Proper record-keeping is the foundation of sound business management and tax compliance. The Australian Taxation Office requires businesses to maintain accurate records, and failure to do so can result in penalties, disallowed deductions, and unnecessary stress during audits. This guide outlines what records you must keep, how long to keep them, and best practices to streamline your compliance obligations.
What Records Must You Keep?
The ATO requires you to maintain records that:
Explain all transactions – income, expenses, and any other business dealings
Are in writing – either paper or electronic formats are acceptable
Are in English – or in a form easily convertible to English
Are kept for five years – from the date you prepared or obtained them, or from when the transactions were completed (whichever is later)
Specific records you must maintain include:
Income Records
Sales invoices and receipts
Bank statements showing deposits
Cash register tapes or point-of-sale records
Contracts and agreements for services rendered
Records of online sales and payment platform transactions
Expense Records
Purchase invoices and receipts
Bank and credit card statements
Employee payment records including superannuation
Lease agreements and rental receipts
Motor vehicle logs and expense records
Asset Records
Purchase contracts and settlement statements
Loan documents for business assets
Depreciation schedules and capital works deduction records
Maintenance and improvement records
Disposal records including sale contracts
Employee and Payroll Records
Tax file number declarations
Superannuation contribution records
Leave entitlements and payments
Workers compensation insurance records
Single Touch Payroll reports
Digital vs Paper Records
The ATO accepts both paper and electronic records, and there are no longer advantages to maintaining paper originals. In fact, digital record-keeping offers significant benefits:
Advantages of digital records:
Easy backup and storage – cloud storage protects against loss
Searchable archives – quickly find specific transactions
Automatic integration – bank feeds connect directly to accounting software
Reduced physical storage – no filing cabinets required
Accessibility – access records from anywhere with internet
Requirements for digital records:
Records must be clearly legible and complete
They must accurately represent the original document
You must be able to produce them on request for the ATO
Cloud storage must be secure and regularly backed up
If you scan paper documents, you may dispose of the originals provided the scanned copies are true and clear reproductions. Some documents, like contracts and deeds, may have retention requirements beyond taxation, so consider keeping originals for legal purposes.
Single Touch Payroll Compliance
Single Touch Payroll (STP) has transformed how employers report payroll information to the ATO. Each time you pay employees, you must report:
Salaries and wages
PAYG withholding
Superannuation liability
This reporting is mandatory and replaces the need to submit payment summaries at year-end. Ensure your payroll software is STP-compliant and that you report on or before each payday. Records of these submissions must still be retained.
Best Practices for Record Management
1. Implement a Consistent System
Whether manual or automated, establish a routine for processing transactions. Enter data weekly at minimum, reconcile bank accounts monthly, and review accounts quarterly. Consistency prevents backlogs and reduces errors.
2. Use Accounting Software
Cloud accounting software like Xero, MYOB, or QuickBooks automates much of the record-keeping process. Bank feeds import transactions automatically, receipt capture apps store supporting documents, and automated reminders ensure nothing is missed.
3. Separate Business and Personal Finances
Maintain dedicated business bank accounts and credit cards. This separation simplifies record-keeping and provides clear evidence of business transactions. It is particularly important for sole traders, where the line between personal and business can blur.
4. Capture Receipts Immediately
Develop habits that ensure no receipt is lost. Photograph receipts immediately using smartphone apps, save digital receipts from online purchases, and maintain a system for organizing paper receipts until processed. The ATO does not require original paper receipts if you have clear digital copies.
5. Reconcile Regularly
Reconcile your bank accounts monthly to ensure your records match actual transactions. This practice catches errors early—whether bank mistakes, duplicate charges, or missed entries—and provides accurate financial data for decision-making.
6. Secure Your Data
Back up digital records regularly using cloud storage or external drives. Protect sensitive information with appropriate security measures, including strong passwords and two-factor authentication. If you store data overseas, ensure the jurisdiction has adequate privacy protections.
Consequences of Poor Record-Keeping
Failing to maintain adequate records can result in:
Disallowed deductions – expenses you cannot substantiate are not deductible
Penalties and interest – the ATO may impose penalties for non-compliance
Increased audit risk – poor records attract scrutiny
Higher accounting fees – accountants charge more to sort disorganized records
Business failure – without accurate records, you cannot manage cash flow or profitability
Special Considerations
Motor Vehicle Expenses
If you claim motor vehicle expenses, maintain a logbook for at least 12 continuous weeks to establish your business use percentage. Update the logbook every five years or if your usage pattern changes significantly.
Home Office Expenses
For home office claims, maintain records of actual expenses or document your work-from-home hours if using the fixed rate method. Keep utility bills, rental agreements, and mortgage documents to support larger claims.
Capital Gains Tax Assets
Records relating to capital gains tax assets must be kept for five years after you dispose of the asset. This includes purchase contracts, improvement receipts, and disposal documentation.
Need help organizing your business records for ATO compliance? At Lloyd & Co Accountants in Hawthorn, we assist Melbourne businesses with record-keeping systems that save time and ensure compliance. Contact us to implement efficient processes tailored to your business.
