Summary

As a business you’re required to keep detailed records for all transactions in your business but the admin of this can be cumbersome and tiresome.

We’ve outlined below the requirements for income tax and GST purposes to help businesses understand what is required.

In Detail

As a business owner it’s very important to understand your record keeping requirements. Aside from the obvious benefits of having great records to make decisions with, it’s also important as there can be both legal and financial consequences if you don’t keep the required records.

The ATO have a few rules in relation to the records you need to keep for your tax, super and employer obligations:

1. You need to keep all records that relate to starting, running, changing and selling/closing your business.

2. The records can’t be changed and they need to be stored in a way that protects them.

3. Generally you need to keep records for 5-years (see below for additional comments on this requirement).

4. You must be able to show the ATO your records if they ask for them.

5. The records must be in English or convertible to English.

In this article we’re going to cover off on two important aspects: income tax and BAS.

Income tax record keeping

The information you need to keep for your tax return is to support the income and expenses you’ve reported as well as any election, choice, estimate, determination or calculation.

A common misconception is that there is a $ threshold for record keeping. Unfortunately this isn’t correct and you technically need records for every transactions whether it’s $1 or $100,000+.

As noted above, you generally need to keep records to support your income and expenses for five years after the date of the transaction. Records will include, but are not limited to, tax invoices and receipts, bank statements, merchant facility statements, loan and insurance documentation, copies of leases, logbooks, travel diaries (in some circumstances), workpapers to support business vs private use, stocktakes, depreciation schedules and general contracts of purchase and sale of assets as well as contracts with supplies and customers.

There are some relevant modifications to the five year rules above:

1. The ATO are of the view that you need to keep records long enough to cover the review period of any tax returns (generally up to four years from the date of lodgement for businesses). The impact of this is that the five year period may be extended if you lodge your tax returns late or they are amended.

2. Generally, for depreciating assets you need to keep the records for five years from the date you cease to own the asset. So if you buy an asset and hold it for ten years before selling it, you need to keep the records for five years fro mthe date you sell the asset.

3. The extended timeframe for depreciating assets also applies to CGT assets. You need to keep the records for five years from the date you sell the asset.

BAS record keeping

Your BAS will generally contain amounts for GST, wages and tax withheld from wages. We aren’t covering FBT or PAYG instalments in this article but keep in mind you’ll need records for those items as well.

Consistent with the income tax requirements, you need to keep records that support the amounts included in your BAS for a period of five years. However, the ATO will require records for the period of review which is generally four years after lodgement which may extend the period beyond five years if you lodge your BAS late.

GST

Records to support the amount of GST on sales and GST on expenses include sales and tax invoices, receipts and any other documentation to record adjustments or calculations for GST purposes.

You must have a tax invoice to claim GST credits on purchases that cost more than $82.50 including GST. For amounts that cost less than $82.50 you don’t need a tax invoice but you will need some supporting documentation such as a receipt or a diary entry with the name and ABN of the supplier, date of purchase, description of what was purchased and the amount paid.

Wages and PAYG withholding

Records to support the wages and PAYG withholding the BAS include TFN declarations from employees, employment and contractor contracts, support for the calculation of the wages and PAYG withholding, Single Touch Payroll records, super contribution records and payment receipts amongst other things.

How and where to keep records

How and where you keep your records is up to you provided they are accessible and follow the ATO’s rules we outlined above. 

Generally we recommend to clients that records are kept in one location so that no matter what transaction is being reviewed, you know where the records are kept. Often our recommendation is to keep the supporting documentation against the actual transaction in your accounting file. 

A common question we get asked is whether bank statements or credit card transactions are sufficient records. While they can support that the amount was actually received or spent, they often lack the necessary information to claim the deduction or GST credit and so you’ll need to keep copies of the invoices, receipts etc. as well as bank and credit card statements. 

Hopefully this quick summary has given you a better understanding of your record keeping requirements. If you have any questions or would like to see how your record keeping processes could be improved please reach out to the team.