Knowing exactly which financial records you need to keep, and for how long, can allow you to clear out some of the clutter with peace of mind.
Maintaining organised records will help you monitor your financial progress, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support deductions claimed on tax returns.
However, you dont need to hold on to all your financial records forever. Nor do you have to necessarily keep mountains of paper-based records. Here is a quick guide to what you can toss and what you can keep and still be prepared if the Australian Tax Office decides to audit you.
1. Financial Statements and Receipts As a general rule, all financial statements and receipts which you have claimed need to be kept for five years. So if you have completed your 2005/06 tax return you can now safely dispose of papers prior to 1 July 2001.
However, if you or your business have Fringe Benefits Tax (FBT) liabilities then the records must be kept for seven years.
2. Assets & Capital Gains Tax (CGT) If you have paperwork relating to any asset which has, or potentially could have, a CGT liability, you need to keep these records for the period of holding the asset plus five years after its disposal. For example, if you purchased some shares in 2000, you have to keep the paperwork until five years after you sell the shares. For some assets, you may have to keep records for longer.
3. Annual Tax Returns It is probably wise to retain copies of your annual tax return indefinitely. They generally take up little space and are always helpful as guides for future returns or amending previously filed returns.
Reducing the paper pile
With identity theft becoming an issue in Australia, any papers particularly bank and credit records need to be disposed of carefully, not merely thrown in the normal household garbage. A paper shredder is a small investment for the peace of mind to know that your details cant accidentally fall into the wrong hands. Businesses routinely shred their sensitive documents prior to disposal or employ the services of a secure disposal company you should do the same.
If you are reluctant to dispose of your records after five years, an inexpensive scanner attached to your computer can digitise your paperwork so that you can still access your old information but dispose of the mountain of paper.
You dont have to wait five years before you scan your papers. Converting your paper records to digital records will mean you can dispose of your pesky paperwork sooner; digital records are considered to be the equivalent of paper records.
Of course, many financial records can now be received electronically rather than through the mail. Bank statements, credit cards and investment statements can, in most cases be received electronically, helping to keep your home office uncluttered and saving a few forests along the way. Electing to receive these items electronically means that literally thousands of pages of information can be saved on to one blank CD just make sure the CD is labelled and stored carefully.
Finally, these guidelines shouldnt override advice from your accountant or other financial adviser. If you have any doubt about whether you should keep or toss an item, then keep it and ask your accountant; he or she can help determine what records you should keep, for how long and in what form.
