Good record keeping is the foundation of a stress-free tax return. The ATO requires you to substantiate every deduction you claim, and failing to keep adequate records is the most common reason for disallowed claims on audit.
How Long to Keep Records
- Standard rule: Keep records for 5 years from the date you lodge the relevant tax return
- Capital gains: Keep records for 5 years after the CGT event is declared in your return (for property, this means keeping records for decades in practice)
- Business records: 5 years (7 years for some super-related records)
- Company records: 7 years
What Records to Keep
Income Records
- PAYG payment summaries (now called "income statements" in myGov)
- Bank interest statements
- Dividend statements and distribution statements
- Rental income records and lease agreements
- Invoice copies for freelance or business income
- Cryptocurrency transaction records
- Share trading confirmations
Deduction Records
- Receipts for all expenses (including digital copies)
- Bank statements showing the deduction
- Credit card statements
- Logbooks for car expenses (valid for 5 years)
- Work-from-home timesheets or diary (4-week representative period)
- Depreciation schedules for investment properties
Digital Record Keeping
The ATO accepts digital records as evidence. You don't need to keep paper copies. Tips for digital record keeping:
- Scan paper receipts as PDF — ensure the scan is clear and shows all details
- Use cloud storage (Google Drive, Dropbox, etc.) organised by financial year
- Back up your records to at least two locations
- Name files clearly: "YYYY-MM-DD-Supplier-Description-Amount.pdf"
Best Apps for Record Keeping
- myDeductions (ATO): Free app by the ATO for tracking expenses and storing receipts throughout the year. Export directly to myTax
- Xero: Excellent for small businesses and sole traders — bank feeds, receipt capture, invoicing
- MYOB: Comprehensive accounting with strong record-keeping features
- QuickBooks: User-friendly, good receipt scanning via mobile app
- Deductions: Simple app for individual taxpayers to track work-related expenses
- Receipt Bank (Dext): Professional-grade receipt scanning with OCR
What If the ATO Audits You?
If you're selected for an audit, the ATO will ask for evidence of specific claims. You typically have 28 days to provide records. If you can't substantiate a claim, it will be disallowed — and you may face penalties of up to 25-75% of the tax shortfall, plus interest.
The ATO uses sophisticated data-matching technology, cross-referencing your claims against bank records, employer data, property registries, share registries, and third-party data from over 600 million transactions annually.
Pro Tips
- Set up a dedicated email folder for "Tax 2025-26" and forward every digital receipt there
- Use the ATO's myDeductions app throughout the year — don't wait until June
- If you use a tax agent, provide your records in a structured format (not a shoebox of receipts)
- Keep a separate bank account for business or investment property expenses
- Dispose of records securely after the 5-year period (shred or securely delete)
Why Data-Matching Makes Records Non-Negotiable
The ATO operates one of the most advanced data-matching programs in the world. It automatically receives information from banks and financial institutions, employers, share registries, property managers, ride-share and delivery platforms, cryptocurrency exchanges, and government agencies. When you lodge, your return is checked against this data. The ATO's analytics also compare your deductions against benchmarks for your occupation and income, flagging claims that sit well above the norm.
This creates a simple cause-and-effect: if you claim it, the ATO can usually verify it. Most audits begin because a claim cannot be substantiated, not because the ATO suspected fraud. If you are selected for review, you typically have 28 days to produce records — and claims without evidence are simply disallowed, with penalties and interest on top if the ATO considers the error careless.
The 5-Year Rule — What to Keep and for How Long
- Income records: payment summaries, bank interest statements, dividend statements, invoices issued — keep for 5 years.
- Deduction records: receipts, invoices, diaries, logbooks, and bank/credit card statements proving payment — 5 years.
- Asset and CGT records: purchase and sale contracts, brokerage notes, improvement receipts — 5 years after the return for the CGT event is lodged (effectively 6+ years in practice).
- Business records: BAS, GST records, payroll, super records — 5 years.
Action Plan: Set Up a System This Week
- Choose one digital home for everything — the ATO's free myDeductions app, or accounting software if you run a business.
- Photograph every paper receipt the day you get it and file it with the correct category.
- Keep a running WFH hour log and a logbook for any car used for work.
- Set a monthly reminder to reconcile: receipts in, records backed up (cloud or external drive).
- If you're audited, respond within 28 days with clean, organised records — taxpayers who do this resolve reviews quickly, often with no adjustment.