Whether you keep actual paper documents, or simply have access to online transaction records, receipts and statements, the need to retain records for the ATO remains as important as ever.
If you are audited, the ATO could look at previous years as well as your most recent return. According to their website, the ATO recommends retaining records for 5 years after you have lodged the tax return they are related to.
What sort of information should you retain?
Bank account and credit card statements are a good starting point when preparing your tax return, as they will most likely have all of your smaller transactions recorded, with amounts and dates listed. Depending on your receipt filing system, it may at least point you in the right direction when trying to find a specific purchase receipt. It will also minimise the chance that small transactions will simply fall through the cracks and be missed – and may even uncover a few incorrect transactions that the bank needs to reverse!
Records relating to larger transactions such as business contracts, loans and mortgages should be kept safely irrespective of the ATO’s requirements. These documents will be on record elsewhere (either with the bank, your solicitor or the other party to the transaction, but you don’t want to be relying on a third party to produce vital evidence in an ATO audit!
Receipts for anything you plan to claim as a deduction, although if you are claiming work related expenses and the total amount is under $300, you won’t need to retain written evidence. Having said that, you won’t know until the end of the financial year how much you could potentially claim, so it is worth retaining even small receipts until the end of financial year just in case. For assets such as shares or property, you need to keep records for the duration of your ownership and up to five years after you dispose of them for capital gains tax (CGT) purposes.
Rental payments or income are also important to keep records of. Again, these will likely be on file elsewhere, but if you manage your own investment property and receive payments directly from the tenant, your records might be the only ones available. With regard to rental payments you make, you can’t claim residential rent as a tax deduction, but if you work from home or use the premises for business purposes, you will be able to claim a percentage as a business expense. In this case records are required.
Other income, including interest earned from bank savings and investments such as stock dividends, will need to be listed on your tax return and have records kept; although the ATO is more likely to investigate expenses and claims that will reduce your tax debt rather than income that will increase it!
Keeping accurate records will make an ATO audit far less stressful, but also keep in mind that they will help you if you decide to dispute the ATO’s assessment of your return.
By Jennifer Lowe
The post Keeping a Paper Trail appeared first on Total Tax.