Key points
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Messy records mean lost deductions, denied tax credits, and ATO audits—accuracy is everything.
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Keep invoices, receipts, and payroll records for at least five years (some even longer) to stay compliant.
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Smart record-keeping isn’t just about tax—it helps you track growth, secure funding, and stay in control.
When it comes to tax compliance, the Australian Taxation Office (ATO) has made its expectations clear – businesses must maintain accurate and up-to-date records to support their tax returns and Business Activity Statements. Failing to do so could mean lengthy and costly audits, the denial of deductions, and lost input tax credits.
In fact, regular ATO engagement with Small to Medium Enterprises (SMEs) has revealed that many businesses struggle with even the basics of record-keeping – particularly when it comes to substantiating income and expenses. For example, the ATO’s 2024 Next 5,000 findings report highlights cases where poor record-keeping led to deductions being denied. Some businesses simply couldn’t provide adequate evidence to prove their expenses were legitimate or linked to their income.
This issue was particularly common in related party transactions, where one party reported less income than the deduction claimed by their associated entity – creating mismatches that raised red flags with the ATO.
To steer clear of these pitfalls, here’s what you need to know about keeping good records – and how it can actually help your business beyond just compliance.
What exactly is a record?
A record is any document that shows your business transactions and financial position. Essentially, if it relates to money coming in or going out of your business, it’s a record that should be kept.
This includes:
- invoices
- receipts
- bank statements
- contracts
- payroll records
- tax returns
How long should you keep records?
The ATO requires businesses to keep most records for at least five years from when you prepare or obtain the record, or complete the transactions to which it relates. However, some records may need to be kept for longer. For example:
- Superannuation records must be kept for at least ten years.
- Records related to capital gains tax (CGT) should be kept for at least five years after the CGT event.
- Employment records, including PAYG withholding and wages, must be kept for seven years.
- If you carry forward a tax loss, you must keep the records showing how the tax loss arose until the end of any period of review for the income tax return in which the loss is fully deducted.
- If your business is in a dispute with the ATO, keep relevant records until the matter is resolved, even if it exceeds the standard retention period.
Paper vs. digital records: What’s required?
The ATO requires businesses to keep records for at least five years from when you prepare or obtain the record, or complete the transactions to which it relates. These records must be:
- Readily available if the ATO requests them
- In English (or easily converted to English)
- An accurate reflection of your business transactions
You can keep records either on paper or digitally, but digital records offer significant advantages: they’re easier to organise, search, and back up. The ATO accepts digital copies as long as they are a true and clear reproduction of the original (e.g., scanned receipts, invoices, and bank statements).
Making record-keeping easy: A practical checklist
- Use cloud accounting software – It can automate transaction tracking, reconcile bank statements, and generate reports. Many options integrate directly with the ATO’s reporting systems.
- Set up a system for receipts and invoices – Snap a photo or scan them into a digital folder to avoid the ‘shoebox’ approach.
- Track income and expenses in real time – Don’t wait until tax time to figure it all out. Keep things updated weekly or monthly.
- Know what records to keep – This includes invoices, receipts, bank statements, employment records, and anything related to tax deductions.
- Keep backups – Store digital records securely in the cloud or on an external drive to avoid data loss.
- Schedule regular check-ins – Set a reminder to review your financial records monthly, so you can stay on top of cash flow and spot any discrepancies early.
Record-keeping beyond compliance
Good record-keeping isn’t just about avoiding ATO penalties – it gives you clarity and control over your business. With well-organized records, you can:
- Spot financial trends and opportunities for growth
- Make tax time (and working with your accountant) much smoother
- Secure finance more easily, as lenders want to see strong financial records
- Focus on running your business, rather than scrambling for documents when needed
Final thoughts
The ATO has made it clear—poor record-keeping can lead to denied deductions, lost input tax credits, and costly audits. But keeping accurate records isn’t just about staying compliant. It gives you control over your business, helping you track financial performance, secure funding, and avoid last-minute tax-time stress. A little effort now can save a lot of trouble down the track—and set your business up for long-term success.
You’re not alone in this. If you need help getting your records in order, reach out – we’re here to help!
