Jul 2020


Selling your accounting firm: who is responsible for the retention of documents for past tax returns

By: Odyssey Outsourcing
Tags: ATO, outsourcing provider, record retention, Tax Agent, tax returns

In this highly evolving and moveable world, we’ve seen recently several issues related to record retention involving tax agents who have moved to other software providers, moved from desktop to cloud, or sold their practices but then needed access to the data. Instances where tax agents needed access to the data included one accountants who had accepted the client after the non-compete had ended, and another instance where (in the course of a dispute) the selling accountant could no longer access his own tax returns stored at his old firm.

In one case, a bookkeeping client had stopped the subscription to his cloud bookkeeping package, and so all the information (bank feed, pdf receipts and invoices stored there) the tax agent had relied on for the tax return was lost when the subscription finished. The structured record retention and proof of these expenses were lost, and reconstruction a nightmare of epic proportions.

In the instance where the client had sold his business, and the new business owner said he no longer had the information related to the old tax returns. In the usual course of business, where the accounting firm is the registered tax agent, the liability for the retention in this case rests with the new owners who purchased the business.

In the instance where the individual tax agent (operating as a sole trader) lodged the returns, then whilst the clients can be sold, then in anything but exceptional cases the tax agent will be responsible for record retention, and answering to the authorities as required.

There are several things that need to be addressed correctly when moving towards retirement. Many times the insurance is left to fall to the wayside, even though the liability may remain for several years or longer in cases involving fraud. Also, record retention needs to be addresses. Whilst many firms now store their records online, there are still an amazing number of manual records, even if just the most important document of the client’s physical signature on the tax returns.

The ATO has some good information on record retention requirements


But at the end of the day, it’s the tax agent that will usually be mainly responsible for the correct record keeping and retention of information.

Remember the offshore outsourcing provider is usually engaged on a subcontract basis and is not legally responsible to retain the records. It remains the tax agent’s responsibility to not only review the work done, but also comply with retention requirements in Australia.

A lot of the angst of record retention can be circumvented by ensuring the working papers prepared by your outsourcing partner are robust and self contained, and whilst there has recently been a move to online cloud SAAS working papers, a good set of pdf documents supporting the numbers are critical.

If you need help with creating some world class working papers then drop us a line. We’re well known for our world class work!

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