ATO Interpretative Decision

ATO ID 2001/171 (Withdrawn)

Income Tax

• This ATOID is a simple restatement of the law and does not contain an interpretative decision. The meaning of the expression 'recklessness' is discussed in Taxation Ruling TR 94/4 at paragraph 7, and paragraphs 15 to 18.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether the taxpayer, who makes an unsubstantiated claim for work related car expenses, is subject to penalty tax under section 226H of the Income Tax Assessment Act 1936 (ITAA36) for recklessness.

Decision

The taxpayer is subject to penalty tax under section 226H (ITAA 1936).

Facts

The taxpayer, a sales representative, receives a car allowance from the taxpayer's employer as part of a salary package. The taxpayer makes a substantial claim for work related car expenses in the taxpayer's tax return using the log book method for substantiation purposes. The taxpayer is audited and provides a log book to substantiate the claim. When questioned about discrepancies in the log book, the taxpayer admits that some entries in the log book are fabricated, but that the taxpayer has attempted to approximate actual travel undertaken in those entries. However, the taxpayer can provide no additional evidence to support the odometer readings provided in the log book. It is accepted that the taxpayer needs to travel for work purposes and a lesser deduction is allowed using the cents per kilometre method.

The taxpayer's assessment is amended to disallow the claim for work related car expenses based on the log book method. The taxpayer is also made liable to pay penalty tax equal to 50% of the amount of the tax shortfall caused by the recklessness of the taxpayer.

Reasons For Decision

Under section 226H (ITAA 1936) penalty tax is attracted where a taxpayer has a tax shortfall caused by the recklessness of the taxpayer. Taxation Ruling TR 94/4 provides guidelines as to what constitutes recklessness. Recklessness is gross carelessness and a taxpayer will be considered to be reckless if they clearly show disregard of, or indifference to, consequences that are foreseeable by a reasonable person as being a likely result of their actions. A finding of dishonesty is not necessary. It is only required that the taxpayer's behaviour displays a high degree of carelessness and indifference to the consequences: paragraph 7 of Taxation Ruling TR 94/4.

The taxpayer's fabrication of the log book was an attempt to reconstruct a record of trips actually taken rather than an intentional disregard of the law. However, the taxpayer has been reckless in claiming work related car expenses without a valid log book or any supporting evidence to allow the log book method to be used to substantiate the claim. The taxpayer's behaviour demonstrates an indifference to the substantiation requirements and the probable consequences of incorrectly claiming the car expenses. The penalty tax imposed under section 226H (ITAA 1936) for recklessness is warranted.

Legislative References:
Income Tax Assessment Act 1936
   section 226H

Related Public Rulings (including Determinations)
TR 94/4

Keywords
Tax administration
Income tax penalties
Income tax shortfall
Remission of penalties

Business Line:  Small Business/Individual Taxpayers

Date of publication:  10 August 2001

ISSN: 1445-2782