Australian taxpayers should make sure to retain certain financial records indefinitely following a recent Federal Court decision on Australian Taxation Office (ATO) assessments, according to chartered accountants GMK Centric.
GMK Centric taxation director Chris Wookey said while the decision was still under appeal, it signalled a worrying precedent.
“It is a pronouncement of the law by a court having jurisdiction specifically over tax matters and therefore has the potential for wide-ranging impacts on many people,” he said.
Wookey cited a recent case in which the Federal Court held that the ATO had an unlimited time period to amend tax assessments if an asset was sold under a contract that was signed in one financial year and settled in the next.
According to Wookey, the decision means that taxpayers cannot have certainty about their capital gains tax affairs from the 1998-99 financial year onwards.
“With the exponential growth in property investment in recent years and the common use of multiple-month settlement terms, there are likely to be many taxpayers whose property sales straddle the end of a financial year.
“To give an example, a property sale contract signed in May with a 60-day settlement term would not be completed until July — that is, in the following financial year — and therefore could be affected by this decision.”
Wookey advised that before the final judgment is handed down, taxpayers should retain documentation indefinitely, in order to protect themselves if the ATO seeks to challenge a prior year’s capital gain calculation.
