When dealing with the ATO, having a source document inventory that is easy to use and all in one place will go a long way to being dealt with fairly and with a good outcome, especially in the event of an audit. Having your records in one place and well organised will increase your chances of a good outcome with the ATO, and this is mostly why they have turned to the education direction to send this message to the business community.
It’s always handy to remember the “5 R’s”, or the “5 Rules of Record-Keeping”.
So, what are the five rules?
You need to keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and super affairs. If your expenses relate to business use or personal use, make sure you have clear documents to show the business portion.
The relevant information in your records must not be changed (for example, by using electronic sales suppression tools) and must be stored in a way that protects the information from being changed or the record from being damaged. The ATO may ask you to show you have appropriate safeguards in place. You also need to be able to reconstruct your original data if your recordkeeping system changes over time.
Most records need to be kept for 5 years. Generally, the 5-year retention period for each record starts from when you completed the transaction that the record relates to, but there are some exceptions – to give a couple:
You need to be able to produce records if the ATO asks for them. If you store your data and records digitally, make sure they can be retrieved, unlocked, and decrypted if necessary.
Your records must be in English or able to be easily converted to English.
Your bookkeeper, if they are a registered BAS or Tax Agent, is bound by the Code of Professional Conduct, which requires the agent to take reasonable care to ascertain their client’s state of affairs and carry out their duties with competence.
Although the ultimate responsibility still falls on you as the taxpayer, your bookkeeper also has a professional duty to assist you in meeting your requirements and this is also a big part of the value-add of working with a bookkeeper and BAS Agent. This is why they must nag you for your records and access to your files!