction or arrangement, and which is acted upon, forms an integral part of what has actually occurred.

    Thus, advice papers created prior to or contemporaneously with a relevant transaction or arrangement, because they shed light on the transaction or arrangement, may themselves represent a record of what has actually occurred. However, such advisings are likely to canvass the issues in circumstances in which a need for candour is a necessary element. Access to such documents will only be sought in exceptional circumstances. These documents are referred to in these guidelines as restricted source documents.

    2.3 Non-source documents

    Other advice and advice papers are referred to in these guidelines as non-source documents. For example, these may include advisings provided after a transaction has been completed where the advisings did not affect the recording of the transaction or arrangement in the books of account or tax return. Advice papers (that would otherwise be restricted source documents) which relate solely to transactions or arrangements which the taxpayer has not, and does not intend to, put into effect are non-source documents. Provided they do not materially contribute to an understanding of the tax strategy or the specific courses of action actually implemented by the taxpayer.

    Non-source documents also include papers contained in the current audit file prepared or obtained by an external professional accounting advisor in the course of an audit (under any statutory code or stock exchange listing requirement), in the course of a prudential tax audit, or in the course of a due diligence report. Papers contained in the current audit file are those documents, etc. not properly forming part of the permanent audit file. Typical of these papers are the engagement letter, the audit plan, letters of confirmation, test details, analyses, working schedules and commentaries. These working papers are an important part of the professional accounting advisor's evidence of compliance with the audit standards (or other external reporting requirements) and of the decisions made throughout the audit. Similarly, tax working papers which in substance merely state a professional accounting advisor's opinion on the matters presented in a tax return are non-source documents.

    3. Access to documents

    3.1 Source documents

    ATO officers will seek full and free access to source documents, other than those referred to in these guidelines as restricted source documents, during the course of an audit of a taxpayer's taxation affairs.

    3.2 Restricted source and non-source documents

    Access to restricted source and non-source documents prepared by external professional accounting advisors, whether in the possession of taxpayers or their professional accounting advisors, will not be sought except in accordance with the following paragraphs. The opinions expressed by professional accounting advisors in such documents are considered to be within the class of documents referred to in part 1 above.

    Where access to documents is sought, a mutually agreed time will be allowed to enable the taxpayer and professional accounting advisor to consult and ascertain whether the taxpayer wishes to claim client confidentiality in relation to those documents. The professional accounting advisor and/or client will be allowed a mutually agreed time to obtain legal advice in relation to those documents. In the circumstances where the ATO officer has attended upon the professional accounting advisor or taxpayer in person, the ATO officer may wish to remain on the premises while the consultation takes place, at the same time respecting the privacy of the consultations.

    Where a request for files or groups of documents is made by ATO officers and the taxpayer and/or the advisor consider that the documents, or some of the documents, are properly categorised as restricted source and/or non-source documents, the taxpayer or the advisor shall provide a list of the documents in question. The list will contain the following details:

    (i) the nature of the document(s), eg letter, opinion, statement of account, advice file note or other form of document, in relation to, for instance: a takeover, lease, financial arrangement, etc. The more specific a description of the nature of the document is, the better placed the ATO officer will be to determine whether or not to concede the claim

    (ii) the exact number of documents and pages contained in that document withheld

    (iii) the date each document was prepared or executed, if not available this should be indicated

    (iv) the identity of the person who prepared and/or signed each document, to whom directed and all entities party to the transaction/advice, if known

    (v) a physical description of each document, eg typed or handwritten

    (vi) whether the document is an original, a photocopy, facsimile or a carbon copy, and

    (vii) the reason why a document is categorised as restricted source and/or non-source document, in respect of each document.

    However, the details provided pursuant to paragraph (i) to (vii) above should not result in the disclosure of restricted source and/or non-source information. The document should also be designated by number or letter on the document to enable accurate identification. The disclosure of the above information in no way waives the restricted source and/or non-source claim. While it will not always be necessary to do so, section 264 may be used at any time during an audit to obtain such a list.

    Requests for documents by ATO officers will usually be made on the basis of 'files' or some other description for a group of documents. Any claims for classification of entire groups of documents as restricted source or non-source documents will not be accepted. Categorisation must be substantiated on a document by document basis. It is the responsibility of the professional accounting advisor and/or the taxpayer to identify any individual documents which are claimed to be in the restricted source or non-source categories.

    4. Records disclosed to third parties

    These guidelines recognise that documents prepared by professional accounting advisors may maintain their confidential status when disclosed to independent third parties. Where such documents are disclosed to third parties they will maintain their confidential status (as between the taxpayer and professional accounting advisors) for the purposes of these guidelines only in circumstances where both parties agreed to the disclosure to specific nominated independent third parties. Where documents are disclosed to independent third parties, other than on an agreed confidential basis as between the taxpayer and the professional accounting advisors, then such documents are considered to be source documents for the purposes of these guidelines. The reason being that the confidential nature of such documents has been lost.

    5. Approval required

    Access to restricted source and non-source documents may only be sought in exceptional circumstances with the (personal) written approval of a Deputy Commissioner or another appropriate ATO SES officer.1 In these circumstances, ATO officers will specify, to the extent practicable, the relevant documents applicable to the issue under review.

    In a litigated case before the courts and the AAT, the ATO recognises the rights of the courts or the AAT to inform themselves about the issues in dispute. However, the ATO will not seek to inspect or obtain documents listed in litigation procedures except with the (personal) written approval of a Deputy Commissioner or another appropriate ATO SES officer. If written approval was given to access restricted source and non-source documents during an audit then further approval at the litigation stage is not required. There could be instances where the rules of evidence will mean that alternative avenues of demonstrating to the court known facts relating to a contested assessment are unavailable to the ATO in arguing its case. In such an event, the ATO will not preclude itself from seeking the use of restricted source and non-source documents that would otherwise not be obtained.

    6. Insufficient information

    In the first instance and subject to these guidelines, all reasonable effort will be made to obtain sufficient information from the taxpayer. Where source documents do not provide sufficient factual information the ATO officer may request a statement by the taxpayer of both the facts and the taxpayer's understanding of the tax consequences of any transaction or arrangement. The taxpayer may ask for this request to be made in writing. If such a statement is not provided by the taxpayer within 30 days of the receipt of the request or within such period as is agreed between the taxpayer and the ATO officer (each using their best endeavours to agree to such a period) or if the statement does not contain such information as to enable the ATO officer to ascertain the facts, circumstances and purpose, then the ATO officer may seek access in accordance with these guidelines. In relation to non-source documents access in those circumstances to relevant papers in the current audit file will only be sought where access to restricted source documents does not provide the necessary information.

    ATO officers shall seek the approval of a Deputy Commissioner or another appropriate ATO SES officer (in person) for access to restricted source and non-source documents without following the procedures outlined above in the following circumstances:

    (i) Where there are reasonable grounds to believe that fraud or evasion, or an offence under the Taxation Administration Act, or any other illegal activity has taken place.

    (ii) Where the taxpayer's source documents have been lost or destroyed and the ATO officers are not able to obtain from the taxpayer or the taxpayer's professional accounting advisors sufficient information to describe, verify or determine the tax consequences of a transaction or arrangement, then access will be sought to the restricted source documents and non-source documents relevant to that transaction or arrangement. Where such information is sought the professional accounting advisor may ask for the request to be in writing. Likewise, where the source documents appear on reasonable grounds to have omissions or other material deficiencies, and an explanation or a statement of the facts and tax consequences provided by the taxpayer does not adequately explain the transaction or arrangement, then access will be sought to relevant restricted source documents and non-source documents.

    (iii) Where, subject to part 3.1, the taxpayer or the taxpayer's professional accounting advisors refuse to provide, or have not within 30 days provided (from the receipt of the request), source documents, and other parties' available source documents are insufficient for the ATO officer to ascertain the facts and purpose of, and such of the surrounding circumstances as are necessary to determine the tax consequences of, the transaction or arrangement, then access to restricted source documents and non-source documents may be sought.

    (iv) Where neither the taxpayer's records nor the taxpayer can be located, then access may be sought to restricted source documents and non-source documents.

    (v) Where some or all of the records of a taxpayer are maintained overseas, and the taxpayer denies access to, or claims an inability to obtain those records or documents, ATO officers will first seek a statement from the taxpayer of both the facts and of the taxpayer's understanding of the tax consequences of any transaction or arrangement. If such a statement is not provided or does not enable ATO officers to ascertain the facts and purpose of, and such of the surrounding circumstances as are necessary to determine the tax consequences of, the transaction or arrangement, then the ATO officers will seek access to restricted source documents and non-source documents appropriate to the transaction or arrangement.

    7. Papers prepared for the purpose of appeal to the AAT or courts

    ATO officers will not seek access to any papers prepared by professional accounting advisors solely for the purpose of representing a taxpayer in legal proceedings (including an objection, appeal or review) under a taxation law.

    8. Procedures for resolving disagreements

    Where the ATO officer and the professional accounting advisor and/or taxpayer are not in agreement that access to particular documents may be sought, those documents are to be placed in envelopes and sealed to the satisfaction of both the ATO officer and the professional accounting advisor and/or taxpayer. If those documents are at the time on the taxpayer's premises, then, as a next step and in the company of the ATO officer, the envelopes are to be lodged with the taxpayer's professional accounting advisor.

    All documents in respect of which a claim has been made should be placed by the professional accounting advisor and/or his/her staff, in the presence of the ATO officer, in envelopes/containers which should be sealed and placed in a secure place on the professional accounting advisor's premises (eg such as a locked filing cabinet or safe). The accountant should be permitted to take copies of any of the documents before they are placed in the envelopes/containers (copies should be made by the professional accounting advisor if he/she will need to show the documents to the client or to enable him/her to carry out his/her duties to the client or to seek advice). The sealed envelopes/containers will not be opened unless in the presence of the ATO officer or subject to the agreement of the ATO. However, the ATO officer shall not be entitled to inspect these documents. Copies taken of the documents will be covered by the claim.

    The professional accounting advisor is to give an undertaking that the secured papers are not to be removed from the professional accounting advisor's office within a period of 30 days, otherwise than with the agreement of the ATO officer, pending a decision by the relevant Deputy Commissioner on whether access should be sought to all or some of those documents. The professional accounting advisor and/or taxpayer is to provide a list identifying each of the documents in question.

    The basis upon which, approval by a relevant Deputy Commissioner to seek access to restricted source and/or non-source documents is to be given, and the basis for determining whether a document is a source document or a restricted source document or non-source document is to be in accordance with these guidelines.

    9. Review

    It is intended that these guidelines will be monitored and reviewed from time to time, to ensure the required outcomes are being attained.

    1 For the purposes of these guidelines another appropriate SES officer is an SES officer who does not have leadership responsibility for the audit team and who has not been involved in any matter in relation to the audit.

      Last modified: 30 Jun 2010QC 17796