How Does Poor Record-Keeping Create Tax Problems?

That can affect the amount of tax calculated at the end of the financial year.

Poor Records Can Create Problems With the ATO

The ATO expects businesses to keep records that explain their transactions and support information reported in their tax and activity statements.

Generally, most business tax records need to be retained for five years, although the required retention period can vary depending on the type of record and the circumstances.

Records may include documents such as invoices, receipts, bank records, income statements, asset information and other evidence supporting tax-related transactions.

The important point is that records should not merely exist — they should be sufficiently clear to explain the transaction they relate to.

If an ATO review or audit occurs, being able to produce appropriate supporting documentation can make the process considerably easier.

A Missing Receipt Can Become More Than a Missing Receipt

Consider a small construction business that purchases tools, materials and safety equipment throughout the year.

The owner keeps some receipts but loses others. Several purchases are recorded as general expenses without supporting documentation, while a few transactions are never entered into the accounting system.

At the end of the financial year, the business may face several questions:

• Which purchases were genuinely business-related?
• Which expenses have already been recorded?
• Which GST amounts can be supported?
• Were any expenses accidentally claimed twice?
• Are there transactions missing completely?