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Record Keeping

I think that a lot of financial organisation has to do with thinking of yourself in a more 'business like' way.  That is, seeing your financial self as a business entity.

For example, measuring your net wealth is an important part of measuring your initial financial position and financial progress, and is a lot like a business producing a 'balance sheet' listing their assets and liabilities.  Similarly, taking stock of your personal budget is similar to a business producing statements of cash flows - detailing their income and expenses.

And, just like a business you need to keep your important records.  The records I want to talk about include:

  • Records relating to the purchase or sale of assets
  • Records relating to income received from investments
  • Records related to investment expenses
  • Records relating to work related expenses
  • Records relating to tax deductible donations

Let us consider these one at at time.

Records relating to the purchase or sale of assets

When you buy or sell investments, such as shares, property or managed funds you need to keep the record of these purchases and sales, as they will be needed to calculate capital gains tax.  You should also keep a record of transaction costs associated with the purchase or sale, such as brokerage with shares.  Records for inspections and legal costs for properties should also be kept. The bottom line is you should keep the record of all expenses associated with buying or selling assets, and then investigate whether they will be useful in reducing the amount of tax you eventually have to pay. 

If you set up a plan of regularly investing into a managed fund, say $200 a month, you will have to be particularly careful with your record keeping as for every 12 month period you will actually have 12 different managed fund purchases.

Records relating to income received from investments

Investment income can come in the form of interest payments received, rent received, managed fund distributions and share dividends.  At the end of each year you need to have an appropriate record of the income received.  Most investments will provide an income statement at the time of paying income, and some will also include an end of year tax statement.  If you lose an income statement there is often a charge to get a replacement one.

Re-investing dividends or distributions is the same as receiving the income from an investment and then purchasing additional units or shares in that investment.  If you choose to re-invest dividends or distributions you are still taxed on the income paid to you, plus you need to keep the record of the 'purchase' of new shares or units that you have made with this income.

Records related to investment expenses

Investment expenses may include the interest costs associated with an investment loan, magazines related to your investment activities, the cost of depreciation of fittings and fixtures in an investment property or payments to professionals providing advice related to your investment activities. 

Records relating to work related expenses

The ATO( has a reasonable level of information on what work related expenses can be claimed. The divide work related expenses into the categories of:

  • Self education
  • Clothing and laundry
  • Travel expenses
  • Car expenses
  • Other work related expenses  
  • It may be worth visiting with a good tax agent who is used to dealing with people in your industry to outline exactly what expenses can and cannot be claimed. 

    Records relating to tax deductible donations

    In a Sydney Morning Herald article on the 22nd of November 2004 Professor Myles McGregor-Lowndes, from the Queensland University of Technology Centre for Philanthropy and Non-profit studies, stated that maybe only one third of all giving to charity is recorded as tax deductible donations by the Australian Tax Office. 

    While the article did not explain this gap further, one can assume that poor record keeping is part of the reason people are not claiming tax deductions for charitable donations.  I am of the opinion that making your charitable giving business like and targeted may be the best for both yourself and the charity.  From your own perspective you research where your money is going and are confident that it is making a difference.  Plus, making a few targeted donations makes it easier to keep your records.  From the charities perspective having a substantial, ongoing donor helps them free up resources from collecting funds to delivering services.

    Getting organised financially is, at least in part, about developing good financial habits, one of which includes keeping good records.

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