Money

Tax Records: What You Need And How Long You Need To Keep Them

We might live in the digital era, but tax time still feels like it involves a mound of paperwork. Here’s what you really need and how long you have to hang on to it for.

Picture by Jerry Bunkers

So you know the deduction rules that apply to your occupation and you’ve come to grips with the changes to tax law for this year. The next step while you wait for your payment summary (and for the July 1 release of E-tax) is to gather together the records you need.

The first and most crucial point we can make is this: as far as the Australian Taxation Office (ATO) is concerned, electronic records are just as valid as paper ones. That applies both to documents that were electronic to start with (such as receipts for online purchases or donations that have been mailed to you) and to documents which you have originally received in paper form. You don’t have to hang onto paper simply because it’s paper.

If you’re looking to reduce clutter, then scanning relevant documents is the way to go. The ideal approach is simply to scan any paper documents as you receive them, and then store them using a service which automatically backs up to the cloud (such as Dropbox or SkyDrive). You definitely need to have some kind of backup in place. If you haven’t done that this year, vow to start for the 2012/2013 financial year.

The second question which always arises is: how long do you need to hang onto tax-related records? The basic answer is: five years from the time you receive an assessment relating to that year. After that, you don’t have to hold onto them. Even if you get rid of the individual receipts for a given year, I’d hang onto your notice of assessment, since that gives you a way of tracking your income over time. And if you’ve gone fully digital, there’s really no reason to get rid of any records: they take up no room and cost next to nothing.

So which documents will you require? The obvious candidates are:

  • Payment summary from your employer (which you won’t receive until after July 1)
  • Bank statements (so you know much interest you’ve earned — many banks provide this figure online)
  • Health fund information (so you don’t pay the excess levy)
  • Documents relating to your work deductions
  • Charity donation receipts

If your total deductions exceed $300, you need detailed records (such as receipts, credit card statements and diaries). If they’re less than $300, you don’t need individual receipts, but you need to be able to show how you calculated them. For charity donations, you can claim up to $10 for “bucket donations” (such as those made at a public event or to a street collector) without having to get a receipt.