Who needs to keep records?
You must keep records (as set out below) if you are an attributable taxpayer of:
- a controlled foreign company (CFC), or
- a non-resident trust estate.
An attributable taxpayer is a person who:
- alone, or together with associates, has an interest in a CFC or a controlled foreign trust of at least 10%, or
- is a transferor of a non-resident trust, or
- is one of the actual controllers of the CFC with an interest of at least 1%.
Record keeping for a controlled foreign company
You will need to keep records of your interest in a CFC and of its financial transactions if you meet both of the following conditions:
- you are an attributable taxpayer of a controlled CFC at the end of the company’s statutory accounting period, and
- the company has attributable income.
You must keep records of:
- the circumstances that resulted in your becoming an attributable taxpayer for the statutory accounting period of the CFC
- how you worked out your direct and indirect attribution interest and your attribution percentage for the CFC’s statutory accounting period, and
- how you worked out the amount you included in your assessable income.
You must keep records of your calculations even if they show that no amount is to be included in your assessable income.
Specific record-keeping requirements called attribution accounts apply where an amount is included in an attributable taxpayer’s assessable income because a CFC paid a dividend to another controlled entity.
Record keeping for non-resident trusts
You are required to keep records for a non-resident trust estate if you are an attributable taxpayer in relation to the trust estate.
You must keep records of:
- how you became an attributable taxpayer for the non-resident trust
- how you worked out the trust’s attributable income for each of the trust’s income years which falls wholly or partly within your year of income, and
- how you worked out the amount included in your assessable income.
If you cannot get the information necessary to work out the trust’s attributable income, the amount to be included in your assessable income is worked out using a formula; see chapter 2.
You must keep these records even if no amount is to be included in your assessable income.
Record keeping for partnerships
A partnership needs to keep records if it is an attributable taxpayer.
A partnership may be an attributable taxpayer if it:
- has transferred property or services to a non-resident trust, or
- is an attributable taxpayer in relation to a controlled foreign company.
Each individual partner could be liable if the partnership breaches the record-keeping requirements.
What happens if the records are not kept?
You may be prosecuted and fined up to $5,100 by a court if you fail to keep adequate records.
You will not be convicted if you can show that any of the following statutory defences apply to you:
- you did not know that you had an obligation to keep the records and you had no reason to suspect the obligation existed; if you suspected that the record-keeping requirements applied to you, you won’t be able to claim the benefit of this exemption, or
- you did not know that you had an obligation to keep the records even after you had made all reasonable efforts to find out whether there was an obligation to keep the records, or
- if you have made all reasonable efforts to obtain the information required but simply can’t get it. If you had actual or effective control of the company or another entity which has the information, you would not be considered to have made a reasonable effort unless you used your position of influence in a genuine attempt to get the information required.
If you wish to take advantage of any of these exemptions, you will have to prove that reasonable grounds existed or that you made reasonable efforts; to do this, you will need to keep a record of the efforts you have made to get the information.
How should the records be kept and for how long?
If you are required to keep records, you must do the following:
- Keep written records in English. If records are not in a written form (for example, if kept on magnetic tape or computer disc) you must be able to get access to them readily to convert them into written English.
- Keep records in a way that allows your tax liability to be readily determined.
- Keep the records either for five years after they were prepared or obtained, or for five years after the completion of the transactions to which those records relate, whichever is the later.
The records need not necessarily be kept in Australia, but they must be kept by the attributable taxpayer; this means that you, as the attributable taxpayer, are responsible for the custody and control of the records. If an Australian company allows its CFC to physically keep records outside Australia, the Australian company must maintain custody and control of those records.
Are you required to keep attribution accounts?
There is no legal requirement for an attributable taxpayer of a CFC to keep attribution accounts. However, taxpayers are required to keep records that explain all transactions and other acts relevant to (among other statutes) the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997. A taxpayer must maintain adequate records to substantiate their tax treatment of dividends paid by a CFC: for example, as non-assessable non-exempt income, or as conduit foreign income.