Increased scrutiny by the ATO to substantiate expense claims
In November 2019, a judgement was made in favour of the ATO by the Administrative Appeals Tribunal of Australia in the case of Reid and the Commissioner of Taxation. It reinforced the importance of ensuring that expense claims are substantiated and documentation is accurate.
This case involved a taxpayer objecting to an ATO decision to disallow deductions claimed for work-related expenses in several income years.
The taxpayer had claimed more than $20,000 worth of car expense deductions each year using the logbook method. However, the ATO determined that the logbook was not valid and reduced the deductions to the maximum amount allowable under the cents per kilometre method, a maximum of $3,300.
Affirming the ATO’s decision, the Tribunal noted that the logbook contained a number of errors which meant that the taxpayer was not entitled to use the logbook method. The errors included inconsistencies between the day of the week and the date, using the same odometer readings on different dates, and entries that indicated business trips when the employer’s records showed that the taxpayer was sick and on personal leave.
This case is a reminder of the importance of ensuring that expense claims are substantiated, and documentation is accurate.
The case also discussed home office expense claims. In this case, the taxpayer’s home was a ‘place of business’ (i.e., they were required to work from home because an office was not available), and that the taxpayer was entitled to claim occupancy costs such as rent. Again, the taxpayer was unable to substantiate the claims, and evidence provided by the employer and colleagues seemed to contradict the taxpayer’s claims. This was also the case for a number of other expenses, such as phone, internet and trade journal expenses, which were also disallowed.
The ATO has made it clear that work-related expenses are being subjected to increased scrutiny, and many taxpayers are discovering that the rules in this area are stricter than they assumed.
If you have any concerns about your claims, contact WLM, and we will ascertain whether there is a risk of audit or whether more documentation is required. If you are not sure how to complete a valid logbook, we can provide a template.
There are also Logbook Apps available. We recommend the use of an App that uses GPS and can download reports into Excel.
Be sure to create a new logbook every five years or when there are significant changes to your business or work-related circumstances.