EXPENDITURE CLAIMS – BE PREPARED
Taxpayers need to be more ready to produce invoices and receipts when considering what deductions they might seek to claim for the purposes of their annual tax return. Technology and the ability of taxpayers to store and retrieve electronic evidence of transactions is the key reason why the Australian Taxation Office is becoming more vigilant in this area.
CHANGES TO EXEMPTIONS
The ATO has been exploring the underlying logic of certain substantiation exemptions that were once considered a workaround solution for the perennial problem of people not having receipts or invoices for specific expense items that would be considered deductible.This is not the ATO playing at being a Scrooge and cutting back on potential deductions just to protect the revenue as much as possible. While that might be the first conclusion a taxpayer might reach in the circumstances this reassessment of exemptions in the context of reasonable travel allowances is the ATO looking carefully at the way in which the business environment has been shaped by technology and what if any concessions should exist today giving the quantum shift in the way we do business.
A review has also been deemed necessary in this area by the Tax Office because of the fact taxpayers have expressed concerns about existing guidance related to substantiation exemptions being confusing and outcomes in any compliance actions being unfair. “Cases continue to proceed to the tribunal or court, further demonstrating the complexity and ambiguity in this area,” the ATO says in its web-based summary of the issue.
TRAVEL ALLOWANCES
One of the problems the ATO has uncovered over a period of time is that taxpayers are seeking to claim the reasonable travel allowance up to the full annual rate for accommodation, meals and incidentals without appropriate evidence or justification that an amount had actually been incurred."We have identified this practice is prevalent for employees in industries that are paid an allowance that is significantly below our rate (either because of an award or otherwise negotiated). In these cases, we have found the amount actually expended is usually around the amount of the allowance actually paid," the ATO says.
It is important to ensure that where a claim is made as a part of the annual pilgrimage to complete the income tax return it can be justified some way so that the ATO has no substantive grounds to query the amount that is being sought in the form of a deduction.
The other issue being highlighted by the revenue authority in its discussions with stakeholders is the fact that accommodation may no longer be paid by the staff member out on the road heading between one location to another. Payment is more frequently done via electronic means and paid by the employer. Records are more easily kept this way and the exact travel expenditure is able to be determined without too many tears.
EMAIL RECORDS
Taxpayers will be familiar with this notion as a part of their own experience each day with travel and accommodation. Consider the example of the various applications that you load onto your smart phone that allow you to book and pay for a taxi without have to provide any cash in hand to the driver. This was unheard of a decade ago and it means that the phenomenon of the vanishing tax invoice is less likely to be a problem.You will typically get a notification to an e-mail address of an amount paid for the taxi ride within minutes of the transactions having been completed. These developments mean that is less likely that a taxpayer will lose the record of a taxi ride that was taken.
The ride might be for a work-related purpose and as such may be an allowable deduction. All the taxpayer needs to do is track the expenditure through the e-mail trail in order to have the record ready for inspection by an appropriately qualified tax adviser.
ELECTRONIC PAYMENTS
It is also true for other expenditure that will be incurred using electronic means of payment. Consider the number of times purchases are able to be made by tapping on a device because they are under $100 in amount and do not require the additional PIN. All those transactions are documented on your credit card records.THE FUTURE
What does this mean for the tax return you are about to start compiling information for? There are several issues to keep in mind.There is the perennial matter of making sure that what you spend is related to what you are earning. Does the expenditure constitute an allowable deduction under the tax rules? If it does then you have met the first hurdle but it is the second you will need to pay closer attention to as we look forward to what is happening in tax administration.
Can you provide the necessary documentation in some format for the actual transaction? Can you substantiate the expense involved?
It is important that you realise that the ATO will require further and better particulars as technology gets even more refined and record keeping is less paper based. Getting yourselves in the right mindset early on means that you will continue with good practices year in, year out and minimise the likelihood of intervention from the tax authorities.
AUGMENTORS
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