The act of showing something to be true, or of supporting a claim with facts.
- “The company produced receipts in substantiation of its claim”
- “The criticisms were without factual substantiation”
That’s all well and good… but what does this have to do with your accounting exactly?
The reason is simple: many tax deductions and rental claims require evidence to back them up now!
Many Australians claim work-related expenses on their tax returns, as well as rental claims. Unfortunately, not all of them are legitimate.
To ensure that all claims are legitimate and clamp down on potential tax evasion, the ATO requires evidence to substantiate all of your claims.
Do you need to hold onto your receipts? What sorts of records should you retain? Our personal accountants in Melbourne explain…
What records do I need to keep?
Basically, receipts for any expense that is eligible for a tax deduction!
Okay, maybe not all of them.
After all, some people incur a lot of expenses in the course of their employment which may be eligible for some form of deduction – who has enough time to make copies of every single receipt?
Luckily, substantiating evidence is only required in cases where the total work-related expense claimed on your tax return is greater than $300 in value.
Say you’re claiming:
- $200 for laundry
- $50 for petrol
- $100 for travel expenses
In this case, the total exceeds $300, meaning you will need receipts for everything.
This can include a range of different financial records such as payment summaries, bank statements, receipts, invoices, bank and credit card statements and more.
Some of the information your substantiating evidence will need to show include:
- Suppliers or vendor
- Value of the expense
- The nature of the good or service
- Dates the expense was incurred, as well as date of the invoice
Unsure what substantiating evidence you’ll need to hang onto? Don’t be afraid to consult a personal accountant in Beaumaris for advice!
How long do I need to hang onto it for?
Tax time has come and gone.
Your tax return has been successfully lodged – time to throw out all those receipts and invoices, right? Wrong!
In fact, you’re required to hang onto substantiating evidence for a period of 5 years afterwards.
Make an expense claim this year, and you may have to hang onto the invoice until 2025.
This is because the ATO occasionally retroactively audits previous tax returns. You’ll have to keep these documents just in case they decide to go over your tax return further down the line.
What happens if I don’t keep records?
Well, firstly your deduction claim is likely to be rejected outright.
In certain situations, a failure to substantiate may also result in you having to pay a fine for false claims – up to 75% of the value of the claim.
The ATO is quite strict when it comes to providing substantiating evidence – however, there are a handful of exceptions:
- The expenses incurred are covered by an allowance or stipend
- Your total expense claims for the year are less than $300 combined
- It was paid using a company card
What else should I be aware of?
If you aren’t familiar with the concept of depreciation, it essentially refers to how certain assets decrease in value over their useful lives.
As an example, look at your car and how its value decreases with age. This devaluation influences the book value of your car, which in turn impacts your balance sheet (specifically, your assets).
In some cases, this devaluation can in turn influence the deductions you’re eligible to claim.
On top of substantiating evidence surrounding the purchase of fixed and capital assets, you’ll have to keep a record of said asset’s depreciation schedule, as well as a record of its value over its useful life.
There are several accepted methods of calculating an asset’s decline in value (which you will also have to submit to the ATO). If you’re unsure which is best suited for your business, we suggest contacting a personal accountant in Melbourne for advice.
The usual suspects: what sorts of expenses need to be substantiated?
When it comes to fuel and travel expenses, you need substantiating evidence to prove that:
- The expense was work-related
- The expense is genuine
According to the ATO, what constitutes acceptable evidence (as well as deductible expenses) will vary depending on the individual circumstances, as well as the nature of the cost involved.
Confused? Be sure to consult with your small business tax accountant before sending your workers on a long trip.
Do you use your personal vehicle for work purposes?
If so, you may be able to claim deductions for car-related expenses incurred on your tax return.
When recording car-related expenses, there are two accepted methods of substantiating your claim:
- A fixed per/km rate (set at 68c per km at the time of writing)
- Logbook of business-related travel (including odometer readings and depreciation)
When tax time rolls around, be sure to ask your Melbourne accountant which method is best suited for your needs.
Paid for a uniform or mandatory PPE out of your own pocket? If so, you may be able to a deduction for the full value of the purchase.
This exemption only applies to:
- Protective equipment like steel-toed boots
- Workplace-specific uniforms
- Occupation-specific clothing like lab coats
- Purchases that aren’t covered by a stipend or allowance
Just like with business expenses, you’ll need to provide substantiating evidence in the form of receipts and credit card statements.
Confused? Contact our personal accountants in Melbourne
It’s a lot to take in, we know. You might be feeling confused and overwhelmed.
While new measures by the ATO have made completing your tax return a lot easier than in the past, many Aussies simply don’t have the time or energy to do it on their own.
You may be one of them. DIY taxes are hard enough already – add substantiating your claim to the mix, and it’s easy to see why tax time gets such a bad reputation!
You want to live without having to worry about whether you forgot to tick the right box, or if you’re missing out on a deduction that you’re entitled to.
We can provide that comfort.
For more than 50 years, we’ve been helping everyday Aussies like you with their taxes and financial affairs. In addition to filling out your tax returns, we’ll also help identify which deductions you qualify for, and assist with substantiating evidence.