Rules of Record-Keeping

What are the five rules?

  1. You need to keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and super affairs. If your expenses relate to business use or personal use, make sure you have clear documents to show the business portion.
  2. The relevant information in your records must not be changed (for example, by using electronic sales suppression tools) and must be stored in a way that protects the information from being changed or the record from being damaged. The ATO may ask you to show you have appropriate safeguards in place. You also need to be able to reconstruct your original data if your recordkeeping system changes over time.
  3. Most records need to be kept for 5 years. Generally, the 5-year retention period for each record starts from when you completed the transaction that the record relates to, but there are some exceptions – to give a couple:
  4. You need to be able to produce records if the ATO asks for them. If you store your data and records digitally, make sure they can be retrieved, unlocked, and decrypted if necessary.
  5. Your records must be in English or able to be easily converted to English.


Another example of a source document is a timesheet.

Your employees may submit a timesheet each fortnight for payroll, and this is used to process their payroll entitlements. A timesheet is a source document because it evidences the hours your employee has worked, the period it applies too, and other information such as what site they worked at and who their supervisor was.The most common source documents you and your bookkeeper will deal with are;

  • Tax Invoices sent to customers

  • Bills received from suppliers

  • Customer Statements

  • Supplier Statements

  • Purchase orders

  • Receipts from small purchases (usually printed from store POS systems).

  • Credit Notes from suppliers

  • Adjustment notes

  • Employee Timesheets and Pay slips

  • POS printouts for cash till, daily takings, and inventory reconciliations.

  • Stock take reports for inventory management

  • Credit card and bank statements.

  • TFN Declarations and Super Choice forms,

  • Pretty much any document that evidences a transaction in your business

Just reading this list will show you that collecting and storing these documents is imperative to proving the truth of your business transactions.

Timesheets and pay slip records are also imperative as any dispute that arises with Fair Work will usually come down to information from the timesheets and the pay slips. Fair Work will request these records to substantiate an employee’s claims of underpayment or incorrect payment.

Common Source Documents


The best place to start a discussion on the importance of record-keeping is to discuss the legislative provisions which impose the legal obligation on us to keep business records.
For income tax, it starts with section 262A of the Income Tax Assessment Act 1936. Basically, this section says that a record needs to contain sufficient information to determine the essential features or purpose of a transaction. Income tax records must be kept for 5 years.
For GST, the requirement to make and keep proper Tax Invoices is imposed under section 29.70 of the GST Act. GST Ruling 2013/1 discusses in detail the legislative framework around Tax Invoices and who needs to keep them.
For payroll records, the Fair Work Act imposes a 7 year period for keeping “prescribed records” such as timesheets, pay slips and other payroll information.
In the bookkeeping industry, we generally refer to these business records as “source documents”. Source documents are the beginning of the transaction recording process. An example being a Tax Invoice – when you make a sale, you issue your customer a Tax Invoice. This Tax Invoice is a “source document”, it evidences the fact that you have made a sale, the details of the sale, how much GST is included, the identity of the customer, and the due date.

The Taxation Administration Act discusses the periods for keeping records and other rules related to “Indirect tax transactions”, which includes GST and import duties, among others. “Indirect tax transaction” records must be kept for 5 years. Where a transaction exceeds $82.50 (including GST) you cannot claim the GST credit without a valid Tax Invoice. A bank statement line will not be enough.