Most people associate record keeping with tax time but having a good record keeping system in place can also help you monitor the health of your business.

Record keeping can give you a more accurate picture of your business to help you understand how you are doing and so you can spot any potential problems sooner rather than later. Many small business owners who do not use accounting software are often confused as to what records or transactions or receipts should be kept.

To meet your record-keeping requirements and avoid common errors, ensure you understand what records are needed for your business and make accurate and complete record-keeping practices a part of your daily business activities. As your business changes or grows, you may need to review what records you need to keep. There can be legal and financial consequences if your business doesn’t comply with these record-keeping requirements.

You are legally required to keep records of all transactions relating to your tax and superannuation affairs as you start, run, sell, change or close your business, specifically:

  • All income (including cash, EFTPOS, credit or debit card, online sales, and other payments you may receive)
  • Expenses (such as operating expenses, business travel expenses, and payments you make to employees and contractors including any cash wages)
  • Bank statements
  • Records of business purchases or use of business stock for personal purposes (to help you work out the business portion to claim as a deduction, and to account for the stock used)

What is a Record

A record explains the tax and super-related transactions conducted by your business. The record needs to contain enough information for the ATO to determine the essential features or purpose of the transactions, in order to assess your business’s income and expenses.

The minimum information that needs to be on the record is generally the:

  • Date, amount, and character (for example, sale, purchase, wages, rental) and the relevant GST information for the transaction
  • Purpose of transaction
  • Relationships between parties to the transactions, if relevant.

Records about your business and employees

In addition to your ATO financial records requirements, other government departments require you to keep records relating to your business and employees.When setting up your record keeping system, keep:

  • Contracts, insurance agreements and other legal documents
  • Your lease if you’re renting
  • Licences and permits
  • Employee records, including time sheets and payslips
  • Safety records, such as a risk assessment for occupational health and safety
  • Any other records that are required for the operation of your business (for example, a food safety plan for a cafe owner)

5 Top Tips for Record Keeping – What the ATO expects.

These simple tips are based on guidelines from the ATO

Tip 1. You need to keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and super affairs. If your expenses relate to business use and personal use, make sure you have clear documents to show the business portion.

Tip 2. Do not change or alter your records and ensure that these records are stored in a way that protects the information from being changed or the record from being damaged. The ATO may ask you to show that you have safeguards in place. Always back up your records and take photos of receipts that may fade over time.

Tip 3. This is essentially not a tip but a reminder that you are legally required to keep most records for 5 years. Generally, the five-year retention period for each record starts from when you prepared or obtained the record, or completed the transactions or acts those records relate to, whichever is later.

Note: In some situations, the law states that the start of the five-year retention period is different. For example the following time limits apply:

  • Fringe benefits tax (FBT) records – the 5 year period commences from the date you lodge your FBT return
  • Employee Super contributions – the 5 year period starts from the date of the contribution
  • Records for super fund choice for your employees – the 5 yearperiod starts from the date of employee engagement or when an employee is offered, chooses or changes their choice of fund.

There are also situations where you need to keep some records for longer than five years, including covering the period of review for an assessment that uses information from that record. These include:

  • Records connected to a tax return or document that’s corrected or amended
  • Records of information used again in a future return
  • Records of depreciating assets
  • Records of capital gains tax assets
  • Petroleum resource rent tax records

Always consult with your accountant about records that may need to be kept for longer than 5 years.

Tip 4. How you store your records is important. If you are required to supply the ATO with records, you must ensure that your system, meets with the ATO requirement guidelines. Your record keeping information should always include relevant details to meet your tax, super and employer obligations.

If you store your data and records digitally:

  • Use an encryption system – provide encryption keys and information about how to access the data when asked. You also need to ensure we can extract and convert your data into a standard data format (for example, Excel or CSV)
  • Use passwords to protect your records. Given the recent major data breaches you should consider using Two Factor Authentication with all your systems
  • Ensure your data and records are identifiable, labelled or indexed as you store it.

Tip 5. Your records must be in English or able to be easily converted to English.

How can we help?

If you have any questions or would like further information about small business bookkeeping, please feel free to give our office on 08 9221 5522 or via email – , or arrange a time for a meeting so we can discuss your requirements in more detail.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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