The Australian Taxation Office (ATO) is continually focusing on small businesses operating in the cash economy and through the Small Business Benchmarks is able to identify those businesses that may not be reporting all of their income.
Where the business is found to be operating outside of these benchmarks, it may expect to receive a letter from the ATO under the cash economy letter program asking the business to review its records to ensure that income has been correctly recorded. If a discrepancy is discovered the business should amend its income tax returns and business activity statements to include the income that has not been recorded.
If the business is ultimately selected for a review or audit, it is likely that the ATO will focus not only on the recording of income, but may also examine the deductibility of certain expenses (e.g. repairs & maintenance) and compliance with the fringe benefits tax, superannuation guarantee and PAYG withholding laws.
Maintaining good records of your transactions and tax invoices will help you to manage your cash flow and make sound business decisions. It will also make it easier for you to meet your tax obligations, and potentially save you time and money in the future.
Businesses need to keep a number of records including:
Income and sales records
Records of all sales transactions, for example, invoices including tax invoices, receipt books, cash register tapes and records of cash sales.
Expense or purchase records
Records of all business expenses, including cash purchases. Records could include receipts, invoices including tax invoices, cheque book receipts, credit card vouchers and diaries to record small cash expenses. Plus records showing how any private use of an expense was calculated.
Year-end records
These include lists of creditors, debtors, fixed assets, stocktake sheets, capital gains tax records, bank and loan statements, credit card statements, travel diaries, car logbooks etc.
GST records
The main GST records are tax invoices from your suppliers. A tax invoice is generally required to claim GST credits.
Employee & contractor records
For employees and contractors, you need to keep:
- tax file number (TFN) declaration forms or withholding declaration forms
- records of wages, allowances and other payments made
- superannuation records, including payments made and records showing that superannuation obligations have been met
- records of fringe benefits provided
- copies of employee and contractor agreements
How long records need to be kept
For taxation purposes records generally need to be kept:
- For five years after they are prepared, obtained or the transactions completed (whichever occurs later).
- In English, or in a form that can be used to determine the tax liability of the taxpayer.
Under the Corporations Act, companies are required to maintain records including financial statements, journals and asset registers for seven years from the end of the financial year.
The records should be stored in a safe and readily accessible location. Records can be stored in either electronic or paper form.
