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Business Tax Tip – ATO Record keeping requirements for small businesses
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Published on Thursday, 14 March 2024 09:21
There are record keeping requirements for small business specified by the ATO (Australian Tax Office) which are also required for good business management.
Here are the key instructions on business record keeping, essential to keep compliant.
WHAT the law requires:
- Be able to explain all the business transactions
- be in writing (electronic or paper)
- be in English or in a form that can be easily converted
- be kept for five years (some records may need to be kept longer).
If you don't keep the right tax records, you can incur penalties.
Why keep good records:
- Required by LAW
- Understand how your business is tracking
- Manage your cashflow (enough money when bills are due)
- Meet your tax obligations
HOW to keep good records:
Keep all your invoicing, payment and other business transaction records electronically or in paper form.
The principles are the same for each, but keeping electronic records will make some tasks easier.
With the right electronic record-keeping software you can:
- automatically tally amounts and provide ready-made reports
- produce invoices, summaries and reports for GST and income tax purposes
- keep up with the latest tax rates, tax laws and rulings
- report certain information to us online
- save on physical storage space
- back up records in case of flood, fire or theft.
If you use a bookkeeper or accountant, get their advice about the best system for your needs – then select a system you can learn tounderstand and operate easily.
Business Records you MUST to Keep:
You must keep key records to help report on your Business Activity Statements (BAS), annual Income Tax Return, and to meet other tax obligations such as Payroll, Superannuation, Fringe Benefits Tax etc. Below is a list of the records all businesses need to keep.
Income and sales records
Records of all business income and sales transactions, including tax invoices, receipt books, cash register tapes and records of cash sales.
Expense or purchase records
Records of all business expenses, including cash purchases. Records could include receipts, tax invoices, cheque book receipts, credit card vouchers and diaries to record small cash expenses. If you bought something for your business, but sometimes use it for private use, you also need to keep records showing how you worked out how much of its use is private.
Year-end records
Which include lists of creditors (people you owe money to) or debtors (people that owe you money). It also includes expenses you incur buying, maintaining, repairing and selling business assets or stock. You (or your tax agent) should keep worksheets to calculate the decreasing value of your assets (also called 'depreciating assets'), stocktake sheets and capital gains tax records.
Bank records
Your banking records can include things like deposit slips, cheque butts or payment records, bank and credit card statements, and loan or lease agreements.
Your business and personal expenses should be kept separate. Separate business bank accounts are mandatory for partnerships, companies and trusts. If you're a sole trader, a separate business bank account can also make your records easier to manage.
Goods and Services Tax (GST) source documents and calculations
Fuel Tax Credits
Employee and Contractors
For more detail about records you may need to keep, see more on the ATO page
Receipts & the $75 rule:
Invoices or receipts you receive (purchases to claim GST credit against GST on sales made)
You generally don’t need a tax Invoice for purchases UNDER $75 exGST or $82.5 inc GST.
A tax invoice of MORE than $75 (excluding GST, or $82.50 inc. GST) must contain enough information to allow key information to be clearly determined, for example, your supplier’s ABN. Otherwise, you generally need to withhold 46.5% from your payment to the supplier.
If you receive a document from a supplier that is missing key information, you may still be able to treat the document as a tax invoice if the document makes clear that it is intended as a tax invoice and the missing information can be obtained from other documents issued by the supplier.
You cannot claim a GST credit in an activity statement unless you have a tax invoice. If you obtain a tax invoice later, you can claim the GST credit in the activity statement for the tax period in which you obtain the tax invoice.
Tax invoice layout with enough information is not required if the GST-exclusive value of the sale is $75 ex GST or less. However, you should have some documentary evidence to support all GST credit claims, such as bank statements.
Take the 5-10 minute handy Record Keeping Evaluation tool to assess your own records and tips and links to fix what is missing.
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