Maintaining adequate and well-organized records is essential for taxpayers, as the burden of proof rests upon them in the event of any dispute. To comply with the Income Tax Assessment Act, taxpayers must keep records for the statutory periods, which is generally five years.
Keeping and maintaining accurate records can reduce the risk of tax audit and adjustments, while there are penalties for a failure to keep records.
Statutory requirements are outlined in Section 262A of the Income Tax Assessment Act 1936 (ITAA 1936), which mandates that individuals and companies carrying on a business keep adequate records that support and explain all transactions relevant to the Act.
In particular this includes:
All documents supporting amounts of income and expenditure
All documents showing any estimates, elections, calculations, or determinations relevant to the Act and showing basis for and methods used to arrive at an estimate, determination or calculation
Records must be in plain English or convertible to English, easily accessible, and maintained for five years. This applies to both paper and electronic records.
Records for Capital Gains Tax Purposes
For Capital Gains Tax purposes, Section 121-20 of the Income Tax Assessment Act 1997 (ITAA 1997) requires that taxpayers keep records of all acts, transactions, or events that could reasonably be expected to give rise to a Capital Gain or a Capital Loss through a Capital Gains Tax Event.
These records must show how the acts, transactions, events, or circumstances are relevant in calculating whether a capital gain or loss has been made and be held for five years after it is certain that no CGT event can or will happen.
Electronic or Paper Records?
Taxpayers may keep original records in paper format or electronically. However, all records must be secure, with software providing an audit trail to prevent easy alteration. Where paper records are converted to electronic records, they satisfy requirements if they are not altered once stored, kept for five years, and can be retrieved and read at any time by Tax Office staff.
Comments