By following a few simple rules to keep accurate and complete tax records, you’ll ensure your small business stays audit safe.
It’s time for thousands of small businesses around the country to get their tax affairs in order. With the Australian Tax Office (ATO) conducting spot audits each year on tax compliance, it’s important for firms to get it right or potentially risk big fines and penalties.
What’s more, with rapid advances in technology, the ATO’s data-matching capabilities are more sophisticated than ever. This means it has more opportunity to catch out business owners that fall short of their tax obligations.
One key area to get right when it comes to small business tax compliance is recordkeeping, with the ATO urging small businesses to make sure their records are up to date for FY21. With that in mind, here are some guidelines for small businesses on how to get it right when it comes to record keeping this end of financial year.
What business records should I keep?
If you’re running a small business, it’s up to you to keep records of all transactions related to your firm’s tax and superannuation affairs. It’s especially important to keep records that support the information you give the ATO in tax returns and reports.
The exact nature of the records you keep will depend on the corporate structure of your business, such as whether you’re set up as a sole trader, company, partnership or trust.
How long should I keep my business records?
Here, the ATO mandates that you must keep most records for five years. Records also need to be stored in a way where they can’t easily be damaged or the information in them changed.
You also need to be able to present your financial records to the ATO if they ask for them, and if they’re not in English, they need to have the capacity to be easily translated.
In what form should I keep my business records?
While you can opt for either paper or electronic record-keeping, the ATO is urging businesses to take the e-option as reporting increasingly goes online.
In addition to keeping up with best record-keeping practice, some other benefits of digital record-keeping include ease of calculation, report generation and back-up. It also means you can do away with cumbersome filing cabinets and physical files.
Can accounting software help?
It’s a good idea to consult your business advisor or accountant on what accounting software might be best for you to assist with tax and superannuation reporting.
These days, accounting software can do lots of the heavy lifting when it comes to tax time, including updating ledgers, generating invoices, preparing financial statements, calculating GST and recording your transactions.
Cloud-based, online accounting software solutions are a more affordable digital option that allow you to operate from any location. They can also provide a hassle-free remote storage solution for your financial records.
Remember, by following some simple rules you’ll keep accurate and complete tax records and have peace of mind if the ATO comes knocking for an audit in the future.
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Source: MYOB June 2021
Reproduced with the permission of MYOB. This article by MYOB Team was originally published at https://www.myob.com/au/blog/how-to-avoid-a-small-business-tax-audit-eofy-2021/
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