Business record keeping

As a business, you must keep detailed records for all transactions related to your tax and superannuation affairs as you start, run, sell, change or close your business. 

Specifically any documents related to your business's income and expenses. And, any documents containing details of how you determined or estimated your business's tax and super affairs, including how (basis or method) the estimate, determination or calculation was made.

Keeping accurate and complete records for all your business transactions will also help you manage your business and its cash flow.

Record keeping rules

Let’s now look at the 5 record-keeping rules that apply to most records your business is required to keep to meet your tax, super and employer obligations. 

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.
   

2. The relevant information in your records must not be changed and must be 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 appropriate safeguards in place. You need to be able to reconstruct your original data if your record-keeping system changes over time.
   

3. You need to keep most records for five 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.
   
   However, in some situations, the law states that the start of the five-year retention period is different. Some examples can be found here. There are also situations where you need to keep some records for longer than five years. 

4. You need to be able to show the ATO your records if they ask for them. Make sure you keep information about your record-keeping system so they can check that it meets the record-keeping requirements.

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

Benefits of keeping accurate and complete records

There are some absolute benefits of keeping accurate and complete records. Doing this allows you to:

• monitor the health of your business and know whether your business is running at a profit or loss

• make sound business decisions

• keep track of money you owe and money owed to you

• monitor your cash flow to help you to make payments on time

• avoid penalties which may apply for failing to keep records

• demonstrate your financial position to lenders, businesses, tax professionals and prospective buyers

• more easily meet your tax, super and employer obligations, including preparing and lodging your returns, BAS, and taxable payments annual report (if you are a business that is required to)

• provide the information the ATO needs if they audit your business, making the process easier and shorter.

Setting up and managing your business records

The first step is choosing your business record-keeping system. It can be digital or manual but unless you have simple business affairs, an electronic system may be more beneficial.

You can look after your own record keeping or engage a registered tax or BAS agent, or a bookkeeper, or an Accounting firm like ours to do all or part of the work. 

The ATO has a Record-keeping evaluation tool that can help you to understand what records you will need to keep. 

Records you’ll need at each stage of your business

Here are some extra resources from the ATO that can help you understand the records you need at each stage of your business.

Starting your business - work out what records you need to keep when you start your own business.

Running your business - what records you need to keep while you run your business including those related to business activity statements (BAS), tax returns, employing workers and crypto assets.

Changing your business structure - what records you need to keep if you change your business structure.

Selling or closing your business - work out what records you need to keep if you sell or close your business.

Gifts or loans from related overseas entities - what records you need to keep if you have received gifts or loans from related overseas entities, including family members and friends.

If you would like more information or have questions please contact me paul@congdonfuzi.com.au