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ATO Recordkeeping Requirements for Small Businesses

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The ATO requires small business owners to keep accurate records related to tax and superannuation. These laws apply to new businesses, current businesses, and businesses that have closed in the past several years.
The problem is that lots of small business owners aren’t familiar with ATO requirements. Recordkeeping errors aren’t uncommon and may lead to fines and other penalties.

This guide is designed to assist small business owners to understand and comply with ATO recordkeeping requirements. We’ll cover everything you need to know about accurate, thorough recordkeeping.

The ATO requires small business owners to keep accurate records related to tax and superannuation. These laws apply to new businesses, current businesses, and businesses that have closed in the past several years.

The problem is that many small business owners aren’t familiar with ATO requirements. Recordkeeping errors aren’t uncommon and may lead to fines and other penalties.

This guide is designed to assist small business owners to understand and comply with ATO recordkeeping requirements.

What is a record?

For ATO purposes, a record is any documentation that helps explain or prove small business transactions related to taxes and superannuation.

This includes:

  • Income and expense documentation.
  • Supporting documentation for your tax elections, choices, estimates, determinations, deductions, or calculations.

When it comes to recordkeeping, more information is almost always better. At a minimum, your documentation should include the following information:

  • Date of the transaction
  • Amount of the transaction
  • Type of transaction
  • Relevant GST information
  • Purpose of the transaction
  • Relationship between your business and the other party, if relevant for tax purposes.

Records can be anything that helps explain or prove your small business transactions. The ATO recommends keeping all records that relate to taxes and superannuation.

What are the benefits of accurate, complete recordkeeping?

Besides ATO compliance, adequate record keeping allows businesses to:

  • Be more knowledgeable about their finances
  • Track cash flow, payments, and receivables
  • Provide documentation to lenders, other businesses, prospective buyers, and tax preparers
  • Easily manage audit requests
  • File and pay taxes and superannuation.
What types of records should you keep?

Your business structure and tax and superannuation requirements determine which types of records you need to keep.

ATO guidelines require that:

  1. Your records are unaltered and protectively stored so they’re not damaged or altered by outside elements.
  2. You keep records for a minimum of five years from the date of the transaction or the date you obtained the record (whichever is later).
  3. You can show the ATO the records whenever they ask for them.
  4. Your records are in English or may be easily converted into English upon request.
What’s the best record keeping format?

There are no specific ATO requirements regarding record format. You may use either digital records or paper records at your discretion. However, please note that we live in a digital world, and the ATO may require digital records in the future. There are also benefits to digital records:

  • First, digital records are generally safer than paper records. You can easily store multiple copies of digital records, which helps protect them from fire and other disasters.
  • Digital records are also more accessible. You can easily search for specific records with just a few keywords.
  • Digital records take up less space. Paper records are bulky and require massive amounts of storage space.

If you keep digital records, you don’t need paper backups. We do recommend making digital copies of both paper and digital records, however. You need at least one backup (two is better), and one of your backups should be off-site.

If you prefer paper records, remember that you can scan paper records and store images on your hard drive or cloud storage option. The ATO accepts these scanned images as long as they’re clear and accurate reproductions of the originals.

The ATO outlines the following requirements for digital records and scanned images:

  • You must have access to the computer or device and the records, including all the passwords you need to access the records.
  • You have a backup.
  • The storage option you choose gives you control of the records.
  • You need full access and control of all information, whether it’s entered or sent.

The ATO doesn’t require any specific recordkeeping format. You may use either digital records or paper records, so choose your favourite option. The ATO may convert to digital records only in the future, though, which is something to consider. There are also benefits to digital records:

  • First, digital records are generally safer than paper records. You can easily store multiple copies of digital records, which helps protect them from fire and other disasters.
  • Digital records are also more accessible. You can easily search for specific records with just a few keywords.
  • Digital records take up less space. Paper records are bulky and require massive amounts of storage space.

If you keep digital records, you don’t need paper backups. However, most business owners make digital copies of both paper and digital records. At least one backup is helpful, and two is better. Storing one of your backups off-site ensures you’ll always have a copy, even if there’s a fire or other type of loss.

If you prefer paper records, remember that you can scan paper records and store images on your hard drive or cloud storage option. The ATO accepts these scanned images as long as they’re clear and accurate reproductions of the originals.

The ATO outlines the following requirements for digital records and scanned images:

  • You must have access to the computer or device and the records.
  • This includes all the passwords you need to access the records.
  • You need to have a backup.
  • You need full access and control of all the record information.
How long should you keep records?

The ATO requires that small businesses keep records for a minimum of five years. Certain situations require you to keep records longer than five years. (Most of these situations involve capital gains tax.) The five year period starts when you prepare or obtain the record or complete the transaction—whichever is later.

Though the ATO only requires five years of records, it’s worth noting that the Australian Securities & Investments Commission requires seven years of records for companies.

The 5 Rules of Recordkeeping

The ATO helpfully provides a list of five rules for recordkeeping purposes. They are:

  1. Keep all tax and superannuation-related records for your business. This includes documentation from starting the business, daily business affairs, changing the business, and dissolving or closing the business. Make sure you separate business and personal use expenses.
  2. Your records must be unaltered. Storage methods must protect the records from damage. The ATO may request proof of the safeguards you have in place.
  3. Keep most of your records for at least five years. Keep FBT records five years from the day you lodged your FBT return. Keep super contribution records five years from the date of contribution. Keep super fund choice records five years from the date of employee engagement or the date the employee is offered, chooses, or changes their fund choice. For all other records, the five-year period starts the day you prepared or obtained the record or completed the transaction. Some situations require businesses to keep records longer than five years. You need to document your procedures for destroying digital records as well.
  4. If the ATO requests records, you should be able to provide the records immediately. If you use an encryption method, you need access to encryption keys and access to the data. The data should be available in a standard format such as Excel or CSV. If you use passwords, you need access to those passwords and the data they protect. When you store records, use labels and indexes so the data is easy to find.
  5. Document your recordkeeping processes so the ATO can ensure you meet the latest requirements.
  6. Your records should be in English. If they are in another language, you should be able to convert the records to English easily.
nexzen Helps Small Business Owners With ATO Compliance and Proper Recordkeeping Procedures

If you need additional guidance regarding ATO compliance and proper recordkeeping procedures, please let us know. nexZen helps small business owners run their businesses effectively, ensuring they stay compliant and on top of their financial documentation. Book a discovery call to talk to us about your business structure, tax and super obligations, and recordkeeping best practices.

We can help relieve your stress and provide the guidance you need. Please don’t hesitate to call.

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This is a loser that most people are probably pretty happy about — the government is extending a task force that targets tax avoidance by multinationals, large public and private groups, trusts and wealthy individuals.

It is giving the Australian Tax Office (ATO) more than $600 million over the next three years to keep the scrutiny on those groups.

The budget forecasts the extension of the task force will make the government $2.1 billion in revenue from tax over the next four years.

In bad news for people’s pay packets, real wages are not forecast to grow until later this year at the earliest thanks to higher-than-expected inflation.

At the end of last year, Treasury predicted the inflation rate would be 2.75 per cent. The reality has ended up being around 4.25 per cent.

The budget is predicting wages will only be just higher than inflation in the next couple of years, meaning cost of living pressures are unlikely to ease any time soon.

Despite current price hikes, the budget is forecasting inflation will taper off and wages will grow faster by the middle of the decade.

Buried under the wildly exciting headline of Commonwealth’s Deregulation Agenda, is the $19.9 million spend by the Australian Bureau of Statistics to develop a new reporting application to enable businesses to submit surveys on business indicators directly through their accounting software. Excellent. Real time reporting utilising verified data on the state of Australian business. Guarantee of Origin scheme, and the development of a Biodiversity Stewardship Trading Platform to support farmers to undertake biodiversity activities ahead of the introduction of a voluntary biodiversity stewardship market.

Another $148.6m is for the development of community microgrids and just over $50m to develop gas infrastructure projects.

An additional $652.6m has been set aside to extend the ATO’s Tax Avoidance Taskforce by 2 years to 30 June 2025.
In that time, the taskforce is expected to increase receipts by $2.1bn and increase payments by $652.6m.

Just prior to the Federal Budget, the Government announced the extension of the:

  • Boosting Apprenticeship Commencements wage subsidy, and
  • Completing Apprenticeship Commencement wage subsidy.

    Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 can gain access to:
  • 50% of the eligible Australian Apprentice’s wages in the first year, capped at a maximum payment value of $7,000 per quarter per Australian Apprentice,
  • 10% of the eligible Australian Apprentice’s wages in the second year, capped at a maximum payment value of $1,500 per quarter per Australian Apprentice, and
  • 5% of the eligible Australian Apprentice’s wages in the third year, capped at a maximum payment value of $750 per quarter per Australian Apprentice.

From

7:30pm AEDT, 29 March 2022 until 30 June 2024

The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. The deduction will be available to small business with an aggregated annual turnover of less than $50 million. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.
We assume there will need to be a nexus between the employee’s employment and the training program undertaken for the boost, although we are waiting on further details of this initiative to be released. 
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in the tax return for the following income year (that is, the 2023 tax return). The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

From

1 July 2021

As previously announced, work‑related COVID‑19 test expenses incurred by individuals will be made tax deductible. 
Changes will also be made to ensure that FBT will not be payable by employers if they provide fringe benefits relating to COVID‑19 testing to their employees for work‑related purposes.
The changes for deductions will be effective from 1 July 2021, with the FBT changes to apply from 1 April 2021.
At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.

From

1 July 2022
Back in the 2019-20 Budget, the Government announced that Australian Business Number (ABN) holders would be stripped of their ABNs if they failed to lodge their income tax return. In addition, ABN holders would be required to annually confirm the accuracy of their details on the Australian Business Register.


This measure has been deferred for 12 months, which means that the tax return lodgement obligation is due to commence from 1 July 2022 with the annual confirmation of ABN details to commence from 1 July 2023.

As announced prior to the Budget, the Government will commit $6.6 million for the development of IT infrastructure that will enable the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis. 

The funding will be deployed following further consideration of which states and territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data in order to reduce compliance costs for businesses.

The measure that enables payments from certain state and territory COVID-19 business support programs to be treated as non-assessable non-exempt (NANE) income has already been extended until 30 June 2022. 
The Government has announced that the following state and territory grant programs have been made eligible for this treatment since the 2021-22 MYEFO, although it is not clear whether the relevant legislative instruments have been issued as yet:

  • New South Wales Accommodation Support Grant 
  • New South Wales Commercial Landlord Hardship Grant 
  • New South Wales Performing Arts Relaunch Package 
  • New South Wales Festival Relaunch Package 
  • New South Wales 2022 Small Business Support Program 
  • Queensland 2021 COVID 19 Business Support Grant 
  • South Australia COVID 19 Tourism and Hospitality Support Grant 
  • South Australia COVID 19 Business Hardship Grant.

    This builds on the list of existing grants paid by New South Wales and Victoria that can already qualify for NANE income treatment. 

From

1 January 2024

As announced prior to the Budget, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.
The measure is expected to reduce the costs of complying with the system and increase transparency.

From

1 January 2024

As announced prior to the Budget, companies will be able to choose to have their pay as you go (PAYG) instalments calculated using current financial performance, extracted from business accounting software, with some tax adjustments. 
The move is intended to ensure that instalment liabilities are aligned to the businesses cashflow. In addition, the digitisation of PAYG instalments will improve transparency and provide more accurate data on performance. 

From

2022-23 income year

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government is setting this uplift factor at 2% instead of the 10% that would have applied. 

The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year and are due after the amending legislation comes into effect:

  • Up to $10 million annual aggregated turnover for GST instalments and 
  • $50 million annual aggregated turnover for PAYG instalments 
From 7:30pm AEDT, 29 March 2022 until 30 June 2023
The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services. The technology boost will be available to small business with an aggregated annual turnover of less than $50 million.An annual expenditure cap of $100,000 will apply to the boost. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred. That is, the additional deduction available under this measure is expected to be claimed in the 2023 tax return.  

The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023. 


Minimum superannuation drawdown rates 2019-2023

Age 

Default minimum drawdown rates (%) 

Reduced rates by 50% for the 2019-20 to 2022-23 income years (%) 

Under 65 

4 

2 

65-74 

5 

2.5 

75-79 

6 

3 

80-84 

7 

3.5 

85-89 

9 

4.5 

90-94 

11 

5.5 

95 or more 

14 

7 

 

From

1 July 2024

Trust and beneficiary income reporting and processing will be digitalised with all trusts being provided with the option of lodging income tax returns electronically.

While this measure will reduce compliance costs, it will also increase transparency and provide the ATO with a greater insight into where anomalies are occurring.

From

1 July 2021

The Medicare levy low income thresholds for seniors and pensioners, families and singles will increase from 1 July 2021.

 

2020-21 

2021-22 

Singles 

$23,226 

$23,365

Family threshold 

$39,167 

$39,402

Single seniors and pensioners 

$36,705 

$36,925

Family threshold for seniors and pensioners 

$51,094 

$51,401

 
For each dependent child or student, the family income thresholds increase by a further $3,619 instead of the previous amount of $3,597. 

The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. The Government has extended two existing guarantees and introduced a new regional scheme.

Just prior to the Budget, the Government announced:

  • First Home Guarantee – from 1 July 2022, an increase from 10,000 to 35,000 guarantees to support eligible first homebuyers to purchase a new or existing home. 
  • Single parent Family Home Guarantee – 5,000 guarantees each year from 1 July 2022 to 30 June 2025. The family home guarantee supports eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.
  • Introduction of a Regional Home Guarantee. This guarantee will support eligible citizens and permanent residents who have not owed a home for 5 years (including non-first home buyers) to purchase or construct a new home in regional areas with a minimum 5% deposit areas (subject to the passage of enabling legislation).

From

April 2022

A one-off $250 ‘cost of living payment’ will be provided to Australian resident recipients of the following payments and concession card holders:

  • Age Pension 
  • Disability Support Pension 
  • Parenting Payment 
  • Carer Payment 
  • Carer Allowance (if not in receipt of a primary income support payment) 
  • Jobseeker Payment 
  • Youth Allowance 
  • Austudy and Abstudy Living Allowance 
  • Double Orphan Pension 
  • Special Benefit 
  • Farm Household Allowance 
  • Pensioner Concession Card (PCC) holders 
  • Commonwealth Seniors Health Card holders 
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

    The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. An individual can only receive one payment.

From

1 July 2021 to 30 June 2022

The low and middle income tax offset (LMITO) currently provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000.

The tax offset is triggered when a taxpayer lodges their 2021-22 tax return.

For the 2021-22, the LMITO will be increased by $420 which means that the proposed new rates for individuals are as follows:

 

Taxable income 

Offset 

$37,000 or less 

$675

Between $37,001 and $48,000 

$675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500

Between $48,001 and $90,000 

$1,500

Between $90,001 and $126,000 

$1,500 minus 3 cents for every dollar of the amount above $90,000 

From12.01am 30 March 2022

There are a few jokes going around social media about the price of fuel.

As widely predicted, the Government will temporarily reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for 6 months from Budget night. That is, the current 44.2 cents per litre excise rate will reduce to 22.1 cents per litre from Budget night. However, the measure is subject to the passage of the enabling legislation so don’t expect to see a change right away. 

 The reduction extends to all other fuel and petroleum based products except aviation fuels.

At the conclusion of the 6 months on 28 September 2022, the excise and excise-equivalent customs duty rates revert to previous rates including any indexation that would have applied during the 6 month period. 

The Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is passed on to consumers.

The measure comes at a cost of $5.6bn.

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