Record keeping requirements for your business, to help you meet your tax, superannuation and registration obligations.
- What is a record?
- Five rules for record keeping
- Benefits of keeping accurate and complete records
As you embark on the journey of starting, operating, selling, changing, or closing your business, it is crucial to fulfill your legal obligation of maintaining records pertaining to your tax, superannuation, and registration matters. This entails:
- Keeping documentation related to your business’s income and expenses.
- Retaining records that contain details of any elections, choices, estimates, determinations, or calculations made for your business’s tax and super affairs, including the methodology or basis used.
To meet your record-keeping obligations and prevent common mistakes, it is essential to have a clear understanding of the required records for your specific business. Make it a routine practice to maintain accurate and comprehensive records as part of your daily business activities. As your business evolves or expands, periodically review and update your record-keeping requirements.
Failure to comply with these record-keeping obligations can have legal and financial repercussions for your business.
If you have any uncertainties regarding how these requirements apply to your circumstances, reach out to us for guidance. We are here to assist you in rectifying any errors and ensuring compliance.
Records – What are they?
A record is a document that shows the tax and super-related things your business does.
The record should have enough information for us to understand what the transactions are about. This helps us see how they affect your business’s money coming in and going out.
The important details to include on the record are usually:
- The date, amount, and description of the transaction (like a sale, purchase, wages, or rent). Also, include any goods and services tax (GST) information if it applies.
- The reason for the transaction.
- If it’s important, include the connection between the people or businesses involved in the transaction.
Five rules for record keeping
Here are 5 important rules for keeping records for your business, which help you meet your tax, super, and registration obligations. These rules are based on the law and the ATO’s view:
- Keep all records that relate to starting, running, changing, selling, or closing your business and are relevant to your taxes and superannuation.
- If your expenses are used for both business and personal purposes, make sure you have clear documenting to show the business portion of those expenses.
- The information in your records should not be changed, and you must store them securely to prevent any damage or alteration. The ATO may ask to see proof that you have appropriate safeguards in place.
- Even if you change your record-keeping system over time, you should still be able to recreate your original data if needed.
- Most records should be kept for 5 years. The 5-year period usually starts from when you prepared or obtained the record, or completed the related transactions. However, there are some exceptions. For example, records for fringe benefits tax (FBT) start from the date you lodge your FBT return, and records for super contributions for employees start from the date of the contribution.
Additionally, you may need to keep certain records for longer than 5 years if they are related to an assessment review or other specific situations.
Remember to maintain information about your routine procedures for destroying digital records. If we ask, you should be able to show us your records, so make sure you keep information about your record-keeping system too. Ensure that the records contain all the necessary details to meet your tax, super, and employer obligations.
If you store your data and records digitally, make sure you provide the necessary information for accessing and decrypting the data if it’s encrypted or password-protected. Also, ensure that your data is identifiable, labeled, or indexed for easy extraction and search if needed.
Lastly, your records should be in English or easily convertible to English if required.
Benefits of keeping accurate and complete records
Having accurate and complete records is important for the success of your business. It allows you to:
- Keep track of your business’s financial health and determine if you’re making a profit or loss.
- Make informed decisions that benefit your business.
- Manage your debts and keep track of what others owe you.
- Monitor your cash flow and ensure timely payments.
- Avoid penalties that can arise from not maintaining proper records.
- Present your financial position to lenders, business partners, tax professionals, and potential buyers.
- Meet your tax, superannuation, and employer obligations more easily, including filing returns, BAS, and taxable payments annual reports if required.
- Provide necessary information in case of a business audit, making the process smoother and faster.
By maintaining accurate and complete records, you can ensure the smooth operation of your business and stay on top of your financial responsibilities.
For more information, you can check out the below links:
- ITAA 1936 section 262A Keeping of records
- TR 96/7 Income tax: record keeping – section 262A – general principles
- TR 2018/2 Income tax: record keeping and access – electronic records
- PSLA 2008/14 Record Keeping when using commercial off the shelf software
Also, check out a podcast from the ATO on: Tax inVoice Episode 10 – Good record keeping is good for business.