Contributed by Edwin Carr, Senior Content Editor at Wolters Kluwer and Contributor to CCH Books’ Australian Master Tax Guide
The government proposes to extend legal protection to whistleblowers who disclose information on or after 1 July 2018 about tax avoidance and other tax issues. Protection will include immunity from legal action for relevant disclosures, a new offence of threatening or harming a whistleblower, compensation for damage suffered and protecting a whistleblower’s identity.
Public companies and large proprietary companies will be required to have a whistleblower policy that includes information about all protections available to whistleblowers, including those for tax whistleblowers.
Currently, there are no whistleblower protections in tax law. The exposure draft — the Treasury Laws Amendment (Whistleblowers) Bill 2017 — will introduce new protections for disclosures about tax matters. This follows the government’s announcement in the 2016/17 Budget that it would legislate to protect individuals reporting tax avoidance to the ATO. However, the draft law goes much further than that.
The government is also strengthening, broadening and harmonising the existing whistleblower protections and remedies in the corporate, financial and credit sectors. It will do this by consolidating financial sector whistleblower regimes into the Corporations Act 2001 and enhancing those provisions. One of the regimes to be merged is the protections for superannuation fund whistleblowers in Pt 29A of the Superannuation Industry (Supervision) Act 1993. The new regime will apply to whistleblower disclosures made on or after 1 July 2018.
Protections for tax whistleblowers will be “broadly consistent” with those to be provided by the Corporations Act, with some significant differences.
The tax measures will be in proposed Pt IVD of the Taxation Administration Act 1953 (proposed s 14ZZT to 14ZZZC). Key features of the measures are:
- protections for tax whistleblowers making eligible disclosures
- whistleblowers are not required to identify themselves when making eligible disclosures
- specific protections and immunities against victimisation
- a compensation regime, and
- protections for a whistleblower’s identity.
Disclosures qualifying for protection
A disclosure must be made by an eligible whistleblower, to a whistleblower disclosee, about a whistleblower entity (defined very broadly), or its associates, and the whistleblower must have reasonable grounds to suspect that the entity or an associate has not complied with a taxation law and/or it has avoided tax.
To qualify for protection, the disclosure must be made to the following kinds of “whistleblower disclosee”:
- the Commissioner or an auditor of the whistleblower entity, or a member of the audit team
- a person connected to the whistleblower entity who is likely to be able to investigate and take action in response to the disclosure, or
- a person or body prescribed in relation to the whistleblower entity.
An individual will also be protected for a disclosure to his/her lawyer that is made for the purposes of seeking legal advice.
Where the whistleblower entity is a body corporate, a protected disclosure may be made to a director, secretary or senior manager of the company, or to a person authorised to receive disclosures that may qualify for protection.
In contrast to the Corporations Act whistleblower protections, the tax regime does not protect disclosures to third parties such as the media or a member of parliament.
The explanatory material accompanying the draft law gives two reasons. The first is the sensitive nature of taxpayer information, the confidentiality of which is generally protected by the law and as a matter of public policy. The confidentiality of taxpayer information is critical because it assists the ATO to conduct its audit and investigative functions effectively. Premature public disclosures could compromise complex investigations by the ATO and other enforcement bodies, and subsequent prosecutions. Secondly, protecting third party disclosures is thought to be more likely to encourage vexatious disclosures, particularly in relation to taxpayers who are individuals.
To qualify for protection in relation to a disclosure, an individual must have a relevant current or former connection with the whistleblower entity or an associate of the entity. An eligible whistleblower is:
- an officer or employee of the whistleblower entity
- an individual with a contract for the supply of services or goods to the entity or their employee
- an individual who is an associate (per s 318 of the ITAA 1936) of the entity
- a spouse or child of any individual referred to above, and
- a dependant of any individual referred to above or of the individual’s spouse.
Protections for whistleblowers
Eligible whistleblowers will not be subject to any civil or criminal proceedings for making disclosures, and no contractual or other remedy may be enforced against them on the basis of the disclosure.
If the disclosure is made to the Commissioner, potentially incriminating information will not be admissible in evidence against them in criminal proceedings or in proceedings for the imposition of a penalty.
The whistleblower will not, in the absence of malice, be liable to an action for defamation in respect of a disclosure.
The tax whistleblower regime will protect a whistleblower from termination of employment, or termination of some other contract to which he/she is a party.
In the event of a termination of employment resulting from making a protected disclosure, the court may make an order for reinstatement.
It will be an offence to victimise another person because of a whistleblower disclosure — both the whistleblower and other people, including those involved in the disclosure or investigating it or those who assist or support a whistleblower. The offence also covers threats to the whistleblower, or other persons. For this purpose, detriment is defined widely and includes dismissal or alteration of the employee’s position, harm or injury, discrimination, harassment, and damage to property, reputation or financial position.
An individual can seek compensation in the courts for damage suffered as the result of victimisation.
Protection of whistleblower’s identity
It will be an offence to disclose the identity of a whistleblower, or information that is likely to lead to their identification. An exception to the offence is that the whistleblower’s identity can be provided to the ATO, the AFP or to a person or body with the whistleblower’s consent, ensuring that the alleged wrongdoing can be properly investigated.
The ATO, AFP or other authorised person or body must act as if they were the original receiver of the information and protect the identity of the whistleblower and treat the information disclosed as confidential.
As in the enhanced whistleblower provisions in the Corporations Act, the tax provisions prohibit the courts from publishing the name of a discloser or a victim in relevant proceedings.
Large companies must have a whistleblower policy
From 1 January 2019, all public companies and large proprietary companies will be required to have a whistleblowing policy that includes information about the protections available to whistleblowers, as well as how the company will ensure fair treatment of employees mentioned in whistleblower disclosures. The policy must be made available to people who may be eligible whistleblowers in relation to the company. It will cover the consolidated regime in the Corporations Act and include the protections in the tax whistleblower regime.
A “large proprietary company” is one which, at the end of the financial year, meets at least two of the following criteria (Corporations Act s 45A):
- consolidated revenue of the company and controlled entities for the financial year is $25m or more
- the value of consolidated gross assets of the company and controlled entities at the end of the financial year is equal to or greater than $12.5m or more, or
- the company and controlled entities have at least 50 employees at the end of the year, including part-time and casual employees as a fraction of a full-time employee.