This is a great question that I received during the week from a client and I thought that I would share my response in this blog.
The ATO require that documents required to substantiate your tax claims must be kept in either written or electronic form. If you make paper or electronic copies, they must be a true and clear reproduction of the original. There have been a number of cases where the ATO have found that electronic records were altered by taxpayers using electronic means and therefore their deductions denied. I recommend that in all cases, copies are made of invoices &/or receipts printed on thermal paper as these documents do fade and would not hold up in the event of an ATO audit.
The ATO require that the document you produce to substantiate your claim shows the following information:
- the name of the supplier
- the amount of the expense
- the nature of the goods or services – if not shown, you may write this on the document yourself
- the date the expense was incurred
- the date of the document.
In most cases you will only be required to make a copy of one document as the invoice and receipt are one and the same (eg. you make a purchase from Officeworks for stationery). However if you receive a separate invoice as payment is required at some later date, we suggest that you write down on the invoice the date paid and how it was paid eg, cheque account or visa. You could request a receipt from the supplier, however a copy of the bank or credit card statement will be acceptable evidence for the ATO. If the amount is paid by cash, we strongly recommend that you do request a receipt from the supplier.
There are number of ways to save your tax records electronically during the year:
- take a photo and store in a separate folder that is easily accessible on your phone (ensure that you back this up on another device also)
- take a photo or scan and save to your computer hard drive or external hard drive (ensure that you back this up on another device also)
- set up an account with a free document storage service such as dropbox(www.dropbox.com), make up a “tax” folder for each tax year and save a photo or scanned copy of each receipt to that folder progressively during the year. Each year at tax time, you can invite us to share this folder and we can prepare your return from information that you have saved in that dropbox folder
- download one of the many free or low cost apps to capture a copy of your receipts
Generally, you must keep your written evidence for five (5) years from the date you lodge your tax return to substantiate:
- income declared
- capital gains or losses declared
- expenses claimed
A reduced retention period of two (2) years applies to individuals with simple tax affairs that only declare in their income tax returns the following income and expenses:
- income consisting of salary or wages (other than from associates)
- interest paid by a financial institution or government body
- dividends from an Australian company listed on the Australian Stock Exchange (ASX)
- deductions claimed for the cost of managing your tax affairs
- deductions claimed for bank fees and charges
- deductions claimed for deductible gifts of money and donations of money
I strongly suggest that you do have a system in place to capture all of your expenses, not only does this assist with meeting ATO requirements in the event of an audit, but it will ensure that your refund can be maximised. So whether you are happy to save copies of receipts as you go, or on a weekly or monthly basis, get a hassle free system that suits you and your circumstances – if it is too complex you simply will not keep it up during the year.