Deductions
Substantiation
Substantiation is the requirement to keep written evidence, such as receipts, logbooks and diaries, to prove certain deductions, especially work-related, car and travel expenses.
Substantiation refers to the records you must keep in order to claim certain deductions. The tax rules require that for many work-related expenses you hold written evidence showing what you spent and what it was for. If you cannot produce the evidence when asked, the ATO can deny the deduction even when the expense was genuine.
The type of evidence depends on the expense. For most purchases, a receipt or tax invoice showing the supplier, the date, the amount and a description of the item is the standard document. For car expenses you may need a logbook and odometer records, or a diary showing how you calculated kilometres. For longer periods of travel away from home, a travel diary can show your work activities.
There are some concessions. For small claims there may be a total threshold below which written evidence is not required for certain work-related expenses, though you still must have actually incurred the cost and be able to show how you worked out the claim. Those thresholds and allowance rates are reviewed, so check ato.gov.au for the current limits rather than relying on an old figure.
Substantiation also supports your GST position. To claim a GST credit on a purchase above $82.50 GST inclusive, you need a valid tax invoice, and invoices for $1,000 or more must also identify the buyer. A bank statement alone is generally not enough, since it does not show the supplier's ABN or the GST amount. Credits are claimed within four years of the due date for the BAS, so your records must remain available.
The general record-keeping period is five years. That runs from when the record was made or the transaction completed, or from the lodgment of the relevant return or BAS, whichever is later. Keeping digital copies is acceptable, as long as they are legible and can be produced. Accounting software that stores images of invoices makes this easier.
Common mistakes include relying on bank statements instead of receipts, losing paper receipts that have faded, and keeping records that do not show the business purpose. A short note on each receipt about why you bought it can help. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered electrician buys tools for $660 including GST and receives a tax invoice showing the supplier's ABN, date, description and GST amount. Because the price exceeds $82.50 GST inclusive, the invoice is needed. The GST credit is $660 / 11 = $60 and the deduction is $600. The electrician photographs the invoice into the accounting software and keeps it for at least five years.
Practical tips
- Photograph receipts and tax invoices immediately, since thermal paper receipts fade and are easy to lose.
- Add a short note about the business purpose to each record while you remember it.
- Do not rely on bank statements as proof, because they do not show the GST amount or supplier ABN.