Bruce Prescott, Partner
Background
Under current law, there are restrictions on how information gathered about you by the Australian Tax Office (ATO) may be used. The Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2009 currently before parliament weakens the protection offered by these strict confidentiality provisions.
If the Bill becomes law, the ATO will be able to share information about taxpayers with government agencies. Currently the ATO can only provide ASIC, for example, with information about a 'serious offence'. Under the Bill, this limitation will be weakened to include a wider range of less serious offences.
For the first time, the ATO may be able to provide information about you or your business to Fair Work Australia to target compliance with the Fair Work Act. If this Bill is passed, the ATO's powers to collect information may become a 'back door' for other government agencies to collect information about you or your business.
This is particularly the case given a recent report by the Commonwealth Ombudsman, which gives the ATO the green light to use 'access without notice' powers to collect information from a particular taxpayer.
Taxation law says that the ATO has the right of full and free access to all buildings, places, books, documents and other papers for the purposes of enforcing the tax Acts. There are few legislative restrictions on this power, and the ATO does not need to believe, for example, that tax fraud or evasion has been committed by a taxpayer before these powers can be used. Additionally, the ATO does not need a search warrant to use these access powers.
This unrestricted right of access effectively means that taxpayers have very limited legal remedies to stop the ATO accessing their information.
Protecting your rights
When dealing with their tax affairs generally, taxpayers need to be mindful of how the ATO uses its powers. In our experience, the ATO uses all means available to it to collect information on taxpayers.
Consider the following example:
In 2008, the ATO used data purchased from the German tax authorities to identify Australians who had money in European banks. This data was originally stolen by a European bank employee who sold it to the German Bundesnachrichtendienst (federal intelligence agency) for ?4 million.
In February 2010, the German authorities announced that they will again purchase stolen bank data - this time concerning bank accounts in Switzerland. Given that the ATO has used stolen European financial information in the past, it is expected they will try to use the Swiss data to identify Australians who hold money in Switzerland.
It is not illegal in itself for Australians to hold money or assets overseas, but failure to disclose income derived from those assets may result in criminal prosecution.
Further, the enormous amount of information the ATO holds, stolen or otherwise, will inevitably mean that people will be caught out, whether they have been involved in tax evasion or not.
If taxpayers receive correspondence from the ATO saying that they have been identified as holding money overseas (sometimes known as an 'AUSTRAC' letter), or they have other concerns about the ATO's approach to offshore transactions, they should seek advice from lawyers experienced in this area.
ATO visits
Taxpayers also need to be aware of a separate set of issues if they have their premises visited by ATO officers.
Although it may be an offence for taxpayers to impede ATO officers from exercising their powers, taxpayers and their advisers should ensure, for example, that the information taken is reasonably targeted. When the ATO's powers are used, most taxpayers are taken by surprise and cooperate with the ATO. They are not aware of any rights they may have in dealing with the ATO.
As a result, taxpayers may give the ATO more information than required. This often happens when taxpayers want to discuss things that are not strictly the subject of the ATO enquiry, or they inadvertently waive legal professional privilege over documents that the ATO is not entitled to take.
There is nothing to stop the ATO using information gathered in the audit of one taxpayer against another taxpayer not the subject of the audit. Seemingly harmless information volunteered to the ATO about one entity could be damaging to someone else.
Regardless of whether the Bill is passed or not, taxpayers should carefully manage their dealings with the ATO.
For more information about dealing with the ATO, please contact HopgoodGanim's Taxation and Revenue team.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.