Keeping good records: What you need to know
The Australian tax system relies on taxpayers’ self-assessment. This means that you are responsible for working out how much you have to declare and can claim on your tax return. You also need to be able to show how you arrived at these figures and are generally required to provide written evidence. The written evidence must be kept for a minimum of five (5) years. If you are a sole trader with employees or operate your business via a company you must keep the written evidence for seven (7) years. The documentation must be in English unless the transaction was incurred outside Australia.
What to do to have good records
A longer record keeping requirement applies to a capital gain asset. You must keep records of every transaction, event or circumstance during your total ownership period. Your records will help you work out your capital gain or capital loss correctly and ensure you don’t pay more Capital Gains Tax (CGT) than necessary. There may be a big gap between the time when you acquire and dispose of an asset, so it is essential to keep good records from day one. Furthermore, you must keep these records for five years after you sell or dispose of an asset
Advances in technology have meant that many business transactions are processed and kept electronically rather than through a paper-based system, including encrypted records. It is recommended that if you store your records electronically you make a backup copy to ensure the evidence is easily accessible if the original becomes inaccessible or unreadable (eg. where a hard drive is corrupted). You don’t have to keep original paper records once they have been scanned onto an electronic storage medium unless a particular law or regulation requires you to retain the paper copies.
Sometimes your records maybe accidentally lost or destroyed – for example, if your home or business premises is burgled or burnt. In these instances, the ATO can allow you to claim a deduction for certain expenses if you have a complete copy of a lost or destroyed document or the ATO is satisfied that you took reasonable precautions to prevent the loss or destruction and, if the document was written evidence, it is not reasonably possible to obtain a substitute document.
If you require further information regarding record keeping requirements call us today on 02 9223 9166 or submit an online enquiry to find out how we can help you.