Keeping detailed, well-organised and thorough financial records is not just good business, it’s the law. Here’s a guide to your responsibilities.
Thanks to accounting software and user-friendly, tax-related websites and apps, the process of financial record keeping is easier than ever. But it is still vital to understand exactly what records you need to keep, in what format and for how long. Financial year-end is the perfect time to clear out old records and get the ones you need to keep in order, or set up good record keeping for your new business venture.
Here is how the Australian Tax Office (ATO) website summarises your record-keeping responsibilities. “Under tax law, you must keep records that specify and explain all transactions,â€ it says. “This includes any documents that are relevant for the purpose of working out your tax liabilities. You should make records of transactions as soon as they occur or as soon as possible afterwards.â€
You must also keep records, the site says, relating to all taxes for which you are liable. This may include income tax, goods and services tax, pay as you go taxes, capital gains tax and fringe benefits tax.
Finally, records must be kept that relate to “any election, choice, determination or calculation made under a tax law, including the basis on which any were made.â€
The ATO states that financial and tax-related records can be kept in written or electronic form.
Written records must be in English. Electronic or digital records must be in a form that is easily converted into English.
All records must be kept for a minimum of five years after the tax return was prepared, after they were obtained or after the transaction was completed whichever came last.
What financial records to keep
The ATO says you must keep all records of sales and expenses related to the business and to your tax return. These include:
– sales and other income records in the form of invoices, receipt books, records of cash sales, etc.
– records of all expenses related to the business and / or your tax return, such as receipts, cheque butts, invoices and diaries that record petty cash and other non-receipt expenses
– bank statements and loan documents
– some form of asset register, including details of all assets that have been purchased and expenses incurred in their upkeep, or in any other relation to those assets
– lists of creditors and debtors, as well as worksheets for depreciating assets all usually compiled at the end of the financial year as a year-end record
– contracts and other legal agreements
– log books, including odometer readings for various work, car and travel expenses, or to demonstrate the percentage of business use for certain assets, such as a car, landline or web connection
– lease or loan documents for vehicles, machinery, hardware and any other business items
– GST records
– fringe benefits tax worksheets, calculations, declarations and elections.
A business also needs to keep detailed records of all types of payments to its staff. These include:
– records of all wages paid and taxes withheld
– any other forms of payment
– records of all superannuation payments.
When you create an invoice, or when you receive an invoice from a supplier, ensure it includes these vital details, as required by the ATO:
– the date the invoice was issued
– full name of the supplier and their Australian Business Number (ABN)
– quantity, price and description of what is being sold or paid for
– an indication of the extent to which each sale on the invoice is taxable.
Get your financial and tax record-keeping responsibilities right from the start and not only will you be staying on the correct side of tax law, but you’ll also find your business has several useful and accurate measures of performance.
Good record keeping promotes great budgeting and increased transparency, both of which are important ingredients in the recipe for business success.