As a business owner, you need to keep accurate records of every transaction that goes through your business. This is essential for meeting ATO compliance around taxation, superannuation and employment.
Sound record-keeping is also good for business, as it enables you to keep up with your financial position. Accurate and up-to-date records help you to monitor your cash flow, check your business’s financial health, keep track of money owed and owing, avoid fines and penalties and make realistic, evidence-based business decisions.
So what are the ATO’s record-keeping rules?
The ATO has five rules for business record keeping. These are:
- You must keep business records relevant to tax and superannuation at all points of your business.
- Store records securely so they cannot be altered or tampered with.
- Keep records for five years (with some exceptions).
- Make records available to the ATO for inspection if required.
- Ensure all records are in English (or easily translatable).
What’s involved in compliance
Here is an explanation of what these ATO requirements mean in practice for an Australian business.
– Expense records
You should keep records of all purchases you make through your business.
Ideally each expense should have a tax invoice or receipt attached to it. This should show the supplier’s name and ABN, the issue date, a description of the items purchased, total dollar value and the amount of GST that applies to each item.
In the case of some minor purchases or incidentals, there may not be an invoice or receipt available (such as when buying office milk at the corner shop). In this case, you should ask for a cash register receipt, or at least keep a record of the purchase in a journal or bookkeeping system.
– Sales income
Businesses registered for GST must issue tax invoices to customers that include the same details as for expenses. If your business is not registered, you can issue regular invoices rather than tax invoices. You should keep a record of all invoices you issue to customers, either in paper or electronic form.
– GST and other taxes
To claim back the GST on a purchase, you must be able to produce a tax invoice or receipt where the total value is over $82.50 (that is, $70 plus GST). If you don’t have the backup paperwork for this, you should not claim the GST.
You also need to keep records relating to your tax returns, BAS’s, PAYG lodgements and Fringe Benefits Tax.
– Wages and superannuation
You must keep a record of all wages (including any bonuses, allowances and leave payments) to employees. This should also include the amount of any PAYG withheld and superannuation paid.
Other relevant records to keep include tax file number declarations and year-end payment summaries.
– Asset records
Records for this should include details of any assets bought and sold – such as machinery, office equipment, vehicles, tools and property.
– Where and how to store records
If you run a paper-based system then you will need to maintain hard-copies of your records in a filing system. Otherwise you can keep records electronically, such as in a cloud bookkeeping system (e.g. XERO).
However, if you do store your records using an online bookkeeping system, you need to ensure they will still be available for five years if you choose to no longer use the program.
Assistance from the professionals
Accurate record-keeping in business is essential but it can also be time-consuming. Partnering with a professional bookkeeping firm can save you a lot of the time and stress involved in keeping accurate financial records. Contact our team to learn more.