House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Assistant Treasurer, Senator the Hon Helen Coonan)

1 Inspector-General of Taxation Bill 2003

Outline of Bill

1.1 The Inspector-General of Taxation Bill 2002 will establish a statutory office to review tax administration and to report to the Government with recommendations for improving tax administration for the benefit of all taxpayers.

1.2 The Bill provides for the appointment of an independent Inspector-General of Taxation by the Governor-General for a fixed term of up to five years, with explicit and strictly limited conditions for dismissal from office of the incumbent.

1.3 The Bill provides the Inspector-General with a broad range of powers to obtain comprehensive information on the administration of the tax laws. The Inspector-General will be able to invite submissions from the public or from particular groups of taxpayers or tax professionals, and may receive submissions in confidence. The Inspector-General will also be able to hold meetings with taxpayers, tax professionals or their representatives.

1.4 To promote a cooperative working relationship between the Inspector-General and the Commissioner, the Bill provides that voluntary disclosures of information held by the Commissioner of Taxation and requested by the Inspector-General for the purposes of a review would be authorised disclosures for the purposes of secrecy and privacy laws. The Bill also endows the Inspector-General with investigative powers - including the power to compel disclosure of documents and examine witnesses - so that the Inspector-General is not reliant on voluntary disclosure of information required to complete a review.

1.5 The Bill does not detract from the absolute independence of the Commissioner of Taxation in the administration of the tax laws. The Inspector-General will not be able to direct the Commissioner other than to require the Commissioner to disclose information for a review.

1.6 The Bill does not affect the powers or functions of other taxation review agencies, including the Ombudsman. The Bill requires the Inspector-General of Taxation to consult with the Ombudsman and the Auditor-General.

1.7 The Bill does not impose any obligations on taxpayers and thus has no compliance costs for individuals or businesses. The compulsive investigative powers of the Inspector-General do not extend to taxpayers, since the Inspector-General will be reviewing systemic tax administration issues and not the tax affairs of individuals or groups. In the event that individual taxpayer information were to be incidentally disclosed to the Inspector-General in the course of a systems review, the Bill provides that the Inspector-General cannot include in any report any information that would enable identification of any particular taxpayer.

2 Financial Impact Statement

2.1 Funding of $2 million per year for four years for the office of Inspector-General of Taxation, commencing in 2002-03, was included in the 2002-03 Budget.

3 Notes on Individual Clauses

Part 1: Preliminary

Clause 1 - Short title

3.1 This clause provides the title by which the Act may be cited, that is, the Inspector-General of Taxation Act 2002.

Clause 2 - Commencement

3.2 This clause provides that the Act will commence on the day after the Bill receives the Royal Assent.

Clause 3 - Object of this Act

3.3 This clause makes it clear that the object of the Inspector-General of Taxation Act will be to improve the administration of the tax laws for the benefit of all taxpayers. It will be necessary for the Inspector-General to balance the individual benefits that might flow to a particular taxpayer or group of taxpayers from simplifying an administrative system, with the need to protect the integrity of the tax system for the benefit of Australian taxpayers as a whole.

Clause 4 - Definitions

3.4 This clause defines certain terms used in the Act. In particular:

3.5 Inspector-General is defined for the purposes of the Act as the Inspector-General of Taxation. This recognises that there are and will be other Commonwealth officers with the title of Inspector-General.

3.6 Inspector-General's staff is broadly defined to include staff engaged by the Inspector-General under the Public Service Act, officers seconded from Commonwealth agencies and/or consultants engaged by the Inspector-General.

3.7 Tax law is defined as an Act or part of an Act administered by the Commissioner of Taxation - including where the Commissioner is administering provisions under delegation and/or where the Commissioner is 'deemed' to administer provisions. The definition also includes legislative instruments made under tax laws. This broad definition encompasses the range of tax, rebate, and grant schemes administered by the Commissioner, including, for example:

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administration of the Diesel Fuel Rebate Scheme under the Customs Act;

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administration of the law relating to the issue of Australian Business Numbers; and

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administration of family assistance payments under the New Tax System Family Assistance Administration Act.

3.8 Tax official is broadly defined to include statutory officers appointed under the Taxation Administration Act 1953 including the Commissioner, Commonwealth officers performing duties in the Australian Taxation Office, and consultants engaged to provide services to the Commissioner of Taxation. The definition also includes members of bodies established to assist the Commissioner of Taxation with tax administration who are remunerated by the Commonwealth, including members of panels such as the Public Rulings Panel and Test Case Panel.

3.9 The definition of 'tax official' comes into play in relation to the Inspector-General's information gathering powers in Clauses 14 and 15. It is important to note that the Inspector-General would only be seeking information from tax officials about tax administration matters, consistent with the functions of the Inspector-General in Clause 7. The Inspector-General may wish to seek information from the members of a rulings panel, for example, on the rulings process and how that process affects the administration of the tax laws. However, the Inspector-General would not be seeking information from members of a rulings panel about interpretation of the tax laws. While the definition of tax official is broad, the nature of the work undertaken by certain classes of tax officials may be such that, in practice, they will never be asked to participate in a review by the Inspector-General.

3.10 The definition of 'tax official' does not extend to members of advisory bodies such as the National Tax Liaison Group and the Tax Practitioners Forum, or other persons assisting the Commissioner in a voluntary capacity, notwithstanding such people may have received reimbursement of travel or other expenses involved in assisting the Commissioner of Taxation.

3.11 In addition, the definition of 'tax official' does not extend to members of bodies engaged in external administrative or judicial review of the Commissioner's decisions, or officers performing peripheral tax administration functions that are the responsibility of other departments or agencies.

3.12 Taxpayer is defined to include past, current and potential taxpayers.

3.13 The Minister is not defined in the Bill; this is not necessary because of provisions in the Acts Interpretation Act 1901 that explain how references to a Minister are to be construed. The Bill is currently the responsibility of the Treasury portfolio Ministers, with the Minister for Revenue and Assistant Treasurer taking immediate responsibility for the establishment of the office of Inspector-General.

Clause 5 - Geographical application of this Act

3.14 The geographical reach of the Act is very wide - applying both within and outside Australia - reflecting the geographical application of tax laws to ensure that the Inspector-General can examine all tax administration matters. It is also intended that the wide geographical application would allow the Inspector-General to exercise statutory information gathering powers wherever required.

Part 2: Establishment and functions of the Inspector-General of Taxation

Division 1 - Establishment of the Inspector-General of Taxation

Clause 6 - Inspector-General of Taxation

3.15 This clause establishes the statutory office of Inspector-General of Taxation.

Division 2 - Functions of the Inspector-General

Clause 7 - Functions of the Inspector-General

3.16 This clause determines the Inspector-General's functions and the purposes for which the Inspector-General's statutory powers can be used.

3.17 The clause provides that the Inspector-General can review systems established by the Australian Taxation Office to administer the tax laws and report on those reviews. The term 'tax law' is broadly defined in Clause 4 to cover all administrative responsibilities of the Commissioner of Taxation, including rebate and grant schemes.

3.18 In discharging review functions, the Inspector-General will have regard to the object of the Act in Clause 3. The Inspector-General will be reviewing tax systems in terms of the principles of good tax administration - including principles such as simplicity, transparency, efficiency and fairness - with a view to improving the administration of the tax laws for all taxpayers. The Inspector-General will not be reviewing tax systems in terms of how those systems comply with other laws, such as human rights or privacy laws; there exist specialist review agencies to examine such matters.

3.19 The focus for reviews by the Inspector-General will be on systems rather than individual taxpayer matters or the handling of particular cases. The Commonwealth Ombudsman will continue to deal with individual complaints about tax administration.

3.20 The Inspector-General can only review systems established by the Commissioner of Taxation. The Inspector-General will not be able to review any aspects of tax administration that are beyond the control of the Commissioner. For example, the Inspector-General will not review any matters related to tax administration that are the responsibility of other Commonwealth agencies, Ministers of State, courts or tribunals.

3.21 Subclause (2) makes it clear that the Inspector-General is not precluded from reviewing an administrative system used by the Commissioner of Taxation simply because that system is underpinned by legislative requirements.

3.22 However, the Inspector-General cannot review taxation policy and laws. The Inspector-General cannot review the imposition of taxes or taxation rates, nor can the Inspector-General review eligibility criteria for, or levels of, any rebates or grants administered by the Commissioner of Taxation.

3.23 Some examples of where the Inspector-General may need to review tax laws in order to improve tax administration, and the extent to which the Inspector-General may review aspects of those laws, appear below.

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Many tax laws provide for the Commissioner to make determinations about the records that must be kept by taxpayers or the forms that must be lodged by taxpayers; the Inspector-General would be able to review the compliance burden flowing from such regulation.

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A regime for the imposition of penalties and interest for late payments of tax owed to the Commonwealth is established in law; this would not prevent the Inspector-General from examining how the Commissioner has imposed such charges or exercised a discretion to waive or remit such charges. However, the Inspector-General could not review the nature or level of penalties or charges imposed by law.

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Tax administration laws typically provide statutory periods in which the Commissioner may act; the Inspector-General would be able to review the timeliness of the Commissioner's actions within those timeframes and whether the timeframes themselves remain appropriate.

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The Inspector-General could review the operation of the self assessment system and possible alternative approaches, notwithstanding self assessment is established by provisions of the Income Tax Assessment Act 1936. However, the Inspector-General could not review any particular amended assessments issued by the Commissioner under the system because amended assessments represent the application of substantive tax laws to individual circumstances.

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The Inspector-General could review the process for developing and disseminating tax rulings, notwithstanding the basic operation of the rulings system is set out in the Taxation Administration Act 1953. However, the Inspector-General could not review private or public rulings determined by the Commissioner.

3.24 Tax administration systems include systems by which the Commissioner of Taxation communicates or otherwise deals with the Australian public and with clients. So, for example, the Inspector-General would be able to review the accuracy, clarity and effectiveness of 'TaxPack', the Taxpayers' Charter, and other information products produced by the Commissioner of Taxation. The Inspector-General could review the timeliness of public rulings. The Inspector-General would be able to review the form in which statements are required to be lodged by taxpayers, as well as the correspondence and Notices of Assessment sent to taxpayers by the Commissioner of Taxation. The Inspector-General could also review the capacity and effectiveness of telephone advice services provided by the Commissioner of Taxation to clients and complaint handling mechanisms.

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However, the Inspector-General could not review the content of such communications to the extent that it involved interpretation of the tax laws.

3.25 Paragraph (1)(b) provides that, once the Inspector-General has reviewed tax systems, the Inspector-General's complementary function is to report and make recommendations on the outcome of a review and how tax systems could be improved.

Clause 8 - When a review may be conducted

3.26 This clause allows the Inspector-General to conduct a review of a tax system (within the meaning of a tax system set out in Clause 7) on his or her own initiative, including where a systemic tax administration issue has been raised with the Inspector-General by taxpayers, tax professionals, the Ombudsman, or any other party.

3.27 The Commissioner of Taxation and the Parliament may formally request the Inspector-General to conduct a review but may not direct the Inspector-General to conduct a review.

3.28 The Minister may direct the Inspector-General to conduct a review and the Inspector-General must comply with any such direction.

Clause 9 - Setting the Inspector-General's work program

3.29 This clause makes it clear that the Inspector-General will have discretion in determining priorities for reviewing systemic tax administration issues.

3.30 The discretion is not absolute, since the Inspector-General must conduct a review if so directed by the Minister. However, even when a Ministerial direction has been given, the Inspector-General would still have considerable discretion in scheduling reviews and allocating resources to competing priorities.

3.31 Subclause (2) requires the Inspector-General to consult with the Commonwealth Auditor-General and the Commonwealth Ombudsman at least once a year. The purpose of this clause is to ensure that there is no unnecessary duplication of the reviews conducted by the statutory authorities with principal responsibility for reviewing tax administration. However, the discretion of each of the three office holders to determine their own work programs is not compromised by this clause.

Clause 10 - Reporting on reviews

3.32 This clause outlines the procedures for the Inspector-General fulfilling the reporting function established in Clause 7. The Inspector-General reports to the Minister. The Inspector-General is required to prepare written reports on reviews to facilitate public dissemination of the findings of the review. Such reports may include recommendations about improving the tax system reviewed. However, the report need not include recommendations.

3.33 Reports may not include:

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information that would be prejudicial to the public interest where the Minister has given the Inspector-General a certificate to this effect under Clause 22;

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information about the tax affairs of an individual taxpayer that would allow the identification of that taxpayer (Clause 23);

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the names or specific identifying information of tax officials other than the Commissioner (Clause 24);

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information that has been provided to the Inspector-General in confidence (Clause 26); or

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commentary on legal advice disclosed to the Inspector-General that would result in the waiver of legal professional privilege held by the client (Clause 27).

3.34 In addition, Clause 25 requires the Inspector-General to provide the Commissioner with an opportunity to address criticisms of tax officials where the Inspector-General proposes to include such criticisms in a report. The report cannot be finalised unless the Commissioner has been given this opportunity.

Clause 11 - Public release of reports

3.35 This clause authorises the Minister to table or release publicly reports by the Inspector-General. The action of releasing reports publicly attracts the statutory protection against legal action (refer to Clause 40). No protection is required for the tabling of reports in the Parliament as these reports would attract Parliamentary privilege.

3.36 The clause provides for partial publication to cover cases where the Minister is concerned about the nature and extent of reporting of sensitive or confidential information - such as information permitting the identification of taxpayers or tax officials - to which Division 4 applies.

Division 3 - Obtaining information, documents etc for the purposes of reviews

Clause 12 - Purposes for which powers may be exercised

3.37 This clause makes it clear that the Inspector-General's statutory information gathering powers are to be exercised for the purposes of conducting a review into tax systems as set out in Clause 7.

3.38 Subclause (2) extends the use of the powers to situations where the Inspector-General may need to obtain particular information for the purposes of deciding whether a review may be required. This provision will also have the effect of removing any defence to a statutory demand for information that is based on argument that the Inspector-General has not made a formal public announcement that he or she is conducting a review into a particular tax administration system.

Clause 13 - Inspector-General may invite submissions

3.39 Under this clause, the Inspector-General can invite submissions or hold meetings, or otherwise consult with members of the public or particular people or organisations, in the course of a review.

3.40 The scope of the provision is intentionally broad and would include the ability to extend an invitation to the Commissioner of Taxation.

3.41 Subclause (3) allows the Inspector-General discretion to publish submissions or records of meetings held in the course of a review. However, the Inspector-General may not publish submissions that contain:

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information that would be prejudicial to the public interest where the Minister has given the Inspector-General a certificate to this effect under Clause 22;

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information about the tax affairs of an individual taxpayer that would allow the identification of that taxpayer (Clause 23);

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the names or specific identifying information of tax officials other than the Commissioner (Clause 24); or

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information that has been provided to the Inspector-General in confidence (Clause 26).

3.41 Information that is provided in good faith pursuant to this clause would be protected from civil action for damages, under Subclause 17(1). However, it should be noted that this immunity would only apply to legal actions relating to the actual disclosure to the Inspector-General (such as actions for defamation for material contained in submissions). The statutory immunity would not extend to unlawful prior conduct that happened to be disclosed to the Inspector-General in submissions. There is no protection for criminal conduct that was previously committed - such as breach of the secrecy provisions in the tax laws - and subsequently disclosed in submissions made under this clause.

Clause 14 - Inspector-General may request Commissioner of Taxation to provide information and documents etc

3.42 Under this clause, the Inspector-General can request the Commissioner of Taxation to disclose information, including information covered by the secrecy provisions in the tax laws. The protection from legal action that might otherwise arise from the voluntary disclosure of secret information is provided by Subclause 17(2) of the Bill. Clause 18 provides that the disclosure of legal advice by the Commissioner under Clause 14 does not result in a waiver of legal professional privilege.

3.43 This clause covers the provision of documents and information and the giving of oral evidence. The Inspector-General cannot pursue a request under Clause 14 if the Minister has given a certificate under Clause 22 to the effect that disclosure of the information sought by the Inspector-General would be prejudicial to the national interest.

Clause 15 - Inspector-General may require tax officials to provide information and documents etc

3.44 By this clause the Inspector-General will be empowered to compel the production of information and documents by a tax official, or to require a tax official to attend before the Inspector-General or a member of the Inspector-General's staff to answer questions. The provision will extend to circumstances where it is necessary to obtain information from a former tax official, who would no longer be subject to direction by the Commissioner for the purposes of satisfying a request for information under Clause 14. A statutory demand for information under this clause could also be used to supplement an information gathering process under Clause 14, if the Commissioner and Inspector-General were ever to disagree about whether certain information should be disclosed to the Inspector-General for the purposes of a review.

3.45 If the disclosure of information requested by the Inspector-General would be prejudicial to the national interest, the Minister may give a certificate to the Inspector-General under Clause 22 with the effect that the information or documents covered by the certificate need not be disclosed.

3.46 This clause applies only to tax officials, including former tax officials. There is no provision in the Act for the Inspector-General to compel the disclosure of information by other persons. As the Inspector-General is undertaking systemic reviews of tax administration systems established by the Commissioner of Taxation and not the tax affairs of taxpayers, it would be inappropriate to compel taxpayers to disclose individual information. The persons best able to give primary evidence of tax administration systems are tax officials.

3.47 The Inspector-General must allow at least 14 days for a tax official to comply with a notice.

3.48 Non-compliance with a notice constitutes a criminal offence that can be punished by imprisonment for 6 months.

3.49 The Criminal Code allows for a range of circumstances to be pleaded as a defence to criminal offences. Clause 16 will limit the grounds for such a defence. However, Subclause 17(2) will protect tax officials from certain liabilities that may arise from the disclosure of information or documents pursuant to this clause.

3.50 Subclause (4) will allow the Inspector-General - or a member of the Inspector-General's staff - to administer an oath or affirmation when taking oral evidence, with the result that the taking of the evidence becomes a judicial proceeding for the purposes of Part III of the Crimes Act 1914. This creates offences relating to false testimony, fabrication of evidence, destruction of evidence and interference with witnesses. The Inspector-General need not administer an oath or affirmation on each occasion when evidence is taken from tax officials.

Clause 16 - Certain excuses are not available in relation to section 15 requirements

3.51 This clause limits the grounds on which tax officials can legitimately refuse to comply with a notice from the Inspector-General under Clause 15, compelling the production of information relevant to a review.

3.52 Tax officials cannot refuse to provide information on the grounds that it might incriminate them. However, Subclause (2) protects a tax official in this situation to the extent that any evidence given to the Inspector-General pursuant to a notice under Clause 15 is inadmissible in any court proceedings other than those relating directly to the giving of evidence to the Inspector-General.

3.53 So, for example, a tax official could not refuse to comply with a notice from the Inspector-General on the grounds that providing the information sought by the Inspector-General would incidentally disclose that the tax official had contravened a particular secrecy provision in the tax laws and was thus exposed to criminal sanctions. However, the Director of Public Prosecutions would not be able to introduce into court any information so provided to the Inspector-General, as evidence that the tax official had breached secrecy laws.

3.54 On the other hand, if the tax official contravened a requirement of a notice issued by the Inspector-General, the information or evidence provided by the tax official would be admissible as evidence of the failure of the tax official to comply with requirements proposed by this Bill.

Clause 17 - Protection from liability for people complying with requests or requirements

3.55 This clause provides limited protection to persons providing information to the Inspector-General.

3.56 Subclause (1) protects persons who voluntarily provide information to the Inspector-General pursuant to clause 13, including tax officials, from civil actions for damages but only to the extent that the information has been provided in 'good faith'. The protection does not extend beyond the disclosure to the Inspector-General. For example, the subclause would not protect the contents of a document submitted to the Inspector-General and then published elsewhere. The protection does not extend to criminal liability for actions such as breaches of the secrecy provisions in the tax laws.

3.57 Subclause (2) protects tax officials who disclose information to the Inspector-General, in good faith, in compliance with a request under Clause 14 or a notice under Clause 15, from proceedings for contravening any other law (such as secrecy provisions in tax laws) and from civil actions.

Clause 18 - No loss of legal professional privilege

3.58 The purpose of this clause is to ensure:

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that the Inspector-General can have access to all legal advice obtained by the Commissioner of Taxation that is relevant to inquiries into systemic tax administration issues; but

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that future administration of the tax laws by the Commissioner of Taxation is not compromised by unintended waiver of legal professional privilege resulting from disclosure of legal advice to the Inspector-General.

3.59 A further purpose is to enable the Inspector-General to see legal advice obtained by parties in the private sector relevant to matters under consideration by the office. Clearly, it is more likely that such advice will be provided if parties can be provided with some assurance that such actions will not result in a waiver of client legal privilege.

3.60 This clause provides that client legal privilege in a piece of information or a document is not waived simply by the act of disclosure to the Inspector-General. The clause applies to all voluntary or compulsory disclosures of information to the Inspector-General by tax officials and other persons.

3.61 Clause 27 restricts the way in which the Inspector-General may report the content of privileged legal advice disclosed in the course of a review.

Clause 19 - Inspector-General may keep documents

3.62 This clause deals with what the Inspector-General may do with original documents that have been obtained from tax officials. The Inspector-General will be entitled to request or require tax officials to produce the original of a document, and not just a copy.

3.63 Under this clause, the Inspector-General will have a right to keep the document for as long as necessary. The provisions dealing with certified copies in Subclauses (2) & (3) anticipate that documents in the possession of the Inspector-General may be required in court proceedings before any review is finalised. Subclause (4) allows tax officials access to the original copies of documents provided to the Inspector-General where necessary.

Clause 20 - Inspector-General may make and keep copies of documents

3.64 In addition to the making of certified copies pursuant to Clause 19, the Inspector-General may also make and keep copies of documents produced by tax officials for the Inspector-General's own official purposes.

Clause 21 - Access to ATO premises

3.65 This clause provides for the Inspector-General to have a right of access to premises occupied by the Australian Taxation Office for the purpose of receiving information or documents or asking questions under clauses 14 or 15.

Division 4 - Handling sensitive or confidential information

Clause 22 - Information that would be prejudicial to the public interest

3.66 This clause provides for the Minister to certify that disclosure of information by the Commissioner of Taxation to the Inspector-General would be prejudicial to the public interest. The giving of a certificate in respect of certain information has the effect that the Inspector-General cannot obtain the information using statutory information gathering powers and cannot publish information that has been provided voluntarily.

3.67 Paragraphs (a) through (l) outline the situations in which the Minister may give a certificate, namely where disclosure would:

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prejudice Australia's security, defence or international relations; or

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prejudice negotiations on international agreements such as treaties; or

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be contrary to a treaty or other international agreement; or

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prejudice Commonwealth/State relations; or

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involve Cabinet or Executive Council material; or

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prejudice law enforcement investigations or court actions (regardless of whether or not the investigations or court actions relate to the tax laws); or

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be contrary to the order of a court or tribunal; or

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potentially give rise to legal proceedings; or

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endanger the safety of any person (such as, for example, by disclosure of information that the Commissioner of Taxation holds on persons in witness protection programmes); or

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prejudice the revenue of the Commonwealth.

3.68 The restriction on disclosure of information that could prejudice the revenue of the Commonwealth is only relevant to the Inspector-General's public reporting function and would apply if, for example, a review by the Inspector-General were to disclose a serious 'loophole' in the tax laws, disclosure of which could potentially lead to widespread tax avoidance. Other paragraphs of this clause apply the same restriction to information gathering and reporting of such information by the Inspector-General.

Clause 23 - Taxpayer information

3.69 The purpose of this provision is to restrict publication of material provided to the Inspector-General that would allow taxpayers to be identified. The provision applies to the public release of submissions by the Inspector-General under Clause 13(3) as well as reporting to the Minister under Clause 10 and reporting to the Parliament under Clause 41.

3.70 The protection of taxpayer information in this clause is designed to mirror secrecy provisions in the tax laws and to be consistent with privacy laws.

3.71 The 'de-identification' test in this clause is a strict test. Disclosure of names and other specific identifying information (such as addresses) is not allowed in any circumstances. In addition, the Inspector-General is required to suppress publication of any other information that would be reasonably likely to allow identification of an individual taxpayer by people other than those to whom the taxpayer himself or herself has disclosed information about their tax affairs.

3.72 It would not be sufficient for the Inspector-General to de-identify taxpayer information to the point where most people reading the report would not be able to identify the taxpayer to whom the information relates. Rather, it is necessary for the Inspector-General to de-identify taxpayer information so that people who know the taxpayer well would not be reasonably likely to work out to whom the published information related. For example, the identity of a taxpayer should not be evident to people in the same business or trade or profession as the taxpayer, nor people who mix with the taxpayer in a particular social or cultural or religious or ethnic group, nor people who are neighbours in the same geographical area.

3.73 The only people who should be able to identify a taxpayer in any material published by the Inspector-General under Clause 13 or in any report by the Inspector-General are those to whom the taxpayer has chosen to disclose information about his or her tax affairs. This could include the taxpayer's agent, lawyer, and persons entitled to see the taxpayer's return pursuant to the secrecy provisions in the tax laws.

3.74 In determining whether it is reasonably likely that people would be able to identify an individual taxpayer from 'de-identified' information (that is, where names and addresses and other specific identifiers have been expurgated), the Inspector-General must take into account not only the substance of the information but also relevant matters such as the context in which the information will appear in a report, as well as the context in which it might be combined with information that is otherwise publicly available to identify the taxpayer.

Clause 24 - Identifying tax officials

3.75 The protection for tax officials in Subclause (1) - preventing the Inspector-General from naming individual tax officials other than the Commissioner in reports - applies notwithstanding Clause 40 would protect the Inspector-General (in preparing the report) and the Minister (in releasing the report) from legal actions including defamation claims. Subclause (1) is built on the principle that the Inspector-General's reports are designed to address systemic issues in tax administration rather than the particular actions of individuals.

3.76 The same protection applies in relation to the publication of submissions by the Inspector-General under Subclause 13(3).

3.77 However, if the Inspector-General were to be restricted from incidental identification of tax officials, this would unduly inhibit the reporting function because the Inspector-General would not be able to specify a particular functional division or branch or regional office in case people who have dealings with the Australian Taxation Office might know the individuals working in that area. Subclause (3) makes it clear that the protection for tax officials does not extend to preventing identification of a functional group of tax officials. The Inspector-General would be able to name or otherwise identify a particular Business or Service Line in the Australian Taxation Office, or a particular Division or Regional Office. The Inspector-General could not, of course, name a unit that comprised only one tax official and would need to exercise caution in identifying small units.

Clause 25 - Criticising the ATO or tax officials

3.78 This clause provides the Commissioner of Taxation, or a duly authorised tax official, with the opportunity to address any express or implied criticisms of tax officials that the Inspector-General is considering including in a report. This opportunity must be given before the material can be included in a report, whether this be a report on a review (under Clause 10) or the Inspector-General's annual report (under Clause 41). The Commissioner is also entitled to be represented by another person such as a legal advocate (paragraph (4)(b)).

3.79 Subclause (5) protects the Commissioner, or a person representing the Commissioner, from legal action if information is disclosed, in good faith, during such a meeting that might otherwise expose the Commissioner to legal action, such as for breach of the secrecy provisions of the tax laws. Subclause (6) provides that the Commonwealth does not waive client legal privilege in a piece of information merely because of its disclosure to the Inspector-General under this clause.

Clause 26 - Confidential submissions

3.80 This clause provides for submissions to be provided to the Inspector-General in confidence under Clause 13, in which case the information contained in such submissions cannot be made available to the public under Subclause 13(3), nor can it be included in a report on a review or in the Inspector-General's annual report. This confidentiality clause would cover, for example, disclosure to the Inspector-General of privileged legal advice.

3.81 The restriction on publication does not apply where the same information has been obtained by the Inspector-General or a member of the Inspector-General's staff from another source, provided the information is not itself restricted from publication under another clause (such as the restriction on publication of taxpayer information in Clause 23).

3.82 While the clause provides a very high level of protection for people making confidential submissions to the Inspector-General, it is important to note that the Inspector-General has absolute discretion in the weight accorded to such confidential submissions in reviews. The Inspector-General may choose not to place great reliance on material that has been submitted in confidence, if there is no reason given for the confidentiality claim apart from the preference of the person making the submission, since the information provided cannot be tested with other parties. In other cases, the Inspector-General may recognise the inherent commercial sensitivity of information contained in a confidential submission and accord it due weight in a review.

Clause 27 - Legal professional privilege

3.83 This clause imposes limits on the ability of the Inspector-General to refer to privileged legal advice in a report, including the Inspector-General's annual report to the Parliament.

3.84 The purpose of this clause is to ensure that client legal privilege in copies of legal advice provided to the Inspector-General - which is not waived by disclosure to the Inspector-General (pursuant to clause 18) - is not subsequently waived by public disclosure in a report by the Inspector-General.

3.85 Subclause (1) prevents the Inspector-General from including privileged legal advice in reports. However Subclause (2) allows the Inspector-General to refer to the fact that legal advice has been considered in the course of the review and to outline the relevance of the advice to the review; such references will need to ensure that the privileged advice is not inadvertently disclosed in breach of Subclause (1). Subclause (3) puts beyond doubt the legislative intention that legal professional privilege is not waived by a mere reference to the Inspector-General having considered legal advice in the course of a review.

Part 3 - Administrative provisions about the Inspector-General and staff

Clause 28 - Appointment

3.86 This clause provides for the appointment of the Inspector-General as a fulltime statutory office-holder by the Governor-General for a fixed term specified in the instrument of appointment and not exceeding five (5) years.

Clause 29 - Acting appointment

3.87 This clause provides for the Minister to appoint a person to act as Inspector-General of Taxation when the office is vacant. This provision is to be read in conjunction with Subclause 28(2) which requires that, whenever a vacancy occurs in the office of Inspector-General, a permanent appointment must be made as soon as practicable.

3.88 In practice, usual management principles will mean that there is likely to be a standing acting arrangement. Detail in acting arrangements in the legislation would reduce the managerial flexibility of the Inspector-General. It is intended that the structure and executive staffing of the office will be finalised in consultation with the inaugural appointee.

Clause 30 - Remuneration

3.89 The remuneration for the Inspector-General is to be determined by the Remuneration Tribunal, with provision for remuneration to be prescribed by regulation in the absence of such determination. Allowances may also be prescribed by regulation.

Clause 31 - Leave

3.90 The Inspector-General's recreation leave entitlements are to be determined by the Remuneration Tribunal. The Minister may grant the Inspector-General other leave on terms and conditions determined by the Minister.

Clause 32 - Engaging in other paid work

3.91 The Inspector-General cannot engage in other paid employment without the Minister's approval.

Clause 33 - Disclosure of interests

3.92 The Inspector-General must notify the Minister in writing of any potential conflicts of interest. Failure to provide such notification, without reasonable excuse, is a ground for dismissal of the Inspector-General by the Governor-General pursuant to Clause 35.

Clause 34 - Resignation

3.94 The Inspector-General may resign by giving written notice to the Governor-General.

Clause 35 - Termination of appointment

3.95 This clause provides that the Governor-General can only terminate the appointment of the Inspector-General on the grounds specified. The Governor-General has a discretion to dismiss the Inspector-General for misbehaviour or physical or mental incapacity. The Governor-General must dismiss the Inspector-General in situations such as bankruptcy, unauthorised absence from office, engaging in unauthorised paid employment outside the office of Inspector-General (in breach of Clause 32) and/or failing to disclose conflicts of interest (in breach of Clause 33).

3.96 Subclauses (3) & (4) clarify the effect of the Inspector-General being dismissed from office on the grounds of physical or mental incapacity for the operation of Commonwealth superannuation schemes of which the Inspector-General may be a member. These are the usual provisions applied to statutory office holders.

Clause 36 - Staff and consultants

3.97 Subclauses (1) & (2) establish the office of Inspector-General as a statutory agency for the purposes of the Public Service Act 1999. The Inspector-General's staff is to be engaged under this Act.

3.98 Subclause (3) provides for the Inspector-General to take officers of other Commonwealth agencies on secondment.

3.99 Subclause (4) empowers the Inspector-General to engage consultants.

Part 4 - Other matters

Clause 37 - Secrecy

3.100 This clause protects the secrecy of individual taxpayer information in the hands of the Inspector-General and his or her staff (as broadly defined in Clause 4 to include secondees and consultants working for the Inspector-General).

3.101 The clause mirrors the secrecy provisions in the tax laws. The Inspector-General and the Inspector-General's staff expose themselves to criminal penalties for unauthorised copying or disclosure of information about the affairs of an individual that has been obtained in the course of a review. The obligations to protect an individual's privacy extend beyond information obtained pursuant to a statutory request (under Clause 14) or notice (under Clause 15).

3.102 The prohibition against disclosure of taxpayer information obtained by the Inspector-General and the Inspector-General's staff is broad - encompassing disclosure to the Minister in reports (Clause 10), disclosure to the Courts except for the purposes of this Act (the Inspector-General of Taxation Act 2002), and any other disclosure that cannot be characterised as being in the performance of functions, powers or duties under this Act.

Clause 38 - Reporting breaches of duty or misconduct

3.103 This clause establishes a protocol for the Inspector-General to refer for appropriate action any evidence that comes to light in the course of a systems review that there has been misconduct by a tax official.

3.104 The Inspector-General will not be investigating or reporting on such matters.

3.105 Clause 39 will prohibit the victimisation of tax officials who are the subject of a report under this clause. However, it is important to note that the protections offered in Paragraphs 39(1)(e)(vi) and 39(2)(c)(vi) would not inhibit legitimate disciplinary proceedings being taken against a tax official if the Inspector-General's report has been duly investigated and actual misconduct has been established.

Clause 39 - Victimisation

3.106 This clause provides for criminal sanctions to be imposed in situations where one person victimises another person because the other person has given evidence to the Inspector-General pursuant to a statutory request (under Clause 14) or notice (under Clause 15). The clause also prohibits the victimisation of a person referred to in a report on a review, or in an annual report, by the Inspector-General.

3.107 The behaviour proscribed by this clause encompasses threats as well as causing detriment.

3.108 The provision extends to any victimisation of tax officials that occurs merely because the Inspector-General has reported apparent misconduct to the Minister or the Commissioner under Clause 38, but would not prevent legitimate disciplinary action being taken in the event that a report under Clause 38 is subsequently investigated and found to establish actual misconduct.

Clause 40 - Protection from liability for Minister, Inspector-General etc

3.109 This clause protects the Minister (who has the function of releasing reports under the Act) and the Inspector-General and the Inspector-General's staff from certain civil actions, such as defamation claims, for anything done or not done in good faith in the performance of functions, powers or duties under or in relation to this Act.

3.110 It is important to note that the protection only applies to acts that constitute a valid exercise of powers conferred under this Act and that such acts must have been done in good faith. This clause does not protect the Inspector-General from reviews under administrative law, nor does it protect the Inspector-General from criminal liability, including where such liability arises for failure to comply with provisions of this Act such as the secrecy requirements in Clause 37.

Clause 41 - Annual report

3.111 This clause provides for the Inspector-General to prepare an annual report on the operations of the office, and requires the Minister to table the report in the Parliament within 15 sitting days of receiving the report.

3.112 Subclause (2) requires the Inspector-General to include in each annual report details of directions given by the Minister under Clause 8, requiring the Inspector-General to conduct a review into a particular tax administration matter.

3.113 Subclause (3) provides that the Inspector-General cannot disclose in an annual report any information that is prohibited from disclosure in a report on a review. This would exclude from annual reports the naming or specific identification of tax officers, references to privileged legal advice, identification of individual taxpayer information, and information covered by a certificate given by the Minister suppressing disclosure in the national interest.

Clause 42 - Delegation of certain powers by Inspector-General

3.114 This clause provides that the Inspector-General may delegate certain of his or her powers to a member of the Inspector-General's staff, namely:

•

inviting and releasing submissions to an inquiry under clause 13;

•

requesting access to premises occupied by the Australian Taxation Office under clause 21;

•

giving the Commissioner of Taxation an opportunity to respond to criticisms of the Australian Taxation Office or tax officials under clause 25; and/or

•

arranging secondments or engaging consultants under clause 36.

3.115 The delegation does not extend to the core functions of the Inspector-General such as initiating an 'own motion' review or reporting on reviews. The delegation in Clause 25 does not extend to replacing the Inspector-General in any meeting that the Commissioner wishes to have with the Inspector-General pursuant to this Clause 25. The delegation covers functions that are essentially administrative.

3.116 The delegation is to any member of the Inspector-General's staff. The Inspector-General will have considerable flexibility to determine the structure and staffing profile of the office and it would not be appropriate to bind the Inspector-General to a particular hierarchical structure in order for the delegation power to be able to be exercised.

Clause 43 - Regulations

3.117 This clause provides for the Governor-General to make regulations covering matters required to be prescribed in the Act, or matters that it would be convenient to prescribe for the purposes of the Act.

3.118 Subclause (2) anticipates that it may be necessary to prescribe in regulations, fees and allowances to be paid to witnesses required to attend before the Inspector-General or a member of the Inspector-General's staff pursuant to Clause 15.

Clause 44 - Schedule(s)

3.119 This clause makes it clear that the Acts specified in the Schedules are amended as set out in the Schedules.

4 Schedule 1 - Consequential Amendments

Freedom of Information Act 1982

1. Schedule 3

4.1 This amendment includes section 37 of the Inspector-General of Taxation Act in the schedule of secrecy provisions in Schedule 3 of the Freedom of Information (FOI) Act, with the result that any document protected from disclosure by section 37 is an exempt document under Section 38 of the FOI Act.

National Crime Authority Act 1984

2. Schedule 1

4.2 This amendment includes section 37 of the Inspector-General of Taxation Act in the schedule of prescribed provisions in Schedule 1 of the National Crime Authority (NCA) Act, with the result that any information protected from disclosure by section 37 need not be provided to the National Crime Authority notwithstanding a statutory notice has been issued by the Authority requiring the production of the document under Section 20 of the NCA Act.