Sometimes taxpayers find themselves in a situation where they simply have no records to back up a tax claim. There can be many reasons for this, such as losing documents when moving home (either paper or electronic), or technology failures that end up with the same result (or at worst even destroy records).
And with a hot summer predicted, let’s not forget the very real danger of natural disasters and the devastation these can have on people’s lives, not just their financial concerns.
It’s true that in these modern times the ATO’s systems are able to pre-fill quite a lot of data from other sources. This is only going to increase over time with revenue authorities’ general enthusiasm for e-invoicing, record keeping apps and real-time transactional visibility in the cloud … which means that taxpayers can relax a little more about having to stay on top of record keeping.
Some taxpayers are quite happy to share the cloud with Big Brother if it makes their lives easier. Using cloud-based apps helps you to save time and allows you to focus on working ON the business rather than IN it, which ultimately leads to a simpler life. It seems like a reasonable trade-off…. but don’t forget that the cloud also makes it easier for the ATO to automate their audit activities.
If all your records are in the cloud, you must be aware of the ATO’s requirements for electronic record keeping and have some back-up policies and procedures in place to protect your business.
A best practice would be, for example, to periodically save down and store the accounting records in a way that restricts the information from being altered or manipulated.
You cannot abrogate all responsibility to the software provider to store your records for 5-7 years. Consult with an IT specialist or contact us for further advice, if necessary.
The following paragraphs from this ruling really drive home the importance of keeping your cloud business records always up to date, in good order and backed-up:
“It is your responsibility to ensure that your electronic records are secure, accurate and maintained in accordance with the record keeping requirements…
“…If your electronic records are stored in the cloud and are immediately accessible to you, we can use our access powers to obtain them.”
There can still be situations where essential back-up documents or other evidence is required that may be unavailable for one reason or another.
If your records are damaged or destroyed or simply missing, there are ways to a remedy, or at least an acceptable outcome. Your first and perhaps best inquiry could be to your accountant.
We may hold quite a substantial amount of required information. We’ve known many of our clients for over 10 years and over time they have sent us their most valuable asset records and receipts for back up.
The ATO can also help. It can re-issue or supply copies of tax documents, such as income tax returns, activity statements, or notices of assessment. We can help if you need to request copies of any tax documents, however you can now access many of these records yourself via MyGov.
If you have lost your TFN, we will most likely have that on our records. If for some reason you have not given that to us in the past, it is still possible to interact with the ATO using other information to verify your identity, such as your date of birth, address details and bank account details. Your super fund will also have your TFN, but will also require identity verification.
Your employer or payer should have copies of your PAYG payment summaries, and your bank should be able to provide you with any bank records that have been destroyed. Note that if your bank charges a fee for replacing bank records and providing any other service to help you to reconstruct records or provide information due to a disaster, you can claim a deduction in the income year that those fees are charged.
If you are unable to substantiate claims made in your tax returns or activity statements because your records have been lost or destroyed, it is generally the case that the ATO is still able to accept the claim without substantiation — for example, where it is not reasonably possible to obtain the original documents.
If you have a self-managed super fund (SMSF), it is a requirement to maintain compliance as an SMSF to keep certain records. If you have lost these records in a disaster, the ATO will consider a request for additional time to meet your reporting obligations (call 13 10 20). Where possible, the ATO should make available information that was previously reported for your SMSF.
If you have lost your records, you should contact us as soon as possible so that we can apply to the Commissioner to exercise discretion in the event of an audit.
That way, you may avoid being penalised if you’re later audited and cannot show the required written evidence to support your claims. By informing the ATO upfront of your lost records, they may accept your claims without written evidence where it is not reasonably possible to obtain the original documents.
This Tax Ruling provides guidance on the circumstances in which the Tax Act can grant relief when a taxpayer’s work related, car and travel expenses cannot be substantiated:
This ATO Practice Statement sets out how the ATO officers can arrive at acceptable estimates of a taxpayer’s income and and deductions without the required written evidence:
This information is only general in nature; it does not take into account your personal situation or objectives; it is not intended to replace professional advice and should not be acted upon. For professional advice based on your individual circumstance, please do not hesitate to contact us.