What powers does the taxman have to access your information?

Friday, Feb 13, 2015

When it comes to collecting tax money owing, the Tax Office has considerable legal powers at its disposal.

This isn’t all that surprising, given that government coffers would be empty were it not for the activities of its principal revenue collection agency. But just how far can the Tax Office go in its efforts to extract taxpayer payment obligations?

The laws that govern the regulatory activities that the Tax Office administers give it quite wide-ranging powers to obtain information, and in the situations where it deems it necessary to use those powers it is certainly not shy about doing so.

Although the Tax Office says it generally prefers to gather information by simply requesting it, from yourself or through your tax professional, there are times when this “cooperative approach” is deemed to be inadequate in the eyes of the Tax Commissioner. In these instances, the use of its “formal powers” can come into play.

Formal powers So what are these formal powers, and how are they utilised? The Tax Office says these fall into the two broad categories – “notice” powers (including notices to attend an interview) and “access” powers.

(i) Notice powers Written into the notice guidelines is that taxpayers must be given a reasonable time to comply with a notice asking for information or documents, or for you to attend an interview. This is usually 28 days, although there is room you, or your representive, to negotiate a shorter or longer time period.

(ii) Access powers The Tax Office’s access powers allows its tax officers to gain access to your premises and documents. Although the Tax Office’s own guidelines states that it will only exercise its rights of access for the purposes of the laws it administers, the legislation that endows it with these rights gives little wriggle room about its intention. The law states that the Tax Commissioner, or any of the Commissioner’s authorised officers, “shall at all times have full and free access to all buildings, places, books, documents and other papers for any purposes of this act” (our emphasis).

The law also gives the Tax Office free rein to take extracts from or copies of such documents, books or papers. Under the indirect tax and excise laws, this also extends to goods and includes the capacity to take samples.

It will generally give prior notice before exercising an access power, but says that in exceptional circumstances it may not give notice beforehand – “for example, if we believe that documents we need may be destroyed”.

One concerning aspect of the Tax Office’s access powers is that in most cases it does not necessarily have to inform taxpayers of this access. “If we ask third parties about you, we will normally tell you about this before we make the inquiry,” its guideline document says, however then goes on to concede that there are some situations where a taxpayer would not normally be told. These include but are not limited to:

  • where it collects information relating to a large number of taxpayers in similar circumstances, such as from a financial institution, investment manager or employer
  • where it uses the information to help decide which individuals or businesses to audit
  • where it makes inquiries under an international tax treaty
  • transfer pricing audits
  • where it collects information relating to inquiries, reviews or investigations under the promoter penalty laws
  • where it decides access without notice is appropriate, or
  • where it has asked you for the information but this has not been provided.

It is also the case, even though you have taken the sensible step of having your tax affairs handled through a tax agent or accountant, that the Tax Commissioner can request information from absolutely anyone — although some prior warning is required.

The legislation states: “The Commissioner may by notice in writing require any person, whether a taxpayer or not … (to furnish) such information as the Commissioner may require; and to attend and give evidence … (concerning) the person’s or any other person’s income or assessment”.

Certain documents or communications are protected In some situations, you may be able to claim that your documents are “protected” from Tax Office access.

Although the Tax Office has wide powers to access most documents, there is specific common law that protects certain communications made as part of the confidential relationship between certain professionals and their clients.  For example, communications between lawyers and their clients may be claimed as having “legal professional privilege”.

The accountant’s concession Although this privilege does not generally extend to the confidential relationship between accountants and clients, the Tax Office has conceded that there should be an exemption from its access and information gathering powers for certain documents prepared by “external, professional accounting advisers”.

For the purposes of the “accountants’ concession” as it is known, documents have been classified by the Tax Office into three categories:

  • source documents (records of transactions)
  • restricted source documents (advice documents shedding light on transactions), and
  • non-source documents.

Generally, the accountants’ concession applies only to restricted source and non-source documents. However, the Tax Office’s guidelines to accessing professional accounting advisers' papers provide that in exceptional circumstances the case officer may seek written approval from a relevant senior officer to access such documents. Exceptional circumstances include:

  • where the facts remain unclear
  • if there is a suspicion of avoidance or evasion, or
  • there is risk of document destruction or removal.

Claiming protection under such professional privilege is never easy however.

Contact our office on (08) 8384 4400 for guidance should the Tax Office come knocking.