As a small business owner, keeping accurate records of your financial transactions is essential. Not only to help you comply with Australian tax laws and regulations but also to help you monitor your business’s financial health.
You are legally required to keep records of all transactions relating to your tax and superannuation affairs, specifically any documents related to your business’s income and expenses. But what does that mean?
Due diligence for tax season has many benefits, but there is no reason to become a hoarder with boxes of paperwork “just in case”.
In this article, we’ll review the different accounting records you need for tax time and ways to store them to save the paper piles.
Business Records Required for Tax
Utilise the following as a checklist to ensure you are prepared this tax season.
1. Banking Records
Keeping bank statements is crucial for reconciling your income and expense records. You should record all the amounts you have received and paid in the financial year.
You should keep copies of the following:
- ATM receipts.
- Cheque butts or payment records
- Bank statements
- Merchant facility statements (for EFTPOS and credit card facilities)
- Rolls of cash register tape
- Credit card statements
- Loan or lease agreements
- Deposit slips, books or records
*HOT TIP* bank all your cash sales income into your business account regularly to ensure accurate record keeping and GST reporting, as well as making an electronic trail.
2. GST Records
You must keep records of all GST transactions if your business is registered for Goods and Services Tax (GST). The ATO may adjust or deny some claims if your documents don’t adequately support your claims.
You should keep copies of all tax invoices issued and received, along with the following:
- Any adjustment notes,
- Credit notes,
- Debit notes
- Other GST-related transactions,
- Wages and
- Any additional business costs.
*HOT TIP* The ATO recommends setting aside your GST in a separate ledger account to make your record-keeping and calculations more manageable. Online systems like Exel and Sheets are perfect for constant updating.
3. Employee Records
If your business has employees, you must keep records of their wages, superannuation contributions, and taxes withheld. You should also keep records of any leave entitlements, such as annual and sick leave.
It would be best to keep calculations of PAYG instalment amounts, payment receipts, or bank statements for payments of your business activity statement (BAS) or instalment notice.
You need to keep the following information and records to support the PAYG withholding amounts you include in the PAYG tax withheld section of your BAS.
- The amounts you withheld from payments to employees and directors:
- Worker payment records
- Copies of contracts you have with contractors
- Forms of wages, allowances and other payments made to workers
- Copies of payments and reports provided to ATO, including annual reports of amounts you have withheld
- Calculations of PAYG amounts
- Payment receipts – for payment of BAS
- Single Touch Payroll reports
- Records of payments made to all payees
- Payment summaries or income statements
- Voluntary agreements
- Superannuation records
As well as the amounts you withheld from interest, dividends, and royalty payments to foreign residents.
*HOT TIP* Single Touch Payroll (STP) is compulsory for all employers. Use payroll or accounting software that offers STP reporting or another STP-enabled solution. When you run your payroll and pay your employees, it will automatically report the necessary information to the ATO.
4. Income Records
The income records include all the money coming into your business, such as sales and income your business received in cash, online, using credit or debit cards or EFTPOS. These records must show the income’s date, amount, and source. It’s essential to keep a separate record of income for each financial year.
Other money received could be:
- Income earned from the sharing economy
- Foreign Income
- Personal services income – refer to PSI records
- Some payments outside of ordinary business activities
- Government payments
- Assessable income from crowdfunding activities
- Commissions, investment earnings, gratuities and compensation payments
- Sale of assets (this may also trigger a CGT event or balancing adjustments for depreciating assets for income tax)
- Interest on a loan.
*HOT TIP* These could be compiled into accounting software and automatically synced to business transaction accounts. It can save you from the tower of shoe boxes destined to kill someone one day.
5. Expense Records
Expense records include all the money you spend running your business, such as rent, utilities, wages, and other expenses. These records must show the expense’s date, amount, and nature. It’s essential to show how you worked out the business use proportion of relevant costs.
For motor vehicle expenses, for example, you will need the following records:
- Registration papers
- Loan or lease documents
- Fuel and oil receipts, tax invoices
- Repairs and servicing receipts
- Insurance documents
- ATO app – electronic logbook (for sole traders)
*HOT TIP* The ATO app is not the only app that can streamline your accounting function. Shop around for the best fit for your business to monitor these expenses and have the power of record-keeping in your pocket.
6. Stock and Asset Records
Asset records include all your business’s assets, such as equipment, machinery, and vehicles. It would be best if you kept a description of the cost of each purchase, the date of acquisition, and the depreciation schedule. It’s essential to keep a separate record of assets for each financial year.
You need to keep records of all transactions related to buying, maintaining, repairing and selling business assets or stock so you can substantiate the amounts reported in your tax return.
If your business buys or sells stock and is required to do a stocktake, you need to keep records showing the following information:
- A list describing each article of stock on hand and its value
- Who did the stocktake?
- How and when it was done?
- Who valued the stock, and what was the basis of the valuation?
*HOT TIP* There are accounting systems with integrated stocktake programs to collate all the relevant information and make the process as automatic as possible.
7. Contractor and Supplier Records
If your business engages contractors and suppliers, you must keep all records relating to their payments to claim deductions.
The records you need to keep should include the following:
- contracts or written agreements
- invoices issued and received
- amounts paid
- payment summaries or income statements issued
- superannuation payments (if applicable)
- voluntary requests made by a contractor for you to withhold tax amounts from payments
- the tax you withhold from payments when a supplier doesn’t quote their ABN.
*HOT TIP* Some jobs still require paper transactions. However, you can easily use photo-to-document converters to create electronic versions for the EOFY.
Records Kept and Ready.
Businesses can keep these records in various ways, including using accounting software or manual record-keeping methods. It is crucial to ensure that these records are accurate, complete, and kept for at least five years from the date of lodgment of your tax return.
There are more niche record-keeping requirements for businesses that use fuel tax credits or wine equalisation tax or are required to complete a TPAR.
If you feel overwhelmed by all the details and can’t fit any more clutter in your office, check out our expert financial services.