In the recent Federal Court case of Krok v Commissioner of Taxation a taxpayer was implied to have waived the right to legal professional privilege by disclosing documents which refer to the purpose and reasoning of legal advice. As a result, the taxpayer may be required to discover documents that would otherwise have been protected.
The taxpayer was appealing against the Commissioner of Taxation’s decision to disallow objections to notices of amended income tax assessments. The Commissioner alleged that a number of agreements and transactions entered into by the taxpayer were shams, and that the taxpayer obtained, and intended to obtain, a tax benefit.
Affidavits filed by the taxpayer referred to previous legal advice and background information and reasoning relating to the structures and arrangements put in place. The court held that the taxpayer’s purpose in disclosing the “gist, substance or effect of the advice” was to advance his case against the Commissioner. It would be unfair to deny the Commissioner an opportunity to consider the full advice, as its partial disclosure had “necessarily put in issue and laid open to scrutiny the confidential communications”. Thus, the partial disclosure of the advice received by the taxpayer, or the disclosure of the gist, substance or effect of it, was inconsistent with the confidentiality which would otherwise attach to the privileged communications and advice and it was implied that privilege had been waived.
The case highlights the importance of exercising care in disclosing information subject to legal professional privilege, and to seek professional advice in responding to enquiries or disputes with the Commissioner.
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