Reminder
The five rules for record keeping apply to all records your business needs to help you meet your tax, superannuation and employer obligations.
You should understand the record-keeping requirements for your business and keep accurate and complete records as they occur. Doing this helps you avoid penalties that may apply and reduce the possibility of us denying your expense claims.
Accurate and complete records help you:
- keep track of your income and stock levels
- know what expenses you’ve incurred
- make informed business decisions
- prepare for your business activity statements and tax returns.
Tips for common errors
The following tips can help you get it right. They are based on common record-keeping errors we see:
- Keep accurate records of all cash and electronic transactions.
- Reconcile cash and EFTPOS sales regularly (by ensuring payments recorded internally match external records) and enter the amounts into your main business accounting software system. Depending on your business, this may be daily, weekly or monthly.
- Check for mistakes if things don't add up.
- For expenses that are for both business and private use, work out and record the business portion accurately.
- If you have used trading stock for private purposes, remember to account for the stock as if you’ve sold it and include the value in your business’s assessable income to ensure your cost of sales figures are accurate.
- Ensure you have sufficient records to substantiate business expenses claimed as tax deductions.
- Don't use estimates to prepare your tax returns and business activity statements (BAS). Ensure you have complete and accurate records to substantiate the information you include in them.
- Be accurate in how you use your source records to work out the amount you claim for the research and development tax offset (if it's applicable to your business).
- You generally need to keep most records for 5 years – from when you prepared or obtained the record, or completed the transaction or related acts, whichever is later. For example, if your business buys a plot of land, you need to keep the record for 5 years after the land is handed over to you. However, if you then decide to build a new property on the land and that takes 2 more years, you will need to keep the record for at least 7 years.
- You should also keep records long enough to cover the end of the period of review.
- If your business incurs a tax loss – or a capital loss that can be offset against capital gains, remember you need to keep records related to how you determined and worked out that loss for 5 years or the end of the period of review for the income year when the loss is fully deducted, whichever is later.
You can also refer to Taxation Determination TD 2007/2 Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law? and our Guide to capital gains tax. - If you are paying contractors to provide certain services on your behalf, remember to keep accurate and detailed records. This way, you can easily prepare your total payments to each contractor at the end of the year to help you complete your taxable payments annual report (TPAR).
- If you are claiming GST credits, set aside your GST in a separate ledger account to make your record keeping and calculations easier.
- If you had PAYG amounts withheld from payments to your business (for example, because of a voluntary agreement or labour hire arrangement), ensure your payer gives you a PAYG payment summary. You may need it to substantiate any PAYG credits you later claim in your tax return.
- Use our Record-keeping evaluation tool to find out how well you are currently keeping your business records.
If you aren't sure how this information applies to your situation, ask your registered tax or BAS agent or contact us for help. We will help you get back on track if you make an error.
Top tips to help your business avoid record-keeping errors.