Private ruling: Relief from substantiation – stolen tax records
Date of advice: 1 June 2018
Published: August 2018
Ruling period: Year ended 30 June 201Y
Date scheme commenced: 1 July 201X

Ruling: Q1: Will the commissioner allow you relief from providing records? | A1: Yes

Relevant facts and circumstances: Your tax records and laptop where stolen from your home in April 201Y. You reported the break in to your local Police. The police have failed to locate your tax records. The records relate to your self-education expenses while studying for your PHD. You have stated that most receipts and expenses were paid by cash and very little additional information can be obtained from sources such as your financial institution. You have a record of your expenses in MYOB and provided as a general ledger. The general ledger shows each expense, the amount and the method of payment. The general ledger was used to lodge your self-education expense claims on your income tax return for the year ended 30 June 201Y. You have attempted to get copies of receipts and invoices but the supplier has been unable to provide them.

Relevant legislative provisions: Income Tax Assessment Act 1997 division 900

Reasons for decision: Summary: Division 900 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the substantiation rules that apply to work expenses, car expenses and business travel expenses. Subdivision 900-H of the ITAA 1997 provides relief from the effects of failing to substantiate in certain circumstances. Section 900-205 of the ITAA 1997 allows relief if documents are lost or destroyed, subject to certain conditions. If a taxpayer has a complete copy of a document that is lost or destroyed during the retention period, it is treated as the original from the time of loss or destruction. If a taxpayer does not have such a copy, and the Commissioner is satisfied that the taxpayer took reasonable precautions to prevent the loss or destruction, the following rules apply: (a) if the lost or destroyed document was a travel record, log book or other document that is not written evidence of an expense under Subdivision 900-E of the Act, there is no need to replace it and any entitlement to a deduction is not affected by the failure to retain or produce the document; (b) if the lost or destroyed document was written evidence of an expense under subdivision 900-E of the ITAA 1997, an attempt should be made to get a substitute document meeting all the requirements applying to the original document, except for the time limit for getting that evidence: (i) if a substitute document is obtained, it is treated as the original from the time of the loss or destruction. Any entitlement to a deduction is not affected by the failure to retain or produce the original document; (ii) if it is not reasonably possible to obtain a substitute document, any entitlement to a deduction is not affected by the failure to retain or produce the document; (iii) if it is reasonably possible to get a substitute document, but it is not obtained, this section provides no protection from the consequences of failing to retain or produce the original. Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate provides guidance on circumstances in which relief from the effects of failing to substantiate may apply. Paragraph 23 of TR 97/24 provides that a bona fide attempt should be made to obtain a substitute document; or there were reasonable grounds for believing that such efforts would not be successful. Paragraphs 57 to 60 of TR 97/24 provide: 57. The taxpayer is expected to have evidence available to show that the loss or destruction has occurred and that reasonable precautions were taken to protect the documents, e.g., evidence that the taxpayer's home was burgled or burnt or that a locked car containing written evidence was stolen. 58. It is not possible to define what may be 'reasonable precautions' to prevent the loss or destruction of documents. However, if the circumstances of a particular case indicate that the loss or destruction of a document resulted from the taxpayer's carelessness or recklessness, this section does not apply to provide relief where the taxpayer does not have a complete copy of the lost or destroyed document. 59. It is also not possible to define what may be 'reasonably possible' in all circumstances in relation to trying to obtain a substitute document if the lost or destroyed document was written evidence under Subdivision 900-E of the Act. However, it is expected that a taxpayer show a bona fide attempt has been made to obtain a substitute document or, alternatively, that there were reasonable grounds for believing that such efforts would have been unsuccessful, e.g., if a supplier who provided the original written evidence has ceased trading and the whereabouts of staff and records are unknown. 60. In deciding whether a taxpayer has taken 'reasonable precautions' to prevent the loss or destruction of a document, or whether it was 'reasonably possible' to obtain a substitute document, each case must be considered on its merits. A common sense approach must be applied. From the information provided, a copy of your witness statement as proof that your receipts and laptop where stolen, a general ledger of your MYOB expenses with method of payment, and the fact that you have contacted the invoice suppliers who advised they cannot supply a copy of the invoices stolen is considered to have been reasonable means. In your case, the Commissioner is satisfied that you took reasonable precautions to prevent the loss of your records as they were locked in your house. As you have a record of each of the expenses, the amount and payment method recorded in your general ledger, as well as attempted to recover receipts from the suppliers it is considered that you have made a bona fide attempt to recover your documents. It would not be reasonably possible for you to obtain copies of your receipts. Therefore your deduction is not affected by your failing to retain or produce the original document pursuant to subsection 900-205(6) of the ITAA 1997.