This is a question we hear frequently.
Unfortunately there's not a one-size-fits-all answer, as the period for which you or your clients must retain business records or document depends on what they are.
Most people, when asked, will reply that you should retain documentation for at least seven years. This appears to relate to the principle of corporate law that requires a company's financial records be retained for seven years after the completion of the transactions they record.
But that's not the whole story.
As a general rule, the period of seven years seems to work because it exceeds the period required in cases such as:
- Tax - tax laws dictate that businesses must usually keep financial records of revenue and expenses for five years after the lodgement date for the financial year returns;
- Employment records - a business must retain employee records for seven years following termination;
- Personal injury - the limitation period is three years from the date on which a cause of action arose;
- Breach of contract or negligence - the limitation period is six years from the date on which a cause of action arose; or
- Defamation - the limitation period is one year from the date of publication of the matter about which a complaint has been made.
While there is no obligation to retain documents in relation to limitation periods, an action that relies on those documents may fail if they are not retained.
Exceptions to the rule
Where the seven year guideline becomes an issue is where there are exceptions, including:
- Land recovery - the limitation period is twelve years from the date on which the cause of action occurred;
- Deeds and related documents - the limitation period for causes of action arising from deeds is twelve years. Accordingly, they should be retained indefinitely for anywhere from twelve years, remembering trust deeds have a life span of up to 80 years;
- Intellectual property rights - should always be retained for the life of the rights, and possibly indefinitely. Some IP rights can last many decades; and
- Litigation - records relating to ongoing or threatened litigation should be retained for at least the life of the litigation (however many years it may take).
Of course, there are a number of practical considerations to take into account when deciding on a retention policy including:
- Cost - the storage of physical documents can be prohibitively expensive. Keeping soft copies of some documents will reduce the impact of physical storage costs; however, electronic security is critical to retaining documents on a server or disk. Of course, some original documents must also be retained, even if scanned and stored electronically;
- Security - some original documents may require special storage arrangements. For example, delicate documents may require climate controlled storage, and land title deeds should ideally be stored in a safe; and
- Privacy - documents must be stored so they cannot be altered or accessed by persons who have no authority to do so.
With many businesses attempting to go paperless, this can be a difficult subject to deal with in practice. Please contact the Acis team on 1800 773 477 if you need assistance or would like to discuss any of these issues.