Keeping records of work expenses will “pay off”

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The Australian Taxation Office has today announced that it will commence random audits of taxpayers’ claims for work related deductions. Here is why all taxpayers need to be prepared with appropriate written records to ensure that they can substantiate their claims.

A taxpayer can claim deductions for work expenses incurred in gaining or producing the taxpayer’s assessable income. Work expenses include overtime meal expenses, domestic travel expenses for accommodation food and drink and overseas travel expenses. The Commissioner decides the maximum amount of work expenses which a Taxpayer could claim without substantiation (“the reasonable amount”). Should the amount of the taxpayer’s work expenses exceed the reasonable amount, then the taxpayer must provide written evidence from the supplier to substantiate the amount claimed. For instance, the document must set out the nature and amount of the goods or services, the name of the supplier, the day which the expense or loss was incurred and the day which the document was made out.

The recent decision of Tyl and Commissioner of Taxation (Taxation) [2017] AATA 2850 (22 December 2017) emphasises the need for keeping written records. The facts in Tyl were simple. The Taxpayer was a truck driver who travelled regularly as part of his work. He was paid a travel allowance of around $50 per overnight trip. The Taxpayer claimed deductions for his work expenses in excess of the reasonable amount. At [33], the Tribunal held that:

“where the deduction claimed exceeds the reasonable amount determined by the Commissioner, the whole claim must be substantiated with written evidence, not simply the excess over the reasonable amount.”

The Taxpayer did not keep written records of his work expenses. Accordingly, he relied on bank statements which showed two or three transactions relating to work expenses and various ambiguous cash withdrawals in excess of an amount of $400. The Tribunal found that the bank statements were insufficient. It found that the bank statements could only be relied upon in addition to documents from the supplier of the goods or services.

The Tribunal found that, pursuant to s 900-195 of the Income Tax Assessment Act 1997, the Commissioner had a discretion to review the Taxpayer’s failure to substantiate his work expenses if:

(a)              the nature and quality of the evidence provided by the Taxpayer satisfied the Commissioner that he had incurred the expense; and

(b)              he was entitled to deduct the amount claimed for work expenses.

The Tribunal affirmed the Commissioner’s right to apportion 25% of the Taxpayer’s cash withdrawals provided in the bank statements for work expenses relating to food and drink. An administrative penalty of 25% was imposed for the Taxpayer’s failure to take reasonable care in establishing the correct number of nights which he had spent away from home.

The Tyl case is a useful reminder that all taxpayers should retain accurate and comprehensive written records of all work-related deductions, especially if those claims will exceed the reasonable amount deemed by the Commissioner to be appropriate.



Gabrielle Bourke

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