While organizing your tax details for the current financial year you might harbour the temptation to discard some of your old financial records. Because the Australian taxation system is based on a self-assessment, the importance of keeping good records cannot be understated. The Australian Taxation Office relies on taxpayers to accurately work out how much tax they owe the taxman and also show how they have worked out their records.
Filing tax returns is a fairly rigorous process that will require that you keep a copious amount of financial records. But for how long should these records be kept? Which records should you discard and which should you carry forward into the future?
Accountants and tax experts will always advise that you are better off keeping too much of your financial records than having little or insufficient records of your financial dealings. It makes the task of lodging tax returns a lot easier and takes the guesswork out of the exercise.
Here is an overview of some of the financial records that you need to keep and an indication of the duration over which they should be kept:-
Why it is important to keep your financial records
One of the main reasons why your financial records should be kept well is the need for substantiation of your tax claims as well as for ATO audits. Financial records are also a good management resource. They help give a clear idea on how your business is performing financially. They also help you keep pace with the income and expenses your business is incurring so that you can make a better sense of the business bottom-line. With good records, you are also able to make the best use of your tax agent and accountant Melbourne service. If the records are well kept, you are going to have an easier time during tax time.
Running a self-managed superannuation fund no doubt involves a lot of administrative work so the trustees will accumulate a lot of paperwork in lifetime of the fund. Unlike other types of financial transactions, SMSFs have a statutory obligation that requires certain types of documents to be kept for a given duration of time. This is a formal or legal requirement that must therefore be complied with. The records of the key investment and administrative decisions in the fund must be kept for at least a decade. The declaration that was signed by the trustees during the founding of the super fund must also be kept for 10 years.
The other financial records that you need to keep
In order to satisfy the Australian Taxation Office’s requirements for substantiating and auditing your tax claims, there are various documents that you need to preserve. These include the following:-
- GST documentation
- Every record relating to the tax returns in your business. These include records such as the business activity statements (BAS), fringe tax benefits and the employee super contributions.
- The salary records, wage records as well as the tax invoices.
- The business sales and purchase receipts. You should keep these alongside other associated records.
- The business asset records for the sales, purchases along with any associated costs for business assets such as land, buildings and equipment.
The general rule for keeping financial or tax records
For how long should you keep these records? As a general rule, the ATO requires that you keep the written evidence of your financial transactions for at least five years from the date when you lodged your tax returns. The company records should be kept for at least 7 years while records relating to superannuation should be kept for the duration of up to 10 years.
In case you claimed deductions for the decline in value or the depreciation, then you need to keep the records for duration of up to five years from the date when you made the claims.
If you have acquired or disposed of an asset, you should also keep the records for duration of up to five years once you are certain that there will be no capital gains tax (CGT) events in which case you will not require the records for the transaction to calculate your capital gain or capital loss.
The same should apply if you find yourself in dispute with the Australian Taxation Office (ATO). The records should be kept for a period of up to five years after the dispute has been resolved.
If you are an employer paying wages to employees, ensure that the tax records relating to your employees are kept for duration of up to five years once the employment has been terminated. The Fair Work Act 2009 actually requires that the employee records be kept for duration of up to 7 years.
If in doubt, a professional accountant Melbourne service can advise you on what records to keep for your taxes, claims and business management needs.