If you’ve been one of the numerous small businesses who have received government support or payments by the way of economic help during COVID-19, you might be aware of the extra record keeping or calculations that are required to work out turnover or other reductions. Your business might have grown exponentially and your operating systems no longer work. On the other hand, you might have seized a golden opportunity and started your own small business. Whatever the case may be, you’ll need to understand and detail your business transactions related to your staff, superannuation and tax affairs.
Accurate records help keep track of your income, help you keep abreast of your expenses and make informed decisions. It is also a legal obligation from the Australian Taxation Office (ATO) when you prepare and lodge your tax return and Business Activity Statements (BAS).
What Is A Business Record?
The ATO requires you to keep any documentation related to your business activities, items purchased, and expenses. These records include receipts, bank statements, tax invoices, quotations, contracts – in fact anything that show how you’ve estimated, determined or calculated income and expenses.
A suitable record should show the essential features or purpose for the transaction so that the ATO can understand the relevance to your business. The minimum requirements that need to be on any record is:
- The date, amount, type of payment or expense (for example sales, purchases, wages, rent), and the GST portion
- The purpose of the transaction should be shown
- The relationship between parties if relevant.
The ATO can ask for records at any time, so it’s important to stay current. If you use a digital system that is encrypted, you’ll need to make sure the information can be downloaded into Excel or a .csv file. Ensure that records in digital systems are labelled and identifiable, or indexed.
Starting A New Business
There are a few start-up activates that you’ll need to do when you start a new business. Legally, you have to keep all of your Australian Business Number (ABN) registrations up to date. This includes business contact details (email, street and postal addresses), your main business activity, and business associate details. If your details change, don’t forget to update within 28 days of you becoming aware of the change. The ATO can ask for evidence of running your business through your ABN. This includes advertising and marketing expenses, purchasing stationery, obtaining licenses and insurances, leasing or purchasing premises, issuing quotes, consultations, finance applications and buying other businesses.
Running Your Business
Your bank records will generally show the overall running of your business. Don’t forget to reconcile the incomings and outgoings with your bank account on a regular basis. The types of bank records you’ll need to keep are cheque butts, payment records, statements, merchant facility statements, credit card statements, loan or lease agreements, deposit slips or books.
Once your business earns over $75,000 per annum, you need to collect and pay GST and lodge Business Activity Statements (BAS). You’ll need to show and keep records that show the income and expenses used to calculate and support the GST amounts paid and received. This includes sales, tax invoices, other GST-related transactions, fees, wages and other business costs. GST should be kept in a separate ledger account to make record-keeping and calculations easier.
Pay-As-You-Go (PAYG) payments will need to be kept and recorded. This includes payment receipts and bank statements of BAS payments. PAYG payments include salary, wages, commissions, bonuses and allowances paid to employees and contractors; remunerations to company directors; employment terminations, annuities and any benefits.
The types of employee records include employee Tax File Number and withholding declarations, worker payment records, contracts, annual reports, calculations of PAYG amounts, BAS payment receipts, Single Touch Payroll (STP) reports, income statement summaries, voluntary agreements and superannuation records.
Pro Tax Tip: From 1 July 2019, compulsory legislation was passed for all employers to send their employee’s salary and wages, PAYG and super information to the ATO with each payroll using STP enabled software. You or a registered tax agent can send in this information.
Receipts are the number one method for proving your business transaction. There is certain information that you should check and make sure is on any receipt that you receive, and also on any receipt that you produce. Information includes your business name, ABN and branch number, payees name, payees address, payment period or date, total grow payment, total tax withheld and your payees ABN or TFN if known.
Contractor and Supplier Records
A lot of businesses employ contractors as a part of conducting their activities. Records relating to contracts and payments should be kept to claim all relevant tax deductions. You may also need to lodge a Taxable Payments Annual Report (TPAR) to the ATO. A TPAR report should be lodged on August 28 each year.
The types of records to be kept for contracts include contacts and written agreements, invoices issued and received, amount paid, payment summaries and income statements, superannuation payments, voluntary requests regarding withholding tax amounts and the actual tax your business has withheld from payments when a supplier has not quoted their ABN.
The ATO requires a business to keep records of all transactions and receipts for five years from the date of lodging the relevant years tax return. There are different rules for when the five year period starts that relate to Fringe Benefits Tax (FBT), super contributions, employee choice super funds. There are also situations where records should be kept for more than five years.
It’s a good idea to consider digital tools that not only help streamline the way you run your business but help with the way you run your administration. Be vigilant. Check for mistakes if calculations don’t add up. A quick check for a small mistake can help avoid larger issues down the track.
Keep a separate account for tax and superannuation. That way, you won’t have to struggle to find money when it comes to tax time.
Keep your personal expenses separate to your business expenses. You can’t claim any personal expenses as a tax deduction. Only work expenses can be claimed if you have already incurred the expense and you can prove that you’ve incurred the cost for that purchase. If your expense is part business and part personal, you’ll need to work out, apportion and claim only the business expense.
Claiming the costs of managing your tax affairs is tax deductible for individuals and businesses, so make sure you keep your paperwork for your financial consultations.
ITP Accounting Professionals have helped Australian individuals and small business for 50 years. For expert advice, seek the help of a professional. Phone 1800 367 487 and chat with an ITP Tax Accountant today.