Tips For Effective Tax Record Keeping

Keeping tax records should be a simple process: hold onto records that identify your sources of income, know your expenses, determine property value and then prepare your tax returns.
Few of us, however, are that diligent. We throw away vital documents due to space constraints; we fail to see the relevance in certain invoices, or we store them in a shoebox making it impossible for rediscovery.
Keeping records and forgetting about them isn’t such a bad thing if the auditor does come knocking at your door. At least you can turn your place upside down and then spend the required hours sifting through the relevant (and irrelevant) piles of crumpled paper. It’s better than having no records at all.
Here are the top five ways to keep your records in order.

 
1. Keep records in an organized system
The advantage of keeping your records in order is that your last five years of invoices are easily maintained and accessible. It is important to note that you need five years of records just in case the taxman does come knocking. Good record keeping makes it easier for you to meet your tax obligations, gives you a better understanding of how your business is running and it helps you make the right financial decisions.
Record keeping is also a legal requirement, with poorly kept records resulting in fines. The ATO suggests that individual and businesses allow time each week to ensure their records up-to-date.



2. Keep it digital

Electronic records (using accounting software approved by the ATO) will save you time, hassle and money. While it takes time to install the software, the advantages are numerous and include automatic calculations of earnings and profits. You can also claim the cost of record keeping software as a business tax deduction. It’s a win-win.



3. Seek professional help

If you are not an administrative type (and let’s face it, not many of us are) it may be worth seeking out someone who is. Hire someone internally who can manage the books, keep the invoices in check and your paperwork in order. Make sure this administration guru is someone you trust.



4. Ask the ATO for help

The ATO makes it as easy as possible for you to comply with your tax obligations and can arrange a confidential assistance visit. Visits are conducted by tax officers at your place of business where a tax officer will work through any issues you may have. If you are unsure of what records you need to keep it could be worth spending half a day seeking expert advice. You can also use the ATO’s record keeping evaluation tool. This is a free, interactive software program that will help you understand what your record keeping obligations are. It provides a list of records tailored specifically for your business and reports on how well the business is keeping records, including recommended improvements.



5. Separate business and private expenditure

Sometimes it is difficult to remember what you purchased and why. It is important to keep your business and personal records separate so there is no confusion.
Record keeping should be simple, but most of us see it as more of a chore and a burden than something conducted out of necessity that could save you time and money. Change your mindset and then change your habits and you will find that it is easier to stay on top of your paperwork.

Are your employees eligible for super payments?

Superannuation can be quite complicated. In essence employers must pay 9.5% of each eligible worker’s ordinary time earnings each quarter. According to the Australian Tax Office, ordinary time earnings (OTE) is usually the amount your employee earns for their ordinary hours of work. It includes things like commissions, shift loadings and allowances, but doesn’t include overtime payments.

For contractors, the labour component of their contract is the basis for their OTE and it is when contractors are thrown in the mix that things become complicated.

The ATO states that if you pay your contractors under a contract that is wholly or principally for labour, you are required to pay super contributions for them, even if the contractor quotes an Australian Business Number (ABN). These contractors are your employees and you must treat them as such, regardless of the service they are providing.

When do I pay Superannuation?
If an employee earns $450 or more (before tax) in a calendar month, you have to pay a super guarantee on top of their wages.
If your employee is under 18 or is a private or domestic worker they must work a minimum of 30 hours to qualify for superannuation payments.

You are required to pay super regardless of whether the employee:

• is full-time, part-time or casual
• receives a super pension or annuity while still working – including those who qualify for the transition-to-retirement measure
• is a temporary resident – when they leave Australia, they are entitled to the payments you made through a ‘departing Australia superannuation payment’ claim
• is a company director
• is a family member working in your business – provided they are eligible for a super guarantee (SG)

When not to pay Superannuation
Those who are not eligible for a SG include:

• non-resident employees you pay for work they do outside Australia
• some foreign executives who hold certain visas or entry permits
• employees paid under the Community Development Employment Program
• members of the army, naval or air force reserves for work carried out in that role
• employees temporarily working in Australia who are covered by a bilateral super agreement.

You must keep a copy of the employee’s certificate of coverage to verify the exemption.