The end of the financial year is fast approaching and it will become a mad scramble to get all the documentation together to start preparing for lodgement of your annual tax return.
Usually you would find a disclaimer in fine print right at the end of a post, however, here it is upfront!
This post has been prepared as general advice only, I have not taken into account your situation, organisational goals and financial needs. You will need to consider the appropriateness of any advice before acting on it and I urge you to follow up in the links and resources provided in the post.
The most basic reason we are required to keep records and documentation is because the ATO requires it!
Here are a some of the reasons you are required to keep records!
- Statutory requirements
- Penalties for failing to keep records
- Burden of proof – as a taxpayer you are required to substantiate tax deduction claims in the event of a tax dispute
- Practical advantages – you can reduce the incidence of tax audits through improved communication with the ATO
The minimum retention periods vary depending on the type of tax assessment lodged with the ATO and summarised in the table below.
|Assessment Type||Review Term||Retention Period|
|Individuals (non-business)||2 Years||5 years from when you lodge your annual tax return|
|Small Business Entities (up to $ 2,000,000 turnover)||2 Years||5 years from when the business record is prepared or the transaction is completed, whichever occurs later|
|Companies||4 Years||7 years from when the business record is prepared or the transaction is completed, whichever occurs later|
|All other tax payers||4 Years||5 years from when the business record is prepared or the transaction is completed, whichever occurs later|
|Substantiation & Car Expenses||2 or 4 years depending on your circumstances||5 years from when the business record is prepared or the transaction is completed, whichever occurs later|
You should keep records in these main categories:
- payments you have received
- expenses related to payments you receive
- when you have acquired or disposed of an asset – such as shares or a rental property
- gifts, donations and contributions – if they are tax deductible
- disability aids, attendant care or aged care expenses.
This advice tells you what main types of records you should keep in each of these categories. You may also need to keep records in some other categories, or for other members of your family – for example, if you receive the family tax benefit.
You may decide not to keep particular records – for example, because you expect to claim for only a small amount of business travel. If it turns out that you travel more than you expected during the year, you may be limited to a smaller claim than if you had kept more records.
If you’re not sure whether to keep a record, you should keep it – you can decide whether you need it at tax return time.
If you incur expenses for private purposes, you must have records that show how you worked out the amount of any private use.
Storage of records
You can store your financial records as either paper copies or electronically provided they meet the following requirements
- A true and clear reproduction of the original paper records.
- Not altered or manipulated once they have been stored.
- Capable of being retrieved and read by the ATO at all times.
Once you have transferred your paper records into an electronic storage medium you don’t have to keep them!
Hints & Tips
There are many resources available to aid the keeping of records. I believe it is easier and more effective to store all records in electronic format!
The obvious choice is to invest in some form of accounting software which allows you to capture all your transactions and attach electronic images of the supporting documents. However, this may not be what you use on a day to day basis and won’t allow you to capture and process documents while you are on the go.
I don’t endorse any form of software and can only give you an idea what works for me. There are a number of apps available for your smartphone and can serve to capture and record what you need.
I use a Dropbox account which has a great built in document scanner and allows me to capture any invoices and receipts on the go.
The ATO has a very simple app which will allow you to record all your vehicle logbook activities as well as recording both income and expenses.
Lastly when in doubt contact your accountant or bookkeeper. If you don’t have one of those contact us at Ice Edge!