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ATO provides certainty on Legal Professional Privilege claims

Last updated 21 June 2022

The Australian Taxation Office (ATO) has published its recommended approach to respond to formal notices requiring production of documents; specifically, for identifying communications covered by Legal Professional Privilege (LPP) and making LPP claims where the taxpayer does not wish to provide those communications to the ATO.

ATO Deputy Commissioner Rebecca Saint explained that the protocol had been developed to address ATO concerns where LPP claims were inappropriately asserted, either deliberately or through taking short cuts, with the result that key materials, facts, and evidence were inappropriately withheld from the ATO.

“The ATO wants all taxpayers to get high-quality professional advice and respects the right of taxpayers to keep their legal advice confidential if they so choose, but we also rely on ongoing engagement with taxpayers and the timely provision of information to establish the facts in our reviews and audits.

“This protocol will support the right of taxpayers to keep their legal advice confidential, while at the same time giving taxpayers a robust framework to enable the ATO to have confidence that all other relevant documents have been provided.

“Reckless LPP claims over non-privileged documents unduly hinder ATO investigations and lead to extended disputes about information gathering, instead of focussing on the resolution of the substantive issue.

These issues have largely arisen in relation to privilege claims made by large businesses that have received a formal notice as part of a dispute or audit activity. However, the vast bulk of our engagements with large businesses are done without recourse to formal information gathering powers.

“The ATO can compel the production of information and documents as part of our investigations. However, we cannot compel the production of information or documents where the underlying communication is privileged. The courts have supported the ATO’s view that we can request details of LPP claims. Whilst we respect and accept appropriate claims, we require sufficient information to be able to decide whether to accept, review, or challenge a claim of LPP,” Ms Saint said.

“Failure to take reasonable care when making LPP claims in response to a formal notice may result in non-compliance with the notice. There can be serious implications for non-compliance with formal information gathering notices, including prosecution. The protocol will help taxpayers and advisors have confidence about their LPP claims and ensure that they are meeting their legal obligations under the notice.”

“Adoption of this voluntary protocol will see a more efficient resolution of LPP claims for taxpayers and the ATO. Businesses that choose not to follow the protocol and do not provide sufficient information to support their LPP claim, can anticipate further enquiries from the ATO.”

The ATO continues to encourage taxpayers to obtain professional tax advice, including high quality legal advice, and the protocol restates the ATO’s continued strong support of LPP. However, it also clarifies that the ATO cannot and will not simply accept blanket claims for privilege or claims that do not provide sufficient underlying contextual information to allow the ATO to make a decision on what to do with a claim.

The protocol covers all LPP claims made by legal or non-legal practitioners regardless of the firm or business structure.

The ATO has undertaken extensive consultation following the publication of the draft protocol in September 2021. Key stakeholders included the Law Council of Australia, large law firms, Big 4 accounting firms, relevant government agencies, and members of the National Tax Liaison Group and the Large Business Stewardship Group. All of this feedback has been carefully considered, and much is reflected in the updated final protocol. In addition to the protocol, the ATO is also publishing a detailed compendium which sets out the key feedback obtained during the consultation process, and the ATO’s response to the feedback.

Australia continues to have one of the strongest corporate tax systems in the world. Our most recent estimate (for 2018–19) is that large corporates paid about 92% of their income tax at lodgment or with little intervention from the ATO. After ATO compliance action, this performance increases to an estimated 96%.

The publications are available on the ATO website: