Inland Revenue requires us to keep our business records for seven years. But it’s not quite as simple as this.
The department also requires taxpayers to prove themselves innocent if ever they are challenged. So in 10 years, Inland Revenue might approach you with a question they want answered. You would need to be able to answer the question and if it was going to give rise to a tax issue, prove yourself to be right.
Let’s look at an example. You buy a residential property and for good reason you sell it a short time later. A couple of years after you have destroyed records, Inland Revenue decides it wants to check on whether you had kept the property long enough to avoid tax on what it calls the bright line test. This requires the buyer of a residential rental property to keep it for a certain number of years. If you haven’t got all the documents to show when the property was bought and when it was sold, you might have a problem.
There can be several crucial dates of purchase
- the date you signed the sale and purchase agreement
- the date the contracts went unconditional
- the date the property was transferred to you
Similarly, there are several dates needed for sale or disposal of the property. So here you have an example where holding on to documentation for more than seven years is important.
If you have a family trust, ignore the seven years rule because you need to comply with trust law as well as tax law. Keep all records for the life of the trust.
Be selective about what you throw out. Computers have enormous storage capacity so why not scan most of the documents and save them in your computer or on to a portable hard drive?