The AAT has disallowed a real estate agent many of his tax deductions because he simply couldn’t substantiate them.

A recent decision by the Administrative Appeals Tribunal (AAT) emphasises how critical it is that record-keeping is correct. 

To claim a deduction for expenditure, it needs to be incurred in gaining or producing your assessable income; it must not be of a private or domestic nature and the expenses must be substantiated. 

The taxpayer in question was a real estate agent and many of the deductions were disallowed because he could not substantiate them. For example, there was some confusion with the telephone because it was not clear whose name was on the bill. More of this later.

Under the legislation invoices must meet particular requirements. They must be in English and set out the name of the supplier, the amount of the expense, the currency, the nature of the goods or services, the day the expense was incurred and when the invoice was completed. 

If the date is not provided it is acceptable to provide a bank statement showing the date of the transaction. If the nature of the goods or services is not specified then you can write in the missing details.

In this particular case, the taxpayer agreed that his logbook was sketchy and he didn’t have relevant receipts. In addition, different items were paid out of different accounts, some of which were in different names. This makes it quite difficult to claim. 

If you want to make a claim, make sure that you pay it from the right entity and that you have proper records. If you paid it from a different entity, you should reimburse your account from the correct entity so it is clear that the entity has taken responsibility for that expense. Then you have to justify that it is an expense of that entity. It helps if the invoice is in the correct name of the entity.

The taxpayer claimed car expenses but he did not own the car; it was owned by a different entity. Accordingly, the taxpayer could not claim the deduction. It should have been claimed in the entity that owned the vehicle. 

His logbook was not completed correctly, according to the legislation and he did not have receipts for fuel. He did have bank accounts showing purchases of fuel, but they were in more than one entity even though he was claiming them in his own name.

The taxpayer had a large claim for credit card interest. However, the AAT said that it was impossible to identify how the expenses had arisen. Accordingly, the interest could not be claimed. It is the purpose of borrowing, even on a credit card, which determines the deductibility of interest. 

He had also claimed phone deductions estimating his use at 40-50 per cent. When questioned he said it was probably more like 70-80 per cent. The invoices provided were not in his name, they were in the name of his spouse. 

Although his claim was “conservative”, there was no evidence as to the validity of his claim. There was no diary record and no itemised list of calls. The AAT said that, as a real estate agent, he would have required his phone but because he could not demonstrate his use and also whether it was his phone or not, the claims were disallowed.

There were also various other expenses claimed and the taxpayer relied on bank statements as evidence of the expenditure. As the bank statements alone did not comply with the law, those claims were also disallowed. 

He claimed for donations and, again, there was no documentation and no evidence that the donations were made to deductible gift recipients. These were also disallowed.

It is very clear from this decision that it is imperative to keep proper records of your expenditure that comply with the requirements of the Income Tax Assessment Act and the documents must be in the name of the correct entity.

If you want information about record-keeping contact the friendly team at Gail Freeman & Co Pty Ltd on 02 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au