Taxpayer’s legal privilege waived in his rejection of Australian taxpayer status

A taxpayer has lost his bid to claim legal professional privilege over documents, after the Commissioner of Taxation determined him liable for administrative penalties for lodgments for four income tax years.

The Commissioner of Taxation rejected the taxpayer’s objection in a decision dated 18 May 2022. One month later, he applied for a review.

He asserted that he is not a resident of Australia for tax purposes, and the Administrative Review Tribunal waived legal privilege on his supporting documentary evidence to a critical expert report.

The report provided evidence from an expert witness supporting his status as a resident of China for tax purposes.

The administrative penalties involved returns for income years ended 30 June 2016, 30 June 2017, 30 June 2018, and 30 June 2019.

The taxpayer argued that, on the basis that he is not a resident of Australia for tax purposes, deposit and interest amounts should not have been included in his assessable income; and that he was entitled to the tax credit and administrative penalties should not have been imposed in light of these income years.

The expert witness report

In support of his review, the taxpayer filed numerous supporting documentary evidence, including the report of an expert witness.

“The Applicant filed a number of witness statements and supporting evidence the weekend before the dismissal interlocutory hearing,” the Tribunal said.

In this bundle of evidence accompanying the expert report, the Tribunal found that he omitted some annexures, or attachments to letters of instruction, claiming that these documents were legally privileged.

The expert witness, King & Wood Mallesons Shanghai tax partner, Ms Y, set out her opinion on whether the taxpayer was a tax resident of China under Chinese law.

Attached to the report were three letters of instruction sent by the applicant’s solicitor to Ms Y, which contained a calculation of the number of days Ms Y believes that the Applicant had resided in China and copies of relevant Chinese laws, regulations and guidelines.

“Each letter of instruction contains the words ‘strictly confidential and subject to legal privilege’ on the first page,” the Tribunal said.

“The Tribunal does not accept that the application of this wording to the second letter of instruction, of itself, prevents privilege being waived.”

Only two letters of instruction subject to privilege

“The Respondent agrees that the second and third letters of instruction provided by the Applicant’s solicitor to Ms Y were, at least at the time they were sent to her in 2024, privileged,” the Tribunal said.

“The Respondent accepts that regardless of how those letters of instruction were labelled, their nature as documents that were made for the purpose of forming part of the confidential communications between the Applicant’s solicitor and Ms Y to procure her opinion for use in the Tribunal proceedings.”

While it accepted legal privilege for the two letters of instruction, it ruled that the drafts of the Second Witness Statements gave rise to a waiver of privilege.

“The Tribunal believes that the Applicant has waived privilege over the communications comprising the drafts of the Second Witness Statement (and exhibits thereto) referred to in the second and third letters of instruction from the Applicant’s representative to Ms Y dated 25 January 2024 and 31 May 2024,” it said.

“The Tribunal believes that where privilege is waived over the drafts of the Second Witness Statements this extends to the exhibits.”

The Tribunal further noted that a 2024 version of the Second Witness Statement provided to Ms Y was silent on whether it was sent under cover of a further letter of instruction or with other exhibits or accompanying material.

“The Tribunal does not believe that the Applicant has breached the Practice Direction by failing to provide copies to the Tribunal and/or Respondent of drafts of the Second Witness Statement identified in the letters of instruction,” it said.

“If there was further correspondence with Ms Y of this nature, the failure to reference this material may be non-compliant with the Practice Direction.”

Waived legal privilege

The Tribunal concluded that the applicant waived privilege over communications comprising the drafts of the Second Witness Statement, as there could be an inference drawn that the drafts and exhibits were used in a way that could be said to have influenced the content of the Y Expert Report.

Upon consideration of all evidence, the Tribunal reduced the applicant’s claim of legal privilege to the second and third letters of instruction, and made directions for the applicant to file any updated expert report of Ms Y by 5 pm on 30 September 2026.

Following the submission of these documents, the Tribunal said that it will then make further directions for the progression of this matter to final hearing.

The case citation: QGJS and Commissioner of Taxation (Practice and procedure) [2026] ARTA 2206 (29 September 2026).