Recording your income and expenses is essential to understanding what income goes through your business and why. You need to keep records explaining all transactions that relate to your tax affairs, including personal services income (PSI).
Generally, you need to keep records of most transactions, in English, for 5 years. The 5 years starts from when you prepared or obtained the records, or completed the transactions (or acts they relate to), whichever is the later.
When working out if you receive PSI, you need to keep records that show:
- whether the income is PSI
- how you worked out if the PSI rules apply
- which expenses apply to any PSI received, and
- the deductions you can claim against the PSI.
If more than one individual is generating PSI, you need to keep records relating to each individual.
The types of records you may need to keep include:
- tax invoices
- time sheets submitted to the client or labour hire firm
- contracts with schedules
- diaries detailing what work was performed, when and for whom
- emails evidencing contract negotiation
- bank statements and receipts
- vehicle log books.