Keeping the books organised and up-to-date is of great importance to any business to ensure its smooth operation.

Joe Kaleb, a chartered accountant and founder of www.australianbiz.com.au, advises us that “it is vitally important that business owners maintain accurate and up-to-date records of their taxation affairs”.

For income tax purposes, a business must keep records for five years from the date of the income tax return for a particular year lodged. Your records should be stored in a safe and readily accessible location in the event that the business is selected for an audit or review by the Australian Taxation Office. Joe gives some timely advice.

“Failure to keep proper records can result in the Australian Taxation Office striking down the selected business structure and/or making increasing adjustments to taxable income,” he warns. “This will result in additional tax payable together with substantial penalties and interest which could cripple the business.”
(Some people run their businesses as companies to lower their tax bill, but the ATO can change all that and charge more tax!)

In case you don’t know what you have to do in relation to tax, Kaleb has some important lessons worth learning.

On tax invoices he reminds us that businesses can only claim a GST input tax credit where a valid tax invoice has been received by the time the Business Activity Statement for the previous month or quarter has been lodged. Therefore, the business should not pay or accrue an expense unless a tax invoice has been received from the supplier by this time.
(For amounts under $50, a diary entry can suffice.)

And on that old bugbear — car log books — he reminds us what the tax office expects. “A log book needs to be kept for a continuous period of twelve weeks in the first year that a claim is made for car expenses and is valid for five years,” he says. “The five year period commences on the later of the due date for lodging the return and the date the return is lodged for that year.”

But wait there’s more! Even though a log book has been kept in the first year, this doesn’t automatically entitle the business to claim the same percentage in the following four years. An estimate of the log book percentage still needs to be made in the next four years taking into account the actual log book, odometer records and any variations in the pattern of business use of the car throughout the year. This additional requirement should be documented in each of the next four years.

On travel diaries, for trips within Australia, a travel diary only needs to be maintained in the following two situations:
1. The businessowner is a sole trader, partner in a partnership, or an employee not receiving a travel allowance, for a trip of six continuous nights or more and the trip is not solely for business purposes
2. A travel allowance is paid to the business owner in the capacity of an employee for a trip of six continuous nights or more, and the travel claim exceeds the reasonable allowance amount published by the Australian Taxation Office.

For overseas travel, a travel diary is required to be kept where the travel is for six continuous nights or more, regardless of the business portion of the trip and whether or not a travel allowance is received. He also advises that an itinerary prepared before the trip is undertaken so it can serve as a travel diary.

For those all-important travel expenses, if the trip is within Australia or overseas and a travel allowance is not received, the business owner must keep receipts for all food, drink, incidentals and accommodation.

If the trip is within Australia, a travel allowance is received, and the business owner employee claims no more than the reasonable allowance limit and no receipts are required to be kept for food, drink and incidentals. Where the business owner employee claims more than the reasonable allowance, receipts must be kept for all these expenses regardless of the duration of the trip.

If the trip is overseas, a travel allowance is received, and the business owner employee claims up to the reasonable allowance limit. Receipts only need to be kept for accommodation expenses regardless of the duration of the trip. If the business owner/employee claims more than the reasonable allowance limit, receipts are required to be kept for all accommodation, food, drink and incidentals regardless of the duration of the trip.

Kaleb says issues such as the structure of the business, loan agreements, employment agreements, salary sacrifice and a capital gains tax register should be sorted out with your accountant to ensure you sleep soundly at night.

The bottom line for anyone in business is to know the tax rules before a tax office auditor explains it to you.

By Peter Switzer, published on 7/10/2008

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