Legal professional privilege and the ATO

The ATO have broad powers to access documents, including under a Division 353 Notice, but there are some limits to these powers. One of the most important limitations is that the ATO does not have the right to access documents that are protected by legal professional privilege (LPP).

What is Legal Professional Privilege?

LPP is the legal protection of certain communications between a lawyer and their client from being disclosed to third parties. It is a right that belongs to the client, protecting communication that is brought into existence for one of two reasons:

  • the purpose of obtaining or giving legal advice; or
  • the purpose of preparing for existing or reasonably anticipated litigation.

It exists because it is in the public interest that a person can make full and frank disclosure to their legal advisor, without the risk of later harm if that information was later passed to a third party.

How does LPP protect me?

LPP is a creature of the common law, which means the ATO’s access powers do not override it.

This means that, for example, if you received a letter from a lawyer about your tax planning options when restructuring your business, the ATO should have no right to access this document, so long as you have maintained your privilege over the document.

How do I maintain LPP?

It is possible to lose the protection of LPP. This can happen if you fail to keep the documents confidential. For example, if you give a copy of a lawyer’s letter to a potential business partner without first having them sign a confidentiality agreement, then you will most likely waive your right to claim LPP on that document down the track.

This means you should be careful about how you treat any legal documents and correspondence. You should think about implementing a policy for dealing with lawyer communications, such as:

  • Any communication that contains or relates to legal advice should only be provided to those in your organisation who are directly concerned with the legal issue.
  • Any communication that contains or relates to legal advice should never be copied or forwarded to anyone outside of your organisation, unless that person is under a duty of confidentiality.
  • You should not provide any summaries of the legal advice to any third parties.

How do I claim LPP?

Firstly, to claim legal professional privilege, you should assert the right before handing over the documents. If you’ve already given the documents to the ATO, it’s too late to reign it back in.

Unfortunately, simply claiming that the documents are protected by LPP is not enough. The ATO will ask that you provide details of the document over which you are claiming privilege, because they will want to assess your right to LPP for themselves. You should get help from your tax lawyer before you give the ATO any information about the documents.

The ATO will generally insist on the completion of their LPP form in order to support your claim for privilege. This form asks a lot of questions, and if not dealt with carefully, could result in the disclosure of more information than is necessary. There is no reason that you need to use this form in order to claim LPP, and you may want to discuss alternative approaches with your tax lawyer. Even if you do choose to complete the ATO’s form, you should obtain a lawyer’s input on this step, to ensure you protect your information from disclosure as best as possible.

Legal professional privilege is great when it works, but you need to take the right steps to protect it. If you don’t, you risk giving the ATO more information that they are entitled to, and this can make it harder to defend yourself if you end up in a dispute with them.

This article is not legal advice. It’s a brief summary of a very complicated topic.