A risky move: Going without receipts in your business
Every year, you swear you’ll be better organised, and every year, you still find yourself dashing around, digging in drawers and folders for receipts. Why bother? The accountant and the tax office never asks for receipts anyway, right? Well, we always ask for substantiating of expenses from our clients. Also, wait ‘til you receive an audit from the tax office, and you will wish that you had adhered to your record keeping.
So what do you need to keep? Keep records for the substantiation of business-percent related work expenses, car expenses, and business travel expenses and documentation. The receipts and documentation must be retained for five years.
A business or work related expense is a ‘loss or outgoing you incur in producing your business income or salary or wages’.
The following records must be kept:
Receipts and other written evidence:
Receipts should contain:
- The name or business name of the supplier
- The amount of the expense (expressed in the currency in which it was incurred)
- The nature of the goods or services
- The day it was incurred
- The day the receipt was made out
- Details of the GST charged
List of minor expenses: This is to record expenses of $10 or less each, and up to $200 in total. The expenses must be recorded in a diary or logbook, and must include the date the entry was made. Entries in the logbook do not need to be signed.
Business or work use percentage: If a product or service is used for both business and personal reasons, it is the business use or work related usage that can be claimed as a deduction, so you will need to establish a business use percentage, then pro rata the expenses. Only the business usage can be claimed, and any personal usage will remain unclaimed.
There are four methods for claiming car expenses:
- log book
- set rate per kilometre
- one-third of expenses
- 12% cost of the car
The method you can use depends on the number of kilometres you travel for business or work, and you need to meet the record keeping requirements for whichever you use. For example, if you use a logbook method, the logbook itself must be kept for at least 12 representative weeks to establish a business use percentage. The good news is that the logbook is valid for 5 years. All car maintenance expenses must be substantiated by receipts.
The set rate per kilometres method can be used, but you are limited to claiming 5000 kilometres. There is no requirement to keep records of the car maintenance costs, but you should be able to satisfy that the car travel was undertaken for income producing purposes.
The one-third of actual expenses method can be used if you travel more than 5000 kilometres, but you are required to keep all records of car maintenance expenses.
The 12% of the original cost method can also be used if you travel more than 5000 kilometres. There is no requirement to keep records of the running costs of the car, but, again, you must be able to satisfy that the car travel was undertaken for income producing purposes.
Domestic or overseas travel (more than five nights): Keep a diary containing:
- The nature of the activity
- The date and time the activity took place
- The duration of the activity
- Where you engaged in the activity
What about the $300 threshold for employees?
No written evidence is required if the total of all employment related work expenses is $300 or less, although this does not include claims for travel allowance expenses and meal allowance expenses.
It does includes claims for:
- Laundry expenses (You can claim up to $150 without written evidence.)
- Depreciation of property owned and used (or installed and ready for use)
- Taxi fares or similar expenses
- Car expenses in respect of overseas travel
- Phone, computer and internet expenses (pro rated based on employment related use)
- Home office (You can claim 34cents per hour worked.)
The $300 threshold does not include:
- Car expenses in Australia
- Award transport expenses
- Travel allowance expenses
- Reasonable overtime meal allowance expenses
For these claims to be allowed, the employee must obtain written evidence.
Beware THE TRICK: If you are claiming more than $300 in work related deductions, then all expenses claimed must be substantiated by a receipt. If you fail to produce the receipt if questioned by the ATO, the deduction will be disallowed.
It’s important to meet all your tax and compliance obligations this EOFY. Check out MYOB’s Tax Changes Information section, meant to help startups and small businesses stay on top of their game with tax changes.