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Beware the email trail - evidence from revealing correspondence
In brief: A recent ex parte application in the Federal Court for freezing orders and other interlocutory relief against several taxpayers starkly illustrates the importance that email correspondence may play in disputes. Evidence supporting the application included an affidavit from ‘a computer forensics officer employed in the Forensics and Investigations team of the ATO.’ The evidence of that ATO officer was that documents purportedly made in 2003 had actually been created in 2015, subsequent to the commencement of an ATO audit and associated notice issued to the taxpayers’ accountant to provide information under (former) s 264 ITAA36. Further evidence based on email correspondence involving personnel from the taxpayers’ accountants was alleged to support the fact that the relevant documents ‘were created in February 2015 and backdated to give the appearance that the documents came into existence in May 2003.’
More: This case involved fairly extreme circumstances, where total tax and penalties at issue exceeded $34M and documents had ultimately been seized from premises associated with the relevant accounting firm under search warrants executed by the Federal Police. However, the point is that email correspondence does not have the confidentiality that we intuitively attribute to it. Best practice is to approach the writing of any document or correspondence with the attitude that it may ultimately be viewed by a range of people, including regulatory authorities.
Such incriminating evidence sometimes becomes unveiled from unrelated circumstances. For example, there have been reported cases where a taxpayer has been practically obliged to produce financial evidence, showing much greater business income than what has been reported to the ATO, to defend against an allegation of misrepresentation by a subsequent purchaser of the taxpayer's business. And the discovery process in proceedings for professional negligence against a professional advisor may also throw up incriminating evidence about an understatement of taxable income, perhaps even involving criminal acts. Whether or not the primary matter before the court involves taxation, the Judge will usually make orders for it to be passed on to the ATO. (DC of T v Advanced Holdings Pty Ltd  FCA 1263)
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