The ATO has reminded taxpayers that they should understand the record-keeping requirements for their business and keep accurate and complete records as they occur, as this should help them avoid penalties that may apply and reduce the possibility of the ATO denying their expense claims.
The following are some of the ATO’s top tips to help businesses get it right and avoid record-keeping errors (based on common record-keeping errors the ATO sees):
- Keep accurate records of all cash and electronic transactions.
- Reconcile cash and EFTPOS sales regularly (by ensuring payments recorded internally match external records) and enter the amounts into the main business accounting software system.
- Check for mistakes if things don’t add up.
- For expenses that are for both business and private use, work out and record the business portion accurately.
- If the taxpayer has used trading stock for private purposes, remember to account for the stock as if the business sold it, and include the value in the business’s assessable income.
- Don’t use estimates to prepare tax returns and business activity statements (‘BASs’).
- If claiming credits for GST, set aside the GST in a separate ledger account to make record-keeping and calculations easier.
- Most records must generally be kept for at least 5 years — from when the record was prepared or obtained, or the transaction or related acts were completed, whichever is later. Records relating to the calculation of losses may need to be kept longer, depending on when that loss is deducted (or offset against a capital gain).
- Accurate and detailed records must also be kept when paying contractors to provide certain services on behalf of the business (so the business can easily complete its taxable payments annual report at the end of each year).
- Use the ATO’s Record-keeping evaluation tool to find out how well the business is currently keeping its records.
If businesses aren’t sure how this information applies to their situation, the ATO recommends they ask their registered tax or BAS agent, or contact the ATO for help. The ATO says it will help businesses get back on track if they make an error.