Tax audits and investigations undertaken by ATO officers involve the exercise of sometimes very extensive and wide ranging powers such as those under Income Tax Assessment Act 1936 (ITAA) section 263 (allowing officers full and free access to all buildings, places, books, documents and other papers, and to copy any such books, documents or papers) and section 264 (requiring the taxpayer to furnish officers with information sought).

The Commissioner of Taxation (Commissioner) has acceded to certain limitations being imposed upon the ATO’s ability to access taxpayers’ records and to obtain information from the taxpayer and its accountant.

The ATO has published Guidelines to Accessing Professional Accounting Advisors Papers (Guidelines) as part of its Access and Information Gathering Manual (Manual). These may be accessed on the ATO website at

Under the Guidelines the ATO acknowledges that, in their tax affairs and structuring of business dealings, taxpayers should be able to consult with external accounting advisors on a confidential basis. This is necessary in order to allow for the taxpayer and accountant to be able to openly exchange information and for the accountant to be free to advise regarding the taxpayer’s rights and obligations.

According to the Guidelines, this “accountants’ concession” (Concession), will be adhered to by the ATO provided that taxpayers and their professional accounting advisors take advantage of the opportunity of its limited protection from disclosure to canvass the taxpayer’s tax affairs for legitimate purposes only.

Comparison of the concession with legal professional privilege

The Concession is by no means equivalent to a validly claimed legal professional privilege, which operates to protect documents from disclosure under the Commissioner’s statutory powers.

The taxpayer may object to access being given on the grounds of legal professional privilege. This will attach to -

  1. confidential communications passing between a client and the client’s legal adviser for the dominant purpose of obtaining or giving legal advice (“legal advice privilege”); and
  2. confidential communications passing from the client, the client’s legal adviser and third parties for the dominant purpose of use in or in relation to litigation which is pending or in contemplation (“litigation privilege”).

Litigation privilege is only available where there is a clearly defined dispute and either proceedings are on foot or there is a reasonable probability of them being commenced.

For example, if in anticipation or during the course of litigation a taxpayer directs or authorises a third party, such as its accountant, to prepare and then make a documentary communication to the taxpayer’s solicitor for the dominant purpose of obtaining a legal advice, that communication by the accountant may attract legal professional privilege (legal advice privilege), protecting it from disclosure in the proceedings.

By contrast, the accountants’ concession is merely an administrative arrangement which may be departed from by the Commissioner and which, on the current state of the case law in this country, cannot ultimately bind or interfere with ATO access and information-gathering powers. In addition, it does not apply in circumstances where the taxpayer volunteers documents to the Commissioner which would otherwise be the subject of the concession. Like legal professional privilege, the concession may be the subject of waiver by the taxpayer.

Documents Falling Within the Concession

The Guidelines describe three “types” of documents –

Source Documents

These include papers prepared in connection with the conception, implementation and formal recording of a transaction or arrangement and which explain its setting, context and purpose. This category typically includes ledgers, journals and working papers for financial statements, profit and loss accounts, balance sheets and the like.

Such documents are outside the scope of the accountants’ concession and may be accessed by the Commissioner without following procedures that would otherwise apply to “restricted source” and “nonsource” documents, which are covered by the concession.

Restricted Source Documents

This category involves advisings and advice papers prepared by the taxpayer’s external professional accounting advisor - other than advice solely generated for the purpose of advising the taxpayer on matters associated with tax, and that are created prior to or contemporaneously with the transaction or arrangement under consideration by the ATO.

Provided that the particular information is not prepared in connection with the conception, implementation or completion of a transaction or arrangement under consideration, and does not form an integral part of what has actually occurred, it may fall within the concession.

To the extent that the contents of documents record, for example, advice on the structure, carrying out or recording of the transaction or arrangement they will be treated as disclosable.

While the Commissioner accepts the need for candour between the accountant and taxpayer, opinions expressed by the external accountant in such documents will be considered by the ATO to be similar to information in ‘source’ documents, and therefore accessible.

Non-Source Document

These are advisings and advice papers provided to the taxpayer after a transaction has been completed where the advice did not affect the recording of a transaction or arrangement in the books of account or tax returns. Advice papers relating solely to transactions or arrangements which the taxpayer has not, and does not intend to, put into effect are nonsource documents.

Such documents will fall within the concession provided that they do not materially contribute to an understanding of the tax strategy or the specific courses of action actually implemented by the taxpayer.

This category includes papers contained in the current audit file prepared or obtained by an external professional accounting advisor in the course of an audit (under any statutory code or Stock Exchange listing requirement), in the course of a potential tax audit, or in the course of a due diligence report.

As is the case with non-source documents, access to them will only be sought in ‘exceptional circumstances’.

ATO access to documents

  1. ATO officers will seek full and free access to source documents during the course of an audit of the taxpayer’s taxation affairs.
  2. Access to restricted source and non-source documents can only be sought by ATO officers in accordance with the procedures set out in paragraph 3.2 of the Guidelines.

In those cases, the taxpayer and its external accountant must be provided with an opportunity to consider any claim of client-confidentiality in relation particular documents and to obtain legal advice.

Where the taxpayer claims confidentiality in respect of any restricted source and/or non-source documents it shall provide a list of the documents in question, setting out the following details:

  1. nature of the document;
  2. exact number of documents and pages to be withheld;
  3. date of each document’s execution;
  4. identities of the person preparing and signing the document, to whom it is directed and all parties to the relevant transaction or advice;
  5. details of the physical appearance of each document (e.g. hand written note, typed letter, etc);
  6. whether the document is an original, copy, etc; and
  7. the reason why the document is categorised is ‘restricted source’ and/or ‘non-source’.

Disclosure of these details in no way waives the restricted source or non-source claim for confidentiality. Categorisation must be substantiated on a document-by-document basis.

“Exceptional circumstances” - when the concession may be lifted

The ATO’s stated position is that it prefers to negotiate an arrangement with taxpayers regarding disclosure of restricted source and non-source documents. Agreement will be sought to enable the taxpayer’s professional advisors to consult with ATO officers and consider, among other things, whether the taxpayer wishes to claim client confidentiality in relation to documents within those categories. Allowance will also be made, if called for, for the advisor to in turn obtain legal advice in relation to the documents sought.

In general, documents (other than source documents) prepared by external professional accounting advisor, whether in the possession of the taxpayer or the accounting advisor, will not be sought unless there are “exceptional circumstances”, including the following:

  • there are reasonable grounds to believe that a tax offence is being committed, or that fraud, evasion or any other illegal activities has taken place;
  • the taxpayer and the taxpayer’s records cannot be located;
  • the taxpayer or taxpayer’s accountant refuses to provide source documents and the Commissioner is unable to otherwise obtain sufficient information to determine the tax consequences of the transaction or arrangement in question;
  • the taxpayer’s source documents have been lost or destroyed, or appear on reasonable grounds to contain omissions or other material deficiencies and the ATO is unable to obtain sufficient information to determine the tax consequences of the transaction or arrangement in question;
  • some or all of the taxpayer’s records are maintained overseas and the taxpayer denies the ATO access to those records, or claims an inability to obtain them and the Commissioner is otherwise unable to determine the tax consequences of the transaction or arrangement in question;
  • the ATO is unable to ascertain from the documents that have been provided to it the facts necessary to determine the tax consequences or the transaction or arrangement in question, or within 30 days of the date of receipt of a request for same, has failed to do so;
  • the tax law requires determination of the purpose for which a transaction or an arrangement was entered into, but this cannot be ascertained by the ATO from documents and other information provided to it;
  • the ATO takes the view that anti-avoidance provisions apply to the transaction or arrangement in question.

In Summary

In practice, accountants usually intend on making full and proper disclosure to the Commissioner of all materials properly acquired in respect of a taxpayers affairs. There is much to be gained by taxpayers from the relationship that their accountants have established with the ATO.

The following points are clear from the Manual, Guidelines and the courts’ consideration of them in the context of applicable laws:

  1. The accountants’ concession applies only to documents prepared by external professional accounting advisors, not the taxpayer, its employees or in-house advisors;
  2. Query whether documents being sought by ATO officers fall within the description of source documents. Or are they restricted source or non-source documents, which can only be obtained in exceptional circumstances?
  3. What constitutes ‘exceptional circumstances’ will depend on the facts of each case, but will generally arise where officers are unable to ascertain from documents available the facts necessary to determine the taxation consequences of a taxpayer’s particular transactions or arrangements, or where an offence or tax avoidance scheme are suspected;
  4. Where the ATO seeks to obtain records falling within the description of non-source or restricted source documents, the taxpayer has a legitimate expectation or is prima facie entitled to a reasonable and adequate opportunity to argue that there are no exceptional circumstances allowing for lifting of the concession;
  5. If ATO officers claim that exceptional circumstances warrant access to restricted source and/or non-source documents of the taxpayer and its professional accounting advisors, they must have written approval from a Deputy Commissioner of Taxation or other senior ATO officer not having a leadership responsibility for the audit team, and not involved in any matter related to the audit. The taxpayer or its agent should be provided with a copy of that approval;
  6. Can the taxpayer claim legal professional privilege in respect of records sought by ATO officers? Consider whether the documents were created for the dominant purpose of obtaining legal advice or for litigation where Court or tribunal proceedings are reasonably anticipated;
  7. Taxpayers must be allowed so far as possible to obtain appropriate advice about their rights and obligations under the law, including the Taxpayer’s Charter. A proper opportunity should be allowed for legal advice to be obtained.