There is no such thing as a silly question, especially when it comes to record-keeping. Records are vital for both individuals and small businesses in ensuring their tax returns are prepared accurately, their figures can be backed, and the ATO won’t come chasing after them.
Our clients ask us time and time again ‘How long do I need to keep records for?‘ so below we have compiled some information to help you better understand what you should keep and for how long you should keep it.
Records can be kept in both written and electronic form
It’s worthwhile noting that records can be kept in both written and electronic form. As long as any copy is a true and clear reproduction of the original, electronic documents are as legally valid as paper ones.
For individuals, records act as evidence of how you arrived at figures and as such support the claims you make. Holding on to records is not only useful for us in preparing your tax return, but it minimises the risk of tax audits and penalties.
The ATO requires individuals to keep records for a minimum of 5 years from the lodgement date of their last tax return.
You are required to keep records of the following:
- Payments received (such as PAYG statements, income from rental properties, government benefits and pensions)
- Expenses related to payments (such as travel, uniform and self-education costs)
- Evidence of having acquired or disposed of an asset
- Tax-deductible gifts, donations or contributions
- Disability aids and aged care expenses
This is not a definitive list. For a complete list of tax records to keep please check the ATO website.
The ATO offers sage advice: if you are unsure whether to keep a record, keep it. You can always decide whether or not you need it later on at tax return time.
For small businesses, good record keeping is indispensable when it comes to meeting tax obligations, managing cash flows and understanding how your business is faring.
By law, businesses must retain records for at least 7 years so as not to incur penalties.
Records must explain all transactions, be in written form (whether that be electronic or paper), and be in English.
Some of the records suggested by ASIC for companies to keep include financial statements, cash records, bank account statements, and registers.
For a more detailed list of which records companies should keep click here.
Good news for those of you who have a phobia of shredding machines – shredding is not necessary to destroy confidential documents.
So long as identifiable features such as a name, date of birth and profession are removed, the documents are rendered invalid.