When it comes to ATO record-keeping rules, most business owners fall into one of two camps: the ones who keep every scrap of paper “just in case,” and the ones who cross their fingers and hope their accounting software is doing all the heavy lifting.
The truth sits somewhere in the middle. The ATO doesn’t expect perfection — but they do expect good, consistent record-keeping that clearly supports the numbers in your tax returns and activity statements. Understanding what matters (and what doesn’t) can save you time, stress and the occasional audit headache.
Here’s a breakdown of the record-keeping rules the ATO actually cares about.
1. Keep records that explain how you earned income
The ATO wants to see how the figures in your BAS and tax return came to be. This means keeping records that show:
- Sales invoices
- Cash register summaries
- POS reports
- Bank deposits
- Contracts or agreements showing work performed
If you sell goods or services, you need enough documentation to demonstrate what you earned, who you earned it from and when.
What the ATO doesn’t need:
You don’t need to keep internal notes, draft estimates or emails showing “possible work” that never went ahead.
2. Keep records for business expenses — especially the big ones
The ATO requires evidence for any deduction you claim. That usually means:
- Tax invoices
- Receipts
- Statements showing payment
- Finance or lease contracts
- Logbooks for motor vehicles
If you’re claiming an expense, assume the ATO may ask for proof.
What the ATO doesn’t need:
A shoebox of every $3 coffee. If it’s minor, infrequent, and clearly business-related, the ATO won’t lose sleep over it — but we still recommend attaching receipts in Xero to keep everything neat.
3. Digital records are absolutely fine (and preferred)
The ATO accepts digital records as long as they are:
- Clear and readable
- Easily accessible
- Backed up
- A true and accurate copy of the original
So emailing receipts to your bookkeeping software or snapping photos on your phone is completely acceptable.
What the ATO doesn’t need:
Physical storage of paper documents as well as digital copies. Pick one system and stick to it.
4. Keep records for five years — but five years from when?
This trips up a lot of business owners. The ATO’s five-year rule generally means five years from the date you lodge the return or BAS to which the records relate.
But the clock can restart if:
- You amend a return
- The record relates to depreciating assets
- There’s a dispute with the ATO
What the ATO doesn’t need:
A lifetime archive. After five years (or the appropriate period), you’re allowed to securely dispose of old records.
5. Records for employees and contractors
The ATO expects you to keep:
- Payroll records
- Timesheets
- PAYG withholding reports
- Superannuation payments and evidence
- Contractor agreements
These are essential during audits — especially superannuation reviews.
What the ATO doesn’t need:
Private employee information not related to tax or payroll obligations.
6. Inventory and stock records (if relevant)
If your business carries stock, you must keep track of:
- Stocktakes
- Purchases and sales
- Write-offs
- Manufacturing or production records (if applicable)
Stock figures directly affect your taxable profit, so clarity is crucial.
What the ATO doesn’t need:
Detailed day-by-day movement logs unless you’re in a highly regulated industry.
7. Bank statements still matter
Even if everything is neatly recorded in Xero, the ATO will often ask for bank statements in an audit. They’re used to cross-check that income and expenses match what has actually gone through the bank.
What the ATO doesn’t need:
Personal bank records that aren’t connected to your business finances.
8. Trust deeds, company constitutions and ASIC documents
Some business records need to be kept far longer than the standard five-year rule — in fact, some should be retained permanently.
What you must keep:
- Trust deeds and any variations
- Company constitutions
- Shareholder agreements
- ASIC incorporation documents
- Minutes and resolutions for key decisions
- Share registers and unit registers
- Changes to officeholders or shareholders
These documents aren’t just historical — they are essential for proving ownership, determining how income should be distributed, validating directorships and showing the legal structure of your business.
How long to keep them:
- Trust deeds — keep permanently (including all amendments).
- Company constitutions — keep permanently.
- ASIC documents (e.g. incorporation, share changes, director appointments/resignations) — keep for the life of the company + 7 years after deregistration.
- Share/unit registers — keep permanently.
- Minutes and resolutions — keep for the life of the company (or trust), as they can impact future legal and tax positions.
Why the ATO cares:
These documents determine:
- Who controls the entity
- Who is entitled to income or distributions
- Whether loans, dividends or drawings have been handled correctly
- Whether the structure is being used as intended
If the ATO audits a company or trust, they will almost always ask for these documents first.
What the ATO doesn’t need:
- Duplicate copies of the same deed or constitution
- Draft versions that were never executed
- Internal notes that weren’t adopted by resolution
9. Be consistent — the ATO cares about patterns, not perfection
The biggest red flag for the ATO isn’t a missing receipt — it’s inconsistent behaviour, such as:
- Claiming unusually high deductions for your industry
- Big fluctuations in reported income
- Cash businesses with no clear cash handling process
Having a clear, consistent record-keeping method is often more important than having every receipt perfectly filed.
10. The ATO notices what’s missing — and what’s over-explained
Some common issues we see:
- Businesses keeping no records for cash sales (big red flag)
- Claiming asset purchases with no invoice or finance documents
- Relying on emails instead of proper invoices
And on the flip side, some businesses keep over-detailed records for things the ATO rarely looks at (like administrative emails or multiple copies of the same receipt).
So what does “good” record-keeping look like?
A clean, tidy system where:
- Every transaction has support
- Receipts are attached in Xero or your accounting software
- Bank accounts reconcile
- Payroll and superannuation are up to date
- You can easily retrieve information if asked
It doesn’t have to be complicated — just consistent.
Need help getting your records audit-ready?
Good record-keeping saves tax, time and stress. If you’re unsure whether your current system meets ATO expectations (or you’d like help setting one up), our team is always here to help.
