New commissioner of the tax office, Chris Jordan, says both advisors and the ATO have been too confrontational in recent times. “Can both of us go back in our corners and come back out with a different attitude and different approach,” he said.
Photo: Bohdan Warchomij
The federal government doesn’t need to grant tax agents a special privilege that will allow information shared between them and their clients to be protected, says Tax Commissioner Chris Jordan.
The Gillard government is being urged by the tax and accounting profession to change the law to provide a more level playing field for tax advisers, who have long demanded the same protection as lawyers. The proposal to change the law is still sitting in the hands of Assistant Treasurer David Bradbury who took over the issue initiated by his predecessor, Bill Shorten.
But Jordan, who has promised a new era of more consultive and chummy relationships with business, says there’s no need if taxpayers are being open and transparent. He says the Australian Taxation Office (ATO) rarely uses the power to demand information from tax agents about their clients.
“If we trust advisers and the advisers and taxpayers are being transparent then there’s probably no need to push down the road of legal privilege,” he told BRW.
The last high-profile case in which this privilege was used was the ATO’s Project Wickenby investigation into Australian actor Paul Hogan.
The court decision on Hogan’s tax affairs found the accountants’ concession – the one protection available to accountants similar to but not as broad-reaching as legal privilege – only covered documents in the possession of the taxpayer or their professional accounting advisor, not a third party.
This means the commissioner can seek access to tax advice that third parties such as the Australian Crime Commission obtain under a search warrant. By comparison, legal professional privilege can be claimed over communications obtained from a third party.
“As far as I understand it, the tax office is very careful in requesting information of that nature anyway from accountants,” says Jordan. “It doesn’t do that as a matter of course.”
Respect is key
He says if the tax system is working as it should be, and all parties – the tax payers, tax agents and the ATO – are considerate of each other, information won’t need to be protected.
I am willing to commit to certain changes in the tax office that I think will be better in terms of providing clarity quicker.
“The tax office needs to be respectful of the decisions of the tax advisory profession. And the tax advisory profession needs to respect the role and responsibility of the tax office,” Jordan says. “I am willing to commit to certain changes in the tax office that I think will be better in terms of providing clarity quicker.”
The Commissioner has already announced a new tax law design unit that will work with Treasury on policy and drafting laws and a separate appeals unit that aims to change the perception that the ATO appeals process lacks independence. The latter change was a suggestion from the Inspector-General of Taxation Ali Noroozi following the tax forum.
Jordan is also promising faster decisions when cases are disputed, by drawing on independent tax expertise outside the tax office. He says since he is willing to commit to those changes, the tax profession now needs to play its part by doing the right thing.
“Both sides have been a bit confrontational over the last few years,” Jordan says. “Can both of us go back in our corners and come back out with a different attitude and different approach.”
Protection still required
The Executive Director of the Corporate Tax Association Frank Drenth says despite the ATO rarely requesting confidential information from tax advisers, it still does happen and in those cases protection is needed.
The Commissioner’s comments are “a bit like saying you don’t need to wear a seatbelt because you’re a good driver,” he told BRW.
Drenth notes that other countries, which includes the US, UK and New Zealand, all have privilege for tax advisers (in NZ a non-disclosure right, similar to legal privilege, was introduced in 2005) so “there’s really no good reason to have special set of rules for people who have a law degree.”
Deloitte tax partner Ashley King says it’s true that the issue of tax advice privilege has resurfaced because of the ATO’s more aggressive stance in recent years. He says while there’s promising signs from Jordan that the adversarial approach will change under his leadership, it still doesn’t rule out the need for tax advice privilege.
”The issue is more about the taxpayer,” King says. “It’s not an adviser issue. If you’re a taxpayer shouldn’t you have the same level of legal protection ... regardless of whether it’s coming from a lawyer or an accountant? The taxpayer would get better advice, and more comfort from going to the adviser of their choice.”
The Tax Institute’s tax counsel, Deepti Paton, says people need confidential advice so they can comply with the law. “Tax advice privilege would allow more frank communication between tax advisers and taxpayers,” she says.
“It’s important because when tax returns are lodged you want it to be lodged with all the information that’s pertinent. Taxpayers should feel free to tell their tax agents anything and everything.”
The existing accountants’ concession isn’t enough of a protection because it is a discretion that can be applied at the behest of the tax office. In other words, the hunter (the tax office) decides if it will grant the hunted (the taxpayer) this concession when accessing information from the taxpayer’s accountant.
ATO has upper hand
The Institute of Chartered Accountants Head of tax policy Paul Stacey says the need for tax advice privilege to be extended to accountants is structural, rather than relevant to any one commissioner. He says the powers under the law - in terms of access to information - favour the ATO over individuals and businesses.
“We are concerned at the commissioner's suggestion that the need [for the privilege] can be dissipated by more sensitive communication between the tax office and business,” he says. “At the end of the day, there is a significant disparity in legal rights between the ATO and taxpayers.”
Stacey says the Australian Law Reform Commission previously recommended a form of statutory tax advice privilege for accountants. “That need was accepted by the government and remains,” he says.
King says Jordan’s suggestion that tax advice privilege is not needed may have an impact on the government’s final decision, which has been on the back-burner for months. King says the status quo encourages people to go to lawyers over an accountant or tax agent.
Bradbury will make a speech on Friday to the Tax Institute convention in Perth, following Jordan’s address on Thursday.