House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 2 Key definitions

Outline of chapter

2.1 The new framework covers the release of 'protected information' by 'taxation officers' and other entities. 'Protected information' means, amongst other things, information obtained under a 'taxation law'.

2.2 This chapter provides detailed information on these three key terms around which the new framework has been structured.

Context of amendments

Operation of current provisions

2.3 The current secrecy and disclosure provisions adopt different drafting styles in identifying the information that they protect. Some, such as section 16 of Income Tax Assessment Act 1936 (ITAA 1936) and section 3C of the Taxation Administration Act 1953 , define both the individual subject to the provisions and the information subject to protection together. Other provisions specifically define what constitutes 'protected information' (and, in some cases, 'protected documents'). However, they all have the same effect of either protecting information obtained by the Australian Taxation Office (ATO) under the particular Act in which the definition is found, or protecting a subset of information obtained by the ATO.

2.4 The current provisions apply to ATO officers as well as others who receive taxpayer information from the ATO. While the current provisions have the effect of permitting ATO officers to make a broader range of disclosures than other recipients of taxpayer information, there is generally no clear distinction in the manner in which the two are defined (section 16 of the ITAA 1936, for instance, refers to both collectively as 'officers').

Summary of new law

2.5 In order to consolidate all of the existing taxation secrecy and disclosure provisions into a single framework, a single definition of 'protected information' is necessary. The creation of this single definition relies on the definition of a 'taxation law'.

2.6 As further explained in Chapter 3 of this explanatory memorandum, the new framework will draw a distinction between those individuals working for the ATO that obtain taxpayer information and those who receive the information from the ATO. For this purpose, a definition of 'taxation officer' is introduced.

2.7 A 'taxation officer' is defined as an individual holding a statutory position within the ATO (such as the Commissioner of Taxation (Commissioner) or public servants employed by the ATO. In addition, other non-ATO public servants who have a particular function under a taxation law and non-public service entities performing services for or in relation to the ATO (such as contractors) are, for the purposes of this framework, treated as if they were taxation officers.

Detailed explanation of new law

Definition of 'taxation officer'

2.8 A taxation officer is defined to mean:

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an individual filling the statutory appointments of Commissioner or Second Commissioner;

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an individual directly engaged under the Public Service Act 1999 , and performing duties in the ATO.

[Schedule 1, item 1, subsection 355-25(2)]

2.9 This includes the statutory officers created by the taxation law, as well as public servants working in the ATO. It would also include public servants from other departments who may be working within the ATO for a limited period of time.

Example 2.1

Alicia is employed by the Australian Bureau of Statistics (ABS), but is temporarily seconded to the ATO. Alicia would be considered a taxation officer as she is a Commonwealth public servant and is performing duties in the ATO, even though she is employed by the ABS.

2.10 In recognition of the fact that the Commissioner, the Second Commissioners and public servants working for the ATO are not the only persons likely to have access to taxpayer information obtained in the course of administering the taxation system, the framework is also applied to certain other entities in the same manner as it applies to taxation officers.

2.11 Contractors, for instance, may be engaged to provide services to assist the ATO in the performance of its functions. The Bill ensures that such individuals and entities are subject to the same strict obligations that taxation officers are subject to. [Schedule 1, item 1, paragraphs 355-15(a) and (b)]

Example 2.2

Simon works at a private debt collection company that is contracted by the ATO to follow up on outstanding taxpayer debts. Simon's role is to contact taxpayers and attempt to arrange for payment. As an entity contracted to provide services to the ATO, the private debt collection company would be a taxation officer. As an individual employed by the private agency to provide these services, Simon would also be considered a taxation officer.

Example 2.3

The ATO seeks legal advice about a complex case of international tax evasion from a private law firm that specialises in international taxation. The law firm seeks the services of Marcus, a barrister, for an opinion on various matters. The law firm is considered a taxation officer as it is an entity engaged to perform services for the ATO. Marcus is also considered a taxation officer as he has been engaged by an entity that has itself been engaged to provide services for the ATO.

2.12 In some circumstances, Commonwealth employees (including employees of Commonwealth authorities) outside of the ATO are given functions or powers to perform under the taxation law. This is the case, for instance, with a number of tax offsets (such as the water tax offset and the film tax offset) that are in part administered by other portfolio agencies. Where such individuals perform functions or exercise powers under a taxation law, they are also considered to be taxation officers for the purposes of this framework. [Schedule 1, item 1, paragraph 355-15(c)]

Example 2.4

Melanie donates a rare artwork to a public Sydney art gallery. The Minister for the Environment, Water, Heritage and the Arts, or a delegate, is required to certify its value for tax purposes as part of the Cultural Bequests Program under section 30-235 of the Income Tax Assessment Act 1997 (ITAA 1997). When the Minister or delegate certifies the value of the painting for tax purposes, the Minister or delegate is considered to be a taxation officer as this particular function is performed under a taxation law.

Example 2.5

Megan is an officer in the Department of Environment, Heritage, Water and the Arts and is involved in administering the Location Offset for eligible Australian films under Division 376 of the ITAA 1997. Part of her role involves briefing the Arts Minister on whether to issue a certificate for a particular film (the certificate is required for the company to claim the offset). The Minister must then make a decision in whether to issue such a certificate.

In performing these functions, the new framework applies to both Megan and the Minister in the same way as it applied to taxation officers.

2.13 There may be a range of individuals whose functions relate to the administration of the taxation law, but who do not perform functions or exercise powers under a taxation law. In these circumstances, the new framework does not apply to them in the same way as it applies to taxation officers.

Example 2.6

Ron is employed by the Department of the Treasury and, in the course of his duties, analyses the policy behind an existing taxation law, provides advice to the Government as to whether the law needs to be amended and liaises with the Office of Parliamentary Counsel drafters in designing new legislation. Although Ron and the Office of Parliamentary Counsel drafters are assisting with the design of the taxation laws they are not performing functions or exercising powers under or for the purposes of a taxation law. Instead, Ron is merely providing advice to the Government about a potential change to an existing taxation law and, together with the drafters, is working to draft the necessary changes.

Example 2.7

Ambrosia is a member of the Board of Taxation. The Board of Taxation has been set up by the Government (not under a taxation law) to provide advice on the operation of the taxation laws and their administration. Ambrosia is not a taxation officer because, although she is assisting the Government with general policy issues affecting the tax system as a whole, she is not exercising any function under or for the purposes of an existing taxation law.

Example 2.8

David works at the Commonwealth Ombudsman's Office as part of a team that investigates taxpayer complaints. He receives a complaint from Linda about how the ATO has handled her tax affairs. Although David liaises with the ATO concerning Linda's complaint, he is not a taxation officer, as he is not acting under or for the purposes of a taxation law. He is acting under and for the purposes of the Ombudsman Act 1976 .

Definition of 'protected information'

2.14 Protected information of taxpayers (referred to in this explanatory memorandum as 'taxpayer information') is defined to mean information disclosed or obtained under or for the purposes of a taxation law (other than the Tax Agent Services Act 2009 (TAS Act)) which relates to the affairs of an entity (including but not limited to the entity's tax affairs) and which can identify the entity. [Schedule 1, item 1, subsection 355-30(1)]

2.15 Information that is obtained under or for the purposes of the TAS Act is excluded from the definition of protected information to enable the TAS Act secrecy provisions to operate independently of the new framework. The reason for this is explained in more detail in paragraphs 1.24 to 1.26.

2.16 Of note, to be protected, the information need not relate to an individual, but can relate to a whole range of 'entities' that are required to interact with the tax system. Entity is defined in section 960-100 of the ITAA 1997 to mean, amongst other things:

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an individual;

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a body corporate;

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a body politic;

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a partnership;

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any other unincorporated association or body of persons;

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a trust;

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a superannuation fund; or

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an approved deposit fund.

2.17 These amendments in the Bill provide broader protection than the Privacy Act 1988 , which only protects personal information about natural persons (that is, individuals). Taxation secrecy provisions recognise the need to protect information provided by any taxpayer, including information about an individual's annual income, a company's wage bill or a superannuation fund's rate of return.

2.18 To be protected, information must have been obtained under a law that was a taxation law (other than the TAS Act) when the information was obtained. [Schedule 1, item 1, paragraph 355-30(1)(a)]

Example 2.9

Before 2001, the Child Support (Registration and Collection) Act 1988 was administered by the Commissioner. Information obtained under that law while the Commissioner administered it is protected information. Information obtained under that law since 2001 when the General Manager of the Child Support Agency administered it is not protected information for the purposes of these provisions (although it would still be protected under the secrecy provision in the Child Support (Registration and Collection) Act 1988 ).

2.19 Protected information is information which identifies (or is reasonably capable of being used to identify) an entity. Accordingly, information that in no way identifies an entity will not fall within the scope of the new framework. [Schedule 1, item 1, paragraph 355-30(1)(c)]

Example 2.10

Each year the ATO publishes Taxation Statistics - a comprehensive statistical publication that informs the community about what taxpayers have been reporting to the ATO. Taxation Statistics is a valuable resource for academics, researchers, scrutineers and the media. Because the information presented in Taxation Statistics is in aggregate statistical form, it is not possible to identify any particular taxpayer from the publication. Hence, this information is not protected information.

2.20 Information that, at first glance, is incapable of identifying a taxpayer may still be protected information if the identity of the taxpayer can be ascertained by a process of deduction.

Example 2.11

The ATO collects information on the volume of production of haysnorkels in Australia. Because haysnorkel production is a very specialised industry, only three firms manufacture haysnorkels in Australia. One major producer, meeting the needs of most of the Australian market, and two very much smaller boutique producers manufacture only a small number of haysnorkels each year. If the ATO were to disclose information on the aggregate production of haysnorkels in Australia, then it would be possible for anyone with a general knowledge of the haysnorkel market to deduce (with a fair degree of accuracy) how many haysnorkels were being manufactured by each producer. In this case, the disclosure of aggregate production information would, though not explicitly identifying a particular taxpayer, allow a particular haysnorkel producer to be identified. Such aggregate information would therefore be protected information.

2.21 Protected information includes written documents, conversations, electronic recordings, transcripts or any other form in which information can be recorded. It includes information obtained directly from a taxpayer or information generated by the ATO (for instance, through the collating, cross-referencing or summarising of information from a variety of sources). It would also include information about ATO compliance activity against a particular taxpayer.

Example 2.12

The ATO is auditing Ian. The ATO has obtained a variety of information about Ian including information from his annual tax returns and information from the pay as you go withholding statement provided by his employer. The ATO collates a file on Ian that summarises the information from these different sources. All information summarised on Ian's audit file is protected information. The fact that the ATO is auditing Ian would also constitute protected information.

Tax file numbers are not 'protected information'

2.22 Tax file numbers are not 'protected information' within the meaning of the new framework because they cannot of themselves identify a taxpayer. The reasons for not including tax file numbers in the framework are outlined in paragraph 1.27.

'Protected information' under the Excise Act 1901

2.23 The Bill maintains the savings provision that were enacted when the Taxation Laws Amendment (Excise Arrangements) Act 2001 transferred the administration of excise from the Australian Customs Service to the Commissioner.

2.24 Without the saving provision, information that was obtained under the Excise Act 1901 prior to the introduction of this change would no longer be protected information. The savings provision ensures the secrecy provisions in section 159 of the Excise Act 1901 continue to apply to information obtained before the administrative change, despite section 159 being repealed. [Schedule 2, Part 2, item 126]

2.25 Information obtained by the ATO after the transfer would be protected information for the purposes of these provisions. Information obtained by the Australian Customs Service before the transfer is not protected information. However, that information is still protected under the secrecy provision in the Excise Act 1901 as in force before its repeal.

Definition of 'taxation law'

2.26 As noted above, whether information is protected depends on whether it was disclosed or obtained under a taxation law.

2.27 A taxation law is currently defined in section 995-1 of the ITAA 1997 as:

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an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or

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regulations made under such an Act, including a part of an Act.

2.28 The Bill will introduce a minor amendment to the second tier of this definition by replacing the reference to 'regulations' with one to 'legislative instruments' to ensure that all legislative instruments (and not just regulations) made under an Act of which the Commissioner has the general administration also constitute taxation laws. [Schedule 2, item 51]

2.29 As noted above, the Tax Agent Services (Transitional Provisions and Consequential Amendments) Bill 2009 amends the definition of taxation law to include the TAS Act. However, the TAS Act is specifically excluded from the definition of 'protected information'. [Schedule 1, item 1, paragraph 355-30(1)(a)]