Five tips to Spring Clean your record keeping
Do you know what business records to keep, in what form and for how long? Read these tips to find out. - as of 2015
1. Record keeping is not only compulsory, it’s useful
Business records are, first and foremost, of great use to you, the business owner. Well-kept records make activities statements and tax time simpler and can give you a clearer understanding of your cashflow and business health. If you decide to sell your business, for example, all the facts and figures are at your fingertips and easily presented to prospective buyers.
You are also required by law to keep certain financial and employee-related records. The Australian Tax Office (ATO), the Australian Securities and Investments Commission (ASIC) and Fair Work Australia (FWA) are three organisations that may require access to your records.
2. What you need to keep
Your ABN certificate, company registration details and rental and insurance contracts (in fact, practically anything referred to as a contract or certificate) are some of the basic documents you need to keep. Financial records, such as financial statements and employment records (including pay slips), are also musts.
According to the ATO, there are four main types of tax-related records to retain or scan regularly.
- Income tax and GST: all sales records, records of purchases and expenses and year-end income-tax records.
- Employee payments: all tax file number and withholding declarations, worker payment records, withholding variation notices, PAYG summaries, annual reports, superannuation records and fringe-benefit details.
- PAYG withholding for business payments: records of what you withheld from payments if no ABN was quoted, any PAYG withholding voluntary agreements, voluntary agreement payments, PAYG summaries, employment termination records and all PAYG annual reports.
- Fuel-tax credits: records of fuel purchases and any fuel lost or disposed of, eligible and ineligible fuel use and your claim calculations.
3. How long to keep records
Most tax-related records: five years According to the ATO, most business records used for tax purposes must be kept for five years after the documents are prepared, obtained or the transaction that
they refer to is completed, whichever occurs latest. Records relating to capital gains and records that you use in a later tax return (such as a loss carried forward or when you’ve claimed for a decline in value, for instance) may have to be kept for longer than five years. If you are in
a dispute with the ATO, keep any relevant records for five years after your lodge your tax return or for five years starting from when the dispute is finalised: whichever is the longer time period.
Financial records: seven years These records include all the paperwork used to draw up a financial statement for your business, showing transactions, financial position and performance. These are the documents that might be required for an audit or that you would need to present to a potential buyer for your business.
Employment-related records: seven years Employment records such as pay slips, employment status, hours worked, leave balances and superannuation payments must be kept for seven years, to comply with Fair Work regulations.
Industry-specific records: confirm with an expert In addition, certain industry-specific records like crop-spraying accreditation may need to be retained for minimum periods. Check with your accountant, lawyer, business adviser or other industry regulatory body.
Receipts for large purchases: indefinitely Keep receipts of large purchases filed with your insurance policy in case you need proof of purchase or value if damage occurs.
Property and investment-related records: indefinitely If you renovate a business property, it may affect your capital gains tax, so keep all receipts and records of improvements and related expenses.
Keep all records (purchase or lease agreements, sales documents and brokerage statements) for at least seven years after you dispose of a property or a stock.
4. Records can be kept in electronic format
All business records must be in English and they must be legible.
Business records can be stored in paper or electronic form, as long as you are able to supply a paper copy if requested to do so by a body such as FWA. So, if filing space is at a premium, you can scan in all your paperwork and store it on your computer or on a CD.
Electronic records must be true, clear copies of the original papers. They must be securely stored in a password-controlled computer and regularly backed up so they aren’t lost or out of date. The ATO and other regulatory bodies must be able to access them at any time. You may even want to store a complete set of records in the cloud, so that if your business computer is destroyed or back-ups fail, your records aren’t lost.
Even if your accountant stores your records, you are responsible for them, so check that they are being stored correctly.
You can dispose of old business records after the minimum legal period, as long as there’s no reasonable anticipation of legal action.
If you are disposing of paper copies, you may want to hire or buy a document shredder. You can also hire a lockable bin or secure bag, fill it with the unwanted paperwork and a company can shred under controlled certified system - see our document destruction page.
See ATO for the lastest information on keeping tax records