Record keeping: The benefits

In the busy world of running an Australian business, having complete business records is really important. It’s not just about keeping things in order, it’s about making sure your business is on the up-and-up, financially and legally.

Business records are all the paperwork that shows what’s going on with your money and what your business is doing. They help you see how well your business is doing and keep things official and above board. As an Australian business owner, you bear the responsibility to preserve these records for a set period – generally five years – as mandated by the Australian Taxation Office (ATO). This tenure is counted from the completion of the transactions or the action of the records in question. However, certain documents, especially those tied to capital gains tax, may require a longer retention period.

Let’s delve deeper into the types of business records essential for smooth operation, the specific tax records you must maintain, and the duration and conditions under which these must be stored. Understanding these requirements can ensure your venture operates within the legal framework, ready for any financial analysis or governmental review.

What are business records?

Business records refer to the documents that chronicle all transactions, financial events, and other activities involving your company. These records provide a detailed account of what the business has done and include a variety of forms, such as:

• Financial Statements: Including balance sheets, income statements, and cash flow statements, which show the company’s financial health.
• Receipts and Invoices: For sales or services provided, as well as purchases made by the business.
• Bank Statements: Showing all the transactions that have gone through the business’s bank accounts.
• Tax Returns and Calculations: Records showing tax filings and the supporting documents for the figures submitted.
• Payroll Records: Information on employees’ salaries, wages, bonuses, deductions, and tax withholdings.
• Contracts and Agreements: Signed agreements with customers, suppliers, partners, and employees.
• Minutes of Meetings: Notes and decisions from meetings of directors, shareholders, or management.
• Correspondence: Official communications related to business operations.
• Regulatory Filings: Documentation submitted to comply with laws and regulations.

Maintaining comprehensive business records is essential for several reasons: it helps in monitoring the progress of the business, preparing financial reports, tracking deductible expenses, preparing tax returns, and supporting items reported on tax returns among others.

How long do you need to keep business records in Australia?

In Australia, maintaining accurate business records is non-negotiable. It’s both a legal requirement and a critical component of sound business practice.

The Australian Taxation Office (ATO) requires that these records be kept for a minimum of five years after they are prepared, obtained, or the transactions are completed, whichever occurs the latest. It’s important to note that the clock starts ticking from the last action, not the first. So, if you file a tax amendment based on a document, you’ll need to keep that document for five years from the date of the amendment.

In some instances, records may need to be kept for longer than the standard five-year period. This typically applies to records relating to capital gains tax events, such as the sale of a business property or shares. In these cases, records must be kept for five years after it is certain that no capital gains tax can be levied on the event.

What are tax records?

Tax records are documents and supporting information that pertain to an individual’s or business’s income, expenses, and other transactions affecting their tax liabilities. These records are vital for preparing accurate tax returns and substantiating the income, credits, deductions, and sales declared. Here’s what typically comprises tax records:

• Income Records: Documents that show the amount of money you’ve earned, such as wage statements (e.g., W-2 or payslips), bank statements, and documents showing income from investments or self-employment.
• Expense Receipts: Bills and receipts for business expenses, education, healthcare, and any other costs that may be deductible or creditable on a tax return.
• Home and Investment Records: Sales or purchase invoices for property or stock, which can impact capital gains or losses.
• Tax Return Copies: Copies of filed tax returns for reference in future years.
• Assessments and Notices: Official communications from the tax authority, such as notices of assessment, adjustment notices, and any papers concerning tax disputes or resolutions.

Consistent recordkeeping and storing these documents securely can help ensure compliance with tax laws and provide protection during audits or inquiries from tax authorities. In Australia, as in many countries, keeping these tax records is not only prudent for accurate filings but also a legal requirement.

How long do you need to keep tax records in Australia?

In Australia, it’s critically important to retain your tax records. The law provides explicit guidelines on the duration for which they should be kept. Let’s streamline these rules for easy understanding.

Typically, the Australian Tax Office (ATO) mandates that your tax records be maintained for a period of five years. This period begins from the later of two dates: the date when your tax return was filed or the date when your last transaction was completed.

However, there are instances where you may need to keep your records for more than the standard five years. Take, for example, transactions involving property or investments. Should these be liable for capital gains tax, the associated records must be retained for five years beyond the sale date, not merely from the purchase date.

Essential records include anything from receipts and invoices to bank statements and contracts – essentially any paper trail that details your income and expenses for tax purposes.

Read also: Invoice vs. receipt: What is the difference?

Planning to shut your business? There’s still an obligation to store your tax records for five years following the submission of your final tax return.

Consistently and methodically filing away your tax records for the legally required duration safeguards you from potential inquiries about your previous tax submissions. It ensures that the necessary documentation is on hand to accurately deal with your tax obligations each fiscal year.

How can you keep digital and hard copies of record keeping?

You can keep records in either or hard copy. They must be accessible and in a form that the ATO can understand. A hard copy refers to a physical or tangible document or printout of information. If you’re keeping digital records, they need to be easily convertible into English.

What are the legal requirements for record keeping?

Australian law dictates that businesses must keep all financial records relevant to their tax and other reporting obligations. This includes documents related to income, expenses, sales, purchases, contracts, and any other transactions that can affect your tax obligations.

For Australian businesses, staying on top of record keeping is part of the day-to-day. Not only does it keep you compliant, but it also equips you with financial insights that can inform your business decisions and strategies. Remember, investing time in setting up an efficient system to manage your records now can save you from headaches in the future.

Read also: What are payment terms?

Securing your business future

In conclusion, maintaining meticulous business and tax records is an indispensable part of running a successful operation in Australia. It’s a practice that not only meets legal requirements but sets the stage for a business’s ongoing success and stability. Whether it’s keeping track of financial performance, ensuring accuracy in tax filings, or simply staying prepared for an audit, good record keeping lies at the heart of your business’s financial management.

Here at Conta, we understand the value of streamlined paperwork management, which is why we offer free invoicing software tailored for Australian businesses. Our tool simplifies the creation and retention of invoices, dovetailing with your other record-keeping practices effortlessly.