he ATO’s powers of access are limited by the common law doctrine of legal professional privilege (LPP). In general, LPP applies to protect communications made between a legal adviser and his/her client for the dominant purpose of giving or receiving legal advice, or for use in existing or anticipated litigation.
It generally does not apply to communications between accountants and their clients, but the ATO has put in place the “accountants’ concession”, which is an administrative concession in respect of certain types of “documents” that exist due to the relationship between an accountant (or other non-legal professional) and their client. As a general rule, the ATO abides by those administrative rules.
However, the accountants’ concession is not legally binding. The privilege belongs to the client and not to the legal adviser and can only be waived by the client.
Further, it is the communication contained in the document that attracts the privilege, not the document itself. LPP relates to two types of privilege enabling the holder of the privilege to refuse to provide certain communications where they would otherwise be required to do so. The two types of privilege are legal advice privilege and litigation privilege.
For any document or record, if there is any doubt about the existence of LPP in respect of the communication contained in the document or record, the privilege should be claimed and the document withheld from the ATO. In this way it is up to the ATO to test the claim in the courts.
It is important the claim is not arbitrarily applied and legal advice should be obtained where the taxpayer considers they may assert the privilege.
Documents that would be likely to be subject to LPP include (but are not limited to):
solicitors’ advicelegal counsel opinionletters between a solicitor and clientsolicitors’ notes of a conference with a client, anddetailed bill of costs if it discloses the nature of the advice sought or given.
Legal professional privilege also extends to the ATO. For example, communications between the ATO and Australian Government Solicitor and documents held by the Australian Federal Police concerning the investigation of alleged tax offences have been held to be subject to LPP.
The ATO has issued the following guidelines (in agreement with the Law Council of Australia):
as a general rule the ATO will give adequate notice of an intention to inspect documentsATO officer(s) will not inspect documents until a legal adviser has had an opportunity to claim LPP on behalf of the clienta list of documents on which LPP is claimed but not conceded should be prepared and endorsed by the legal adviser and the ATO officer, andthe disputed documents are to be placed in a sealed envelope and kept in a secure place until the claim is waived or decided by a court.
See also the ATO publication Our approach to information gathering.
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