We often get asked about what records you should keep, in what format, and how long you should keep them for. So here’s a quick guide to record keeping for your business.
What to Keep
It is probably better to ask “what should I throw away?” The short answer is: nothing. It is best practice to keep almost everything. From an expense perspective you need to keep adequate records that prove that the expenses you have claimed were real, recorded correctly, and justifiably incurred in the process or pursuit of earning taxable revenue. For the first two parts an invoice or receipt is usually sufficient. Additional notes are a good idea to help with the third. Who did you meet with? Why? What was the outcome? Common areas for challenge here are entertainment, travel and obscure training (that yoga retreat is only going to be deductible if you are a yoga instructor).
For GST purposes you must actually have all Tax Invoices for any claim over $50 (including GST) to be able to claim the Input Tax Credit”. This doesn’t mean that you should throw away anything smaller than $50 – if you have it, keep it! However, there is no such threshold for the Income Tax Act, but the $50 GST limit has been adopted as an informal guide across the board ($30 in Canada).
Please note that EFTPOS/INTERAC/Credit Card only dockets are NOT adequate documentation. They merely record the transfer of money and do nothing to substantiate the GST claim or the underlying expense. Throw these out and ask for a proper Tax Invoice. Many cash register receipts also contain insufficient information to support a GST or expense claim.
You also need to keep:
- Copies of all your tax invoices issued
- Payroll records including annual leave details
- Company minutes, resolutions and registers
- Details of business sales/purchases
Electronic format is far better these days than paper. Many receipts fade over time (often as quickly as a month) and this won’t save you if ever asked to justify a claim! If you are going to store paper-based records make sure that you store them in a system that you can easily find them again later. Be consistent. If filing electronically, the same rule applies, but it is usually easy to find through searching. Scanning your documents and choosing a file name that includes the date, vendor name and invoice number is a good approach. This way you can quickly find anything using your PC’s search tool regardless of where you have stored it.
If you are a Xero user then we STRONGLY recommend using the Files feature to attach your documents to the actual transactions (especially your bills and receipts). It makes it much easier for us to answer questions and correct coding if we can see the document without having to send you any questions.
We are a huge proponent of tools that help you, such as Receipt Bank. We are now using this with several clients and finding it an amazing tool to speed up processing and improve documentation. If you would like to know more about this please let us know.
The standard rule here is seven years from the date of assessment of the relevant return. Some documents need to be kept for much longer if they relate to fixed assets or items that are being claimed over multiple years (leasehold improvements, long-term license fees, etc).