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Edited version of private ruling
Authorisation Number: 1011662837777
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Ruling
Subject: Relief from substantiation
Question
Will the Commissioner exercise his discretion to grant relief from substantiation?
Answer
No
This ruling applies for the following period
Income year ended 30 June 2008
Income year ended 30 June 2009
Income year ended 30 June 2010
The scheme commenced on
1 July 2007
Relevant facts and circumstances
Your business records for certain income years were destroyed.
You state that most receipts and expenses were paid by cash and very little additional information can be obtained from sources such as your financial institution.
You wish to obtain relief from substantiation with the intention your outstanding returns are treated as if they were lodged.
Relevant legislative provisions
Division 900 of the Income Tax Assessment Act 1997
Subdivision 900H of the Income Tax Assessment Act 1997
Reasons for decision
Division 900 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the substantiation rules that apply to certain types of losses or outgoings.
Relevantly, subdivision 900-H of the ITAA 1997 specifically addresses circumstances where documents are lost or destroyed. Taxation Ruling TR 97/24 explains the operation of subdivision 900-H.
The ruling provides that if it is not reasonably possible to obtain a substitute document, entitlement to claim a deduction is not affected, subject to the following conditions:
a) reasonable precautions were taken to prevent the loss or destruction
b) it needs to be shown that it is not reasonably possible for the taxpayer to get a substitute document.
In Trautwein v FC of T (1935-1936) 56 CLR 196, Latham CJ commented on the absence of records:
In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.
It is considered that it would be a reasonable expectation that, in the event of the loss or destruction of business records, substitute documents could be obtained from numerous sources, for example, suppliers, repairers, creditors, financial institutions, government organisations, etc. It is not considered reasonable that the loss of a single set of business records would result in the inability to reproduce any part of the business records by reasonable enquiry.
In your situation, the Commissioner's discretion to provide relief from substantiation will not be granted. Additionally, the provisions contained in subdivision 900H do not include the discretion to consider a return as lodged by use of the relief from substantiation discretion.
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