The validity of a logbook to substantiate deductions

This case involved a taxpayer objecting to an ATO decision to disallow deductions claimed for workrelated expenses in several income years. The taxpayer had claimed car expense deductions using the logbook method in Division 28 ITAA 1997. 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. 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 “customer visit” (i.e., business trip) when the employer’s records showed that the taxpayer was sick and on personal leave. As the taxpayer had claimed more than $20,000 in car expenses each year, which was reduced to the maximum of $3,300, 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. Advisers can play an important role to educate clients on the requirements, especially when it comes to documentation and record keeping, to ensure that clients can claim a deduction for the expenses that they have actually incurred in the course of their work.

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