Tax Deduction Claim Faces Hurdles

How The Best Expense Receipt Tracking App Could Have Helped

In a recent case before the Administrative Appeals Tribunal (AAT), a businessman’s attempt to claim a substantial $48,000 in tax deductions encountered significant challenges. William Smith, based in Brisbane, sought to deduct a range of expenses, including airfares, meals, and overseas accommodation. His method of substantiating these claims primarily relied on bank and credit card statements. However, the Australian Tax Office (ATO) was not convinced and had rejected all of his expense deductions for the financial year 2020.

The AAT member, Lee Benjamin, who boasts an impressive background in complex tax litigation and tax specialisation, indicated right from the outset that Mr. Smith faced an uphill battle. Benjamin emphasised the critical importance of maintaining proper records, stating that a taxpayer who fails to do so has a challenging path to justify their deductions. Benjamin noted that the substantiation rules in the income tax law are generally well understood by most taxpayers. Essential to these rules is the requirement for written evidence, typically in the form of receipts, when seeking to claim a deduction.

Mr. Smith’s requests covered an extensive array of outlays. He aimed to recoup $12,700 for transportation, $12,300 for dining and refreshments, $13,300 for lodgings in Singapore and Melbourne, and an extra $4,500 for telephone and online service charges. Nevertheless, the ATO contended that the documentation presented by Mr. Smith, comprising bank and credit card records, personal journal entries, and an attached tabulation delineating each cost, did not meet the criteria for validating expenditures as stipulated by Australian tax regulations.

The ATO’s argument hinged on the fact that these records merely showed payments made to specific payees on certain dates. They did not provide sufficient information about the nature of the goods or services purchased. For instance, a payment to ‘Coles’ did not specify the type of products bought, as supermarkets sell a variety of items. Similarly, a payment to ‘Officeworks’ didn’t clarify the nature of the purchased items, whether they were school supplies, arts and crafts materials, or IT products. Furthermore, payments to airlines like Tiger Airways didn’t provide details about the flight’s origin, destination, or travel dates.

During the examination, Mr. Smith’s recollection of details related to his expenses was inconsistent and often vague. For instance, when questioned about an expense of $275 at ‘Aburiya Boat Quay,’ he was asked if it was a restaurant. Mr. Smith responded that ‘Boat Quay’ referred to an area in Singapore and that ‘Aburiya’ was likely a restaurant. He went on to say that the meal probably involved shareholders and might have included alcohol, although he couldn’t recall with certainty.

When queried about other claims associated with the ‘Shangri-La Hotel,’ Mr. Smith’s responses were similarly uncertain. He could not recall specific details about restaurants he visited or who he dined with, particularly for meetings that had taken place four years ago.

Mr. Benjamin, the AAT member, remained unpersuaded. He emphasised that the lack of receipts hindered the tribunal from confirming the timing of the acquisitions of goods and services and whether they aligned with the dates outlined in the bank records.

This case serves as a notable reminder of the importance of maintaining thorough and accurate records when attempting to claim tax deductions. Without proper substantiation, the ability to justify expenses to the ATO or any tax authority becomes a formidable challenge. Therefore, individuals and businesses should keep detailed records, particularly in the form of receipts, to ensure their tax deductions are on a sound footing and can withstand scrutiny. Utilising the best receipt keeping app can make a significant difference in these situations and help ensure that your expenses are properly documented and substantiated.


Read Article: Australian Financial Review
Author: Ronald Mizen

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