ATO approach to legal professional privilege

Recently, the ATO released a protocol document which contains its recommended approach for identifying communications covered by Legal Professional Privilege (LPP) and making LPP claims. As a part of ATO’s formal information gathering powers, it can compel taxpayers to provide various information and documents. However, information and documents where the underlying communication is privileged do not have to be provided.

While the purpose of the document is ostensibly to assist the ATO in deciding whether to accept, review or challenge an LPP claim in an interaction with the taxpayer, it conversely provides taxpayers with clarity in making LPP claims when responding to formal information gathering notices. The protocol applies to both legal practitioners and non-legal practitioners and all LPP claims, regardless of the firm or business structure within which the service or engagement is provided.

Where a LPP claim is made, the most challenging part of the ATO’s role is to make an informed decision about the communication and the basis on which LPP is claimed. Although the approach contained in the protocol is only voluntary and not intended to replace legal advice, the ATO notes that where the protocol is followed, it will usually have a sufficient level of information to be able to decide next steps. In many cases, it is likely that the ATO will accept the claim for LPP without further enquires.

The protocol itself contains 3 steps: assessing the situation and the communications involved; explaining the basis of the LPP claim; and advising the ATO how the LPP claim was approached.

Assessing the engagement and each communication

This step requires the taxpayer to identify each service or engagement that gave rise to the communication. For each of the engagements, taxpayers will need to review each specific communication separately (ie each email within an email chain, attachments, forwarded copy of email and its attachments), evaluate the overarching relationship, and determine the capacity in which the communication was made.

Explaining the LPP claim

It is the ATO’s view that taxpayers should explain LPP claims on or before the due date specified within the formal notice seeking information/documents, although a staged approach to accepting information may be adopted in some instances. Information required by the ATO in this step depends on the type of document and individuals involved. However, common information include name of privilege holders, the identity and role of each person between whom the document or communication was made, and the dominant purpose for which the communication was made.

Advising the ATO of approach

Finally, it is recommended that taxpayers advise the ATO of the process used for making the LPP claims framed around the following key questions: whether the first step was followed, whether any computer-assisted processes were used, and whether any assumptions or pre-determined judgements around the context of the communications guided the LPP assessment.


This article is for general information purposes only and has not been prepared with reference to the circumstances of any particular person.

You should seek your own independent financial, legal and taxation advice before making any decision in relation to the material in this article.