Every Australian business must keep records that explain all transactions. These records must be in English, be easily accessible, and be retained for 5 years from the date you lodged the relevant tax return. Fail an ATO audit because you can't produce records, and you'll face penalties plus denied deductions.
1. What Records Must You Keep?
- Income records: Invoices issued, cash register tapes, EFTPOS summaries, bank statements showing deposits.
- Expense records: Receipts, invoices from suppliers, credit card statements, petty cash vouchers.
- Bank records: All business bank account statements, loan documents, and merchant facility records.
- GST records: Tax invoices (both issued and received), BAS worksheets, and import/export documentation.
- Payroll records: Pay slips, TFN declarations, super fund details, timesheets, leave records, employment contracts, and termination records.
- Asset records: Purchase invoices for all depreciating assets, disposal records, and depreciation schedules.
- Motor vehicle records: Logbooks (if claiming work use), fuel receipts, registration documents.
- Stock records: Stocktake sheets at year-end (30 June), purchase orders, and COGS calculations.
2. How Long to Keep Records
| Record Type | Retention Period |
|---|---|
| General business records | 5 years from lodgment date |
| Employee/payroll records | 7 years (Fair Work requirement) |
| Capital assets (e.g., property) | 5 years after disposal |
| CGT records | 5 years after the CGT event |
| FBT records | 5 years from FBT return lodgment |
3. Digital vs Paper Records
The ATO accepts digital records, provided they are a true and clear reproduction of the original. Best practices:
- Use cloud accounting software (Xero, MYOB) to store digital copies of all invoices and receipts.
- Hubdoc or Dext can auto-capture and file receipts from photos and email.
- Backup regularly — cloud storage counts as a backup, but consider a secondary backup (e.g., Google Drive or Dropbox).
- Don't rely on email alone — emails can be deleted or accounts closed. Extract and file attachments properly.
4. What Happens If Records Are Missing?
- Denied deductions: If you can't substantiate an expense, the ATO will disallow the deduction. No receipt = no claim.
- Default assessments: The ATO can estimate your income if you can't provide records — and their estimate is usually higher than your actual income.
- Penalties: Up to $1,110 per failure to keep records, and up to 75% of the tax shortfall for reckless or intentional record-keeping failures.
- Prosecution: In extreme cases (deliberate destruction of records), criminal charges can apply.
5. Quick Setup Checklist
- Open a dedicated business bank account (don't mix personal and business transactions).
- Set up Xero or MYOB and connect your bank feeds.
- Install Hubdoc or use Xero's receipt capture for expense documentation.
- Create a filing system for contracts, agreements, and asset purchase records.
- Schedule a monthly reconciliation to keep everything current.
Key Takeaways
- Keep all business records for 5 years from lodgment; payroll records for 7 years.
- Digital records are accepted — use cloud accounting and receipt capture tools.
- No receipt = no deduction. The ATO will deny claims without substantiation.
- Missing records can lead to default assessments, penalties, and even prosecution.
- Use a dedicated business bank account — never mix personal and business transactions.