SHOCK DECISION: Turn a blind eye, Australian Tax Office tells staff

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The Tax Office is refusing to pass on personal tax information to courts or police, even if they believe a taxpayer has been the victim of fraud.

The decision is based on internal legal advice which says handing over any information would breach privacy rules. The only time information can be given out is if it is needed to enforce tax laws.

But, according to Canberra sources, the in-house legal advice also says the reason for the policy is to protect the Tax Office's reputation and prevent its staff from having to testify in court.

It is understood the ATO is also failing to co-operate with police investigations on fraud involving self-managed superannuation funds despite knowing about the problems for more than a year.

The fraud, believed to total many tens of millions of dollars Australia-wide, is committed by illegally rolling over money into a self-managed fund, without the knowledge of victims.

The Australian Prudential Regulation Authority issued its second alert this year warning funds of forged Tax Office correspondence verifying the registration of self-managed funds.

Last year there were more than 400,000 self-managed funds. The Tax Office took compliance action against 500 funds where they detected somebody had illegally withdrawn money.

A spokeswoman said the office had no choice on co-operation with authorities. ''We have to comply with secrecy and privacy laws.'' Such laws defined what information it could give to other agencies, she said.

In NSW 22 people have been charged in the past 20 months with super fraud offences worth more than $6 million.

The scam involves mail theft and identity fraud, and relies on the fact people don't regularly check the balance of their super fund. Also, super funds do not have the same stringent requirements to check the identity of people asking to roll over their money as banks.

About $50 billion in super funds are rolled over every year.

The shadow treasurer, Joe Hockey, called on the government to explain when the regulatory agencies were alerted to the problem of ''systemic rorting'' of the self-managed super system.

A spokesman for the Superannuation Minister, Chris Bowen, said the relevant agencies had taken ''a series of measures to help reduce the risk of fraud around the illegal early release of superannuation''.

Unisys fraud expert David Chadwick said people could reduce their risk by securing their mail, guarding PIN numbers and shredding documents.