How Long Do You Need To Keep Tax Documents?

taxpaperwork Sorting out your annual tax return generally involves sorting through a messy collection of paperwork, but just how long do you need to hold onto those receipts -- and do you need paper records at all?

Even if you work in a single salaried job and haven't changed employers, there are several crucial documents you're going to need come tax time each year. The most obvious include your payment summary, bank statements detailing any interest earned, and health fund details if you don't want to pay the excess Medicare levy. Then there's receipts for any allowable deductions, both those related to your employment and more general ones such as charitable donation receipts.

A simple way to keep all that paperwork organised is to store it in a document wallet or folder. As you obtain any tax-related documents, stash them in the folder. When the time comes to do your annual return, everything's in one place.

While that kind of organisation (effectively a simple application of the SPACE method) can help you get through tax time quickly, over time you'll still end up with a healthy collection of paper that can contribute to a clutter problem. Knowing the rules on what you need to keep, and in what format, can help reduce that issue.

How long do I need to keep tax-related records?

While the requirements for certain types of specific documents vary, the general position taken by the ATO is that documents should be kept for five years after you've received a notice of assessment relating to that year's return. After that, you don't need to hold onto them -- though if you want to keep track of your salary over time, then keeping the return and assessment might make sense even if you dispose of the supporting documents.

Can I use electronic records instead?

Electronic records are entirely acceptable, both if received in that form originally (such as emailed statements) or as scanned versions of original paper documents. If you're seeking to reduce clutter, moving to entirely electronic storage is an obvious way to go. The retention requirement of five years is the same; in practice, given how cheap storage is, there's no sensible reason to delete older files.

Where receipts aren't needed

Having a receipt (paper or scanned) is the best way to demonstrate that your expenses are justified if you get audited, but the ATO does allow some deductions and expenses without a receipt.

The first general rule is that if your total deductions exceed $300, you will need written evidence to back up your claims. If the total of all deductions is below that amount, you don't need any written evidence, though the ATO may ask you to provide a basis for how you calculated the figure. If the total is above $300, you need written evidence for the whole amount, not just the over-$300 element.

If you've paid an expense by credit card or EFTPOS, then the relevant bank statement can also be used in place of the original receipt, provided that the expense can be meaningfully identified.

In circumstances where it's unreasonable or impossible to get a receipt (such as parking fees or train tickets swallowed by a security gate), you can keep a diary. This needs to detail the date of the expense being incurred and its nature. You can also use diary entries for expenses under $10 each, provided that the total of these is less than $200.

Finally, 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 needing a receipt.

As ever, this is general advice based on published information from the ATO (and generally applicable to individuals rather than businesses); consult a professional if you have a specific concern.

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Comments

    Its a bit more than just 5 years from the Notice of Assessment(NofA) - which is generally the right time.

    If you have a rental property or a property that has at any point been used to produce income you need the purchase documents from when you bought it. As well as any substantiating records you build up along the way e.g. if you claimed depreciation on any assets. You would need to keep those for 5 years from the NofA in the year you sold it.

    Same goes for shares you need the original purchase contracts, plus if you had reinvested dividends (DRP) you need all those records from 5 years after the NofA in the year you sold them.

    But wait there is more, if you made a business loss, tax loss or capital loss you need to keep records to support that for 5 years AFTER you have used up the loss.

    So if you bought shares in 1990, and sold them for a loss in 2000, but didn't use up the capital losses till 2009, you would need to keep the original 1990 records from 5 years after you get the NofA for your 2009 return ~ some 25 years later...

      But what that all amounts to in practice is "five years after the documents were relevant for a notice of assessment".

    Good to see the clarification of the $300 general rule. I 'guess' with my deductions and to know that it's cool as long as it doesn't exceed the $300 then i'm happy enough. I really haven't earnt enough to worry about keeping a paper trail - although may need to do so for this upcoming financial year :(

    If your going to use the space method my accountant recommended writing the amounts and what the receipts are for (eg taxi $9.50) on the outside of the folder / a piece of paper to make tax-time easier.

    Though the electronic format looks hella attractive right now.

    Any Lifehacker readers have a recommendation on Records Management software for the Home user?
    Something to keep track of those electronic documents.

    Email should be fairly handy, as could Google Docs.

      I don't think anything special is really needed if you name and tag files smartly. Your operating system and/or email program should then be able to locate and list whatever you require.

      Most of my scanned files end up as JPG, TIF or PDF and I usually incorporate the date as YYYYMMDD into the name with a few other salient facts.

    I have to keep tax records for health expenses and donations, and have started using some of the methods you mention above. (I'm sick and get confused, so organization is more necessary than optional for me.)

    Currently, at the beginning of each financial year I get several plastic A4 envelopes, stick a label on each with its contents (e.g. Donations, Pharmacy, GAP), then put them in a cardboard magazine container on my side table. They stand up OK once they have an item or two in them, and you can slip items in the top, not have to open anything.

    Every time I get a paper receipt, I bung it in one of those plastic envelopes. I also keep a spreadsheet template with all the tax areas (income, deductions, interest) set out and calculated for the current tax rates: you only need to set up the spreadsheet template once, then use it every year). As each receipt comes in, I also enter its details in the spreadsheet. When tax time comes around, all I have to do is enter the spreadsheet totals in the tax form.

    I'm glad to hear that scanned items are OK with the ATO. If you have a scanner close to your normal postal-receipt position, scanning each item might be viable. My printer/scanner is in another room, so I scan receipts in bulk once or twice a year. I also save receipt emails/PDFs to specific folders.

    With an iPhone (or similar), you can take a quick photo of a receipt anywhere. This certainly beats the "lost receipt" problem, especially with cloud backup.

    Thanks for this article. I'd been wondering about some of these things, and it really helps to have the info available and easy to find (i.e. not on a government website ;) ).

    I realise that this article is from 2009, but as of 2012 you can no longer claim 'bucket donations'; you need a receipt for all charity donations that you claim. I only know this because I worked in a tax office then and regularly overheard the accountants talking about rule changes.

      Not according to the ATO site, which I'm going to favour over hearsay. Rules around bucket donations are tighter, but not non-existent:

      "If you made one or more donations of $2 or more to bucket collections conducted by an approved organisation for bushfire and flood victims, you can claim a tax deduction equal to your contribution without a receipt provided the contribution does not exceed $10."

      http://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Gifts-and-donations/How-much-to-claim/

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