How long to keep business records

The ATO says businesses are legally required to keep records of the transactions relating to their tax and registration affairs, from starting the business to selling or closing it. That covers the documents behind the business's income and expenses.

Most of those records must be kept for 5 years. The period generally starts from when you prepared or obtained the record, or from when you completed the transaction or act it relates to, whichever is later.

Section 286 of the Corporations Act 2001 requires every company to keep written financial records that correctly record and explain its transactions, financial position and performance, and that would let true and fair financial statements be prepared and audited. The records must be kept for 7 years after the transactions they cover are completed.

The Act's definition of financial records includes:

• invoices, receipts, cheques, vouchers and orders for the payment of money
• documents of prime entry, such as journals
• working papers and other documents that explain how the financial statements were made up and what adjustments were made in preparing them.

business.gov.au gives the same 7-year period for company records, and notes that some employee records must also be kept for 7 years.

The ATO says the 5-year period starts on a different date for some kinds of records, and that some records must be kept for longer than 5 years. One example is a record used in an assessment that can still be reviewed after the 5 years have passed.

The ATO also recommends checking the record-keeping rules of every organisation you deal with, because they can ask for longer periods. If you are not sure which rule applies to a record, keep it until you have checked with your accountant or the organisation concerned.

business.gov.au lists the records a business needs to keep, including:

• records of all income and sales transactions
• records of all business expenses, including cash purchases
• end-of-year records, including lists of creditors (people you owe money to) and debtors (people who owe you money)
• records of expenses related to your assets or stock
• bank records
• employee and contractor records.

The ATO says each record should generally show the date, the amount and a description of the transaction, its purpose and, where it matters, the relationship between the parties to it.

You can keep paper or digital records, and the ATO recommends digital where possible. The ATO accepts a scanned or photographed copy of a paper record if it is a true and clear reproduction of the original, and business.gov.au says you then don't need to keep the paper version unless a particular law or rule says you must.

Digital records need to be on a computer or device you have access to, including all the passwords, that is backed up, and where you control the information. The ATO also expects to be able to extract your data into a standard format such as a spreadsheet or CSV file, and asks that stored records be labelled or indexed so they can be found.

Whichever you choose, records must be in English or easy to convert to English.

Records must be stored in a way that protects them from being changed or damaged. Back up digital records and, where you can, keep a copy somewhere secure away from the business, such as cloud storage.

The ATO also asks businesses to keep information about how their record-keeping system works, including any routine they follow for destroying digital records, so it can see that the system meets the rules.

You need to be able to show the ATO your records if it asks for them. business.gov.au notes that if the ATO finds an error in your records, you may have to pay financial penalties or complete a record-keeping course.