How long do I have to keep my business records?
- Louise
- Nov 30, 2023
- 4 min read
Are you itching to throw out the boxes of paperwork piled up in the corner of your office? Before you dump them in the skip bin, let’s take a quick look at the business record keeping requirements you need to comply with to ensure you are meeting your legal and tax obligations.
What is a record?
Records are written evidence of your income or expenses and they can be either paper or electronic.
You are required by the ATO to keep records that support the business income and expense claims you make in your tax return.
Expenses
If you claim a business tax deduction for an expense, you need to have a record of the expense. For most expenses claimed as a tax deduction, the ATO requires that you have a receipt or similar document from the supplier. A record that is considered acceptable by the ATO would include the following details:
- the name or business name of the supplier
- the amount of the expense or cost of the asset
- the nature of the goods or services you buy
- the date you buy the goods or services
- the date the document was produced.
If the ATO asks for your records, you will need to be able to produce them.
For personal work-related expenses
If you claim a deduction for a work-related expense in your personal income tax return, you must have records of those expenses that show:
- you spent the money, and
- that the expense directly relates to earning your income.
To show how the expense relates to earning your income, you need a diary or similar record that shows:
- your private and work-related use.
- how you calculate the amount you claim as a tax deduction.
You can only claim a tax deduction for the work-related portion of an expense, so when you use the items for both private and work purposes, you need to apportion the expense.
Income or amounts you receive
For any income that is declared in your business tax return, you are required to hold records that show the amount of income. You may need to produce this information if the ATO reviews a tax return you have lodged.
For businesses, you should retain a copy of the compliant Tax Invoices you issued to your customers. If you are using an accounting system like Myob or Xero, the tax invoices will automatically be stored in the system and therefore able to be downloaded as required.
How long to keep your records
The ATO requires that you must keep your written evidence for 5 years from the date you lodge your tax return.
There are, however, a few exceptions to the general rule -
Depreciation: If you claim a tax deduction for depreciation (also known as asset decline in value) you must keep the record of asset purchase for 5 years from the date of your last depreciation tax deduction claim. For example, if you purchase an asset in 2010 and depreciate it for 5 years, with the last tax deduction claimed in the 2014 financial year tax return, you would be required to keep the record of asset purchase for 5 years from 2014
Capital Gains: If you acquire or dispose of an asset that may be subject to Capital Gains Tax, records must be kept for 5 years after it is certain that no capital gains tax (CGT) event can happen
In Dispute: if you are in dispute with the ATO with regards to a transaction, either
- 5 years from the date you lodge your tax return
- 5 years from the date the dispute is resolved.
Format of your records
You can keep your records in paper or electronic format, including photos. If you make paper or electronic copies of your records, they must be a true and clear copy of the original record.
Records must be in English, or be able to be easily translated to English.
Although there is no requirement to keep your records in electronic form, it is a good idea to use electronic record keeping where you can. Most accounting systems allow you to attach an electronic copy of the receipts to the entry in the accounting system which can be very convenient as it allows easy access to documents and saves time looking through paper files when trying to locate an invoice.
You can use any electronic device or app to keep your electronic records but be sure to back up your records regularly. To comply with your reporting obligations, you will also need to:
- have access to the computer or device the records are stored on;
- have the ability to control the information that is processed, entered and sent;
ATO myDeductions Tool
If you are a sole trader, the ATO has a myDeductions tool on their app that allows you to record income and expenses, including photos, which can be extremely useful when completing your tax return.
The ATO will accept documents that you store digitally, including photos of your receipts as records.
Sole traders with simple affairs can use the app to help keep track of their business income and expenses.
The myDeductions tool allows you to keep your records for:
- all work-related expenses (including car trips)
- interest and dividend deductions
- gifts or donations
- costs of managing tax affairs
- sole trader expenses and business income
- other tax deductions.
Interested to learn more about the App?
It is important to note that the Australian Securities and Investments Commission (ASIC) requires you to keep records for 7 years, so even though the ATO only requires 5 years, 7 years may be a preferable time frame to maintain records so you are covered.
Maintaining organised financial records is a good habit, and not just to comply with the ATO and ASIC requirements. Accurate and timely recording of income and expense transactions can benefit the business greatly as it provides the ability to quickly and easily access accurate business financial information which enables you to make informed strategic decisions.
Comments