If you’re a business owner, you’re probably familiar with the term “audit”. It’s an in-depth review of your financial records, processes and systems to ensure that they are accurate and compliant with regulations.
But audits don’t have to be scary, or even happen at all if you stay on top of your records and maintain good financial practices.
In this general information guide, we’ll cover key record-keeping tips to help you avoid an audit, ensure compliance with tax regulations, and successfully claim R&D benefits, including R&D financing.
Purpose of Record-Keeping
Ensuring compliance with regulations is critical for businesses looking to maintain their credibility and avoid potential penalties. By adhering to established guidelines, companies can operate smoothly while meeting industry standards and government requirements.
Maintaining accurate records is critical for:
- Meeting tax, super, and reporting obligations to avoid penalties
- Ensuring compliance with industry regulations to safeguard business credibility
- Successfully claiming government incentives, such as the R&D Tax Incentive (R&DTI)
Record-Keeping and R&D Finance
For businesses investing in research & development, good record-keeping is essential not only for R&DTI claims but also for securing R&D finance.
The R&D Tax Incentive (R&DTI) is a government rebate, providing eligible businesses with a cash refund or tax offset on their R&D spending. However, businesses must wait until the end of the financial year to receive this rebate.
R&D finance allows businesses to access their expected R&DTI rebate early, providing crucial funding when it’s needed most. To qualify for R&D financing, businesses must demonstrate:
- Accurate records of R&D activities and expenditures
- Compliance with the R&DTI program’s requirements
5 Key Rules for Effective Record-Keeping
Here are 5 key record-keeping rules that cover most of the records your business needs to keep for tax, super, and registration obligations. These rules are based on the law and the ATO’s view:
1. Keeping Business Records for Tax Invoices and Super
It’s important to keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and super obligations.
- Retain records related to starting, running, or closing your business, including expenses, income, and GST obligations.
- Clearly separate business and personal expenses to avoid compliance issues.
- Use digital tools like the ATO’s myDeductions app to track income and expenses.
2. Protect and Preserve Your Business Records
It’s essential to ensure the information in your records remains unchanged and is securely stored in a physical storage space to prevent tampering or damage.
- Store records securely to prevent loss, tampering, or damage.
- If transitioning to a new record-keeping system, ensure that original data remains accessible.
3. How Long Should You Keep Business Records?
Keeping accurate records is essential for your business, and in most cases, you need to retain these records for 5 years. The 5-year retention period typically starts from the date you created or obtained the record, or from when the related transaction or action was completed—whichever is later.
This will include expenses, income, goods and services tax (GST) and bank records.
However, there are exceptions where the starting point differs:
- Fringe Benefits Tax (FBT) Records: Retain these records for 5 years starting from the date you lodge your FBT return.
- Super Contributions for Employees: Keep these records for 5 years from the date of the contribution.
- Super Fund Choice for Employees: Hold onto these records for 5 years starting from the date an employee is engaged or when they are offered, choose, or change their choice of super fund.
In some cases, you may need to keep records for longer than 5 years. This can apply to situations beyond tax time such as the period of review for an assessment that relies on the information in those records.
Additionally, any procedures for destroying digital records should also be documented and retained. Failure to keep the required records may result in significant financial penalties.
4. Keeping and Providing Records for Compliance
It’s important to maintain proper records and be ready to provide them if requested. Ensure your record-keeping system meets all legal requirements and includes the necessary details to fulfil tax, superannuation, and employer obligations.
- Maintain accessible, properly labeled records.
- Ensure digital records are backed up and readily available for review.
- Convert password-protected or encrypted files into standard formats (e.g., Excel, CSV).
5. Keep Records in English
Ensure your records are either in English or can be easily translated. This helps streamline communication and ensures compliance with necessary requirements.
The ATO’s overview of record keeping is a direct resource for understanding what specific records are required and how long they should be kept.
Tools and Resources for Record Keeping
There are many tools and resources available to help you with record keeping. Here are a few:
- Record-Keeping Evaluation Tool: The ATO offers a free tool to help you evaluate your record-keeping systems and identify areas for improvement. This tool can help you ensure your records are accurate and complete.
- Tax Invoices: The ATO provides guidelines on what constitutes a valid tax invoice. Understanding these guidelines can help you ensure your tax invoices meet the necessary requirements.
- Record Keeping Course: The ATO offers a free online course to help you learn about record keeping and tax obligations. This course can provide valuable insights and tips for maintaining good records.
- ATO Indigenous Badge: The ATO provides resources and support for Indigenous businesses and individuals. This badge can help you access tailored support and resources for your business.
- Ask Alex for Help: The ATO’s virtual assistant, Alex, is available to answer your questions and provide assistance with record keeping and tax obligations. This service can help you get quick answers to your record-keeping queries.
By utilising these tools and resources, you can improve your record-keeping practices and ensure compliance with tax laws and regulations.
How to Prepare for an R&DTI Audit
Even with proper record-keeping practices, some businesses may face a review or audit of their R&DTI claims. This can be due to random selection or triggered by inconsistencies in financial reporting.
Steps to Prepare for an R&DTI Audit
Document the entire R&D process
Keep clear and detailed records of all research and development activities, including project plans, progress reports, and outcomes. This will help demonstrate the validity of your R&D activities and any claimed expenses.
Properly allocate costs
Ensure all costs associated with the R&D activities are properly allocated and documented. This includes both direct and indirect costs, such as employee salaries, materials, cash purchases and overhead expenses.
Organise your records
As mentioned earlier, properly label, index, or organise your records to make them easily accessible for a tax agent to review. This will streamline the audit process and help demonstrate compliance.
Understand eligibility criteria
Familiarise yourself with the eligibility criteria for the R&DTI program and ensure that your activities meet these requirements.
Check out our eligibility guide here!
Access R&D Finance with Rocking Horse
Once you’ve taken these steps and understand what’s needed for an R&DTI audit, you’re in a strong position to meet any review requirements. But why wait for your tax return to access your R&DTI benefits?
Rocking Horse provides R&D financing, allowing businesses to:
- Unlock R&DTI funds early—instead of waiting for the government refund
- Improve cash flow—ensuring ongoing R&D investments and business growth
- Avoid delays—access funds when you need them most
With proper record-keeping, securing R&D finance is seamless. Get in touch today to see how Rocking Horse can help you unlock your R&D rebate early and accelerate your business growth!