According to my medical professional clients bookkeeping is painful. Very painful. And boring. And a waste of time.
But it is a necessary evil. And most get it wrong or have bookkeepers that get it wrong.
That's because we often ask for receipts and invoices when most do not. We always ask and we chase them. Vigorously.
Some clients are great, others not so. I have one who starts panicking if she loses a $2 parking receipt. Others just expect me to be a mind reader and work out what a payment of $5,000 was for without an invoice.
We appreciate that bookkeeping can be frustrating. Not just for you but for us too. I hate red tape and chasing you for mundane reasons but I always say to my team that we must do it if it ultimately helps our clients even if we happen to be a pain because the long term benefit outweigh the short term.
Many clients and their bookkeepers point me to the ATO website which states that electronic evidence is good enough. It can be confusing because it suggests showing a credit card or bank statement is good enough.
Not so.
The ATO won a recent case that shows that not keeping receipts could mean a few days of beans on toast. Or maybe cabbage soup.
A taxpayer had no invoices but had bank statements and claimed this was evidence of expenditure. They also referred to the ATO website.
The judge dismissed it because although the amount paid was not in doubt, it was impossible to prove if the amount was work or business related.
Here are a couple of examples to give greater clarity.
1. Travel
Although all travel outside Australia may be restricted because of Covid19 let's assume you booked and travelled to Singapore for a medical conference in 2019.
You have emails about the conference, so we know it is a valid reason.
You booked flights on Qantas but can no longer find the booking email but you rely on a credit card statement which shows $5,000.
How does one know it relates to you only or was it for you and your spouse or as I have seen in the past the whole family?
2. Stationery Expenses
You spend $325 at Officeworks in January. You have no receipt, but the credit card statement clearly shows the expenditure.
How does one know if it relates to your practice or just happens to be for your kids book and supplies order for the school year?
The ATO is quite clear on this. If they have doubts on expenditure it is down to you to prove otherwise. The evidence is usually a receipt or invoice.
Now if the amount spent was $100 no big deal. But if combined your missing invoices over one year come to $22,000 that could result in approx. $9,400 (plus interest and penalties) in tax & a further $2,000 in GST. If the ATO go back 6 years you have a real issue.
That's $56,400 in tax you have to pay and a further $18,000 in GST. Add interest and penalties and you owe the taxman well into 6 figures.
Crap. But as I said we do things because we know what if could mean for you.
So when your bookkeeper asks for invoices there is a reason. Best keep those invoices and give them when asked for.
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