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Ruling

Subject: Relief from substantiation requirements

Question

Will the Commissioner exercise his discretion under section 900-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to provide relief from the requirement to obtain written evidence as substantiation for business travel expenses?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You and your spouse carry on a business in partnership.

Both partners attended a study tour during the 2009-10 financial year.

You purchased foreign currency to take with you on the tour. These funds were used to pay for meals, drinks, transport and other incidental costs incurred on the tour. The funds were not used to pay for accommodation costs.

In many instances the funds were used to pay for group related expenses where each party in the group contributed to pay a single bill.

You have prepared records of the amount spent on each day of the tour. This record is attached as Appendix One in your application.

The tour itinerary is attached as Appendix Two in your application.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 900-195

Reasons for decision

Section 900-195 of the ITAA 1997 provides the Commissioner with the discretion to grant relief from the effects of a failure to substantiate an expense claimed in particular circumstances. For this discretion to apply, the nature and quality of the evidence available to substantiate an expense must satisfy the Commissioner that:

· the taxpayer incurred the expense; and

· there is an entitlement to deduct the amount claimed under another provision of the Act.

It is the Commissioner's view, as expressed in Taxation Ruling TR 97/24, that relief is not available where there is no supporting documentation or factual material evidencing the expense.

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

· satisfactorily quantifies the amount of the expense; and

· establishes the extent to which the taxpayer is entitled to claim a deduction.

When deciding whether to exercise this discretion, the Commissioner is not limited to considering documentary evidence. A wide variety of factual information can be relevant. For example, in deciding whether the Commissioner is satisfied that car expenses have been incurred and are deductible to the extent claimed, a relevant piece of evidence might be that a particular motor vehicle is used in operating a driving school rather than merely producing assessable income on occasions.

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. 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 your case the Commissioner is not satisfied that:

· you have incurred the expense;

· the expense, if incurred, would be deductible under another provision of the Act; or

· a reasonable attempt was made to comply with the substantiation provisions.

This is because you have paid for the expenses claimed in cash but have retained no independent record of the transactions.

The nature of the expenses from appendix one raises the question as to whether there is the necessary nexus between the amounts claimed and the derivation of the assessable income. As such there is doubt as to whether the amount claimed is correctly deductible under another provision of the Act.

No effort was apparently made to obtain copies of available records at the time with the result that there is no record other than your notes. The lack of any independent records indicates that no reasonable attempt was made to comply with the substantiation provisions.

As such the Commissioner will not exercise the discretion available to him under section 900-195 of the ITAA 1997 to grant relief from the failure to substantiate an expense.