Substantiation for work expense claims

Claims for work-related expenses, car expenses, and travelling expenses incurred by an individual must be substantiated if the claims are to be allowed (Division 900 of ITAA97). As well as the requirement to incur deductible expenditure, the “substantiation” rules impose a strict evidentiary requirement that must be satisfied if claims are to be allowed. Substantiation for work expense claims

Under the primary test in s8-1, the taxpayer must be able to show that they incurred the relevant expenses and that those expenses were incurred in earning their assessable income, or were incurred in carrying on a business.

Once the primary test has been satisfied (that is, the expense has been incurred and is allowable) the “substantiation rules” impose a mandatory level of record keeping. If those records are not kept, the claim may be disallowed.

In respect of work related expenses, business travel expenses and car expenses calculated under the log book method, Subdivision 900-H (see TR 97/24) says relief will be granted where expenses have not been substantiated if:

  • there is sufficient evidence to satisfy the ATO that a deductible expense was incurred
  • there was a reasonable expectation substantiation was not needed, or
  • documents were lost or destroyed after reasonable precautions had been taken and reasonable efforts are made to get a substitute document (unless not reasonably possible).

This only applies to individuals and partnerships where at least one partner is an individual. The ATO has further modified the strict substantiation rules to account for technology changes and the way taxpayers pay for and record financial information.

See the substantiation flowchart below (or click here to download a printable PDF file).

Substantiation flowchartSubstantiation for work expense claims Substantiation for work expense claims Substantiation for work expense claims Substantiation for work expense claims Substantiation for work expense claims

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