| A case that was recently decided in the Federal Court | | | | there was verbal evidence from the people who |
| highlights a problem in relation to the keeping of | | | | actually engaged in the transaction. I note that the |
| business records. During the 1988 income year, a unit | | | | financial statements were prepared by a reputable |
| trust engaged in the purchase of a significant | | | | firm of Chartered Accountants. |
| investment. It was not a good investment. Not too long | | | | In his testimony before the court, the original owner of |
| afterwards the investment was worthless and in May | | | | the units said that he did not have any of the business |
| 1993 the investment was sold for $1. This resulted in | | | | records of any of his companies or entities from 21 |
| the unit trust incurring a capital loss of nearly $2.5m. | | | | years ago. I know of few people that would. |
| All of the units in the trust were sold from the original | | | | So here's the point. Generally, businesses are required |
| owner to a new owner in two tranches. One was in | | | | to keep their records for a five year period under the |
| June 1993 and the other was in June 1995. | | | | Australian taxation law. But when it comes to capital |
| Capital losses may only be deducted for tax purposes | | | | gains tax, you need to keep records of everything that |
| against capital gains. Put another way, capital losses | | | | may be relevant to working out whether you have |
| may not be used as a deduction against normal | | | | made a capital gain or capital loss. And, according to |
| income. Due to this, the capital losses were carried | | | | the ATO publication "Record Keeping For Small |
| forward by the unit trust until a capital gain was made | | | | Business", "You must keep these records for five |
| by the unit trust in 2001. | | | | years after you sell or otherwise dispose of an |
| The Australia Taxation Office ("ATO") raised | | | | asset...". So, you may need to keep the records for a |
| amended assessments against the ultimate | | | | very long time. |
| beneficiaries of the trust and would not allow the | | | | You will note in the case I refer to above that the |
| capital loss of $2.5m to be set off against the capital | | | | ATO required the taxpayer to produce business |
| gain made in 2001. The beneficiaries objected to this | | | | records of a transaction that was 21 years old. Further, |
| and the matter found its way to the Federal Court. | | | | the disposal of the investment occurred in 1993, so that |
| The main argument of the ATO was that the trust | | | | was 16 years earlier (not five). |
| had fundamentally changed through some things that | | | | The moral of the story is this: if you think that a |
| happened in 1993. I won't go into the details of that. | | | | transaction may have long term significant tax |
| However, the ATO also argued that the taxpayers | | | | implications, don't (ever?) throw out the primary |
| could not prove that the purchase of the investment | | | | documents that relate to that transaction. Keeping an |
| occurred in 1988 because, among other things, the | | | | electronic (scanned) image is something that you |
| primary documents that evidence the transaction no | | | | should consider. |
| longer existed. This was so even though the financial | | | | Wishing you easier business. |
| statements of the unit trust showed the acquisition and | | | | |