Tax Advice To Receive Legal Privilege In New Zealand

by Mary Swire, for LawAndTax-News.com, Hong Kong

22 September 2004

New Zealand's Finance Minister, Michael Cullen announced last week that from November, certain tax advice provided by chartered accountants to their clients will receive the same legal privilege afforded to advice given by lawyers.

“The ‘privilege’ or right of non-disclosure for tax advice provided by non-lawyers will be similar to that applying to tax advice given by lawyers who do not have to disclose that advice to Inland Revenue,” Dr Cullen explained, continuing:

“Chartered accountants should be able to give candid and independent tax advice to their clients in the same way that lawyers can. “Clients are likely to be more open with their tax advisors if the advice they receive is confidential, which will ultimately help voluntary compliance with the law."

According to the Finance Minister, communications between advisors and clients will be privileged if they have the dominant purpose of giving or receiving tax advice on tax laws. However, clients will be able to waive the privilege if they wish – for example, to defend a tax position they have taken on advice.

He went on to add:

“The privilege for non-lawyers will be subject to restrictions. Factual information included in advice given to clients will have to be disclosed to Inland Revenue in the form of a statutory declaration. There will also be exclusions for information that supports financial statements and tax returns, for non-tax advice such as valuation and investment advice, and for matters relating to debt recovery and fraud."

The announcement has been welcomed by New Zealand's accountants, many of whom felt that the lack of privilege with regard to tax advice was losing them business to the legal community.

Speaking to the New Zealand Herald last week, tax director of the Institute of Chartered Accountants, Annabel Young observed that the arrangement was likely to benefit the tax authorities as well, suggesting that:

"What Inland Revenue get out of this is access to the facts of a transaction with probably less difficulty than they have now."

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