Every business eventually faces the same question: what can we throw out? The ATO has a clear answer, and it is not the same for every record. Getting it wrong can leave you unable to back up a claim in an audit.
The five year rule
You generally need to keep most business records for five years. That period starts from when you prepared or obtained the record, or completed the transaction it relates to, whichever is later. It covers the usual documents: invoices, receipts, bank statements, payroll records and BAS workings.
Records that need to be kept longer
- Assets. For depreciating assets and capital gains tax assets, keep the records for as long as you own the asset, and then for another five years after you sell or otherwise dispose of it.
- Information reused in later returns. If a record supports a figure you use again in a future return, keep it until the period of review for that later return has ended.
- Other regulators. The ATO notes that other laws may require records to be kept for seven years, so check the rules for every regulator your business deals with.
What to do
Set up your filing system so retention is built in. Store records by financial year, and keep a separate folder for assets, such as vehicles, equipment and property, that stays put until five years after disposal. Digital copies are fine as long as they are complete, readable and easy to find, so scan paper receipts and back them up somewhere safe.
Once a year, after your return is lodged, review what has passed its retention date and clear out only what is definitely safe to go. If you are unsure about a particular record, keep it and ask your accountant.