Capital Gains Tax records

Records need to be retained to substantiate all items included in tax returns. The burden of proof rests with the taxpayer in the event of a dispute with the ATO. Penalties can be applied for failing to keep adequate records. This article outlines the particular requirements associated with Capital Gains Tax (CGT). Keep in mind that when we refer to CGT, it also applies to capital losses.

The following examples indicate the types of documents to be retained for CGT purposes:

	Property purchase/disposal contracts and statements of adjustments. If the property has not been used to generate income (e.g. a vacant block of land), records must be retained relating to interest on borrowings, rates, insurance, repairs etc.
	Records of agent, legal and advertising costs relating to the purchase or sale of assets
	Market valuations. For example, if a property was purchased as a main residence and then at some point rented out, a market valuation would be required to determine the cost base for CGT calculations.
	Purchase and disposal contracts for shares, options etc.
	Dividend reinvestment documents

Retention period

In general, evidential documents must be retained for five years after their preparation or five years after the completion of the transactions to which they relate (which ever is the later). For example, if you buy a house, the appropriate purchase documents must be retained until five years after you sell the house (completion of the transaction to which they relate), thus enabling the CGT amount to be calculated.

Asset registers

Instead of keeping the original records, you are able to maintain an asset register in either paper or software form.

In the case of software, the asset register needs to provide an accurate transcription of information from the original records. Security needs to ensure that entries cannot be easily altered. For example, the software should incorporate audit trails to track additions and deletions.

The asset register must contain all of the information required to calculate the capital gain or loss, otherwise you must retain all the original documents. You may maintain the asset register yourself or have someone else do it such as a bookkeeper or tax agent.

The asset register can be certified by a registered tax agent as being a true record of information contained in the originals. Once certified, the original documents must be retained for another five years.

The rules concerning CGT records can be quite complicated, particularly in relation to how long they should be retained. We recommend that you consult Saward Dawson before disposing of any records relating to CGT.

Published : 7 December 2005