Australia runs a self-assessment tax system, which means that the ATO accepts your initial lodgement but may request evidence at a later date. If you can not provide the evidence, the ATO will disallow your claim and charge a penalty and/or interest. This post covers what records to keep, how long to keep them, and what happens if your records are lost or destroyed.
When in doubt, keep more records than you think you need.
What to Keep?
Ideally, keep evidence verifying all the claims on your tax return, in the form of invoices or tax invoices. In practice, I have seen the ATO accept deposits and EFTPOS expenses on a bank statement as acceptable evidence.
Records can be kept electronically, so long as they are legible. Don’t forget to back up your records, in case of loss, theft, or data corruption. Some useful services for electronically storing records include Xero, Shoeboxed, ReceiptBank, and Dropbox.
Businesses do not need a tax invoice to claim the GST on expenses under $82.50, but they do need some records. See this page for more information on records required to support GST claims.
How Long to Keep Records?
Generally, 5 years from lodgement due date or the actual date of lodgement, whichever is later.
If you have very simple tax affairs, you only need to keep the records for two years.
Keep asset purchase details somewhere safe. Once the asset is sold, the capital gain will appear on your tax return. The purchase details can be kept with that tax return based on the above 5-year rule of thumb.
Lost or Destroyed Records
The ATO will accept copies of lost or destroyed records. If no copies are available and can not reasonably be obtained, the ATO will accept claims where they are satisfied that you took reasonable precautions to prevent loss or destruction.
The above two points may not apply to all types of claims, however.
There are free assistance visits available from the ATO, if you need help reconstructing records or making reasonable estimates.
As with anything tax, it’s best to ask your tax accountant about your specific situation.