FocusOn - Keeping records

In order to claim a tax deduction you must keep records that explain (substantiate) the transaction. Records must also be kept for all relevant income tax transactions including any elections, estimates and calculations made. Records must be kept in writing (in English) or, if they are in a non-written form such as electronic, they must be readily accessible and convertible into written form. These records should generally be kept for five years from the date of lodgement.

Work Expenses

Additionally, for work related expenses you must keep documents obtained from the supplier of the goods or services that contains the following information:

	the name of the supplier
	the expense amount, expressed in the currency in which it was incurred
	the exact nature of the goods or services purchased (for example a receipt for a book should show the full title and description of the book)
	the date the expense was incurred
	the date the receipt was made out

There are two exceptions to the above:

	If you have other independent evidence, such as a credit card statement, to indicate when the payment was made and what it was for, or yo have a combination of documents with supplier details and enough information to support the claim
	If the document does not specify the exact nature of the goods or services, you may write in the missing details before lodging the tax return

Payment summaries can be used to substantiate certain expenses such as union fees and donations, if the amount is shown on the summary.

Small expenses
A diary can be used to record small expenses totalling $200 or less in an income year. Each diary entry must show the same details as the supplier documents described above. A small expense is one that is $10 or less.

The substantiation rules do not apply to tax deductible laundry expenses (excluding dry-cleaning) totalling less than $150. Similarly the rules do not apply if your total work expenses claim is less than $300. Expenses relating to motor vehicle claims and reasonable allowances are not counted towards this $300 limit.

Expenses too hard to identify
A diary record will be sufficient to substantiate expenses where it would be unreasonable to insist on a document from the supplier, for example toll fees and parking meter fees. These expenses may be more than $10 each.

Allowances
Expenses claimed against overtime meal allowances and domestic and overseas travel allowances do not need to be substantiated, provided the claims are reasonable and do not exceed the allowance. Every financial year the Taxation Office publishes the amounts it considers reasonable.

Length of record retention

Business records must be kept for five years from the date the records were prepared or obtained, or from the date the transaction was completed. Records relating to work expenses must be retained for five years from the date of lodgement of the tax return. This period may be extended if, at the end of the retention period, you are involved in a dispute with the Taxation Office.

If your income is only derived from salary and wages, government payments, bank interest and dividends, and your claims are limited to deductions for tax agent fees and donations, then you only need to maintain records for two years after the due date for payment of the tax assessment. If you receive a refund on your assessment, records must be retained for two years plus 21 days from the date of assessment.

Note that 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.

Records of depreciable items must be retained for the entire period over which the item is depreciated, plus five years. Log books for motor vehicle claims must be retained for every year the motor vehicle expenses are being claimed under the log book method, plus a further five years. A new log book must be kept every five years.

Capital Gains Tax (CGT) records

Taxpayers are required to keep records of assets that are subject to CGT. Such assets include real estate, shares, investments, jewellery, stamp and coin collections, antiques and any personal assets costing more than $10,000. The family home that has never been rented is excluded from the CGT rules, provided it is not used for business purposes.

Records that must be kept include receipts, contracts, settlement statements, legal bills, dividend reinvestment statements, records of any improvements to the asset and costs associated with the acquisition or disposal. These documents must be maintained for the entire period of ownership plus five years after lodging the tax return that includes the disposal of the asset. This is extended for capital losses for five years after the loss has been claimed.

GST records

If you are registered for GST, you will need to keep your GST related Tax Invoices and Activity Statement calculations for a period of five years from the due date of the relevant Business Activity Statement.

Published : 6 July 2007