Evidence required

Expenses incurred in producing income are deductible against income (see above for some examples), but employees must keep evidence showing the amount, date and nature of the expense where the total claim for expenses is more than $300. In other words, receipts or statements must be obtained from the supplier of the goods or services.

This documentary evidence is shown to the ATO only if it is requested, but without it the expense, even if it was legitimately incurred for an income producing purpose, is not deductible.

Individual expenses under $10

There is a trivia exemption. Documentary evidence of individual items costing less than $10, totalling $200 or less in the income year, is not required. A diary record by the taxpayer of these expenses is enough.

Total expenses over $300

If the employee’s expenses exceed $300 a year, the whole amount has to be substantiated; that is, the first $300 is not exempted from the substantiation requirements, although the trivia exemption still applies.

Old thresholds

The thresholds were set in 1986 and have not been altered since. It is interesting that over 6.5 million taxpayers made a claim for work related expenses in 1999-2000. The average amount claimed was $1200.

Relieving provisions

In the first few years of the operation of these provisions it became evident even to the ATO that they were too harsh, and there is now a relieving provision that gives the commissioner a discretion to dispense with the substantiation provisions if satisfied that the money was actually spent on some work-related expense.

In a ruling on this section (IT 2645), the ATO has made it clear that they regard it as applying only to a narrow range of situations, usually where the taxpayer either tried to comply but was prevented by events beyond their control, or failed to comply through ‘understandable inadvertence’.