As a general principle, any person carrying on a business is required to keep records that record and explain all transactions and other acts engaged in by that person that are relevant for purposes of the Income Tax Act (section 262A(1) of the ITAA 1936). These include:
- any documents relevant for the purpose of ascertaining the person’s income and expenditure; and
- documents containing the details of any election, choice, estimate, determination or calculation made by the person under the Income Tax Act. The document must show the basis on which and method by which the estimate, determination or calculation was made.
In the view of the Australian Tax Office, the minimum information required by its staff with the accounting skills to understand the essential features of transactions pertaining to a taxpayer’s income and expenditure is the date, amount and character (e.g., sale, purchase, wages, rental, etc.) of the transactions. The ATO has set out in a ruling (Taxation Ruling TR 96/7) its views regarding the sufficiency of records generally maintained by persons carrying on a business, including those relating to cash registers, receipt books and credit cards.
Specific items of books and records to be kept are prescribed under the law for certain entities, including Offshore Banking Units (OBUs), foreign banks and other financial entities, full self-assessment taxpayers and persons involved in certain financial arrangements (e.g. involving hedging transactions). Specific record keeping requirements also apply in relation to the CFC provisions.
As a general rule, books and records must be kept for at least 5 years following the date of lodgement of a tax return. The exact date from which the five-year period begins to run may, however, also depend on the conduct in question. For example, where the taxpayer has acquired or disposed of an asset, the 5-year period runs from the date after which it is certain that no capital gains tax event will occur. If the taxpayer is disputing an assessment, the period runs either from the date on which the tax return is lodged or the date on which the dispute is finalized, whichever is later. If the taxpayer has made an election, the 5-year period runs from the date after the election was made.
There is no specific requirement as to the location of the records required to be kept. The essential requirement is that such records must be accessible to the tax authorities. While this presumably means that the records must be kept in Australia, it is also conceivable that even in cases where they are not physically in Australia, as for example in the case of electronic records stored on a server located outside the country, the fact that such records are readily accessible by the tax authorities will be adequate. The ATO has set out in a ruling (TR 2018/2) its views regarding record keeping in electronic form including encrypted records, records created from e-commerce and records stored in the cloud. It has clarified that records stored or recorded by means of a computer are recognised as documents for the purposes of record keeping requirements under the taxation legislation. Computer-generated documents are admissible evidence in taxation matters. Any electronic records are subject to the same record keeping requirements as paper records.
The law does not specify the currency in which the records are to be kept, though subject to certain exceptions, the general rule for purposes of determining the income tax liability of a taxpayer is that foreign currency amounts are to be translated into Australian currency.
All records required to be kept must be in writing in the English language or be such as are readily accessible and convertible into writing in the English language.