With the ATO's constant focus on compliance audits, it is important to keep thorough records of your business transactions to ensure you are well prepared in the event that you are chosen for an audit. Not only will this record keeping discipline ensure that your ATO audit progresses smoothly, minimising your time and costs in supplying requested documentation, it can also assist in securing a positive outcome from your audit.

Your Moore Stephens accountant can assist you in establishing and maintain record keeping procedures to best account for your business transactions. As a general guide, the ATO have released the following list to outline the type of records they expect to see:

Income records

  • Use pre-numbered invoices to help keep track of all goods and services sold and assist in monitoring outstanding accounts.
  • Keep Recipient Created Tax Invoices (RCTIs) issued to you in a systematic manner (i.e. by date order or in alphabetical order).
  • Regularly update and summarise income into a cash receipts book.
  • Maintain a filing system to keep track of paid and unpaid accounts.
  • Perform bank reconciliations between bank statements, invoices issued, RCTIs received and cash receipts book at least monthly.
  • Keep records of any elections or estimates made.

Expense records

  • Make payment of expenses by cheque or bank transfer to better keep track of allowable deductions.
  • Use separate bank accounts for business and personal use.
  • Use a petty cash system to keep track of minor cash expenses.
  • Record payments to contractors in a secondary record such as a cash payments book. You will need a valid tax invoice if the contractor is registered for goods and services tax (GST) and you wish to claim an input tax credit.
  • If a supplier (including a contractor) does not provide you with an Australian Business Number (ABN) you must withhold 46.5% from the payment. Alternatively ask for a Statement by a supplier (NAT 3346) and keep a copy for your records.
  • Maintain a filing system to keep track of paid and unpaid accounts.
  • Keep invoices and file in a systematic manner to keep track of paid and unpaid accounts.
  • Keep documentary evidence to substantiate business expenses (eg. you may need to show how you calculated the business use of your motor vehicle expenses by keeping a log book or other types of documentation depending upon what method you choose).
  • Update and summarise expenditure into cash payments book using cheque butts and invoices regularly.
  • Perform bank reconciliations between payments, bank statements and cash payments book at least monthly.
  • Keep records of any elections or estimates made (eg. private use of business assets).

Employee records

  • Ensure a Tax File Number (TFN) declaration is completed for each employee when they commence employment. One copy is retained for your records and the other copy forwarded to the Tax Office.
  • Make payments of wages by cheque or bank transfer to more easily track of your wages expenses.
  • Record payments to employees in a wages book on a regular basis.
  • The wages book should include such details as:
    • Name of employee.
    • Hours worked.
    • Pay rate.
    • Gross payment.
    • Net payment.
    • Amount withheld.
    • Superannuation contributions paid.
  • For superannuation guarantee payment purposes, record the following for each employee/contractor:
    • Name of superannuation provider.
    • Amount of superannuation paid and how you calculated that amount (also keep records of any information that helped calculate the amount - this may include advice from trustees of superannuation funds to which you're making payments).
    • Dates when contributions were made.
    • If you ever incur a superannuation guarantee charge, you also have to keep records of the amount you paid and how you calculated it.
  • For choice of superannuation fund purposes, you need to maintain records that show you have offered your eligible employees a choice of superannuation fund. These records include:
    • Evidence that shows you provided the Standard Choice Form to all your eligible employees.
    • The written information your employees provide when they nominate a fund.
    • Receipts or other documents issued by the fund showing you have made superannuation payments for your employee to their chosen fund.
    • Confirmation that your fund meets the insurance requirements.
    • Details of employees who do not have to be offered a choice of superannuation fund.
  • For fringe benefits tax purposes records need to show:
    • The taxable value of each fringe benefit provided to each employee.
    • The method of allocating the taxable value of a fringe benefit provided to two or more employees for reportable fringe benefits purposes.
    • That 100% of the taxable value of the benefits (other than excluded fringe benefits) has been allocated to employees in their payment summaries.

Whilst you may make every attempt to comply with the ATO's record keeping requirements, an audit will still usually require you to utilise the services of your accountant to assist in dealing with the ATO and providing with the documentation they request. To help ease this costly burden, Moore Stephens Queensland offer Tax Audit Insurance which helps cover accounting fees associated with an ATO audit. We provide this insurance at strongly competitive rates, and of course are well positioned to provide accounting advice throughout your audit.

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