Are you aware of your record-keeping obligations?

The increased focus on tax governance processes being in place in businesses, including SME’s, has highlighted the need for businesses to be more aware of their record-keeping obligations required under various taxation laws.

On the back of this, last week (9 February 2022) the Government introduced the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 into Parliament. Included in the Bill is a proposed amendment that will empower the Commissioner of Taxation to direct an entity to complete an approved record-keeping course where the Commissioner reasonably believes that the entity has failed to comply with its tax-related record-keeping obligations. It is proposed that this approach will be an alternative to existing financial penalties that can apply.

The EM to the Bill states that the key features of the tax-records education direction will be as follows:

• The Commissioner can issue a direction to an entity if the Commissioner reasonably believes the entity has failed to comply with one or more of its record-keeping obligations under a taxation law, excluding certain exempt obligations.
• An entity that has received a tax-records education direction must complete or arrange for an appropriate person to complete the approved course of education and provide proof of completion to the Commissioner.
• The tax-records education direction operates as an alternative to the administrative penalties that apply where an entity has failed to meet its record-keeping obligations under a taxation law.
• If the entity complies with the tax-records education direction, they will not be liable to the administrative penalty for failing to meet their record-keeping obligations.
• If the entity does not comply with the requirements of a tax-records education direction, they will be liable to the original administrative penalty.

An individual must complete the course, therefore, where an entity that is not an individual is issued with a tax-records education direction, an individual who makes or participates in making decisions that affect the whole or a substantial part of the entity’s activities must undertake the approved course of education.

Where the tax-records education direction is not complied with an administrative penalty will be applied.

It is worth noting that the tax-records education direction cannot be issued where there is a failure to comply with record-keeping obligations under:

• Part X of the Fringe Benefits Tax Assessment Act 1986 – includes record-keeping obligations related to retention of statutory evidentiary documents; and
• Division 900 of the ITAA 1997 – includes record-keeping obligations related to keeping and retaining documents required to substantiate expenses
• Superannuation Guarantee (Administration) Act 1992 – which contains its own superannuation guarantee education direction provisions.

There is an increasing focus and expectation by the ATO in ensuring that taxpayers document transactions in real time and records are also maintained and retained in accordance with the tax laws. So, as we start a new year, now is a good time to revisit our approach to what and how records are being kept.

If you would like to understand what records you are expected to retain for your business in general or in respect of particular transactions, or are interested in putting tax governance systems in place, please get in contact.

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