How long do I have to keep business records?

The five-year rule, precisely

ATO: Record keeping for business is the ATO's starting point for business records, and it is more specific than the folk version of "five years". You keep most records for five years from the later of:

• the date you prepared or obtained the record, and
• the date you completed the transaction the record relates to.

The "whichever is later" part matters more than it looks. A record created years after the event it describes — a valuation, a reconstruction of mileage, a document prepared during an audit — starts its clock at the later date, not the original transaction.

Assets are the exception

Records for assets do not run on the five-year clock in the same way. If you buy a depreciating asset or an asset that might attract capital gains tax, keep the records for as long as you own the asset, plus five years after you sell or dispose of it. In practice that is the longest retention obligation most small businesses have.

A simple example shows why: buy a ute in year one and keep it for eight years before selling it. The purchase records are needed for the whole eight years of depreciation, and then for five years more after the sale — thirteen years, not five. ATO: Detailed business record keeping requirements covers the longer categories, which also include records you need to substantiate losses you are carrying forward, and records relevant to an amended assessment.

What actually counts as a business record

The list is broader than a shoebox of receipts. For a sole trader it typically includes:

• Income records — tax invoices you issued, receipts, and your sales records. If you are registered for GST, these have to show the GST separately; ATO: Tax invoices sets out what a valid tax invoice contains.
• Expense records — supplier invoices and receipts for anything you claim, including the ones you would not normally think of as records, like a bank statement confirming a cash purchase.
• Bank and credit card statements for the business, and the statements for any personal account that business money passes through.
• Wages and super records, if you have employees — payments, PAYG withholding, super contributions and the reports you lodge.
• Documents for assets — purchase price, date, and later sale or disposal.
• Activity statements and returns — what you lodged and when.

ATO: Detailed business record keeping requirements goes through the requirements by category, including the specific records employers must keep for each worker.

Electronic records are fine

You do not need paper. Electronic records are acceptable, and for most sole traders a tidy folder structure and a scanner app is a better system than any filing cabinet. Two conditions apply: the records must be kept in English or in a form that can be readily converted to English, and they must be able to be produced if the ATO asks to see them. ATO: Record keeping for business is the reference for both.

The practical test is not "do I have the file somewhere?" but "could I produce this within a few days if I was asked?". A receipt photographed and filed by month passes. A receipt in a car's glovebox that has since been sold does not.

Do not change the records

Once a record exists, it stays as it is. You can keep additional notes, corrections or adjustments alongside it, but you do not amend, delete or "tidy up" the original — the ATO's record-keeping guidance is explicit that records must not be altered or destroyed before their retention period ends. If a mistake needs fixing, document the correction rather than overwriting the evidence.

A system that survives an audit

The point of all this is being able to answer a question two or three years later — which is exactly when the ATO asks, and exactly when memory has stopped being reliable. ATO: Record-keeping tips has a short set of habits the ATO recommends. The three that do the most work for a sole trader:

1. Record it when it happens. A note made in the moment beats a reconstruction made in hindsight, and reconstructions are the ones that get disputed.
2. Keep business and personal money separate. A dedicated business account makes both the record keeping and the tax return far simpler, and it is the single cheapest piece of bookkeeping hygiene there is.
3. Keep the odd ones. The receipt you are not sure about is the one worth keeping. The ones you are certain about, you probably do not need to think about.

Then back it up somewhere off the laptop, and check the backup actually restores. A five-year retention policy that depends on a single hard drive is not really a policy.