Relying on bank statements for tax deductions? Think again
A businessman’s attempt to claim $48,000 in tax deductions for expenses including airfares, meals and overseas accommodation by relying on bank and credit card statements has been roundly rejected.
Brisbane-based William Smith took the matter before the Administrative Appeals Tribunal (AAT) earlier this year after the Australian Tax Office rejected all his expense deductions for financial year 2020.
Successfully claiming tax deductions without proper records is a high bar to reach. Simon Letch
From the outset, AAT member Lee Benjamin, who previously led complex tax litigation for the Australian government solicitor and worked as a tax specialist for law firm Gadens, suggested Mr Smith was in trouble.
“A taxpayer who does not obtain and retain appropriate records of his deductible expenditure faces an uphill battle to discharge their onus,” Mr Benjamin said. “There is little mystery or magic to it.
“The substantiation rules are one of the few areas of the income tax law that is easily understandable and well understood by most taxpayers – obtaining and retaining written evidence of work-related expenses, typically in the form a receipt, is a primary requirement for seeking to claim a deduction.”
Across hundreds of individual transactions, Mr Smith, an executive from the energy sector, claimed $12,700 for transport, $12,300 for meals and drinks, $13,300 for accommodation in Singapore and Melbourne, and $4500 for phone and internet expenses.
The ATO said Mr Smith’s furnishing of banks and credit card statements, diary entries and an accompanying spreadsheet explaining each expense did not satisfy substantiation requirements under Australia’s tax laws.
“At best, the statements only show payments were made to certain payees on the dates recorded and not the nature of the goods or services purchased,” the ATO said in submissions.
“For example, a payment to ‘Coles’ does not suggest that food was bought, given supermarkets sell a variety of goods (e.g. cat food, laundry detergent).
“Similarly, a payment to Officeworks says nothing about the nature of the items purchased (e.g., school supplies, arts and craft supplies, IT items). Likewise, a payment to an airline like Tiger Airways says nothing about the flight details (origin, destination or dates of the flights).”
Under examination, Mr Smith was asked about an expense for $275 at Aburiya Boat Quay, with counsel for the ATO Joshua Sproule asking if that was a restaurant.
“Boat Quay is the area in Singapore. Aburiya must be the restaurant,” Mr Smith responded. He went on to say the meal was probably with shareholders and likely involved alcohol. “I can’t recall, but I imagine so,” he said.
Asked about other claims at the Shangri-La Hotel, Mr Smith appeared defensive.
“I really can’t recall. This is, you know, we’re talking four years ago. I can’t recall every restaurant I went to and who I was with and whether I had alcohol,” he said. “I’m assuming that I – if it’s an evening meal, not if – not if it was lunch, if it was an evening meal, I would’ve had a glass of wine. But I just can’t recall who I was with at these meetings four years ago.”
Mr Benjamin was unpersuaded.
“Without wanting to labour the point, the absence of receipts means that, again, the tribunal is unable to verify that the goods and services were purchased on the dates that are mentioned in the bank statements.” he said.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Tax & super
Fetching latest articles