Record-keeping – why what and how

Do you understand why record-keeping is so important (whether you’re in business or not)? No? Well here is your complete why what and how of record-keeping. Learn why you should do it and exactly which documents you should be keeping in today’s blog! This blog will assist you whether or not you are a business owner.

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WHY SHOULD YOU KEEP RECORDS?

Because you have to – it’s the law! We are all obliged to keep our records, personal and/or business-related by law. Of course, there are other reasons why you should keep records and these are covered later in the blog.

FOR HOW LONG?

In general, you need to keep records for 5 years after they were prepared, obtained, or a particular transaction completed, whichever occurs latest. There are variations to this requirement so refer here to read more.

WHAT DO YOU HAVE TO KEEP?

Basically, you need to keep records relating to any income you have received and details of any expenses you have incurred in relation to the receipt of this income. The types of income and expense records you need to keep depend a lot on your personal situation and how you obtain your income – review the table below for more information. Note: always obtain advice from your tax agent or accountant about how the following may apply to your situation.

Non-Business Owner

ITEMRECORD TYPEWHAT TO KEEP
INCOME
Salary, wages & allowancesPAYG Payment Summary
Bank InterestBank statements or passbook
DividendsStatements from the company, corporate unit trust, public trading trust, or corporate limited partnership that pays you dividends or makes distributions to you
Managed FundsStatement or advice from fund showing the amount of distribution
Rental PropertyRental invoices, statements from property agents, bank statements showing receipt of rental income, a record of any bond monies held
Government PaymentsPAYG Payment Summary or letter from the agency stating the amount received
EXPENSES
Car ExpensesRecords required depend on the estimated business kilometres travelled.
Travel ExpensesTravel diary showing dates, places, times, duration or activities; receipts for air, bus, train, tram, taxi fares, road and bridge tolls, parking, car hire etc.
Clothing & UniformReceipts for purchase of uniforms, protective clothing, dry-cleaning, and sun protection items.
Self-Education ExpensesReceipts for course fees, textbooks, stationery, assets purchases eg computer, travel incurred
Other work-related expensesDiary or logbook showing the apportionment between personal and business use of home office utilities. Receipts for asset purchases and/or sales eg computer, office furniture
Rental ExpensesContract of sale/purchase, bank statements showing interest charged on money borrowed for the property, receipts for advertising, bank charges, council rates, gardening, agent fees, repairs, and maintenance; documents related to the depreciation of assets or any capital works e.g. structural improvements
Donations or GiftsReceipts or a letter from the charity showing amount donated
Medical ExpensesStatements from Medicare or Private Health Fund, receipts for payments to hospitals, doctors, dentists, opticians, chemists for expenses relating to an illness or operation.

Business Owner

Any of the above that may apply to your personal situation plus the following:

ITEMRECORD TYPEWHAT TO KEEP
INCOME
SalesTax invoices and a list of debtors; till tapes (if in a retail shop); bank statements showing receipt of sales income; merchant statements
EXPENSES
Business ExpensesReceipts and tax invoices for any purchase made related to your business operation, bank statements, cheque butts, credit card statements
AssetsReceipts for any major asset purchased e.g. computers, motor vehicles; details of depreciation and/or disposal of assets
Employee Wages Employee records including Tax File Number declarations, payslips, payment summaries, and details of termination payments.
SuperannuationDetails of how you worked out your employees’ super contributions, evidence that the contributions were paid, the employees’ super choice forms.
Fringe Benefits TaxAll FBT records (if applicable.
Fuel Tax CreditsDetails relating to how you worked out your FTC and fuel purchase receipts.
Motor VehicleReceipts of purchase, loan documents, details of the type of vehicle, sale of vehicle details (if applicable), receipts for fuel, repairs, registration, insurance
OTHER ITEMS
StocktakesIf your business has inventory then you may do an annual stocktake. Keep details of your stocktake to show your tax advisor
Taxation and BASBAS copies, tax returns copies, personal super contributions, copies of ABN and GST registration

WHY? (AGAIN)

Besides it being the law to keep your records, there are other reasons why you should do so. Here are a few of them:

  • Assists your Tax/BAS Agent to complete your returns more efficiently and quickly which means that your accounting costs will be reduced i.e the more organised you are, the easier our job becomes which means we will charge you less – yay!
  • Allows your Tax/BAS Agent to spend more time on providing you with personal and business tax advice and financial planning as opposed to just sorting out your paper mess!
  • Ensures that you don’t miss out on potential tax deductions – you can’t make a claim for an expense that you’ve forgotten about because you didn’t keep the receipt!
  • Makes life so much easier for your bookkeeper – again a money-saver for you.
  • Helps you find documents you need quickly.
  • Helps you keep track of your business health e.g. keeping track of debtors and creditors and stops things from falling through the cracks.
  • Assists you in being able to demonstrate your financial position to banks and other lenders if you require a loan or are trying to sell your business.
  • If you need to make an amendment to your BAS or tax return, your records will assist you to do so.
  • If the ATO request to see certain documents to verify your claims, you will be able to do so easily.
  • If you get audited by the ATO, good record-keeping will make the process so much easier and may even help to reduce potential penalties.

RECORD-KEEPING TIPS

To help you get started with good record-keeping habits, here are some useful tips:

  • Choose a record-keeping system that works for you. This can be electronic or paper-based. I recommend an electronic system. See my blog on how my electronic (paperless) system works.
  • If you are running a business, definitely purchase an accounting software program. Such a program will become the foundation for much of your business records and is acceptable by the ATO as evidence of income and expenditure.
  • Get yourself a good bookkeeper to assist you in operating the software to ensure that your business records are set up correctly.
  • Choose a day or half-day to organise your records, enter data into your software and file away paperwork etc. – the more you do it, the easier it will become.
  • Make sure you document your record-keeping system so that others may access documents etc. in the event that you are unable to do so.
  • Always ask suppliers for tax invoices at the time of purchase. Remember, no receipt = no deduction and/or GST credit.
  • Make sure that you enter data correctly into your software as mistakes can be costly. Again, a good bookkeeper will assist you here.
  • Keep personal and business records separate i.e. don’t use personal bank and credit card account for business transactions and vice versa.
  • Don’t wait until things get out of control. Get on top of your record-keeping today! If you need help, invest in the services of a good bookkeeper. This will be money well spent!

NEED MORE HELP?

The ATO has written a document to assist small business owners with record-keeping. Download here: Record-Keeping for Small Business

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