Guide 3 of 5 · Records
Moving business records from paper to digital
Rests on: the ATO’s page on digital record keeping for businesses, with its ruling on electronic records, TR 2018/2.
The ATO accepts digital images of paper business records, provided the copies are true and clear reproductions of the originals and meet its rules for record keeping; once the image is saved, the paper need not be kept unless a particular law or regulation requires it. Typing a receipt’s details into accounting software is a different thing, and the ATO says a copy of the actual record must still be kept, digitally or on paper.
General information about the ATO’s record-keeping rules, not tax advice. The ATO is the official place to check, and its page says a registered tax or BAS agent can advise on what record-keeping software should be able to do.
01 What a true and clear copy means
The ATO’s ruling on electronic records draws the line in one paragraph:
“You may keep true and clear electronic reproductions of original paper records. However, documents created through conversion processes that do not produce a complete and accurate copy of original documents are not considered to be a true and clear electronic reproduction.”
Taxation Ruling TR 2018/2, paragraph 6
The ruling’s footnote to that paragraph gives an example of such a process: “Such as some Optical Character Recognition processes.” So the text a scanner reads off a page is not automatically the record. What the ruling asks for is a complete and accurate copy of the original document.
02 The paper habit, and its digital equivalent
Most of the rules for paper carry straight across. The ruling says electronic records are subject to the same record-keeping requirements as paper ones, including encrypted records, e-commerce records and records stored in the cloud. Here is how each paper habit translates.
| On paper | In digital form, per the ATO |
|---|---|
| The original receipt in a box | A saved image that is a true and clear reproduction. After that, the paper need not be kept unless a particular law or regulation requires it. |
| Copying figures into a ledger | Entering supplier details, date, amount and GST into accounting software does not replace the record: a copy of the actual record is still kept. |
| A locked filing cabinet | Records stored in a way that restricts them from being altered or manipulated. The ATO may ask a business to show it has safeguards against alteration, manipulation or inadvertent destruction. |
| A spare copy kept off site | Regular back-up copies of electronic records, stored in a safe place, preferably away from the business premises, or in cloud storage. |
| A shredding routine | Information kept about any routine procedures for destroying electronic records. The ATO may ask for documentation about back-up and record destruction procedures. |
| Handing over the books | Either digital or printed copies, though the ATO may also ask for paper copies. |
One rule does not change with the format: records are generally kept for five years after they are prepared or obtained, or after the transactions are completed, whichever is later.
03 When the software changes too
A move to digital is often a move between systems as well, and the ruling has three requirements that matter then. If the system changes, the original data must still be possible to rebuild. The business keeps system documentation explaining the basics of the system, including its structure, programs, inputs and outputs. And it keeps encryption keys for encrypted records, with a means of accessing records in any system it uses.
For records held in cloud storage, the ATO’s page asks businesses to make sure the storage meets the record-keeping requirements and to download a complete copy of any records stored there before changing software provider and losing access.
04 What the ATO can ask for afterwards
The ruling says the ATO prefers to ask for cooperation, but holds wide-ranging powers to obtain information. Digital records bring some particular points with them:
- By written notice, the ATO can require a business to produce any electronic document in its custody or under its control for the purposes of a taxation law.
- The occupier of premises the ATO is accessing must give reasonable use of facilities and assistance to extract electronically stored information, and that can extend to login codes, keys (including encryption keys) and passwords.
- An administrative penalty applies if that assistance is not given as required.
- Records in the cloud that the business can reach immediately are within the ATO’s access powers, and where the cloud provider is offshore the ATO may also seek them under a double tax agreement or its offshore information notice power.
Computer-generated documents are admissible evidence in taxation matters, the ruling adds, subject to relevance and, where necessary, proof that the computer device is competent.
05 Choosing the software, and what it must never do
The ATO’s page suggests record-keeping software that the business can understand and operate easily, that lets it meet its record-keeping requirements, and that lets it report digitally to the ATO. Where a business uses a registered tax or BAS agent, it suggests considering whether software compatible with the agent’s will also meet the business’s needs.
It closes with a warning: “Remember, your records need to be an accurate reflection of your business transactions. Electronic sales suppression tools, which manipulate records, are illegal.” And the ruling leaves the responsibility where it started: it is the business’s job to make sure its electronic records are secure, accurate and kept to the record-keeping requirements.