Maintaining adequate records

Maintaining adequate records needs to be a critical element of every individual’s and company’s overall governance framework. The primary and critical reason for the requirement to retain records is for those retained records to be called upon, and relied upon, at some future time, if required, in order to resolve disputes, or establish salient information relevant at the time of enquiry. There are a range of circumstances which may require the possessor of those documents to produce them for inspection. So large is the range of potential circumstances that they are beyond the scope of this article, suffice to say that each situation presents unique requirements and require individual review and assessment. From an engineering (and general business) context retention of documents is paramount for a variety of reasons including (but not limited to):

• Taxation requirements – Income Tax Assessment Act 1997 (Cth) (ITA Act) and Taxation Administration Act 1953 (Cth) (TAA 53)
• Compliance with the Corporations Act 2002 (Cth) (CA)
• Compliance with the Professional Engineers Act 2002 (Qld) (PE Act)
• Compliance with the Public Records Act 2002 (Qld) (PR Act)
• Consideration of the Limitations of Action Act 1974 (Qld) (LA Act).

From a legal context, documents are often referred to as evidence. Documentary evidence can be critical in assisting a case to be won or lost. The value of documentary evidence is in their contemporaneous nature. A court will give significant weight to their contents and be persuaded by that value. This article will restrict consideration of document retention to the above listed Acts, suffice to say the topic is extensive. It is realistic to only refer to brief detail in this article. As always, this article is for general information only and engineers and their employers should always seek their own legal advice.

Income Tax Assessment Act 1997 (Cth) – Substantiation Rules

Why is it necessary to retain documents that evidence claimed deductions, expenses or the nature (character) of a transaction (i.e. was a trust or company involved?)? Put simply, the ITA Act requires taxpayers (individuals, companies, trusts etc) to retain evidence of certain expenses and transactions. As a general rule records should be retained for five (5) years (at a minimum)[1] from the date the deduction is claimed (this is the date on which you lodge an income tax return or Business Activity Statement (BAS) making the claim). This period may be longer if you are the subject of an audit, have an appeal before the Administrative Appeals Tribunal (AAT) or are being sued by the Australian Tax Office (ATO). In addition, if you are an ABN holder, and are GST registered it is prudent to bear in mind that your BAS is required to be submitted before lodgement of the income tax return relating to the same BAS period.

Corporations Act 2001 (Cth)

For the most part, (generally speaking) companies are the most common vehicle used to conduct business and enterprise. There are significant reasons why this is so. The most significant is the individual identity a company takes on upon registration. That is, a company is regarded as a person, having all the same legal rights and accountabilities. In this context it is possible to enter contractual relations with other parties in the company name. The company can sue and be sued. Significantly,
section 286 of the CA, requires financial records be kept for seven (7) years after the transaction/s covered by those records are completed.[2]

Particularly in today’s uncertain economic environment, directors of companies should be considering their company’s solvency position regularly. Failing to consider the company’s financial person may result in a director or directors being personally liable, not only under the CA but also under the TAA 53 – director penalty framework.[3] Again, directors should be regularly reviewing company bank statements and financial records to ensuring sufficient cash flow, liquidity ratio and identify any overdue taxes such as non-remitted withholdings, instalments, goods and services tax, fringe benefit tax etc. Directors should, in writing, request their accountant to produce a balance statement, statement of cash flow (at a minimum), Running Balance Account Statement (RBA), Income Tax Statement (IT) and Superannuation Guarantee Charge Statement of Account (SGAA).

The RBA, IT and SGAA are obtained directly from the ATO. Although tax records are required to be kept for five (5) years post lodgement with the ATO, the CA creates a governance framework in respect of solvency and directors’ duties. There are circumstances that permit the liquidator of an insolvent company to ‘claw-back’ insolvent transactions up to 10 years prior to relation-back date (the day the company appoints an administrator or an order is made winding the company up).[4] It is critical that directors are proactively involved in the day to day business of their company and are fully appraised of all the financial (inclusive of tax) issues. This is even more so as holding an executive office of an insolvent company may raise a fitness to practise issue concerning registration as a RPEQ.

Professional Engineers Act 2002 (Qld)

What are the requirements, if any, pursuant to the PE Act with respect to document retention? The answer to this vexing question is unfortunately somewhat nebulous in that the PE Act does not reference any specific document retention timeframes.

How then should a RPEQ be guided in their consideration and ultimate decision of what documents to keep and what to discard? There is no simple answer to this question, it will ultimately depend upon the circumstances and moreover will potentially require consideration of several state and commonwealth statutes.

How then should RPEQs protect themselves around the issue of document retention? In answering this question, we will focus on the singular most regularly asked question, namely that of ‘direct supervision’ (i.e. what documents will demonstrate adequate supervision? How long should I retain these records?).

Question 1 – What documents should I keep?

RPEQs wishing to substantiate they have sufficiently supervised a non-RPEQ should consider keeping documents such as emails, diary notes, file notes, designs, amendments to designs and any and all other documents that you (as the RPEQ) reference in order to consider the attributes, details and minutia of the matter under consideration. ‘Less’ is most certainly not ‘best’ when it comes to document retention in these circumstances. Bearing in mind the issue of onus will rest upon you in the event an allegation is made. The more documents you have (particularly those which demonstrate your active involvement in the matter) the better your position will be to rebut any allegation/s that you have not engaged in direct supervision as required under the PE Act.

Question 2 – How long should I retain these records?

This is a particularly difficult question, so we will limit the scope of the response only to the PE Act.  However, in the event of litigation around a negligence issue, these records would be relevant. As to limitation periods I will refer to those in the discussion on the Limitation of Action Act 1974 (Qld) (below). As to the PE Act, section 139 (which relates to the offence provisions) places a limit of taking action of two (2) years following the commission of the offence. In respect of disciplinary proceedings, there is no specific limitation period set for instituting disciplinary action against a RPEQ. In those circumstances RPEQs may wish to consider options for historical filing and archiving of material used during the course of delivering a ‘professional engineering service’.

Public Records Act 2002 (Qld)

As many engineering entities are providing work for state government departments it is prudent to consider the provisions of the PR Act. The PR Act regulates the retention of a ‘public record’, the term is defined in section 6 of the PR Act. For expediency, the most salient issue for RPEQs is subsection (1)(a) which states:

1. A ‘public record’ is any of the following records made before or after the commencement of this Act –
   • A record made for use by, or a purpose of, a public authority, other than a Minister or Assistant Minister.

Therefore, in simple terms, documents created and relevant to the performance and delivery of a government contract are likely to be considered public records. Relevantly, and from a jurisdictional point, the PR Act regulates ‘public authorities’. This term is defined in Schedule 2 of the PR Act, however, broadly covers government owned corporations and entities declared under regulation to be public authorities for the purposes of the Act.[5] Therefore the PR Act will not extend to private corporations. However, the issue of documents is likely to be more an issue for the contracting government entity and likely to be resolved by way of the contract for services resolved and executed between the parties. Notwithstanding, jurisdiction of the PR Act will not extend to private entities not defined within the scope of the Schedule 2 definition, it is still prudent for practitioners to retain documents in the event a dispute arises years after the completion of the relevant contract.

Limitations of Actions Act 1974 (Qld)

The LA Act regulates the law relating to time limits for commencing certain actions.[6] As a matter of generality the LA Act provides guidance on when proceedings ought to be filed in order to prevent a defendant/respondent party asserting a statute barred defence. Again, for simplicity sake, the most relevant for RPEQ practice would involve matters around breach of contract, allegations of negligence and breaching a statutory duty (i.e. requirements of the PE Act).

The LA Act prescribes that actions in negligence and tort are required to be brought within six (6) years ‘from the date on which the cause of action arose’. Defining the date on which the action arose in general terms is when the act / omission giving rise to the asserted breach of contract or act of negligence occurred. The courts have decided, inter alia, that a ‘…cause of action accrues once the plaintiff is able to issue a statement of claim capable of stating every existing fact which is necessary for the plaintiff to prove to support his or her right to judgement’.[7]  The court in McQueen v Mount Isa Mines Ltd, referencing matters of negligence and breach of contract stated, inter alia, at paragraph [66] of the decision:

…In the case of negligence his Honour properly identified that the essential elements as being the duty of care, breach of the duty and injury caused by the breach. The cause of action first accrues when damage is caused by the breach whereas in contract the cause of action accrues upon a breach [71].

Conclusion

There is no easy answer to the question of how long records should be kept. As seen above various statutes prescribe a broad range of timelines. Given advancements in digital storage and the feasibility to store copies of documents indefinitely (potentially), practitioners should turn their attention to this issue and consider how it affects them individually and how it affects the entity they provide services too.

[1] Income Tax Assessment Act 1997 (Cth), ss. 900-25, 900-75, 900-90, 900-165.

[2] Corporations Act 2002 (Cth), s. 286(2).

[3] Taxation Administration Act 1953 (Cth), Division 269.

[4] Corporations Act 2002 (Cth), ss 588FE(5)(a)&(c).

[5] Public Records Act 2002, Schedule 2.

[6] Limitations of Actions Act 1974 (Qld), Long Title.

[7] McQueen v Mount Isa Mines Ltd [2017] QCA 259 at [44].