The prime minister wants employers or union officials found making secret payments other than for clearly legitimate purposes jailed for up to two years.
"Trade unions have a solemn, legal, moral, fiduciary duty to act in the best interests of their members," Mr Turnbull told reporters in Canberra on Monday.
"We have seen through the Heydon royal commission and subsequently unions have let their members down and big unions have traded their rights away in return for payments."
Mr Turnbull and his workplace minister Michaelia Cash outlined the proposed penalties as the government seeks to gain the front foot in the penalty rate debate.
Ms Cash said there was no consistency across Australia's bribery laws, and the offence was often difficult to prove.
"Employees should be aware and should have full knowledge of any payments that are made between their employer and a union," she said.
"When you look at the level of penalty, it should send a very, very clear message to any employer or any union who wants to indulge in secretive payments.
"It is wrong and compromises the integrity and lawfulness of the workplace."
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