The tax deadline is drawing closer and there are many people who start rushing when it is too late. You are aware that tax returns are about records as this is the only way that you can maximise the tax deductions. The ATO is very strict and pays attention to any claims and requires proper records to substantiate tax deductions. Seeing that the lodgement of tax returns happens only once a year, you may be caught off-guard without records. Our tax experts have put together this guide to help you maintain a clean and neat record.
Written Records for Tax Deductions
If you have claims that are more than $300, you will need to produce written evidence. Please note that the records should show the full amount claimed and not just the $300. However, this rule does not apply to claims for travel allowances, car, transport and meal allowances. These are expenses that have their own special evidence and records. For claims that are less than $300, you will not need to produce written evidence. However, the ATO expects you to show how you arrived at the total amount of claims.
There are several documents that can be used as written evidence, which is needed for claims which exceed $300. When using any document as written evidence, it needs to show:
- Date of the transaction
- Supplier’s name
- Description of item purchased
- Amount charged
For the expenses which are less than $300, you can document the evidence yourself and will need to capture all the information as is the case with written evidence.
How to Keep Records for Tax Deduction Claims
Records are an integral part of any tax deduction, whether you are using written evidence or records that you have documented. The ATO allows you to keep records of up to 5 years from the time the expense is incurred. However, if there is a dispute with the ATO, it is advisable to hold on to the records until the matter is resolved.
If you have depreciating assets, you need to have proper records for the entire period of the claim. After the final claim, you are required to keep the records of such assets for an additional 5 years. However, this period can be extended if, at the end of the 5 years, there is a dispute with the ATO in regards to the depreciating assets.
In instances where you need to lodge a tax return later, you must keep the records up to such a time. If you are running a business and have incurred a tax loss, you should keep the relevant records until the loss is claimed. For assets that earn capital gains when disposed of, keep records for the period of ownership until 5 years have elapsed after filing the tax return.
Should I Keep Electronic or Paper Records?
For a long time, people have been relying on manual records. However, with the changes in time, the ATO accepts electronic copies of records to substantiate tax deductions. Paper records are delicate as they can easily get lost or have the information fade away after a while. This is what makes electronic copies a better option as they can last for years without a problem.
Contact Tax Experts for Help with Record Keeping
Accurate Business & Accounting Services is a professional company that can help you have the best records in place. Talk to one of our experts and they will guide you on the best way to have records that maximise your tax deductions.