Edited version of your written advice

Authorisation Number: 1012858210470

Date of advice: 11 August 2015

Ruling

Subject: Car expenses

Question

Will the Commissioner provide relief from substantiation in relation to work related car expenses for the years ended 30 June 20XX to 30 June 20YY?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

1 July 2007

Relevant facts and circumstances

You worked as a driver for a company from 20XX until 20YY.

Terms of your contract state the company would supply the vehicle and pay for registration, insurance and all repairs and maintenance.

You as the driver were responsible for the costs of fuel and car washing only.

You were assigned one vehicle, which was held at your residence when you were not on assigned shifts and was available for private use at these times.

You had obtained daily receipts for your fuel and car wash expenses and stored them at home, however many of these receipts were inadvertently discarded.

You have been diagnosed with an illness which has slowly progressed over a number of years. This illness prevented you from organising your papers and keeping business records. It has also impacted on your capacity to deal with financial matters and tax returns.

You have been able to determine reasonable estimates of your fuel and car wash expenses in each of the relevant years by way of:

• The contract agreement with the company,

• Available receipts, providing evidence of the usual daily amounts spent on petrol and car washes,

• Weekly reports provided by the company showing fares paid and driver income calculations, and

• Confirmation from the company that the cars are replaced every three years after travelling approximately 225,000 km, an average of 75,000 km per year.

You have also used, in conjunction with the average distance travelled each year:

• Average fuel consumption in line with the 'Australian Fuel Consumption Guide', and

• Average fuel costs in line with Bureau of Statistics information for the region.

For the purpose of calculating your car wash expenses, you washed the vehicle every day you were on shift and have various receipts to substantiate this pattern over time.

Terms of your contract also state you were required to maintain the cleanliness and presentation of the vehicle to a very high standard in line with the company's policies.

You have provided your gross income in the relevant years.

Your fuel and car wash expenses are estimated at approximately $12,000 in the higher income years, lessening in proportion in the lower income years.

You have provided:

• a copy of the contract between yourself and the company.

• email from the company stating vehicle turnover and distances usually travelled

• a letter from a medical specialist stating factors of your medical condition was likely to have been present over the relevant period.

As you also had the vehicle for private use, you understand these costs will be apportioned accordingly between work and private use.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 900-10

Income Tax Assessment Act 1997 Section 900-15

Income Tax Assessment Act 1997 Section 900-185

Income Tax Assessment Act 1997 Section 900-195

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Substantiation rules

In order to deduct certain losses and outgoings, section 900-10 of the ITAA 1997 requires that you must be able to substantiate the expense. Section 900-15 of the ITAA 1997 provides that you substantiate a work expense by getting written evidence of the expense.

Written evidence may be in the form of:

1.   evidence from the supplier - this document should show:

a)   the name of the supplier

b)   the nature of the goods or services

c)   the date the expense was incurred

d)   the date the document was made out

2.   evidence recorded by the taxpayer for small expenses (a small expense is one which must be $10 or less and the total of the small expenses is $200 or less). These records must show the same details as a document from a supplier.

3.   evidence on a group certificate.

To summarise the above, a deduction is only allowable if a loss or outgoing:

a)     is actually incurred;

b)     meets the deductibility tests; and

c) satisfies the substantiation rules where applicable.

Failure to substantiate

In cases where a taxpayer does not comply with a request to produce written evidence of an expense, section 900-185 of the ITAA 1997 provides that the expense cannot be allowed as a deduction or, if it has already been allowed as a deduction, the Commissioner can amend your assessment to disallow the deduction.

Commissioner's discretion to review failure to substantiate

In cases where written evidence of an expense as required by Division 900 of the ITAA 1997 is not provided, section 900-195 of the ITAA 1997 provides that a deduction may still be allowed if the Commissioner is satisfied that the expense was incurred, and that you are entitled to a deduction for it. The Commissioner's interpretation of this discretion is outlined in Taxation Ruling TR 97/24.

Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate (TR 97/24) provides guidance on the three circumstances in which the Commissioner may grant relief where expenses have not been substantiated. These are:

• where there is sufficient evidence to indicate that the taxpayer has incurred the expense and there is an entitlement to deduct the amount claimed;

• where the only reason for the failure to substantiate was a reasonable expectation that substantiation would not be needed; or

• where documents have been lost or destroyed despite the taxpayer taking reasonable precautions to prevent the loss or destruction and, if the document was written evidence, it is not reasonably possible to obtain a substitute document.

It is necessary for the taxpayer to show that reasonable precautions were taken to protect documents and the taxpayer needs to show that a bona fide attempt has been made to obtain a substitute document, or there were reasonable grounds for believing such efforts would not be successful.

Taxation Determination TD 97/19 describes how to calculate the cost of fuel and oil when using the 'one-third of actual expenses' method or the 'log book' method, if you have not kept written evidence of the expense. The Commissioner accepts a reasonable estimate of average fuel costs and average fuel consumption. This combined with kilometres travelled will allow you to calculate the fuel expense.

Application to your circumstances

In your case, the Commissioner is satisfied that you have sufficient evidence to indicate that you have incurred the expense and there is an entitlement to deduct the amounts you intend to claim.

Even though you have incomplete records of the expenses incurred over this time and therefore cannot fully substantiate some of the costs, it is accepted that your methods of calculating your claims are reasonable and given your circumstances it would be unreasonable to obtain substitute documents.

It follows that the Commissioner will provide relief from substantiation in relation to your work related car expenses of fuel and car washes for the years ended 30 June 20XX to 30 June 20YY.

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