Private ruling: substantiation requirements
Published: January 2014

Ruling: Do your bank statements satisfy the substantiation requirements in respect of the completed and proposed works? | Answer No | Will the Commissioner conduct an inspection of the property to confirm the value and completion of the works? | Year ended 30 June 2008 Year ended 30 June 2009 | Year ended 30 June 2013 | Year ended 30 June 2014 | 1 July 2007 | In the recent year you purchased three properties. | You procured the services of a builder to make improvements and initial repairs to the properties. | You did not receive any invoice or written documentation in respect of these works or the payment of the amounts. | You assert the payments made to the builder are reflected in a number of withdrawals contained in your bank statements. | In the particular year X you purchased one unit and undertook improvement work to the property. The builder did not provide you with any invoice or written documentation for these works. You paid the amount due in cash. | You estimate that in a few years you will deal with these issues again. | Income Tax Assessment Act 1997 Section 25-10. | Income Tax Assessment Act 1997 Subsection 25-10(3). | Income Tax Assessment Act 1997 Section 121-20. | Income Tax Assessment Act 1997 Subsection 121-20(1). | As the works described are capital in nature, given they are initial repairs or improvements, the relevant substantiation provisions are contained in Division 121 of the Income Tax Assessment Act 1997 (ITAA 1997). | Section 121-20 of the ITAA 1997 provides that you must keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether you have made a capital gain or loss from a CGT event. | Subsection 121-20(1) of the ITAA 1997 outlines that when you dispose of a CGT asset, the records that are relevant to working out your capital gain or loss includes records of when the asset was acquired; the date the asset was disposed of; records of each element of the cost base and reduced cost base and the effect of indexation; and the amount for which the asset was sold. | If you have acquired assets on or after 20 September 1985 and have not been able to obtain records such as a receipt, you can still do something about it. Subsection 121-20(5) of the ITAA 1997 states that if the necessary records of an act, transaction, event or circumstances do not already exist, you must reconstruct them or have someone else reconstruct them. | For example, | The reconstruction of records for capital improvements and renovations including construction costs can be done by requesting receipts for payment from the builders who completed the work or by getting a quantity surveyor to provide a reasonable estimate of the cost of the work completed. | Taxation Ruling TR 97/25 discusses where it is not possible to establish the actual cost of capital improvements to a property. In these cases a valuation estimate by an appropriately qualified person would be accepted. An appropriately qualified person would have expertise in calculating these capital costs and would be likely to be accepted by a court or tribunal as an expert in the relevant field. | An appropriately qualified people might include: | · a clerk of works, such as a project organiser for major building projects; | · a supervising architect who approves payments at each stage in major projects and who may approve individual payments to subcontractors in smaller projects; or | · a builder who is experienced in estimating construction costs of similar building projects; | · a quantity surveyor, who has expertise in the relevant type of construction. | The question of whether a person has the required expertise is an issue of fact in each case. | If you do not have records of transactions, or are unable to have them reconstructed, you cannot include that amount in the cost base of the property. | In your case you have a bank statement as evidence that you paid an amount of for improvements in the recent year. You have no records for the work carried out in the particular year X. | This is not sufficient substantiation to claim a deduction as it simply evidences an amount was withdrawn from your account. The bank statements do not provide any other details of the works which were carried out. Accordingly the bank statements do not satisfy the substantiation requirements as detailed above. | In respect of your request for the Commissioner to inspect the property to confirm the value and completion of the works, there is no relevant tax provision which enables the Commissioner to perform such an inspection.