While the ATO has formal powers to access most documents, it takes the view that in all but exceptional circumstances, a certain class of documents should remain confidential to you and your accountant. This is known as accountants’ concession.
Why was the accountants’ concession implemented?
In explaining the basis for the accountants’ concession, the ATO guidelines state that “Taxpayers should be able to consult with their professional accounting advisers on a confidential basis in respect of their rights and obligations under taxation laws to enable full and frank discussion to take place and for advice to be communicated on that basis.”
The ATO’s cooperative approach
While the ATO has formal access powers, it generally takes a cooperative approach to tax audits where these powers are not used. While the ATO’s guidelines state that accountants’ concession applies to certain documents, a taxpayer may still wish to provide these documents to the ATO as part of a cooperative approach.
What types of documents are subject to accountants’ concession?
The ATO outlines three main types of documents:
- Source documents: Documents which record a transaction or arrangement entered into by a taxpayer, including ledgers, journals, financial statements, and balance sheets.
- Restricted source documents: Advice and advice papers prepared by an external accountant solely for the purpose of advising a client on matters associated with taxation. For example, advice given to a taxpayer on how to structure or record a transaction or arrangement, and which is acted upon.
- Non-source documents: Other advice and advice papers which may include:
- Advice provided after a transaction has been completed where the advice did not affect the recording of the transaction or arrangement.
- Advice papers (that would otherwise be restricted source documents) which relate to transactions or arrangements which the taxpayer has not, and does not intend to, put into effect.
- Papers contained in the current audit file prepared or obtained by an external accountant, such as the engagement letter and audit plan.
The ATO will seek full access to source documents.
Restricted source documents and non-source documents are subject to accountants’ concession and will only be sought in exceptional circumstances with the written approval of a Deputy Commissioner or another appropriate ATO officer.
What constitutes ‘exceptional circumstances’?
Access to restricted source and/or non-source documents may be sought if:
- There are reasonable grounds to believe that fraud, tax evasion, or other illegal activity has taken place.
- Where the taxpayer’s source documents have been lost or destroyed, or have omissions or other material deficiencies, and the ATO cannot determine the tax consequences of a transaction or arrangement.
- Where the taxpayer or their accountant have not provided source documents requested by the ATO within 30 days from the receipt of the request.
- Where neither the taxpayer’s records nor the taxpayer can be located.
- Where records are maintained overseas, and the taxpayer denies access to, or claims an inability to obtain those records or documents.
Making a claim for accountants’ concession
If the ATO requests a document which you believe constitutes a restricted source and/or non-source document, and there does not appear to be a valid justification for the request, you will need to make and justify your claim for the accountants’ concession in relation to the document. The claim forms are available here.
The ATO has formal powers to access documents and other information to ascertain a taxpayer’s compliance with tax laws. However, the principle of accountants’ concession dictates that the ATO only has full and free access to source documents, with restricted source and non-source documents being protected as confidential. Nevertheless, under exceptional circumstances, such as when the ATO suspects that fraud or tax evasion have occurred, it can use its formal powers to access these documents.