The ATO said legal professional privilege claims over non-privileged documents had led to extended disputes about information gathering instead of focusing on the issues.

ATO Deputy Commissioner Rebecca Saint said the protocol had been developed to address ATO concerns that LPP claims were being inappropriately asserted — either deliberately or through taking shortcuts — with the result that key materials, facts, and evidence were inappropriately withheld from the ATO.

“Reckless LPP claims over non-privileged documents unduly hinder ATO investigations and lead to extended disputes about information gathering, instead of focusing on the resolution of the substantive issue,” she said.

“These issues have largely arisen in relation to privilege claims made by large businesses that have received a formal notice as part of a dispute or audit activity.

“The ATO can compel the production of information and documents as part of our investigations. However, we cannot compel the production of information or documents where the underlying communication is privileged.

“The courts have supported the ATO’s view that we can request details of LPP claims. Whilst we respect and accept appropriate claims, we require sufficient information to be able to decide whether to accept, review, or challenge a claim of LPP.”

The protocol was relevant to taxpayers claiming LPP when responding to formal notices and covered claims by both legal and non-legal practitioners regardless of the firm or business structure.

It clarified that the ATO could not and would not simply accept blanket claims for privilege or claims without sufficient underlying contextual information.

“This protocol will support the right of taxpayers to keep their legal advice confidential while at the same time giving taxpayers a robust framework to enable the ATO to have confidence that all other relevant documents have been provided,” Ms Saint said.

Following the publication of a draft protocol last September, the ATO consulted with government agencies, the big four accounting firms, and professional bodies including the Law Council of Australia.

The Law Council welcomed the protocol but said more work was needed to ensure that privileged material continued to be protected.

“While the protocol correctly acknowledges that LPP is a fundamental common law right and the court is the ultimate decision maker in respect of LPP claims, we must ensure LPP is always respected and not put at risk,” Law Council of Australia president Tass Liveris said.

The Law Council raised concerns in its submission about instances where the ATO appeared to be requesting information about the subject matter of advice, including information such as subject lines.

In the protocol, the ATO recommends the provision of particulars including “a title or subject line of the communication, except to the extent that disclosure of the title or subject line would also disclose the content of legal advice”.

The ATO will publish a detailed compendium of key feedback on the draft.