What Records the ATO Expects, and How Long to Keep Them

Almost every adjustment we see to a lodged return traces back to the same thing. Not a disagreement about the law — a gap in what can be produced. The deduction may have been perfectly genuine. If there is nothing to support it, that is frequently the end of the discussion.

The ATO sets out what records are required and how long they must be retained. The general retention period runs for five years, though the period can run longer in particular circumstances, and it is measured from a defined point rather than simply from the end of the year.

What has to be kept

The principle is that records must explain the transactions and support what was reported. In practice that means:

• Records of income received, including amounts the ATO may not already hold through prefill.
• Receipts, invoices or equivalent evidence for expenses claimed.
• Records of asset purchases, disposals and improvements - these often need to survive far longer than five years, because they feed a capital gains calculation whenever the asset is eventually sold.
• Payroll records, including what was withheld and what superannuation was paid.
• Records supporting any apportionment between business and private use.

The asset records are the ones most often lost. A property held for twenty years still needs its original purchase costs, and the improvements made along the way, when it is sold. Reconstructing a cost base two decades later is expensive and sometimes impossible — a point covered under capital gains tax.

Form and legibility

Records generally need to be in English, and must be capable of being produced if requested. Electronic records are acceptable, and for most businesses are now the norm, but the obligation is to be able to produce them — a receipt that exists only as a faded thermal print in a shoebox, or only inside an app the business no longer subscribes to, is a practical problem regardless of what the rules permit.

The most common failure is not deliberate. It is a bookkeeping file that was migrated, an old system that was cancelled, or a phone that was replaced.

Business records carry extra obligations

A business has to keep records that explain its transactions and its tax position, and in most cases those records need to be kept in a form the ATO can access. That covers sales and purchase records, the accounting file itself, records of stock, and everything supporting payroll and superannuation.

Companies and trusts have obligations beyond tax as well. A company’s financial records must be retained under corporations law independently of anything the ATO requires, and a trustee’s resolutions and accounts need to survive because they establish what was distributed and to whom. Those two regimes run in parallel and the longer period governs in practice.

Why the retention period is not simply five years

The period runs from a defined starting point that depends on the record, and can extend where a return is amended, where a dispute is on foot, or where an asset is still held. Records connected to depreciating assets and to capital gains routinely need to be kept well beyond the general period, because they remain relevant until the asset leaves your hands and the resulting return is settled.

The ATO publishes the specific rules, and they are worth reading rather than approximating.

The practical version

Businesses that never have a records problem tend to do the same unremarkable things: business transactions run through business accounts, receipts captured at the time rather than at year end, the accounting file reconciled on a regular cycle, and asset purchases recorded somewhere that will still exist in fifteen years. That is the whole method. It is covered as ongoing work under bookkeeping and financial reporting.