But he's congratulated the Australian Federal Police for cracking the conspiracy, with nine people arrested so far.
Australian Taxation Office deputy commissioner Michael Cranston, 58, has been issued with a court attendance notice for allegedly abusing his position as a public official.
AFP say Mr Cranston was not part of the syndicate, which involved his son.
"This is very much to be regretted," Mr Turnbull told reporters in Brisbane on Thursday.
"Nobody should imagine they can escape our law enforcement agencies no matter how high they may be in a government department.
"No matter how high they may be, they are being watched."
AFP give detail of the raid and charges
The prime minister said the fact the alleged conspirators had been caught proved the system worked.
"We have zero tolerance for this type of conspiracy, this type of fraud, this type of abuse of public office," he said.
"We have a relentless pursuit of corruption, malpractice, abuse of office, the AFP have a very keen focus on it ... as has been demonstrated."
Mr Cranston has not been officially been charged, but is due to face Sydney Central court next month.
Four ATO officers are also being investigated, said the AFP.
How this alleged $165m tax fraud syndicate operated
Mr Cranston's 30-year-old son, Adam, and 24-year-old daughter and seven other people were arrested over a $165 million tax fraud investigation.
Adam Cranston appeared via video link at Central Local Court on Thursday charged with conspiracy to defraud the Commonwealth.
He was released on bail as were two others also allegedly involved in the criminal syndicate.
A further two people are expected to appear at Central Local Court via video link later on Thursday.
Adam's Cranston's sister, Lauren Anne Cranston, is due to face court in mid-June.
The arrests were made following an eight-month investigation, codenamed Operation Elbrus, with assistance from ATO, Australian Federal Police (AFP) said on Thursday.
Seized items are displayed at a press conference at the AFP headquarters in Sydney on Thursday, May 18, 2017. (AAP) Source: AAP
"The scale of this allege fraud is unprecedented for the AFP," said Australian Federal Police Deputy Commissioner Operations Leanne Close on Thursday.
It is a significant fraud investigation, financial fraud criminal investigation, that the AFP has led since 2016.
Acting Commissioner of Taxation Andrew Mills told reporters in Sydney on Thursday Mr Cranston had "up until this point... held an illustrious career".
"We do take it extraordinarily seriously and ...it is of concern that a long- standing officer has been alleged to have been involved in this," Mr Mills said.
The ATO was conducting an internal investigation into four officials into whether or not they looked at the material they were unauthorised to do so.
"If you are an officer within the ATO, you have access to those matters only to which you actually are required for the purposes of your job. If you seek to obtain information which is outside that scope, you actually are in breach of the code of conduct," he said.
Ms Close said it appears Mr Cranston's son has asked him to access some information.
AFP Deputy Commissioner Leanne Close answers a question during a press conference in Sydney on Thursday, May 18, 2017. (AAP) Source: AAP
"We don't believe that at this point that he had any knowledge of the actual conspiracy and the defrauding," she said.
Assets seized in the past two days by the AFP include 25 motor vehicles - luxury, vintage and racing vehicles - 18 residential properties, 12 motorbikes, in excess of 100 bank accounts and share trading accounts, two aircraft.
firearms and jewellery, artwork, vintage wines and at least $1 million located in a safety deposit box.
Adam Cranston, 30, is due to face Sydney's Central Local Court on Thursday morning charged with conspiracy to defraud the commonwealth, while his sister is due to face a Sydney court on June 13.
Adam was arrested at Bondi while his sister was arrested in Picton during 27 raids on homes and businesses across Sydney on Wednesday.
A further six search warrants will be executed on Thursday, said the AFP.
Federal Labor's Chris Bowen said: "Of course it's a disturbing case but the courts should be allowed to do their job; the course of justice and law should be allowed to proceed without political commentary."
