Invoices and records
Record keeping
Record keeping is the process of creating and storing the documents that explain your income, expenses and GST so you can lodge accurately and prove your figures to the ATO.
Record keeping means collecting and storing the paperwork and data behind every figure you report. For a business, this includes sales invoices, purchase invoices, receipts, bank statements, payroll records, asset registers and the workings behind your BAS. Good records let you lodge confidently, support claims for GST credits and deductions, and answer ATO questions without scrambling.
The legal starting point is that most tax records must be kept for five years from the date they were prepared, obtained, or from the completion of the transactions they relate to, whichever is later. Some records, such as those about capital assets or capital gains, need to be kept for longer, generally until the relevant period of review has passed. Records must also be in English or easily translatable, and must be accessible to the ATO.
Electronic records are fully acceptable. Many businesses now rely on cloud accounting software, bank feeds and phone apps that capture receipts. What matters is that the records are complete, readable, secure and backed up. If a hard drive fails or a subscription lapses and you lose access to your data, that does not remove your obligation to produce the records, so make sure you can export your data at any time.
For GST in particular, you need to be able to show how you arrived at the figures on your BAS. That includes tax invoices for purchases over $82.50 (GST inclusive), copies of the tax invoices you issued, records of GST-free and input-taxed sales, adjustments, and the method you use to attribute GST, whether cash or accrual. Without these, a credit claim may be disallowed on review.
A common misunderstanding is that keeping records is only necessary if you are audited. In practice, it is the discipline that makes lodging simple. Setting aside a regular time each week to reconcile your bank account, file documents and check unpaid invoices usually takes less time than rebuilding a whole quarter at the deadline. Mixing personal and business spending is another frequent problem, because it makes the records harder to trust.
Record keeping also supports business decisions. Clean records show which customers pay late, which costs are rising and whether you are approaching the GST registration threshold. Penalties can apply to businesses that fail to keep or retain records as required. This is general information, so check the current requirements for your circumstances with the ATO or a registered tax professional.
Worked example
Ben runs a landscaping business and keeps a folder, both digital and physical, for each quarter. For a $2,200 equipment purchase, he saves the supplier's tax invoice showing GST of $200 (2,200 divided by 11) and the matching bank statement line. Five years later, when asked to support the credit, he produces both documents within a day. His neat records protect the $200 credit and the $2,000 deduction.
Practical tips
- Keep business and personal spending in separate bank accounts and cards so every transaction in the business account can be trusted as a business record.
- Back up your accounting data to a second location and make sure you can export it even if you stop paying for the software.
- Reconcile your bank account weekly, since catching a missing invoice early is far easier than chasing it months later.