House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 4: PwC response - Information sharing

Outline of chapter

4.1 Schedule 4 to the Bill amends the TAA 1953 and the TAS Act to deliver part of the Government's response to the breach of confidence and unethical use of confidential information by PwC. The amendments allow taxation officers and TPB officials to share protected information with Treasury about misconduct arising out of breaches or suspected breaches of confidence by intermediaries engaging with the Commonwealth. The amendments also allow taxation officers and TPB officials to share protected information with prescribed professional disciplinary bodies to enable them to perform their disciplinary functions.

Context of amendments

4.2 In August 2023, the Government announced a package of reforms in response to tax adviser misconduct in Australia, to ensure that tax advice is provided in accordance with appropriate professional and ethical standards. The PwC tax leaks scandal has shown that the current secrecy provisions prevented collaboration and coordination within government to respond to misconduct by large consulting, accounting and auditing firms who engage with the Commonwealth.

4.3 The package of reforms included:

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removing limitations in the tax secrecy laws that were a barrier to regulators acting in response to PwC's breach of confidence; and

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enabling the ATO and TPB to refer ethical misconduct by advisers (including but not limited to confidentiality breaches) to prescribed professional disciplinary bodies for disciplinary action.

4.4 Schedule 4 to the Bill implements these objectives through legislative changes to the secrecy provisions in the TAA 1953 and the TAS Act.

Comparison of key features of new law and current law

Table 4.1 Comparison of new law and current law

Detailed explanation of new law

Increasing the power of the regulators

4.5 To maintain the privacy and confidence of entities interacting with the tax system, and to ensure the maintenance of high levels of voluntary compliance with the tax laws, the secrecy provisions in the taxation laws impose strict obligations on those who receive information under a taxation law. The disclosure of information about the tax affairs of a particular entity is prohibited, except in certain specified circumstances as detailed in Division 355 in Schedule 1 to the TAA 1953 and Subdivision 70-E of the TAS Act.

4.6 Previously, there was no general principle that would allow disclosure to relevant professional disciplinary bodies simply because the ATO or TPB had evidence of legal or ethical misconduct by members of the relevant body.

4.7 The PwC tax leaks scandal exposed limitations on the power of the regulators to respond to misconduct by tax advisers and firms. It highlighted that current secrecy provisions prevent government agencies from communicating effectively with one another in order to maintain the integrity of the tax system, as well as the process by which Government consults intermediaries. In the PwC scandal the ATO became aware that PwC had breached an obligation of confidence to the Commonwealth and used that information to develop schemes to avoid the application of the proposed law. The ATO was not able to share the relevant information with Treasury.

4.8 In this explanatory memorandum, the term 'breach of an obligation of confidence' and 'breach of confidence' are used to refer to the same equitable doctrine.

4.9 The amendments will assist the Commonwealth in identifying and pursuing suspected breaches of confidence and act as a deterrent to future misconduct by intermediaries engaging with the Commonwealth. Treasury will have the relevant information to lead responses on behalf of the Commonwealth to breaches or suspected breaches of confidence. Professional associations who have responsibility to regulate their specific profession will have the relevant information to undertake disciplinary actions.

4.10 Section 355-15 of Division 355 of Schedule 1 to the TAA 1953 specifies that Division 355 applies in the same way as it does to a 'taxation officer' to individuals who are appointed by the Commonwealth and perform functions or exercise powers under or for the purposes of a 'taxation law' (which, as defined under the ITAA 1997, includes the TAS Act).

4.11 TPB staff are APS employees employed by the ATO and whose services are made available to the TPB. In this explanatory memorandum, the term 'TPB official' is used instead of 'taxation officer' to avoid confusion between the employees that work at the ATO and those that work at the TPB.

4.12 The type of information that is subject to such strict obligations is known as 'protected information' under the TAA 1953 (section 355-30 of Schedule 1) and 'official information' under the TAS Act (section 90-1). Despite differing terminology, both have the same meaning – they refer to information disclosed or obtained under their relevant acts, which relate to the affairs of a person, and identify, or can reasonably identify the person to whom that information belongs. In this explanatory memorandum, the term 'protected information' is used in reference to both Acts for brevity.

Information sharing with the Treasury

4.13 Schedule 4 to the Bill amends the TAA 1953 to allow taxation officers to share protected information with the Secretary of the Treasury Department where certain criteria are met:

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There is a breach or suspected breach of an obligation of confidence by an entity against the Commonwealth or a Commonwealth entity;

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The obligation arose in connection with the entity providing advice, or otherwise providing services, to a Commonwealth entity either as an entity engaged by the Commonwealth entity for that purpose, or as an entity representing a taxpayer;

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The sharing of the protected information is for the purpose of enabling or assisting in the consideration, development or implementation of any measure, or the taking of any action, directed at dealing with the breach or suspected breach.

[Schedule 4, item 1, table item 14 of the table in subsection 355-65(8) of Schedule 1 to the TAA 1953]

4.14 Confidence may be contractual, such as in a non-disclosure agreement but does not have to be. In situations where there is no statute, contract or relationships which expressly protect confidential information, the information may still be subject to a duty of confidence, and the sharing of that information by an entity would found an action for breach of confidence.

4.15 The advice provided by an entity may have been as a service provider or as a taxpayer representative and was provided by means other than by public consultation. This could include but is not limited to private consultations, working groups and roundtables, where individuals were required to sign non-disclosure agreements, privacy agreements, or other such agreements with any Commonwealth department, agency, and body to ensure integrity and confidentiality in the policy development process. The advice provided does not need to be provided for a fee.

4.16 The criteria for a record or disclosure relating to the purpose for Treasury developing and implementing an appropriate measure on behalf of the Commonwealth is that this purpose can be interpreted to include a number of activities. For example, the Treasury may develop measures that are broader than directly addressing the breach (for example, the amendments in Schedule 4 are broader than specifically responding to the PwC breach) or may take action directed at dealing with the specific breach or suspected breach. We do not wish to limit Treasury's options when investigating a potential breach of confidence.

4.17 Schedule 4 to the Bill amends the TAS Act to allow TPB officials to share protected information with the Secretary of the Treasury Department for the same purposes. [Schedule 4, item 4, section 70-40 of the TAS Act]

On-disclosure of information to the relevant Ministers

4.18 Under the tax secrecy provisions in the TAA 1953, someone who is not a taxation officer is prohibited from disclosing protected information except in certain circumstances. Under the secrecy provisions in the TAS Act, someone who is not a TPB official is prohibited from disclosing protected information except in certain circumstances.

4.19 The amendments introduce a new exception in the TAA 1953 to allow the disclosure of protected information obtained by the Treasury with the Minister and Finance Minister for the purpose of Treasury developing and implementing an appropriate response on behalf of the Commonwealth to a suspected breach of confidence by those providing advice to the Commonwealth, either as service providers to the Commonwealth or representing taxpayers in their interactions with the Commonwealth. [Schedule 4, item 2, section 355-181 of Schedule 1 to the TAA 1953]

4.20 Similarly, the amendments to the TAS Act allow the disclosure of protected information obtained by the Treasury for this same purpose. Due to the legislative framework of the TAS Act a new distinct on-disclosure exception is not required. The information sharing exception that allows TPB officials to share protected information with Treasury includes sharing that information for the purpose of enabling or assisting the Secretary or an SES employee of the Department to advise the Minister and the Finance Minister in relation to the breach or suspected breach. Under the TAS Act, the sharing of the information from Treasury to Ministers is in line with the 'original purpose' exception (see section 70-45(4)). [Schedule 4, item 4, subparagraph 70-40(5)(d)(ii) of the TAS Act]

4.21 This is intended to ensure that Treasury officials may advise the relevant Ministers about a breach, or suspected breach, of an obligation of confidence against the Commonwealth or a Commonwealth entity. This includes any proposed measure or action directed at dealing with such a breach or suspected breach.

4.22 As this provision is an exception to the offences in section 355-155 of Schedule 1 to the TAA 1953 and subsection 70-35(1) of the TAS Act, the evidential burden of proof is reversed in this instance.

4.23 A consequential amendment is made to reference the new exception in section 355-320 of Schedule 1 to the TAA 1953 to ensure that the existing limits on on-disclosure to Ministers applies to this new exception. [Schedule 4, item 3, section 355-120 of Schedule 1 to the TAA 1953]

4.24 Treasury officials are already able to consult with their counterparts in the Department of Finance, ahead of providing advice to the Finance Minister, under the existing 'original purpose' on-disclosure exception in section 355-175 of Schedule 1 to the TAA 1953 and section 70-45 of the TAS Act. The 'original purpose' on-disclosure exception also allows Treasury on-disclosing protected information in other circumstances such as:

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to seek legal advice about a course of action to respond to the breach or suspected breach;

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to consult with other agencies in relation to the work on a proposed response.

Information sharing with professional disciplinary bodies

4.25 Previously, there was no general principle that would allow disclosure to relevant professional disciplinary bodies simply because the ATO or TPB had evidence of legal or ethical misconduct by members of the relevant body. The limited situations were only where disclosure would fall under existing disclosure exceptions (e.g. the performance of duties exception) or the TPB's power to give notification about the outcomes of an investigation (see subsection 60-125(8) of the TAS Act). This prevented professional associations or independent regulators from receiving information which may have enabled them to pursue disciplinary actions against their members where they were not otherwise aware of the behaviour. This inhibits the proper operation of the self-regulatory model that exists in many professions.

4.26 Schedule 4 to the Bill amends the TAA 1953 to provide that a taxation officer may disclose protected information in relation to acts or omissions by a person to a prescribed professional disciplinary body where the taxation officer reasonably suspects acts or omissions may constitute a breach of the prescribed disciplinary body's code of conduct or professional standards. The disclosure must be for the purpose of enabling or assisting the prescribed disciplinary body to perform one or more of its functions. Professional disciplinary bodies will be prescribed in the regulations. [Schedule 4, item 1, table item 15 of the table in subsection 355-65(8) of Schedule 1 to the TAA 1953]

4.27 Professional disciplinary bodies are not limited to professional associations. Independent professional regulators may also be prescribed. The term 'disciplinary body' is intended to provide for bodies that exist across different professions who are responsible for regulating a particular profession.

4.28 Schedule 4 to the Bill also similarly amends the TAS Act to allow a TPB official to disclose protected information to professional disciplinary bodies prescribed in the regulations. [Schedule 4, item 4, subsection 70-40(6) of the TAS Act]

4.29 Prior to prescribing any professional disciplinary bodies, consideration will be given to whether the body has appropriate processes and safeguards in place to ensure any disclosed information is dealt with in a way that allows relevant disciplinary processes to occur while ensuring the protected information is appropriately managed.

4.30 On-disclosure provisions in the current law (see section 355-155 of Schedule 1 to the TAA 1953) allow the staff of a professional disciplinary body who receive the information from the taxation officer or TPB official to on-disclose the information within the body. This means that the information received by the body can be shared with the relevant people within the body who need to know the information in order for the disciplinary functions to be performed.

Safeguarding identifying information of taxpayers

4.31 The amendments include safeguards to ensure any disclosure does not include information that would disclose the identity of any taxpayer not involved in any wrongdoing represented by an intermediary that is the focus of the disclosure unless doing so would prevent action being taken against the intermediary. While noting that the disclosure of information to Treasury or to a prescribed professional disciplinary body may include the personal information of both the person involved in any breach of confidence as well as individual taxpayers, these safeguards and the limited circumstances in which this information can be on-disclosed ensures that any potential impact on a person's privacy is limited.

4.32 A taxation officer cannot disclose the ABN, name, contact details or personal information of any entity other than the entity that is suspected of the misconduct, unless the Commissioner is satisfied that the inclusion of the information is necessary:

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for the purposes of enabling or assisting in the consideration of the development or implementation of any measure, or the taking of any action, directed at dealing with the breach or suspected breach (for information sharing to the Treasury); or

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for the purposes of enabling a prescribed disciplinary body to perform one or more of its functions in respect of the first entity (for information sharing to a prescribed professional disciplinary body).

4.33 The Commissioner is able to delegate this responsibility to a Second Commissioner or a member of the Senior Executive Service. This streamlines processes and supports the effective exercise of powers and functions. [Schedule 4, item 1, paragraphs (c) and (d) of table items 14 and 15 of the table in subsection 355-65(8) of Schedule 1 to the TAA 1953]

4.34 Similarly, a TPB official cannot disclose identifying information about a third party unless the Board or an individual acting on behalf of the Board is satisfied that the inclusion of the information is necessary:

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for the purposes of enabling or assisting in the consideration of the development or implementation of any measure, or the taking of any action, directed at dealing with the breach or suspected breach (for information sharing to the Treasury); or

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for the purposes of enabling a prescribed disciplinary body to perform one or more of its functions in respect of the first entity (for information sharing to a prescribed professional disciplinary body). [Schedule 4, item 4, paragraphs 70-40(5)(e) and (6)(e) of the TAS Act]

Use of offence-specific defences

4.35 Section 355-25 of Schedule 1 to the TAA 1953 makes it an offence for taxation officers to record or disclose protected information. Section 70-35 of the TAS Act makes it an offence for a defined person to record or disclose protected information. Both the TAA 1953 and the TAS Act currently contain a number of exceptions that allow for the disclosure of protected information in limited circumstances.

4.36 The exceptions to the general secrecy offences inserted into the TAA 1953 and TAS Act by Schedule 4 to the Bill therefore reverse the evidential burden of proof. The Guide to Framing Commonwealth Offences states that the use of offence-specific offences will be appropriate in circumstances where the matter is peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove the matter.

4.37 In relation to the disclosure of information to Treasury, a disclosure cannot be made unless there has been a breach of an obligation by an entity, or the discloser reasonably suspects there may have been a breach. In these circumstances, it is likely that the discloser may be the only person aware of the breach or potential breach, especially where the discloser reasonably suspects that a breach may have occurred. Additionally, it may be more difficult and costly for the prosecution to prove the matter.

4.38 In relation to the disclosure of information to a prescribed professional disciplinary body, a disclosure cannot be made to a professional disciplinary body under the TAA 1953 or TAS Act unless the taxation officer or TPB official reasonably believes that there may have been a breach of a professional disciplinary body's code of conduct. As a result, whether a reasonable belief existed will be information that is peculiarly within the knowledge of the defendant and would be significantly more difficult for the prosecution to disprove. Therefore, it is appropriate to reverse the evidential burden of proof in this instance.

4.39 In relation to any on-disclosure made to the Minister or the Finance Minister, it may be peculiarly within the knowledge of the defendant as to what the purpose of any disclosure was as it may not be clear from the evidence available. As any on-disclosure is not required to be in writing, it may be more difficult or costly for the prosecution to disprove the matter.

Commencement, application, and transitional provisions

4.40 Schedule 4 to the Bill commences the day after Royal Assent.

4.41 The amendments apply in relation to records and disclosures of information made on or after commencement of Schedule 4 to the Bill, whether the information was obtained before, on or after that commencement. [Schedule 4, item 5]