Every online sale leaves a trail. There is the order, the payment, the platform fee and often a refund or two. Keeping that trail in order is more than good housekeeping. The Australian Taxation Office treats accurate records as a legal requirement for every business.
Online sellers can find this harder than they expect. Sales come in through websites, marketplaces and payment apps at all hours. Expenses are spread across subscriptions, advertising and postage. This guide sets out what the rules say and how to build a simple system that keeps up.
Why records matter for an online business
Good records help you manage cash flow and meet your tax obligations. They also show you how the business is really performing. Business.gov.au points out that records help you show your financial position to banks and lenders. That matters if you ever want a loan to fund new stock.
There is also a cost to getting it wrong. The ATO says missing tax records can lead to financial penalties. It can also mean being required to complete a record keeping course, and sometimes both apply. You must be able to show your records to the ATO when asked.
What the ATO expects you to keep
The basic rule is simple. Your records must account for every transaction. They can be kept on paper or electronically. The ATO guide to record keeping for small businesses says they must be in English or in a form that is easy to translate.
The ATO groups the records most businesses need into a few broad types. For an online seller, these are the ones that come up most often. Your own list may be longer, depending on your obligations.
- Income and sales, including tax invoices, receipts and records of cash and digital sales
- Expenses and purchases, such as receipts, tax invoices and credit card vouchers
- Bank records, including statements, deposit records and loan or lease agreements
- End of year records, such as lists of debtors and creditors, stocktake sheets and depreciating asset worksheets
- GST records if you are registered, including supplier tax invoices and any GST adjustments
- Employee and contractor records, such as TFN declarations, wages, tax withheld and super contributions
If you buy something you use partly for private purposes, keep a note of how you worked out the private part. A laptop used for both work and family life is a common example. The ATO also expects you to classify workers correctly as employees or contractors and keep records of that decision. Its free record keeping evaluation tool can help you check what applies to your business.
Records that are easy to miss when you sell online
Online selling creates records in places that are easy to overlook. Your payment provider keeps reports of each payment and the fees taken out of it. Marketplaces send statements that show sales, commissions and refunds. Your advertising accounts produce their own invoices each month.
Each of these supports a figure in your books. A deposit from a payment provider is often a total after fees, not the original sale price. If you only record the deposit, you may miss both the full income and the fee as an expense. Downloading the detailed reports each month gives you the full picture.
Digital subscriptions deserve the same care. Website hosting, email tools, design apps and booking software often bill a card automatically. The receipt might only land in an inbox that nobody checks. Sending all supplier invoices to one folder or one inbox makes them far easier to find at tax time.
How long to keep your records
Most business records must be kept for five years. The business.gov.au record keeping guide says the five years start from when you received the record or completed the related transaction, whichever is later. Some records need to be kept longer. Company records and some employee records must be kept for seven years.
That means a sale from this financial year may need to stay on file long after you have forgotten it. Closing an old marketplace account or payment app can wipe records you still need. Before you cancel a service, export its reports and store them with the rest of your files. It is a small step that can save a lot of trouble later.
Paper, digital or both
The ATO recommends digital records where possible. Business.gov.au notes that you do not need paper copies of digital records unless a law requires them. Scanned copies of paper records are accepted if they are true and clear copies of the original. Once you have a scan that meets the rules, you can throw the paper away.
For an online business, digital records are usually the natural fit. Accounting software can add up totals and produce reports and invoices for GST and income tax. The ATO says it can also keep up with tax rates, let you report online and reduce storage space. Spreadsheets are a cheaper choice if you are comfortable with them, though they take more manual work.
If you work with a bookkeeper or accountant, ask what system they suggest. The ATO recommends choosing one you can easily understand and use. A registered tax or BAS agent can help with your tax obligations, but you still need to provide the records. Only registered agents can legally charge a fee for that work.
Keeping digital records safe
Records must be stored so they cannot be changed or damaged. Business.gov.au recommends backing up digital records and keeping a copy away from your premises where possible. Cloud storage can serve as that second location. The device that holds your records also needs to stay under your control, with passwords you can access.
Think about who can log in to your accounting software and file storage. A former contractor with an old login is a risk to records you are legally required to keep. Review user access every few months and remove anyone who no longer needs it. Paper files need care too, and some businesses keep older paperwork in a commercial storage unit to help with data and privacy duties.
Building a simple routine
The easiest records to keep are the ones you deal with straight away. A short weekly session to match payments, file receipts and note refunds stops a backlog from building. Block out the time in your calendar like any other appointment. Sound time management practices make this much easier to stick with.
Keep business and personal money apart as well. The ATO says sole traders can use a separate business bank account to make record keeping simpler. Partnerships, companies and trusts must keep business and personal expenses separate. Clean records also give you a clearer view of your money, which ties in closely with your financial wellbeing.
Sole traders can also use the ATO myDeductions app to record income, expenses and vehicle trips. Business.gov.au says the data can be uploaded at tax time to fill in parts of your return or sent to your tax agent. That can be handy for a small online business run from a phone. A tidy routine also frees up time and headspace, which helps with balancing work and life.
Frequently asked questions
Can I keep all my business records digitally?
Yes, in most cases. Records can be kept electronically or on paper. Digital records do not need paper copies unless a law requires them. Scanned copies of paper records are accepted if they are true and clear, so keep them backed up.
How long do I need to keep records from my online store?
Most records must be kept for five years. Company records and some employee records must be kept for seven years. Check the rules that apply to your business structure. If you are unsure, ask your accountant or registered tax agent.
Do payment provider and marketplace reports count as records?
They form part of the trail for each sale. The ATO asks for records of cash and digital sales, along with bank and credit card statements. Provider and marketplace reports help show the full sale amount and the fees taken out. Download them and keep them with the rest of your records.
What happens if my records are not good enough?
You must show your records to the ATO if it asks for them. If the right records are missing, you may face financial penalties. You may also be required to complete a record keeping course. Fixing your system early is much easier than rebuilding years of records.
Good records take a little effort each week. For an online business, they turn scattered statements into a clear picture of how you are going. They also make tax time faster and far less stressful.