By Nakita Brown, Senior Associate, Axia Litigation Lawyers – 13th May 2025

In today’s demanding regulatory environment, understanding and navigating the Australian Taxation Office’s (ATO) compliance powers is essential for individuals and businesses. Under Division 353 of the Taxation Administration Act 1953 (Cth)(TAA), the Commissioner wields significant statutory authority to access information during investigations. This article provides a detailed analysis of the ATO’s statutory powers, key legal principles, available legal defences, and strategic approaches.

Division 353 of the TAA forms the cornerstone of ATO compliance statutory powers. The division is designed to ensure that the ATO can access accurate and complete data to assess tax liabilities and investigate compliance

Division 353 of the Taxation Administration Act 1953 (Cth) empowers the ATO to obtain necessary information from taxpayers to ensure accurate tax assessments.

1. Requirement to Provide Information: section 353-10(1)(a) allows the ATO to issue formal notices compelling individuals or businesses to provide information relevant to taxation matters.
2. Compulsion to Attend and Give Evidence: under section 353-10(1)(b), the ATO can require attendance and oral evidence under oath or affirmation.
3. Demand for Document Production: section 353-10(1)(c) empowers the ATO to require the production of documents relevant to tax compliance.

The ATO typically allows 30 days for compliance with a formal notice, and courts have generally regarded this as a reasonable period absent exceptional circumstances. Taxpayers seeking an extension should engage early and provide clear reasons to support their request.

Beyond Division 353, section 353-15 enables the ATO to:

1. Enter and remain any land, premises or place;
2. access at all reasonable times any documents, goods or other property;
3. Inspect, examine, make copies of, or take extracts from, any documents; and
4. Examine or test goods, including taking samples.

The Federal Court’s decision in Deputy Commissioner of Taxation v Widdup [2022] FCA 1403 underscores the practical realities for taxpayers facing ATO compliance action. The case reaffirms that the ATO’s powers to issue notices under s 353-10 are broad and largely unconstrained, provided they are exercised for the proper purpose of administering taxation law. Challenges to the validity of such notices face a high bar, with courts requiring clear evidence of bad faith or improper purpose.

The ATO’s powers under Division 353 are broad and not limited by claims of confidentiality. This means that if the ATO issues a notice, it overrides any agreement to keep information confidential. The ATO can also require information held in Australia about bank accounts located overseas. However, there are some situations where the ATO’s powers to issue notices or access information under Division 353 do not apply or are restricted.

1. Legal Professional Privilege (LPP) in ATO Investigations

LPP safeguards communications made for the purpose of obtaining legal advice but does not cover communications intended to facilitate illegal activities. Under Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543, the High Court affirmed that statutory powers to compel the production of documents or information do not override LPP unless there is clear legislative intent. However, the ATO may challenge claims to LPP if there is evidence suggesting misuse of the privilege.

Taxpayers should ensure their communications with legal professionals remain confidential, especially during ATO investigations, to avoid inadvertently compromising their position.

2. Self-Incrimination and Compelled Evidence

a. Statutory Duty vs. Individual Rights: In Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328, the High Court upheld the requirement to provide evidence, even if self-incriminatory.

b. Criminal Proceedings: While compelled evidence may be self-incriminatory, it is generally inadmissible in criminal proceedings unless there is evidence of falsity or wilful misleading, limiting its use in such cases. in R v Leach [2018] QCA 131, the Queensland Court of Appeal found that the use and disclosure of evidence obtained by the ATO under compulsion in criminal proceedings constituted a miscarriage of justice. This case highlights that prosecuting agencies must exercise caution in using or disseminating compelled evidence, as improper use can prejudice an accused’s right to a fair trial.

3. Challenging ATO Notices: Purpose and Relevance

a. Improper Purpose and Bad Faith: The Widdup decision highlights that notices will only be found invalid if there is convincing evidence that the ATO acted for an improper purpose or in bad faith—such as dishonesty or a deliberate ulterior motive. Courts have repeatedly emphasised that proof of bad faith is only likely in rare and extreme circumstances. In practice, most notices are found valid on their face if they state they are issued for the administration of tax law and there is no evidence to the contrary.

b. Relevance: Notices issued under Division 353 must be strictly confined to relevant aspects of the taxpayer’s affairs. Overbroad requests can be contested effectively, as supported by JMA Accounting Pty Ltd & Anor v Carmody & Ors [2004] FCAFC 274. The Court held that while the ATO possesses broad authority to access information, this power is not without limits. Specifically, the Court emphasised that the ATO’s access must be confined to documents and information that are relevant.

Taxpayers faced with potentially excessive or improperly issued notices are advised to seek early legal advice. Early legal advice can help preserve privilege and improve the taxpayer’s position in responding to notices or negotiating extensions.

When disagreements arise regarding ATO decisions or notice scopes, taxpayers have a statutory right to lodge an objection under Part IVC of the Taxation Administration Act. Key features include:

1. Timely Administrative Review

Once an objection is lodged, the ATO is bound to respond within a prescribed period—which can vary from 60 days to 4 years. This administrative review process offers an opportunity for dispute resolution without immediate recourse to litigation.

2. Appeal Mechanisms: Administrative Appeals Tribunal (AAT) and Federal Court Proceedings

a. Alternative Dispute Resolution via the AAT

The AAT provides a de novo review of objection decisions, allowing for fresh evidence and re-assessment of the ATO’s actions. This mechanism is particularly attractive where the taxpayer seeks a fair and independent perspective outside the constraints of the original administrative process.

b. Escalation to Federal Court Proceedings

In instances involving complex statutory interpretation or significant public interest, appeals may be escalated to the Federal Court of Australia. This route offers the benefit of judicial oversight and the setting of precedent for future administrative conduct.

3. Involvement of the Commonwealth Ombudsman

When administrative disputes reach an impasse, or when procedural fairness is in question, the Commonwealth Ombudsman (authorised under the Ombudsman Act 1976, s 5(1)) may be engaged to provide an independent review, thereby facilitating rapid and cost-effective resolution outside of traditional litigation channels.

1. Criminal Penalties

Non-compliance with an ATO notice may amount to an offence under section 8D of the Act. Such offences are typically strict liability in nature and may attract significant penalties, ranging from substantial fines to, in severe cases, imprisonment.

2. Administrative Penalties

Beyond criminal repercussions, the ATO may impose administrative penalties on those who fail to comply with information, attendance, or document production requirements. These sanctions serve as an immediate deterrent against non-compliance, aiming to reinforce the importance of timely and accurate cooperation.

3. Enforcement Proceedings

Continued non-compliance may prompt the ATO to initiate formal legal proceedings. Such actions can result in court orders mandating compliance, additional financial penalties, and increased legal costs, ultimately escalating the dispute resolution process.

The statutory powers vested in the ATO under the Taxation Administration Act 1953 are broad and designed to ensure comprehensive tax compliance. However, these measures also impose significant obligations on individuals and entities that must be carefully navigated. By understanding the legal principles—including the nuances of legal professional privilege, the implications of abrogated self-incrimination objections, and the limits of ATO authority—taxpayers can better protect their interests and respond effectively to notices.

For tailored legal support in responding to ATO investigations, notices, or disputes, Axia Litigation Lawyers offers expert advice grounded in statutory analysis and dispute resolution experience.