The extension of legal privilege to tax agents is an important development and represents a significant potential change for Australian tax professionals. The public should have the same legal protection whether they seek advice from a lawyer or a tax agent.
Tax agents are legally able to provide advice on tax laws and it would be inconsistent and bad public policy if only advice on tax laws provided by lawyers is protected from disclosure, especially when the bulk of tax advice is provided by tax agents.The introduction of the Tax Agent Services regime in March 2010 provides the necessary governance framework to underpin legal privilege being granted to tax practitioners. The need for legal privilege stems from the principle that clients should be able to discuss legal issues without having to worry that those discussions will later become public.
What is legal privilege?
The Commissioner of Taxation, together with other statutory bodies, has wide-ranging statutory powers to gain access to the information of taxpayers. Legal privilege represents the ability to shield certain tax advice documents from the information-gathering powers of the Commissioner. The ALRC report recommended establishing tax advice privilege to protect tax advice given by independent professional accounting advisers against these powers, which are also subject to common law.
Legal professional privilege protects from disclosure a person’s confidential communications with their lawyers as well as communications between their lawyers and third parties for the purposes of obtaining legal advice. Consequently, legal professional privilege may protect the confidentiality of tax advice given by lawyers, and prevent its disclosure in a variety of processes, such as investigations by agencies and in preliminary court procedures (for example, discovery of documents). This privilege does not apply in relation to an individual’s communications with non-lawyer tax advisers, such as tax agents, and any communications made for the purpose of giving tax advice by non-lawyers does not enjoy any specific protection under common law. However, in practice the Australian Taxation Office’s administrative arrangements provide significant protection for advice given by tax agents.
The accountants’ concession
While there is no statutory protection that is specific to tax advice given by non-lawyers, the ATO has an administrative practice of allowing a range of documents to remain confidential. This arrangement, referred to as the “accountants’ concession”, has been in place since 1989. Details of the arrangement are contained in the ATO’s Access and Information Gathering Manual and in the Commissioner’s guidelines on gaining access to such documents. These guidelines are also referred to in the ATO’s taxpayers’ charter.
The policy recognises that taxpayers should be able to comprehensively consult with professional accounting advisers and have full and frank discussions about their rights and obligations under tax laws. With regard to its access to a professional adviser’s papers, the ATO acknowledges that there is a class of documents which should generally remain within the confidence of taxpayers and their advisers. If the concession is applied for, the ATO undertakes that it will not use its compulsory power to obtain this class of documents unless special circumstances are encountered.Notwithstanding these provisos, the accountants’ concession is an administrative arrangement not enshrined in law and is subject to the ATO’s discretion. Practitioners do not have same degree of certainty as that enjoyed by lawyers. These types of administrative concessions are problematic and create unnecessary uncertainty. Public perceptions are also relevant. If there is a perception that one class of professional receives preferential treatment then this creates an uneven playing field.
The Institute’s position
The IPA supports the extension of legal privilege to tax advice provided by professional tax advisers. The formalisation and extension of the ATO’s existing accountants’ concession into tax advice legal privilege is long overdue.
We believe there should be competitive neutrality between lawyers and tax accountants. There is already overseas precedent for extending legal privilege to accountants – the US, UK and New Zealand have already extended privilege to accountants. Australia’s situation is out of step with international jurisdictions.
The accounting professional bodies have been advocating for legal privilege to be extended to non-lawyers for some time. Tax practitioners provide advice on tax law and therefore consumers should have access to the same legal protection and safeguards regardless of whether they seek tax advice from a lawyer or a tax agent.
Legal privilege is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that these may afterwards be disclosed and used to his or her detriment. The same position should apply to the provision of tax advice.
The system should encourage people to seek independent, objective advice and such advice should be protected.
Public interest would be better served if full and frank disclosure can happen without fear that documents could be subject to ATO’s investigatory powers. The fact that the ATO has established a concession for accountants acknowledges that some form of protection is warranted. However, the ability of a revenue authority to apply discretion that seeks to limit its own information-gathering powers does not represent the ideal policy position.
Shortcomings of the concession
While the accountants’ concession provides some protection for advice given by tax agents it has several shortcomings:
- It has a ‘sole purpose’ rather than a dominant-purpose test.
- It is restricted to advice itself and not the material provided by the client to seek advice.
- The client must apply to use the concession.
- Subject to exceptional circumstances, the ATO can disregard the concession if circumstances warrant it.
- There is no common-law right as it is only an administrative practice granted by the ATO.
Compared to the legal professional privilege extended to lawyers, the accountants’ concession is inferior. Legal professional privilege provides the following benefits:
- It protects the advice and the underlying documents.
- Advice needs only to satisfy a dominant-purpose test.
- It is a common-law right rather than an administrative privilege.
- It is not subject to the ATO having the ability to withdraw the privilege if exceptional circumstances prevail.
A sensible move
The proposed policy framework advocated by the ALRC represents a sensible and realistic platform to progress the accountants’ concession into a statutory tax advice legal privilege. The IPA is supportive of this move, which represents a significant potential change for Australia’s tax professionals.
Our preferred option is to extend tax advice privilege to members of professional accounting bodies who are also registered tax agents.
Members of accounting bodies operate in a co-regulatory framework and are subject to additional layers of regulatory compliance over and above those applying to registered tax agents.
In the Assistant Treasurer’s foreword to the discussion paper, he indicates that the Government acknowledges the high ethical standards of the accounting profession. In addition to professional codes of conduct, members of the professional accounting bodies are qualified accountants who have undertaken further studies and hold a practising certificate that is subject to regular quality reviews by the member’s respective accounting body.
Our default position on the proposed policy change is for all registered tax agents to have access to a form of tax advice legal privilege similar to the way legal advice is privileged.
The introduction of the Tax Agent Services regime has provided a sufficiently robust regulatory framework that oversees the quality of tax advice provided to consumers. The extension of tax advice legal privilege is a natural development for Australia’s tax professionals. Let’s hope the Government makes tax legal privilege a reality.
