Record Keeping Obligations for AP

Australian businesses are required by law to keep adequate records that explain their financial transactions and support the tax positions taken in their returns. For accounts payable, this means retaining the documents that support every supplier payment: tax invoices, purchase orders, goods receipt notes, approval records, bank statements showing payment, and any correspondence relating to disputes or adjustments. The general record keeping period under the Tax Administration Act 1953 is five years from the date the record was prepared, obtained, or the transaction was completed -- whichever is later.

The five-year rule applies from the date the relevant tax return was lodged, not from the date of the invoice. For most businesses, this means invoices from the 2021 financial year (lodged by October 2022 at the latest through a tax agent) must be retained until at least October 2027. For businesses under ATO review or that have objected to an ATO assessment, the retention period is extended until the dispute is finally resolved.

What records AP must maintain

Tax invoices are the foundational AP records required to support ITC claims. The ATO requires that the original tax invoice (or a complete digital copy that accurately reproduces all required details) be held for each purchase for which an ITC has been claimed. "Complete digital copy" is important: a photographed invoice with poor resolution that cannot be read clearly does not meet this standard. AP teams that photograph invoices as part of a document management process need to verify that their imaging quality and retention system produces legally acceptable copies.

Approval records -- evidence that each invoice was reviewed and approved by an appropriate person before payment -- are required to demonstrate that the business applied reasonable controls and that payments were authorised. In manual AP environments, this evidence often consists of email chains. In automated AP environments, the workflow system generates a timestamped approval log that is more robust and easier to produce under audit. The ATO can and does request approval evidence for high-value payments when conducting compliance reviews.

Bank statements and payment records must be retained to confirm that invoices were actually paid and to reconcile payments to the AP ledger. These are also required for bank reconciliation purposes under standard accounting practices. Digital bank statements are acceptable provided they are retained in a format that cannot be modified and are accessible throughout the retention period.

Digital records and the ATO's requirements

The ATO accepts digital records and has published guidance on what constitutes an adequate electronic record keeping system. Records stored in accounting software (Xero, MYOB) are acceptable provided the data can be exported and is not at risk of being lost if the software subscription lapses. Cloud-stored documents are acceptable provided they are kept in formats that can be opened without proprietary software or, if proprietary software is required, that the business retains access to the software throughout the retention period. Records stored only in email are technically acceptable but practically risky -- email systems are frequently changed, archived email is not always easily searchable, and email does not maintain the document-transaction links that accounting software provides.