Aug 5, 2024 Joel Hernandez

Your Safety Net: Good Record-keeping

Australia uses a “self-assessment” tax system, which means it’s up to you to report your income and expenses accurately.

If the ATO decides to review your tax return, it is up to you to prove that your numbers are correct, not up to the ATO to prove that your numbers are wrong. This puts the onus of proof squarely on the shoulders of the taxpayer.

Without proper documentation, the ATO may disallow deductions, and can impose penalties and interest on unpaid taxes due to incorrect or unsubstantiated returns. This is where good recordkeeping becomes essential.

When it comes to recordkeeping, there are specific guidelines regarding the records you need to substantiate a payment or expense, the format to keep your records in, and how long to keep them. For businesses, you are required to keep receipts, invoices, bank statements, and payroll records. Individuals also need to keep documents relating to income, deductions, and other financial transactions. Records need to be kept for five years from when you file your tax return, though you might need to keep them longer if there are disputes or amendments. An invoice for a capital item, such as a car, needs to be kept for five years after you cease claiming for that car, which could be some years in the future.

Records can be paper or electronic, and in some cases, there are exceptions to recordkeeping rules.

Maintaining good records involves regularly updating your data to keep it current and complete. Using software to store and organise your records can be very effective, making it easier to manage information, and reducing the chances that records will be lost, but you need to ensure that your software can read those records if the ATO ever comes knocking, otherwise you risk missing out on the deduction. Additionally, it is crucial to ensure you have backups of your digital records to prevent data loss.

There are plenty of resources available to assist you in this process. For individuals, the myDeductions tool on the ATO app allows you to track your records electronically. If you prefer maintaining paper records, that is also perfectly acceptable. Additionally, there is a range of affordable and user-friendly accounting software on the market available for businesses.

For more information about recordkeeping, speak to our team of professionals.