What Records the ATO Requires for Business Purchases

Most businesses know the five year rule. Fewer know that a record which cannot be produced on request is treated the same as a record that was never kept.

The four requirements

The ATO expects records that are:

• Kept for five years. The clock runs from when the record was prepared or the transaction was completed, whichever is later. For an asset, it runs from the date of disposal, which can be far longer than five years from purchase.
• In English. Or readily convertible to it.
• Unaltered and undamaged. A record that has been edited after the fact, or degraded to the point of being unreadable, does not satisfy the requirement.
• Able to be produced. If the ATO asks and the record cannot be located, it does not exist for practical purposes. Storage that nobody can search is not compliance.

What a record needs to show

For a business purchase, the record should establish:

• Who the supplier was
• What was purchased
• The date
• The amount, and the GST included
• That the expense was business related

A bank statement line satisfies almost none of these. It shows a payment to a name on a date. It does not describe what was bought, whether it was business related, or how much GST was included.

This is why "it is on the bank statement" is not an answer to a substantiation question.

Purchases where the rules are stricter

GST credits over $82.50 including GST require a valid tax invoice showing the supplier's ABN, the date, a description of what was sold, and the GST amount. Purchases over $1,000 also require the buyer's identity or ABN.

Assets and depreciating items need records kept until five years after disposal, not five years after purchase. A vehicle bought in 2020 and sold in 2030 needs its purchase record until 2035.

Motor vehicle expenses need either a logbook covering a continuous twelve week period, or records supporting the cents per kilometre method.

Entertainment and travel need enough detail to establish the business purpose, not just the amount.

Electronic records

Electronic records are acceptable and, for most businesses, preferable.

A scan or photograph of a paper invoice is a valid record provided it is a true and clear reproduction. The paper original does not need to be retained once a compliant electronic copy exists.

The practical requirement is that the copy stays readable and findable for five years. A file attached to the transaction in accounting software meets both tests: it is tied to what it supports, and it will still be there when someone looks.

A folder of scans named by date, in a drive nobody maintains, technically complies and practically fails.

Where record keeping goes wrong

The record exists but is not connected to anything. An invoice in an email inbox is a record in the loosest sense. Producing it three years later, for a specific transaction, is another matter.

Nobody notices the gap. Accounting software does not flag a transaction with no supporting document. Books can be fully reconciled and entirely unsupported at the same time.

It is discovered too late. Missing documentation surfaces at year end or at audit, by which point the supplier may have changed systems and the client may have discarded the receipt.

Storage is not retrieval. Five years of documents in a shared drive with no structure satisfies the letter of the rule and none of its purpose.

A workable system

The test of a record keeping system is not whether documents are stored. It is whether a specific document can be produced for a specific transaction, years later, by someone who was not involved at the time.

That points to a few habits:

• Attach documents to transactions, not to folders. The link between evidence and entry is the thing that has to survive.
• Check for gaps monthly, not annually. A missing invoice found within weeks is usually recoverable. One found at year end often is not.
• Prioritise by GST value. The largest unsupported credits are the largest exposure. A $4,000 purchase with no invoice matters more than forty $40 ones.
• Record why something has no document. Bank fees and internal transfers legitimately have no invoice. Noting that once stops it being re-examined every month.

Frequently asked questions

This article is general information about record keeping obligations and is not tax advice. Rules change and circumstances differ. Confirm anything material with a registered tax agent or the ATO.