A royal commission into trade union governance and corruption will look at how well and lawfully the organisations are governed, and won’t assume their role in society should be curbed to the point of insignificance.
But the inquiry will probe union slush funds and may find the current level of scrutiny on unions is inadequate.
Describing the commission's terms of reference as as both broad and restrictive, Commissioner Dyson Heydon said the inquiry would look into the facts behind a range of union practices.
"The term of reference rest on certain assumptions which are not hostile to trade unions," Justice Heydon said in his opening remarks at a preliminary hearing in Sydney on Wednesday.
"The terms of reference do not assume that it is desirable to abolish trade unions.
"They do not assume that it is desirable to curb their role to the point of insignificance.
"Instead, they assume it is worth inquiring into how well and how lawfully that role is performed.
"They assume that it is desirable for that role to be well performed and lawfully performed."
Council assisting the commission Jeremy Stoljar said the inquiry will look into "relevant entities."
"In common parlance these entities are called `slush funds'," he added.
"The legal structure of these funds could be infinitely various."
People had a right to know how their money was being spent, and union members - unlike shareholders - could not easily shift their funds.
"A union official holds a special position of trust," Mr Stoljar said.
"The union is there to protect its members and advance their interests.
"Union members pay their membership dues.
"They expect their officials to act with honesty and probity. So does the broader community."
Justice Heydon also laid out a series of tough penalties for bribing commission witnesses or obstructing the inquiry, including fines of up to $20,000 and up to five years imprisonment.
Over the next few months, it will investigate the establishment of relevant entities and how they relate to a number of unions, including the Australian Workers Union, Construction Forestry Mining and Energy Union, Allied Services Union, Health Services Union and Transport Workers Union of Australia.
The commission is expected to deliver its final report to the federal government on December 14.