Edited version of private advice

Authorisation Number: 1052154607120

Date of advice: 15 August 2023

Ruling

Subject: Substantiation rules

Question 1

Will the information provided be sufficient to enable the discretion in section 900-195 (discretion) of the Income Tax Assessment Act 1997 (ITAA 1997) be exercised for your work-related travel and car expenses if the substantiation rules in Division 900 are not met for the 20XX income year?

Answer

Yes. The Commissioner is satisfied that you incurred the expense and are entitled to deduct the amount.

Question 2

Will the Commissioner exercise the discretion in the 20XX income year for your work-related travel and car expenses?

Answer

Yes. For the 20XX income year, the discretion in section 900-195 of the ITAA 1997 will be exercised if you use the same substantiation methodology that you used for the 20XX income year.

Question 3

Will a deferral be granted permanently or this discretion be exercised permanently or for longer than the ruling period?

Answer

Not applicable.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Person A has several disabilities.

A report was provided that details Person A's ability to comply with the relevant substantiation rules.

You have provided that Person A's disabilities have impacted their ability to accurately keep a logbook and that it will take some time before they are capable of recording all travel.

As an alternative method, you have created several documents (substantiation methodology) to demonstrate Person A's deduction claims:

•         "Document 1" provides a logbook style document that mostly does not include odometer readings. The information included on the document was sourced from work timesheets and from texts by their employer which included worksite address information. Some of the address information has been filled in by Person A or by their work colleagues.

•         "Document 2" provides images of Person A's estimated travel to worksites. This information was sourced from Google Maps, in conjunction with their texts from their employer to calculate the business kilometres travelled for work using the average route time on Google Maps. This information, along with invoices and other sources was used to calculate total business kilometres used in the vehicle and differentiate private and work travel.

•         "Document 3" provides bank statements of car expenses including fuel purchases, insurance, car servicing and roadside assistance. Some fuel amounts have not been included when unclear if the expense was for fuel.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 900-195

Income Tax Assessment Act 1997 Division 900

Reasons for decision

Question 1

Will the information provided be sufficient to enable the discretion in section 900-195 (discretion) of the Income Tax Assessment Act 1997 (ITAA 1997) be exercised for your work-related travel and car expenses if the substantiation rules in Division 900 are not met for the 20XX income year?

Summary

Yes. The Commissioner is satisfied that you incurred the expense and are entitled to deduct the amount.

Detailed reasoning

In certain situations where the substantiation requirements in division 900 of the ITAA 1997 are not met, section 900-195 of the ITAA 1997 provides the Commissioner with a discretion to allow a deduction even though the substantiation requirements have not been met.

The situations in which this discretion can be exercised is set out in section 900-195 of the ITAA 1997. Section 900-195 of the ITAA 1997 states:

Not doing something necessary to follow the rules in this Division does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner:

(a)         that you incurred the expense; and

(b)         that you are entitled to deduct the amount you claim.

Guidelines for the exercise of this discretion are provided by Taxation Ruling TR 97/24. In discussing the circumstances in which the evidence available will be considered sufficient to enable the discretion in section 900-195 of the ITAA 1997 to be exercised, paragraphs 40 to 45 of TR 97/24 state:

The central issue in deciding whether this discretion ought to be exercised is whether the evidence available:

(a)         satisfactorily quantifies the amount of the expense; and

(b)         establishes the extent to which the taxpayer is entitled to claim a deduction.

It is not possible to specify the nature and quality of supporting evidence that satisfies the Commissioner in all circumstances. Each case must be considered on its own merits and a common sense approach applied. When deciding whether to exercise this discretion, the Commissioner is not limited to considering documentary evidence and factual information can be relevant.

A bona fide attempt to comply with the substantiation requirements is likely to assist taxpayers in relation to the nature and quality of the evidence they hold. If a taxpayer has made little or no attempt to comply with the substantiation requirements, the nature and quality of supporting evidence available is likely to be poor. It is the clear intention of the substantiation provisions that deductions are generally not allowed where there is no supporting documentation or factual material evidencing the expense.

In cases where there has been a failure to comply with the substantiation requirements, the taxpayer may face practical difficulties in satisfying the Commissioner that the claimed amount of an expense has been incurred and is deductible. Such cases frequently involve estimates by the taxpayer of expenses incurred. An unsupported statement by a taxpayer as to the amount of an expense incurred does not, of itself, constitute evidence of a nature and quality to satisfy the Commissioner that the discretion should be exercised.

In applying paragraph 40 of TR 97/24, the issue to be considered is whether the documentation that has been kept satisfactorily:

•         quantifies the total number of business kilometres that were travelled during the income year period and the price of the fuel used for business purposes; and

•         establishes that the journeys recorded as business journeys were business journeys and the fuel purchased was used for those business journeys to determine the work use percentage.

Provided the purpose of each journey is properly described, Document 1, 2 & 3 will satisfy both requirements. This is because the information supplied by the timesheets and employer texts will enable the calculation of the number of business kilometres and the total number of kilometres travelled during the relevant period using just the difference between the address destination and origin. The bank statements reasonably show that fuel expenses were incurred and correlate to the amount of business kilometres travelled.

The fact that the opening and closing odometer readings for each business journey may not be recorded will not impact on the overall integrity of the calculation of the business use percentage.

Paragraph 51 of TYL v FC of T [2017] AATA 2850 can be considered where it was found that a reasonably expectation that an expense has been incurred can be enough for the discretion to be exercised appropriately, including where the amount claimed is a reasonable amount as seen in paragraph 46-47 of TR 97/24. All amounts listed on the spreadsheet provided are of a reasonable amount in the course of your employment and the type of deductions claimed are to be expected in your employment. You have provided evidence of a tangible nature and evidence that points towards the expenses being incurred, as opposed to no evidence at all.

Therefore, the discretion in section 900-195 of the ITAA 1997 will be exercised.

Question 2

Will the Commissioner exercise the discretion in the 20XX income year for your work-related travel and car expenses?

Summary

Yes. For the 20XX income year, the discretion in section 900-195 of the ITAA 1997 will be exercised if you use the same substantiation methodology that you used for the 20XX income year.

Detailed reasoning

Paragraph 14 of TR 97/24 provides that the Commissioner may exercise the discretion before an assessment is made. For the 20XX income year, the discretion in section 900-195 of the ITAA 1997 will be exercised if you use the same substantiation methodology that you used for the 20XX income year.

Question 3

Will a deferral be granted permanently, or this discretion be exercised permanently or for longer than the ruling period?

Summary

Not applicable.

Detailed reasoning

A private ruling may deal with anything involved in the application of a relevant provision, including, where appropriate, how the Commissioner would exercise any discretion. While the ruling has provided that we will exercise discretion relating to substantiation, we will not generally provide private advice or guidance on how the Commissioner would exercise a power under a relevant provision if the appropriate course of action for the Commissioner is simply to exercise the power or decline to exercise the power.

For example, an individual would normally ask the Commissioner for an extension of time to lodge their tax return (by generally contacting the contact centre) rather than seek a ruling on the issue. Further, advice provided on how the Commissioner exercises a discretion must not be expressed in a way that would bind the future exercise of the discretion in a particular case.

The Commissioner does not rule for indefinite or extended periods as there may be changes to the facts of the arrangement, the law in question or some other authoritative or persuasive source that may affect the private ruling. Taxation Ruling TR 2006/11 Private Rulings outlines the system of private rulings. A private ruling only applies to the particular scheme or circumstance that it describes. A private ruling applies for the specified period, as long as the law to which is relates remains in force.

Therefore, we have only ruled for the 20XX to 20XX income years.

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