Section 264 notices – courts uphold the ATO’s power to gather information26 September 2012 Topics: Tax and revenue
The extensive powers of the Australian Tax Office (ATO) to issue notices under section 264 of the Income Tax Assessment Act 1936 have been confirmed in the recent decisions of Binetter v Deputy Commissioner of Taxation and Australia and New Zealand Banking Group Limited v Konza.
Under section 264, the Commissioner may require any taxpayer to:
- provide information (section 264(1)(a))
- give evidence concerning their own or any other person’s tax affairs (section 264(1)(b))
- produce documents and records relating to their own or any other person’s tax affairs (section 264(1)(b)).
The Commissioner argued that the deposits made into a joint Commonwealth Bank account over a period of 8 years were assessable income and issued amended assessments. The taxpayer objected on the basis that the deposits represented loan repayments and were therefore not assessable income.
In response, the Commissioner issued a section 264 notice requiring the taxpayer to provide details of various bank accounts and evidence of loans.
The taxpayer challenged the validity of the notice on the following grounds:
- Compliance would amount to self-incrimination.
- Legal professional privilege applied in respect of professional accounting advice.
- The request was misleading, confusing and unreasonable.
- The notice was issued for the improper purposes of obtaining admissions or pre-trial discovery or other advantage in future litigation.
The Full Federal Court rejected the argument that the notice was subject to self-incrimination privilege because the taxpayer’s privilege claim was hypothetical and was not made in respect of any particular requirement in the notice.
The Court also rejected the taxpayer’s submission that the notice was misleading or issued for an improper purpose. The notice was issued pursuant to a proper function of the Commissioner. The purpose of issuing section 264 notices is to allow the Commissioner to gather information so that he can make a decision on the taxpayer’s claim.
The Commissioner issued two section 264 notices to ANZ Bank requiring it to provide documents and information about customers who had accounts with it or its subsidiaries in Vanuatu.
ANZ argued that the notices were invalid on the following grounds:
- Compliance would breach common law confidentiality obligations owed by the bank to its customers.
- The requests sought information about customers in Vanuatu who may not be Australian tax residents.
- The notices were uncertain and oppressive.
The Full Federal Court upheld the validity of the first notice but ruled that the second notice was invalid because of uncertainty in the information it required ANZ to provide.
In reaching this conclusion the Court made several observations.
- Section 264 confers very broad investigative powers on the Commissioner so that he can perform his responsibilities under the tax law.
- A section 264 notice overrides any contractual obligation of confidentiality.
- The request for information is not restricted to information relating to Australian taxpayers.
The second notice was found to be uncertain because of the use of the word ‘officers’. It required ANZ to examine the definitions of ‘officer’, ‘director’ or ‘agent’ by reference to applicable Vanuatuan legislation. It was also uncertain because it did not sufficiently define, by criteria or by reference to the information known by ANZ, the information that ANZ was to produce.
What these decisions mean for taxpayers
The Commissioner has signalled his intention to increase the use of section 264 notices as part of his audit and review processes.
It is important for taxpayers to understand that they are legally bound to respond to the Commissioner’s request and there are serious consequences for a failure to comply.
Recipients of section 264 notices also need to take care in responding so that they do not inadvertently waive claims for legal professional privilege or breach confidentiality requirements. Taxpayers need to tread carefully so that they respond in a way that complies with the notice but does not divulge information that is not required by the notice or information that may be privileged.
For further information on this topic, please contact Greg Cahill or Fletch Heinemann from our commercial team on +61 7 3231 2444.