For any small or medium business, it is essential to manage your finances, accounting and taxes. To meet your tax obligations, you must maintain accurate and complete records. Here are some top tips for business owners to keep your recordkeeping on track.
Tax Records for businesses
The type of deductions you want to claim as a business will guide the documentation you need. These typically include details of:
- What was the purchase for your business
- How much did you spend on the purchase
- Where or from whom did you buy the purchase
- What was the purpose of the purchase for your business
Remember, your records must contain enough information to allow for matching between the amounts claimed on your activity statements and tax returns.
Some of the most common and most important tax records that you, as a small business owner, must keep are:
- Sales records
- Purchase/expense records
- Year-end income tax records
- Banking records
- Payments to employees and contractors
- PAYG withholding for business payments
- Fuel Tax Credits
Tax obligations for businesses
Your tax records are required to prepare your Business Activity Statement (BAS) and Annual Tax Return. Your tax obligations may require you to keep other records not covered here. If you’re unsure about your tax obligations or what exactly do you need to record, talk to your accountant, or don’t hesitate to contact us.
Your business records need to include all cash, online, EFTPOS, bank statements, credit and debit card transactions. According to the Australian Law, your records must explain all your transactions, be in writing (electronic or paper format), and be in English or an easily-converted format. You can incur penalties for not abiding by these guidelines.
The five-year rule
The Australian Taxation Office (ATO) recommends that you keep all business records such as income, expenses, bank and other GST records for at least five years. Some records may also need to be kept longer, depending on the situation.
The Electronic Benefit
When maintaining your records, you must keep your business and personal records separate. Otherwise, this may lead to confusion and potential issues. In case of fading records, take a photo or scan the paper receipts for maximum readability. If possible, have a backup for your records, or store them electronically in one place, or use a record keeping software. The ATO recommends a transition from paper-record keeping to electronic.
If you choose a right electronic recordkeeping method, you can:
- Produce invoices, summaries and reports for GST and Income Tax purposes
- Provide ready-made reports with automatic tally of accounts
- Report certain information to the ATO directly online
- Back-up records in case of any losses or damages
- Save on physical storage and ensure better organisation
- Stay up-to-date on latest tax rates, laws and rulings
Your accountant or bookkeeper can provide you with the best advice on which record-keeping software can help meet your needs in a cost-effective and efficient manner.
We also hold events such as our upcoming seminar for businesses and sole traders that will cover record-keeping and other essential accounting, tax and bookkeeping aspects of running your business.