Why is recordkeeping necessary?
The Australian taxation system is based on taxpayers self-assessing their tax lodgements. Each taxpayer is responsible for determining the income they need to declare and what expenses are deductible. Taxpayers need to maintain adequate records and must be able to substantiate these if requested by the ATO.
How long should records be kept?
How long records should be kept for depends on the entity type and if any special circumstance applies:
Entity type Special circumstances
|Entity||ATO time required (years)||Acquiring or disposing of an asset||Time is based on the entity type and begins from the date of the asset’s disposal|
|Individuals||Four||Dispute with the ATO||Five years from when the dispute is finalised|
|Partnerships||Four||Depreciating assets||Five years from the last depreciation claim|
|Companies||Four||Correcting or amending a previously lodged document||Five years from date of the amended lodgement|
|Deceased estates||Four||ASIC dealings||Seven years|
|Trusts||Four||Fair Work Ombudsman||Seven years|
|ACNC registered charities||Seven|
It should be noted that the time requirement is a minimum and begins from the date of lodgement/assessment or conclusion of the event arising. We recommend adding an extra year (or even two) to the years specified above rather than attempting to keep track of when lodgements/assessments have been made and when records may be destroyed.
Example – be conscious of timing!
Mum & Dad Trust sold a rental property on 19 September 2004.
The property sale gave rise to a capital loss.
The loss was reported in ABC Trust’s 2005 income tax return which was lodged 15 May 2006.
Another rental property was sold on 28 October 2017. A capital gain arose.
Mum & Dad Trust offset its capital gain from the capital loss that was reported in its 2005 income tax return.
Mum & Dad Trust will lodge its 2018 income tax return on 15 May 2019.
Although the first property was sold on 19 September 2004, the record keeping time limit for this property actually starts from 15 May 2019 as the 2018 income tax return redeemed the capital loss. The records relating to the first property sale must be kept until 15 May 2023. All other records relating to the 2005 income tax return could have been destroyed on 15 May 2010.
Paper vs electronic records
Records can be kept in paper or electronic format.
Original records may be required if the record is to be used as evidence in legal matters. Paper copies can also be used to support electronic records where there is a dispute over the electronic copy.
If paper copies of significant documents (e.g. a trust deed or company constitution) are made, they must be a true and clear copy of the original (i.e. certified by a Justice of the Peace or Commissioner of Declarations).
If you store your records electronically, we recommend that you:
- make regular backups to ensure that the records are easily accessible in case the original becomes inaccessible or unreadable (e.g. hard drive corruption or crypto locker virus); and
- keep a copy of your backup offsite (e.g. in the cloud or on a portal hardrive disc).
If you have any further questions regarding record keeping requirements, please contact your advisor at Hoffman Kelly.