Posted on June 11, 2018 by Christabelle Harris
How long do I really have to keep my tax records for?
The ATO relies on a self-assessing system, meaning that you the tax payer (and GeersSullivan your tax agent) are responsible for working out what is and what isn’t to be claimed in your tax return. Unfortunately, it’s against the income assessment act to claim all of your deductions and declare no income, as nice as that would be. The ATO requires you to keep evidence of the items you claim so that they can be double-checked if required. The depth of these records will vary from person to person depending on the items you are claiming. The income you declare and the deductions you can claim you can leave up to us at GS, but holding the records is your responsibility. Year on year this pile of paper work can really begin to pile up, so how long do you really have to keep hold of these records?
Why are these records so important?
Effective record keeping protects you from issues with the ATO and can save you money in the process. These records enable you to claim your full entitlements from the tax office and keep costs down when we are preparing your tax return. The more organized your records, the fewer hours we need to spend and the smaller your bill! These records are also essential to resolving any disputes with the ATO, ensuring you receive your full entitlement and are not subject to any penalties.
Is there a magic number?
In most cases yes there is! The generally accepted time to keep written evidence is 5 years from the date the tax return was lodged. This can however vary based on the item in your tax return, more on this later though.
What does a record need to show?
A receipt or invoice that you keep, to be accepted as substantiation by the ATO needs to show the following items:
- name of supplier/payer
- ABN of the supplier
- amount of the expense/purchase and
- date of the occurrence
What records do I need to keep?
You should keep any records which fall into the following categories:
- payments you receive,
- expenses related to earning your income,
- information pertaining to the purchase or sale of an asset (e.g. shares, rental properties or collectables),
- charitable contributions, and
- any disability, attendant or aged care services.
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Posted on by Christabelle Harris
If your remuneration including reportable fringe benefits and salary sacrificed superannuation contributions is more than $250,000 pa, you may have an additional tax liability over and above the normal income tax payable on such earnings. Now that would be a substantial salary package, so it may seem like a good problem to have, but no-one likes an unexpected demand from the ATO.
It started about five years ago when the government introduced a rule called Division 293 to the tax system. Division 293 is intended to even out the effect that the concessional tax treatment of superannuation has for higher income earners compared to middle and lower income earners. This results from before-tax (known as concessional) super contributions being taxed at 15% within a fund, and the higher relative difference in marginal rates for high income earners compared to the average.
“If you are a high income earner, your marginal tax rate is higher than an average income earner,” the ATO says. “When you make concessional contributions to your fund, you receive a larger tax concession. Division 293 imposes an additional tax of 15% to bring the concession back to an amount in line with the average.”
Division 293 may be better explained by using the worked example that the ATO has provided.
“In the 2015-16 financial year Mark earns $320,000 and his employer contributes $20,000 to his superannuation fund. Mark’s fund pays tax of $3,000 on his contribution (15% × $20,000)”.
If Mark’s employer had not contributed to super, Mark would have earned $340,000 and the additional $20,000 would have been taxed at his marginal rate of 49%. Mark would have paid $9,800 tax on the additional $20,000. The tax concession Mark would receive on his contributions is $6,800.
“By paying Division 293 tax of $3,000 (15% × $20,000) Mark still receives a concession but it is reduced. The total amount of tax paid on the contribution is $6,000 (30% × $20,000, made up of 15% taxed in the fund and 15% Division 293 tax). The tax concession is now $3,800.”
When Division 293 was introduced in the 2013- 14 year (the legislation was called “Sustaining the superannuation contribution concession”), the threshold at which it applied was set at $300,000 annual income for each individual. However in contrast to some other income thresholds and limits, which can tend to go up, this has now reduced to $250,000 (from July 1, 2017).
That’s quite a drop in the threshold, and since it applies to the current financial year it is opportune to alert taxpayers to be circumspect as regards this aspect of taxation law.
So if you or yours are at or near the new threshold, be aware that this division could be another consideration in your possible tax liabilities. The ATO uses information from income tax returns and contributions reported by your super fund to work out if Division 293 applies, and if so, how much tax is owed. And remember, as income levels can move year to year, there is potentially an annual possibility of Division 293 tax being imposed.
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