Tax commissioner Chris Jordan is warning lawyers that the Australian Taxation Office is stepping up its crackdown on tax and legal professionals it suspects may be misusing legal professional privilege.

Key points: ATO boss Chris Jordan says some lawyers are claiming privilege on tens of thousands of documents

ATO boss Chris Jordan says some lawyers are claiming privilege on tens of thousands of documents Mr Jordan conceded the ATO needs to get better at compensating small business taxpayers when it is in the wrong

Mr Jordan conceded the ATO needs to get better at compensating small business taxpayers when it is in the wrong The ATO's focus on work-related expense deductions has seen average claims by taxpayers fall

Mr Jordan said while the ATO was not opposed to legal professional privilege as a concept, he was concerned that some were not using the protection appropriately.

"Don't misunderstand me — we're not opposed," he said during a speech at the Tax Institute conference in Hobart on Thursday.

"We want taxpayers to be able to get the right and proper legal advice.

"But when lawyers are claiming privilege on thousands or tens of thousands of documents — and we have seen this — we start to wonder if it's a genuine claim or an effort to conceal a contrived tax arrangement.

"It all comes back to fairness — are you using legal professional privilege because you have a genuine need, or as a way to cheat the system? We'll be taking a tougher stance in the future."

The comments come as the Australian Taxation Office faces a High Court battle with Swiss-based mining giant Glencore.

The company has launched a High Court bid to force the ATO to return its copies of files from Bermudian law firm Appleby that came to light in the Paradise Papers leak, reported by the ABC's Four Corners as part of a global investigation coordinated by the International Consortium of Investigative Journalists.

The files detail how Glencore moved billions of dollars of global assets into offshore tax structures.

Glencore is arguing the documents are subject to legal professional privilege and were obtained through a "cyberbreach" and shared with the ATO.

It wants Australia's tax commissioner to be forced to return them, which means the ATO would be unable to use these documents in determining whether to hit the company with tax bills.

Labor has proposed, that if elected, it will introduce tougher penalties against tax avoidance scheme promoters.

Compensation process needs to improve

Mr Jordan also addressed allegations raised in the media about the ATO's treatment of small business, including the joint Fairfax ABC-Four Corners report that suggested bullying and intimidation against small business taxpayers that the ATO alleged owed debt.

Mr Jordan has repeatedly argued publicly against the findings of the media investigation, but did admit on Thursday that the ATO was a big organisation with more than 20,000 staff and therefore did not always get things right.

He acknowledged the ATO had to get better at compensating people when it had made mistakes.

"We've got to be better at identifying when we make a mistake, apologising for it, and compensating when there has been a loss," he said.

He also noted several Federal Government changes aimed at helping small business that followed the Fairfax-Four Corners report.

He welcomed the review recently announced by Small and Family Business Minister Michaelia Cash which will see Kate Carnell, the Australian small business and family enterprise ombudsman examine instances of overzealous tax officers recovering debts while tax disputes between small businesses and the ATO were still underway.

On Thursday Ms Carnell released a statement saying the number of daily ATO-initiated garnishee debt-recovery notices — which allow the tax man to take money directly from a taxpayer's bank account or wages — as reported in a review handed down on Wednesday by the Inspector-General of Taxation, "is of great concern".

"As the report states, inappropriate use of garnishee notices can severely affect a small business's cash flow," Ms Carnell said. "It is a very serious matter."

"Given the draconian nature of the notices and the lack of judicial or other external oversight of notices before release, they should be used only as a last resort … if at all."

The Government has also announced that, from March 1, a small business division at the Administrative Appeals Tribunal will offer a low-cost avenue for small businesses to dispute ATO tax bills, as well as expanding an existing tax clinics program for taxpayers who may not be able to afford professional advice.

Mr Jordan said the ATO was using private sector expertise to chase down taxpayers owing debts, including those hiding money offshore.

The ATO had been outsourcing small business debt collection and working with insolvency experts to move on large debts owed, he said.

Focus on work-related and rental expense claims

Mr Jordan also addressed the ATO's recent focus on taxpayers it said are incorrectly reporting or overclaiming work-related expense deductions, saying it had booked more revenue as a result.

"Our efforts are beginning to pay off," he said.

"For the first time in almost 25 years, the average work-related claim decreased, falling on average by about $130 over the past two years."

"The estimated revenue gain for that same period will be around $600 million."

The ATO's next focus would be on rental income and deductions, with auditors having now completed over 300 audits on rental property claims and found errors in almost nine out of 10 returns reviewed, he said.

"We're seeing incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent," Mr Jordan said.

"When you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.1 billion in reported income, you can get a sense of the potential revenue at risk."