Compliance note 1/90

Collection of tax file numbers by investment bodies

• Collection of tax file numbers by investment bodies
• Background
• General principles
• Collection of tax file number information
• Legal basis for TFN collection
• TFN quotation for existing account holders
• Taxation
• TFN quotation for new accounts from new investors
• TFNs for client-based systems
• Recording and storage of tax file number information

The purpose of this Compliance Note is to offer guidance to investment bodies on the privacy aspects of the collection of tax file numbers required to be undertaken by them in preparation for Stage 2 (investment income stage) of the implementation of the tax file number system. The Compliance Note should be read in conjunction with the Privacy Act's Interim Guidelines concerning the Collection, Storage, Use and Security of Tax File Number Information and any further Guidelines which are issued.

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Background

In 1988 the Federal Parliament passed legislation allowing for a stronger tax file number system to be introduced, subject to strict privacy safeguards, to combat tax evasion. This followed the Government's decision not to proceed with the Australia Card proposal.

Under the tax file number system, a person has the option of quoting his or her tax file number in respect of income earned (either employment income or investment income). A decision not to quote a tax file number or claim an exemption from the requirement will result in tax on the relevant income being withheld at source at the highest marginal rate. Those who handle tax file numbers are required to observe relevant provisions of the Income Tax Assessment Act and of the Privacy Act.

The implementation of the tax file number system involves two stages. Stage 1 covered employment income (wage and salary) and commenced in 1989. Stage 2 covers investment income and is designed to improve the efficiency and scope of the Australian Tax Office's operation by matching investment income with individuals' tax returns through the use of tax file numbers rather than name and address information. Stage 2 is due to commence on 1 July 1991.

A twelve month phasing-in period for Stage 2 will commence on 1 July 1990, from which date investment bodies will be entitled to collect tax file numbers from investors. Tax file numbers can be collected in relation to the following investments:

• Interest-bearing accounts with a financial institution;
• Interest-bearing deposits (other than a deposit to the credit of an account) with a financial institution;
• Loans of money to a government body or to a body corporate;
• Deposits of money with a solicitor for the purpose of:

(a) being invested by the solicitor; or
(b) being lent under an agreement to be arranged by or on behalf of the solicitor;

• Units in a unit trust; and
• Shares in a public company.

Given the important implications of the implementation of Stage 2 of the tax file number system for the operation of the financial sector organisations, the Privacy Commissioner held extensive consultation with the Australian Taxation Office and representatives of the various financial industries before issuing this Compliance Note.

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General principles

1. The Tax File Number (TFN) is to be used in accordance with the Interim Guidelines contained in the Privacy Act 1988.

2. The TFN is not to be used as a general reference number, nor as an identifier for non tax-related purposes.

3. The quotation of the TFN is not mandatory. Investors should be made aware of the voluntary quotation principle for each investment. The decision to quote must always rest with the investor.

4. The use of the TFN by investment bodies to build up a database or to cross-match personal information is not permitted.

5. The method of collection of the TFN is to be in a manner approved by the Commissioner of Taxation.

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Collection of tax file number information

Legal basis for TFN collection:

6. The TFN is to be collected for tax-related purposes only. The legal basis for collection should always be made clear. A general reference to taxation law would be sufficient - it is not necessary to quote the relevant Acts and Sections. The legal basis for collection applies to both written and telephone quotation.

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TFN quotation for existing account holders:

(a) Written quotation:

7. Forms used to collect TFN information must comply with the "Guidelines for preparation of TFN forms" issued by the Australian Taxation Office. In particular:

(i) Such forms should clearly state that declining to quote the TFN is not an offence.

(ii) Provisions should be made in the forms for the recording of the appropriate exemption category, where applicable.

(iii) Reference should be made to the legal basis for TFN collection (see par. 6).

(iv) Requests for collection of other identity information (name, postal address and account number only) are permitted for the purpose of ensuring that the TFN is recorded against the correct investor. A telephone number may be requested for TFN verification purposes. However, it should be made clear that the provision of a telephone number is optional.

(v) Because of the unique and sensitive nature of TFN information, it is essential that the request for TFN information not be combined with other material requiring a response from the investor. A mailout concerning TFNs should not be used to request or update personal information other than that listed in (iv) above or to market other products or services. However, mailing the TFN request with other routine communications (such as a statement of account or a dividend cheque) is acceptable.

(b) Telephone quotation:

8. Telephone quotation of the TFN is permitted subject to the following safeguard mechanisms to minimise the adverse effects of misquoting in relation to an individual's privacy:

(i) Checking the TFN against the ATO-supplied algorithm as required by the Commissioner of

Taxation:

(ii) Taking reasonable steps to ensure appropriate security during the collection of TFNs by telephone. This may take the form of a dedicated telephone number for investors to call or dedicated staff members to receive telephone TFN quotations.

(c) Timing of Collection:

9. Invitations to provide TFN information may be mailed prior to 1 July 1990. However, by law, recording the TFN is not allowed until 1 July 1990.

10. Any invitation mailed prior to 1 July 1990 must advise investors that recording the TFN prior to 1 July 1990 is not permitted. Reference should also be made to the legal basis for TFN collection (see paragraph 6).

11. Investment bodies may take note of TFN information received prior to 1 July 1990 but may not formally record the information until 1 July 1990 at the earliest.

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TFN quotation for new accounts from new investors:

12. It is acknowledged that investment bodies require, in addition to TFN information, other personal information from new investors. However, any forms which include a request for TFN information must comply with the "Guidelines for preparation of TFN forms" issued by the Australian Taxation Office. In particular:

(i) Such forms should clearly state that declining to quote the TFN is not an offence.
(ii) Reference should be made to the legal basis for TFN collection (see par 6).

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TFNs for client-based systems:

(a) New/Existing Investments:

13. It is necessary for client-based systems to recognise investments for which investors choose not to quote their TFN. The following options should be made available to investors:

(i) Authorising the application of the tax file number to all investments held in the investor's name.
(ii) Authorising the application of the tax file number to specific investments.
(iii) Declining to quote the tax file number.

(b) Future investments:

14. Provision must be made to allow investors the option of declining to quote for future investments. In addition to allowing for first-time TFN quotation, the following options should be made available:

(i) Authorising the investment body to use the tax file number already on file.
(ii) Declining to quote the tax file number.

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Recording and storage of tax file number information

15. It is recognised that a number of staff may be involved in the process of recording TFN information. However, reasonable steps should be taken to minimise the number of staff involved.

16. Once the TFN has been recorded, adequate procedures must be put in place to restrict access to TFN information by staff not engaged in tax-related duties. (For example, blanking out the TFN on a request form which contains other non tax-related information; masking a computer field which stores the TFN.)

March 1990

For further information please contact

Privacy Commissioner
GPO Box 5218
Sydney NSW 1042

Privacy Hotline: 1300 363 992
Telephone: (02) 9284 9800
Fax: (02) 9284 9666

E-mail: privacy@privacy.gov.au

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