Answering an Age old Question - How Long To Keep Your Tax Records?
One question that often comes to mind when a new financial year ticks over and you’re busily “getting your tax stuff ready” is how long do I need to keep receipts for?
For most the answer is simple however there may be some surprises, particularly for those taxpayers and business owners who own property and assets. The countdown to disposing of records may not be as simple as counting back the years.
For most taxpayers, the ATO provides that records substantiating a deduction made must be kept for a period of 5 years. Here is the first kicker. The 5 year period commences from the date upon which you lodge the relevant Income Tax Return, NOT the last day of the relevant financial year. For example, if you did not lodge your 2020 Income Tax Return until 15th May 2021, then your 5 year period will commence from this date NOT 30th June 2020. Therefore you should maintain a copy of the 2020 Income Tax Return UNTIL after 15th May 2026 not 30th June 2025.
For many taxpayers, the above period will suffice for their record obligations, however if you have claimed depreciation of assets purchased for work and business use or sold and purchased shares and properties, your record retention varies considerably from the above basic period.
Assets and Depreciation
Where a taxpayer has claimed a deduction for the write down in value of an asset purchased for work or business use, the ATO requires that records are kept for the acquisition and depreciation of the asset for a period of five years from the date of your last claim for the decline in value.
For example: A $5,000 printer purchased in 2018, depreciated over a 3 year period would see the final claim made in the 2021 financial year. The five year period would commence from the date the 2021 Income Tax Return was lodged NOT from the date the asset was purchased.
Shares and Real Property
Where a tax payer has purchased property or shares, the ATO provides that records must be maintained from the date of purchase until 5 years AFTER the lodgement of the Income Tax Return where the asset was disposed of.
For example: In the case of a rental property purchased in 2013 and disposed of in 2021, records should be kept for the whole period for acquisition, disposal and holding costs until 5 years has expired following the lodgement of the 2021 Income Tax Return.
The same principle will also apply for shares. Purchase and sale details should be held along with details of any additional shares purchased through dividend reinvestment plans or Company share offers for the whole period you have held the shares plus 5 years after the relevant Income Tax Return is lodged showing their disposal.
It is also important to note that where a Company has been liquidated and there is no chance of any return of investment, the period for record retention will be 5 years after the lodgement of the Income Tax Return to which the Capital loss is recorded.
What type of records should I keep?
The ATO provide a comprehensive guide as to what they will be looking for if reviewing your tax records. A taxpayer can keep their records in a paper or digital format and should always be a true and clear copy of the original.
Where held digitally the ATO recommend a back up is kept of all digital records. All records must also be in English unless the expenditure is incurred outside of Australia.
Where a deduction has been claimed the records must clearly show how the taxpayer has worked out their claim. Records are usually a receipt from the supplier and must show:
name of the supplier
amount of the expense
nature of the goods or services
date the expense was paid
date of the document.
Examples of records you need to keep include:
income statements or payment summaries, from your employer and Services Australia
statements from your bank and other financial institution showing interest income
dividend statements
summaries from managed investment funds
receipts or invoices for equipment or asset purchases and sales
receipts or invoices for expense claims and repairs
contracts
tenant and rental records
If your total claim for work-related expenses is more than $300, you must have written evidence to prove your claims
For assets the original acquisition details along with a copy of the depreciation schedule
A key to record keeping for capital assets including shares and investment properties - start keeping records immediately because you may have to pay capital gains tax if you sell the asset in the future. Keeping records from the start will ensure you don't pay more tax than necessary.
When considering how you should keep records, and digital is the way the ATO have developed a record keeping app known as myDeductions. The tool allows you to keep your records digitally in one place during the income year for:
all work-related expenses (including car trips)
interest and dividend deductions
gifts or donations
costs of managing tax affairs
sole trader expenses and business income
other deductions.
The App can be downloaded from both the apple store and google play. Additionally the ATO have provided quite a comprehensive fact sheet on the types of records that should be kept for particular expenses. A link is provided below:
https://www.ato.gov.au/uploadedFiles/Content/IAI/Downloads/Toolkits/TaxTimeToolkit_Recordsyouneedtokeep.pdf
What if I lose my records or the detail is insufficient?
If your records are accidentally lost or destroyed, for example during a burglary or a disaster, you may be able to claim a deduction for certain expenses. If you can either:
provide a complete copy of the lost or destroyed records
satisfy us that you took reasonable precautions to prevent the loss or destruction and it is not reasonably possible to obtain a copy of the records.
In some circumstances you may not need receipts, but you will still need to be able to show you spent the money along with how you worked out your claim. Additionally if you are unable to obtain a receipt from a supplier, you can still claim a deduction if the ATO are satisfied that the nature and quality of the evidence shows you spent the money and are entitled to claim a deduction. Evidence can include a bank or credit card statement that shows the amount that was paid, when and who it was paid to as well as other documents that outline the nature of the goods or services provided.
Please note however if you pay cash to a supplier and have no other documentation to support your claim, you will not have sufficient evidence to claim a deduction.
If you would like to discuss any of your record requirements please call one of our offices and we can review your current record keeping practices.