Without good record keeping habits you could end up paying more tax than you should. Nobody wants that!
The ATO’s recent crack down on work related tax deduction claims means that good record keeping is more important than ever. Get in the habit of keeping your records organised during the year and at tax time completing your return will be SO much easier – PLUS if any claim is questioned, you can quickly prove it’s authenticity.
Clear and up to date records mean that you can claim ALL the tax deductions you’re entitled to so you’ll never pay too much tax!
But that’s not all… A clear outline of your income and expenses is the first thing you’ll need to supply if you need financial advice, purchase a property, refinance or increase insurances. Good record keeping doesn’t just make tax time easier, it also keeps many other areas of your life in manageable order.
So when it comes to record keeping, what do you actually need?
The following is an extensive list and for most people only a few items will apply to you, so don’t be daunted. However, ensure you’re familiar with all the different types of tax deductible expenses so you know what records to keep for these expenses if you have them in the future.
First of all, you’ll need a record of ALL the income you received during the year, including:
- Managed funds
- Rent from rental properties
- Income from letting a room
Note: Your employer, real estate agent or managed fund should provide you with an annual statement which summarises your earnings over the past financial year.
Next, you’ll need a record of all your tax deductible expenses – this is where you bump up your tax refund:
1. General expense records
- Accounting fees including tax return preparation
- Income Protection costs
- Charity Donations
- Private health cover
2. General work related expense records
- Professional membership fees
- License/certificate fees
- Union Fees
3. Education expense records
- Course fees including text books
- Related travel costs
- Accommodation and meals when required to stay away from home
- Professional libraries and work related magazines
4. Work related equipment purchase or lease records
- Calculators and electronic organisers
- Computer related consumables
- Computers and laptops
- Ipad & similar small electronic equipment
- Phone, mobile and phone accessories
- Briefcases and carry-bags
- Safety equipment – e.g. sunscreens, hard hats, harnesses, safety glasses
- Sunglasses (if you work outside)
- Technical instruments
- Tools of your trade
Note: For purchases over $300 you will need to claim a deduction for their decline in value (formerly known as depreciation) over a longer period rather than claiming the purchase price in full on your next return.
5. Work related travel records
- Personal car or vehicle costs (See our blog on how to keep record to Claim tax deductions for car use)
- Parking Fees
- Public transport fares
- General travel expenses, including flights, taxis etc.
- Accommodation and meals (if working away from home overnight)
6. Home office expense records
- Desks chairs and other office furnishings
- Office equipment
- Home Office running costs (electricity, internet usage)
7. Clothing purchase and maintenance records
- Protective clothing
- Uniforms (with logo)
- Laundry of work uniform and protective clothing
8. Newly acquired asset costs eg. a rental property
9. Expenses records for rental properties or other investments
- See our blog on 27 Valuable Rental Property Tax Deductions
10. Records of recently disposed of/sold assets
11. Expense records related to any disability aids, attendant care or aged care
So now you know what records you should keep. How long should you keep them for?
The ATO suggest that you keep your records for 5 years if you:
- Claimed a deduction for decline in value (formerly called depreciation)
- you need to keep the records of these for five years after the date of your last claim for decline in value.
- Acquire or dispose of an asset
- you should keep this documentation until five years after no capital gains tax (CGT) is required – you will need this information to work out a capital gain or loss.
- Are in dispute with the ATO
- you should keep these records for five years from the date the dispute is finalised.
For most other tax payers who have simple tax affairs, as outlined on the ATO’s Keeping Your Tax Records, you should keep records for at least two years.
Good habits for record keeping
Here are our ‘must do’ record keeping habits
Keep all your tax deductible expense records in logical order (newest to oldest). Then, at tax time you won’t find yourself frantically rummaging through mountains of receipts and paperwork. In addition, you won’t lose any receipts and miss out on tax deductions.
Tip: Use colour coded files for each type of expense so putting new receipts in the right place is quick and easy.
Create a list
Keep a list of all your expenses and a running total of each type. You will need to know the total amounts of each type of expense at tax time so be sure to do this regularly.
It’s a good idea to scan or photograph each receipt or supporting document as soon as you receive it so you have an electronic back up of each one. This achieves three important things;
- It preserves receipts that are likely to fade,
- Ensures you have a copy in case something happens to the original, and
- Electronic copies allow you to quickly attach files to your tax return, saving you lots of time when you do your tax return
Tip: Use the Etax App to snap a photograph and save it directly into your tax return.
Always keep proof
Make sure you always get a receipt for an expense you think you might be able to claim. Remember, you cannot claim any expense as a tax deduction unless you have proof of purchase. If you don’t get a receipt for a payment at the time, follow up with the supplier until you get it.