Record-keeping rules: what to keep and for how long

A number of regulatory bodies may need access to your records for audits or legal purposes. However, the Australian Taxation Office (ATO) and Fair Work Australia are the two you’ll most likely deal with. Both have strict rules around what you need to keep and for how long, and it pays to ensure you’re compliant.

Mark Chapman, Director of Tax Communications with H&R Block, Australia’s largest firm of tax accountants, says that small businesses often seek guidance on their record keeping requirements.

“In reality, it’s highly unlikely that the ATO will want to see all your books and records in the event of an audit”, Chapman says “Most audits focus on particular high risk or large transactions but of course you can’t know in advance exactly what the ATO will want to see, so it pays to be comprehensive and to keep all your records in a state that’s complete, accurate and securely stored.”

The Australian Government advises that it's fine to keep either electronic records or paper records, as long as you can access them easily and efficiently for a review. Chapman says that all small businesses should have access to suitable accounting software, and many will use a bookkeeper to look after their records on a day to day basis. If you’re unsure what records need to be keep and how, be sure to talk to your accountant or bookkeeper for guidance”

“As well as protecting you from the worst effects of an ATO audit, keeping your records up to date also makes it easier to manage your business on a day to day basis. You’ll be able to keep track of your cash flow, analyse your businesses performance and compare trends with previous periods to see whether the business is growing as expected –all in real time” he says.

And, of course, there's another bonus to good record keeping for busy business owners. “Keeping good records means you can rest easy at night”, he says. “

With the end of the financial year approaching, it’s a good time to make sure your approach is up to standard. Here’s a checklist to make sure you’re on track.

Need more info? Here’s what else you need to know to get ready for tax time.

1. Finances first

You need all records related to establishing and running your business – including if you sell it.

“The ATO expect businesses to keep records for five years from the date they lodge their tax return” says Chapman “but in reality you may need to keep records much longer than that. If you have depreciating assets, you need to keep records relating to the purchase, depreciation and sale of the asset for five years from the last claim for decline in value whilst if your business has assets subject to capital gains tax, like a building, you need to keep all relevant records for five years after the building is sold; if your business keeps the building for a long time, you may need to keep records relating to it safely and securely for decades!”

Keep:

- Expenses, invoices and receipts

- Records of debtors and creditors

- Cash transaction records

- Utilities agreements and payments

- Bank statements and loan details.

Keep all financial records for your small business in a safe and accessible place.

Keep all financial records for your small business in a safe and accessible place

 

2. Keep your supplier information safe

Your suppliers could range from goods and services providers to contractors you hire for short-term tasks.

Keep:

- Supplier contracts

- Invoices received and paid

- Superannuation payments (if required)

- Records of any GST paid.

Small businesses need to retain all supplier information and records

Small businesses need to retain all supplier information and records

 

3. Take care of your stocktake details

The ATO could want to see the value of your stock and assets, relative to your income. The ATO recommend doing it as close to the end of the financial year as possible.

Keep:

- A list describing each article of stock and its value

- When, how and who did a stocktake

-Who valued the stock, and the basis of the valuation

Stocktake details for small businesses should be recorded for the ATO.

Stocktake details for small businesses should be recorded for the ATO

4. Document every step of employee on-boarding

For both ATO and Fair Work, you’ll need thorough details of everything to do with your employees. This starts at the hiring stage.

"Because employment law imposes so many obligations on employers, it pays to keep everything”, Chapman says.

Keep:

- Dates, contracts, terms of employment (e.g. part time/full time)

- Employee superannuation preference forms (Standard Choice forms)

- Tax file number forms.

Small businesses need to keep all employee documentation and data.

Small businesses need to keep all employee documentation and data

 

5. Track your team's hours and tips

If Fair Work checks how you’re rewarding and treating your staff, they’ll want a lot of evidence.

Keep:

- Rosters, time sheets, wages and payslips

- Proof of superannuation contributions

- Fringe benefits provided

- Details of tips and gratuities.

Small businesses in the hospitality industry should track their team's hours and tips.

Small businesses in the hospitality industry should track their team's hours and tips

6. Document, document, document

When people take leave, you give them extra rewards, or they leave the business, there’s still a lot to document.

Keep:

- Annual leave taken or owed

- Penalty rates paid (e.g. for public holidays and overtime)

- Commissions, bonuses and allowances paid

- Remuneration to company directors

- Retirement payments, termination payments, compensation payments (also why it happened).

Small businesses should keep records of employee annual leave, rewards and terminations.

Small businesses should keep records of employee annual leave, rewards and terminations

7. How long to keep records

For any records connected to your tax claims, the ATO says a minimum five years is the magic time to keep them. For employee related records, Fair Work says to hold tight for seven years. Remember, if storing paper files, use archive paper so they don’t fade. For electronic records, ensure they’re secured from online cyber-attack or theft. A cloud storage solution from a reputable vendor could provide a safe off-site backup option.

When you do destroy old records, do so securely with a shredder, or be sure to delete electronic files completely.

If in doubt, find out!

This checklist is a starting point, but be sure to visit the ATO or Fair Work websites, or ask your bookkeeper or accountant if you’re unsure.

This advice is of a general nature. Please speak to your tax professional for advice tailored to your individual circumstances .

Officeworks

SHARE