Good record-keeping helps you manage your business and cash flow, and ensures you get the right outcome with your tax return.
The following tips can help you get it right. They are based on common record keeping errors seen by the ATO.
- 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 do not add up.
- For expenses that are for 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 have sold it and include the value in your business’ assessable income to ensure your cost of sales figures are accurate (if you are a sole trader). There may be FBT or Division 7A implications if you run your business through a company or a trust.
- Ensure you have sufficient records to substantiate business expenses claimed as tax deductions.
- Do not 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.
- 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 acquired. However, if you then decide to build a new building on the land and that takes two more years, you will need to keep the relevant records 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.
- 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.
Digital record-keeping
There are advantages to keeping business records digitally. If, for example, you use a commercially-available software package, it may help you:
- Keep track of business income, expenses and assets as well as calculate depreciation;
- Streamline accounting practices and save time so you can focus on the business;
- Automatically calculate salaries and wages, PAYG withholding, employee superannuation and other amounts for activity statement and other purposes;
- Meet Single Touch Payroll (STP) reporting obligations;
- Back up records using cloud storage to keep records safe from flood, fire or theft.
If your business uses cloud storage, either through accounting software or a separate service provider, for example, Google Drive, Microsoft OneDrive or Dropbox, you should ensure:
- The record storage meets the record-keeping requirements;
- You download a complete copy of any records stored in the cloud before you change software provider and lose access to them.
Changes to FBT record keeping
From 1 April 2024 (i.e. the FBT year ending 31 March 2025), employers have a choice in certain situations to use existing records in place of statutory evidentiary documents, such as travel diaries or employee declarations. This will apply only if the ATO has made a determination by legislative instrument that applies to the employer that specifies the kind of alternative documents or records.
So far, the new arrangements will apply in relation to:
- Travel diaries;
- Otherwise deductible benefits;
- The private use of vehicles other than cars;
- Car travel to certain work-related activities;
- Car travel to an employment interview or selection test;
- Living-away-from-home — maintaining an Australian home;
- Fly-in fly-out employees;
- Overseas employment holiday transport;
- Remote area holiday transport;
- Relocation transport; and
- Temporary accommodation relating to relocation.
e-Invoicing storage
Regardless of your eInvoicing software or system, you are responsible for determining the best option for storing business transaction data. You should:
- Ensure that the process meets the record-keeping requirements;
- Discuss the options with your software provider;
- Talk to our KMT business adviser if necessary.
Contact our KMT tax adviser about the best way to calculate the deductions and the record-keeping requirements.
About our advisers:
Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances and get professional advice from a qualified accountant at KMT Partners.
