In yesterday’s post, I talked about how not maintaining proper records can have significant financial consequences, supported by examples.
I stated that I aim to answer two commonly asked questions.
1. Are bank statements sufficient on their own?
2. Is it actually seven years of record-keeping, or can this be even longer?
Let’s dive into this.
Are Bank Statements Sufficient on Their Own?
Bank statements are an important part of business records, but they may not be sufficient on their own to meet the record-keeping requirements. For a property investor with a rental property, the records that should be kept include, but are not limited to:
– A record of the assets and liabilities of the business.
– A record of all entries from day to day of all sums of money received and expended in relation to the business.
– All records and invoices relating to the provision of services.
Charts and codes of accounts, the accounting instruction manuals, and the system and program documentation which describes the accounting system used in each income year.
For a property investor, this typically includes:
– Purchase and sale agreements for the property.
– Loan documents and mortgage statements.
– Rental agreements with tenants.
– Records of rental income received.
– Invoices and receipts for expenses related to the property, such as repairs, maintenance, property management fees, and insurance.
– Bank statements showing transactions related to the rental property.
It’s Not Actually 7 Years, It’s Longer
– You need to keep sufficient records for a minimum of seven years after (emphasis on ‘after’) the end of the income year to which they relate (normally 31 March), and even if the business ceases operating. This means it’s actually more than 7 years in most cases.
– This 7 year period can sometimes extend up to 10 years in specific situations, such as if you are under audit or investigation. Note that the 7-year rule is on a rolling basis – so don’t make the mistake of discarding ALL past records in your 8th year of business!
– The records may be kept in paper form or electronic form, but there must be sufficient detail to ensure a complete audit trail that allows tracing the retained records to and from accounting records and to tax returns.
Action Points – What Can You Do About This?
Here is a checklist of action points for you to work through.
✅ Ensure your business bank account is separate and not mixed with your personal transactions. This helps in clear financial tracking and auditing.
✅ Make sure your last 7 years of business records are accessible and available.
✅ Consider maintaining your finances and business records using accounting software, such as Xero, for efficiency and accuracy.
Follow me on LinkedIn for more property tax advice. For details, you can also read my book, ’10 Biggest Property Tax Mistakes Kiwis Make That Cost Thousands (And How To Avoid Them in 2024)’
