When you're a sole proprietor or run a medium-sized company, there are some costs that you can't avoid if you want to stay in business. One of these is financial record keeping for ATO in 2023. Unfortunately, some people find it challenging and tiresome to finish this necessary task. Think of it as one of those pills you have to swallow regardless of how bad they taste. In this article, we will be discussing everything you need to know to keep records per the ATO.
The Importance of Keeping Records
Maintaining accurate records is critical for any successful enterprise. It's also a smart move financially. The benefits of financial record keeping are as follows:
- Keep records on how things are progressing
- Maintain a record of your financial transactions.
- Help use your registered tax or BAS agent to your advantage to demonstrate your business's viability to potential lenders.
1. What Are The Records You Must Keep
This is one of the record keeping FAQs in Australia. When opening, operating, selling, modifying, or closing a business, you must keep records of the following for tax and superannuation purposes:
- Receipts, invoices, and other financial records
- Any records detailing the basis and methodology for any estimate, determination, or computation made in connection with the tax and super obligations of your business.
- All documents on tax returns, activity statements, fringe benefits tax (FBT) returns, and employee super contributions all documents about the purchase, income tax, sale, and other costs of any business assets, such as land, buildings, or office equipment all documents about the purchase, sale, and other costs of any business assets.
Accurate and full record-keeping practices should be ingrained in your everyday operations for your company to both comply with legal obligations and prevent costly mistakes. The types of documents you need to retain may shift as your company develops and expands.
Your company's documents should be kept for no less than five years. Keeping records can be simplified with the help of ATO online reporting tools. If your company doesn't retain the necessary records, it could face fines and other penalties from the law.
Five Rules for Record-keeping
Most of the records your company needs to preserve to fulfil its tax, super and employer duties fall under these five categories. According to the legislation and the ATO, these are:
- You must maintain all documentation pertinent to your tax and retirement planning throughout the life of your organisation. Make sure you have concrete proof of the business-related portion of any expenses that overlap with personal use.
- Your records must be kept in a fashion that prevents the necessary information from being altered (for example, through the use of electronic sales suppression techniques) and the record itself from being damaged. ATO requirements include evidence that you've taken reasonable precautions. If your system of record-keeping evolves through time, you must be able to return to the original data.
- Most documents should be kept for five years. The five-year period for retaining each record begins on the later of the date the record was created or obtained, or the date the transactions or acts they pertain to were finalised. However, the beginning of the five-year retention period is different in specific cases according to the record keeping legislation in Australia. A review period for an assessment that relies on the information in a record may necessitate keeping the record for longer than five years.
- If they request proof of something, you should have it available. Keep documentation of your record-keeping procedure so they can verify that it conforms to the regulations. Check that everything you need to fulfil your tax, super and employer responsibilities is included in the documentation. If you encrypt your digital files and documents, you should be prepared to share the encryption keys and instructions for decrypting them. You should also check that your data can be easily extracted and converted to a common data format (like Excel or CSV). Provide details on how to access files that are password-protected. Be sure to label or index your data as you store it so that it may be easily retrieved afterwards. They may need to extract it to examine it with an indexing or text-search system.
- All documentation must be either written in English or be easily translated into the language.
2. Tips to avoid record keeping problems
If you know your financial record-keeping requirements and follow these guidelines, you should be fine. They are based on the most typical types of paperwork mistakes the ATO encounters:
- Always remember to carefully document any monetary and digital exchanges.
- Cash and EFTPOS sales must be frequently reconciled and the corresponding amounts entered into the main accounting software system for the business to ensure accuracy. It might be on a daily, weekly, or monthly basis, depending on the nature of your company.
- If the numbers don't add up, look for mistakes.
- The business element of any item that serves dual purposes must be calculated and recorded correctly.
- Remember to account for trading stock as if it were sold and include the value in your business's assessable income if you have used trading stock for personal use. This will ensure that your cost of sales statistics are accurate.
- Always keep adequate documents to back up any company deductions you could be claiming on your taxes.
- When filling out your tax forms or BAS, don't make any guesses. You must have full and accurate records to back up any claims you make.
- If your company qualifies for a tax credit for R&D investments, you should utilise those documents accurately to determine how much you can claim.
- Most records have a retention period of 5 years from the later of when they were created or acquired, or the date on which the underlying transaction or related activities were finalised. For instance, if your company ever purchases a piece of property, you must maintain all relevant paperwork for at least five years after receiving the title. The record needs to be kept for at least 7 years if you intend to build a new property on the land, which might take another 2 years.
- Keep records at least as far back as the conclusion of the review period.
- For 5 years or until the end of the period of review for the income year when the loss is fully deducted, whichever comes first, keep records related to how you determined and worked out the loss if your business incurs a tax loss or a capital loss that can be offset against capital gains.
Keeping records is very important to stay out of trouble with the ATO. All organisations must follow the ATO business record-keeping rules and regulations consistently. As much as the records are good for your submission to the ATO, they will help your business to be up-to-date and accurate for growth and development. We understand it’s not an easy task to keep records daily for years, that’s why The Kalculators is here to help. We help businesses keep all necessary business records and ensure all our clients are in safe hands with ATO. To avoid paying unnecessary fines and fees, you can contact us to simplify your record-keeping and general business needs.