The plan was revealed in Canberra today by the Prime Minister Malcolm Turnbull and the employment minister Michaelia Cash
Under the proposed laws, payments with the intent to corrupt would carry up to 10 years in prison and a $900,000 fine for an individual, increasing to $4.5 million for a company.
Moreover, other "illegitimate payments" will result in a two-year jail term or a $90,000 fine for an individual, rising to $450,000 for a company.
Legislation to be introduced on Wednesday will also require unions to disclose payments made by employers at the time a workplace deal is put up for vote.
The PM said the changes are necessary based on the findings of the Heydon Royal Commission.
“During the Heydon Royal Commission, Australians were horrified to see the extent of secret payments made by employers - big business, very often - to trade unions, and in particular, the Australian Workers Union,” said Turnbull.
“And very often, in circumstances where, in an industrial agreement, the union had agreed to trade away workers' entitlements, including penalty rates - the Cleanevent agreement, the Chiquita Mushrooms agreement and others.
“Australians were horrified because they said, how can this be lawful? How could it possibly happen that this would not be a breach of the law?”
Cash added that the measures were “all about transparency in the workplace”.
“Employees should be aware and should have full knowledge of any payments that are made between their employer and a union,” said Cash.
“What the legislation seeks to do is to ban secret payments from employers to unions.”
Cash also acknowledged that certain legitimate payments will continue to be allowed, such as payments for genuine services that are provided by a union or genuine payment of membership fees.
She also said unions would also have to show the service was provided at market rates.
"For example, if a payment is being made into a safety training fund, you would need to show that you actually have a program of basic safety training, you would need to show that that has been undertaken, but you would also need to show that it has been charged out at market rate," Senator Cash said.
“Criminal penalties will apply to both the employer and the union. The party that makes the offer of the payment will be penalised in the same way as the party that solicits or receives the payment.
“As Commissioner Heydon basically acknowledged, it takes two to tango in these situations.”
Meanwhile, Opposition Leader Bill Shorten
has introduced Labor's legislation into the House of Representatives to prevent Sunday penalty rates from being cut.
"The Parliament has never had a more straightforward choice than it has today," he said.
"There is a very clear decision to be made here; you can either vote to save the Sunday pay rates of young people … or you can vote to endorse cutting them."
Making or receiving 'secret' payments that encourage unions to trade off workers’ rights is set to be criminalised.