This article focuses on some of the more important and common records that business owners are required to keep for income tax, Fringe Benefits Tax, GST and capital gains tax purposes.
For taxation purposes, records generally need to be kept:
- For five years after they are prepared, obtained or the transactions completed (whichever occurs later)
- In English, or in a form that can be used to determine the tax liability of the taxpayer.
The records should be stored in a safe and readily accessible location in the event that the business is selected for an audit or review by the ATO.
A logbook needs to be kept for a continuous period of 12 weeks in the first year that a claim is made for car expenses by employees or self employed taxpayers and is valid for five years. The five-year retention period commences on the later of the due date for lodging the return and the date the return is lodged for that year.
Even though a logbook has been kept in the first year, this doesn’t automatically entitle the business to claim the same percentage in the following four years. An estimate of the logbook percentage still needs to be made in the next four years, taking into account the actual log book, odometer records and any variations in the pattern of business use of the car throughout the year. This additional requirement should be documented in each of the next four years.
Fringe Benefits Tax car benefits
There is a similar requirement for maintaing car logbooks under the Fringe Benefits Tax (FBT) rules where the business is recording car benefits under the operating cost method.
Other records that need to be kept for FBT car benefits include:
- Details of all relevant car expenses incurred during the FBT year where the operating cost method is used. Operating expenses include deemed depreciation and interest were the car is owned by the business
- Opening and closing odometer records each FBT year where the business uses the statutory formula method, including the number of days that the car was not available for private use (e.g. being repaired at the panelbeater)
- Set-off agreement between the employer and employee where an employee contribution is made towards the car benefit. Journals entries are not sufficient to evidence an employee contribution.
Note that the “base value” of the car under the statutory formula method and the car expenses under the operating cost method are calculated on a GST inclusive basis.
Businesses must not only keep receipts to substantiate travel expenses (unless an allowance is paid to employees within the ATO guidelines), it is a requirement that taxpayers also maintain travel diaries in the following two situations:
- Travel within Australia of six continuous nights or more that is not 100 per cent for business
- Overseas travel of six continuous nights or more.
A travel itinerary would constitute a sufficient record.
Failure to maintain the appropriate documentation may result in the deduction being disallowed for the expenses in a tax audit, or fringe benefit tax may be payable.
Company loans to shareholders
Where a private company has lent money to a shareholder or their associate, a loan agreement either needs to be entered into between the parties, or the loan is repaid, by the time the company tax return is lodged for the year.
Failure to correctly document the loan, or not making the correct repayments each year, may result in the loan balance at year end being deemed an unfranked dividend and therefore 100 per cent taxable in the hands of the shareholder.
Capital gains tax assets
Records need to be kept for working out whether a capital gain or loss is made from an asset including:
- Records of the date of acquisition of an asset and the acquisition cost (for example, the purchase contract)
- Records of the date of disposal and any proceeds received on disposal of an asset (for example, the sale contract)
- Details of commissions paid or legal expenses incurred in relation to an asset
- Details of improvements made to an asset (e.g. building costs)
- Any other records relevant to calculating the capital gain or capital loss.
These records must be kept for five years after disposal of the asset, unless a capital gains tax register is maintained.
Where the details are entered into the register and the register has been certified by an approved person (such as a registered tax agent), the documents need to be kept for five years from the date the register is certified.
Businesses can only claim a GST input tax credit where a valid Tax Invoice has been received by the time the Business Activity Statement for the previous month or quarter has been lodged. Therefore, the business should not pay or accrue an expense unless a Tax Invoice has been received from the supplier by this time.
There is no requirement to have a Tax Invoice where the GST inclusive cost of the item is $82.50 or less.