‘How long should I keep tax records?’. It’s a question I’m often asked. It seems simple enough, but it’s actually not that straightforward.

The key thing that I tell people is that if the ATO ever questions your tax affairs, then it is up to you to prove the correct amount of tax. It’s not the ATO who needs to prove how much tax you have to pay.

If you’re subject to an audit, then the ATO can simply make a reasonable attempt at working out how much your tax should be and then issue you an assessment for that amount. If you don’t agree, you need to show what the right amount of tax is. It’s not as simple as just showing that the ATO is wrong; you need to actually show how the right amount of tax should be calculated. This means that you should be careful to keep all of your tax records, so that you can explain yourself to the ATO and the Courts if you ever need to.

The general rule for keeping receipts

Tax disputes aside, the law generally requires you to keep tax records for 5 years after tax returns are lodged. This means you should keep all receipts, proof of income, calculations, nominations and other records which support the contents of you tax return for five years.

If records relate to a company, then the Corporations Act 2001 requires the company to keep financial records for 7 years.

If the records relate to a superannuation fund, then some of those records must be kept for 10 years, including minutes of trustee meetings, and copies of all reports given to members.

Special Circumstances

In addition to the general rules, there are some circumstances where you must keep the tax records for longer than 5 years after lodging the relevant return.

• Carried forward tax losses: If you have tax losses that you have been carried forward from earlier years, then you will need to keep all records from the start of those losses until 5 years from when you make the final claim.
• Depreciable assets: If you have depreciable assets, then you will need to keep all records relating to that purchase from the date of purchase until 5 years from when you make the final depreciation claim.
• Cost base for capital gains tax: If you own a capital asset – such as an investment property or shares – you will need to keep records of the cost base (including the purchase price, the costs involved in acquiring the asset and costs involved in holding the asset). This is so that when you get rid of the asset, you can accurately calculate the capital gain or loss. The cost base records should then be kept for five years after the tax return in which the gain or loss is reported.
• In a dispute with the ATO: If you are in a dispute with the ATO, then you need to keep your records for five years after the dispute is resolved.
• Employees: If you pay wages, you should keep tax records relating to your employees for five years after their employment is terminated (on that note, the Fair Work Act 2009 requires an employer to keep employee records for seven years).

Waterhouse Lawyers specialises in helping taxpayers when they find themselves in a fight with the ATO. We help clients all over Australia to deal with the ATO and resolve their tax disputes.