Folio 6 of 6 · Records
6Keeping records when someone else does the books
The ATO says a business owner keeps primary accountability for record keeping even after assigning the job to someone else, including an employee or a registered tax or BAS agent. The law requires records of all transactions relating to the business’s tax, superannuation and registration affairs, from starting it to selling or closing it.
The practitioner keeps records too, of a different kind: the TPB requires registered agents to record the services they provide. So there are two sets of books, and this page sets them side by side.
General information, not tax advice. The ATO’s Overview of record-keeping rules for business is the place to check. The ATO itself suggests asking a registered tax or BAS agent, or the ATO, if unsure how the rules apply.
6.1Two sets of books
| Dr · the business’s records | Cr · the practitioner’s records | |
|---|---|---|
| What | Documents about the business’s income and expenses, and details of any election, choice, estimate, determination or calculation made for its tax and super affairs, including the basis or method used. | Records that correctly record each tax agent or BAS service provided: its nature, scope and outcome, the information considered, advice received from and given to the client, and for complex matters the facts, assumptions and reasoning. |
| How long | Most records for 5 years, generally from when the record was prepared or obtained or the transaction completed, whichever is later; some for longer. | At least 5 years after the service was provided. |
| Language | In English, or able to be easily converted to English. | In English, or readily accessible and easily translated to English. |
| If delegated | The owner keeps primary accountability, even after assigning the job to an employee or a registered agent. | The practitioner stays responsible for records of services provided on their behalf, such as by contractors or an outsourced team. |
The two sets can overlap. Among the records the TPB expects a practitioner to keep are records the client must keep under a tax law, where they are essential to the service or where the practitioner has agreed in a record-keeping agreement to keep them for the client. The TPB’s list of what a client should do includes keeping the required records and providing them to the practitioner on time.
The retention rules have exceptions: different start dates for fringe benefits tax and some super records, and longer periods in some situations, such as records used to work out a tax loss. The ATO sets out the longer periods on its Records to keep longer than five years page.
6.2What a record has to show
The test the ATO sets is whether it could pick up a record and understand what the transaction was, what it was for, and how it bears on the business’s income and expenses. In practice that generally takes three things on the page: when it happened, how much it was, what kind of transaction it was (a sale, a purchase, wages or rent, say) and its GST details; why it was made; and, where it matters, how the parties are connected. A cost shared between business and private use needs papers that make the business share plain.
The ATO’s list of records to keep while running a business groups them by return or report: banking records, business activity statement records (GST, pay as you go, fuel tax credits and others), income tax return records, taxable payments annual report records, fringe benefits tax records, employment and payroll records, and records of payments to contractors and suppliers.
6.3Common errors the ATO sees
The ATO publishes tips based on the record-keeping errors it commonly sees. Among them:
- keep accurate records of all cash and electronic transactions, and reconcile cash and EFTPOS sales regularly with external records;
- for expenses that are both business and private, work out and record the business portion accurately;
- account for trading stock taken for private use as if it had been sold;
- keep enough records to substantiate the business expenses claimed as deductions;
- do not use estimates to prepare tax returns and activity statements;
- when claiming GST credits, set aside the GST in a separate ledger account;
- keep detailed records of payments to contractors, to help with the taxable payments annual report.
6.4Why the handover itself is worth recording
The ATO’s safe harbour rule can protect a client from certain penalties when their registered agent was at fault, but only if the client gave the agent all the relevant tax information, including by the agent’s own deadlines. The ATO says the taxpayer carries the burden of proving that. Read alongside the record-keeping rules, that makes a dated note of what went to the practitioner, and when, part of the business’s own records. That is this guide’s reading, not an ATO instruction.
The TPB’s own case studies show the other side. In one, a BAS agent took a new client’s word that its record-keeping systems were in order and that all its suppliers were charging GST. An ATO audit reduced the client’s GST credits and applied penalties and interest; the TPB found the agent had not taken reasonable care or sighted the evidence, issued a written caution and ordered a course in preparing activity statements.
6.5If the records fall short
The ATO says penalties may apply where records are not kept or retained as required, and that they may be a direction to undertake a record-keeping course, or financial. It takes circumstances, compliance history and behaviour into account in a penalty decision, and a penalty decision can be disputed or objected to.
For a check before anything goes wrong, the ATO offers a Record keeping evaluation tool. It is meant for people running a business or responsible for its records, which it says includes bookkeepers and registered tax and BAS agents. The ATO estimates it takes 5 to 10 minutes, and says it cannot access the information entered into it.
Balance carried down
The practitioner keeps a record of the work; the business keeps the record of its affairs, and the ATO holds the owner accountable for it either way.