David Schlottmann and Commissioner of Taxation
[2013] AATA 750
[2013] AATA 750
Division TAXATION APPEALS DIVISION File Number
2012/3877
Re
David Schlottmann
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Dr P McDermott RFD, Senior Member
Date 22 October 2013 Place Brisbane The objection decision is set aside, in so far, as it relates to the use of the Toyota Yaris and the objection decision is remitted to the Commissioner with the direction that the applicant should be allowed a deduction for the use of the Toyota Yaris under the cents per kilometre method in accordance with the reasons of this Tribunal, together with any necessary adjustment to penalty and interest. The objection decision is otherwise affirmed.
.................................[Sgd].......................................
Dr P McDermott RFD, Senior Member
CATCHWORDS
INCOME TAX – Claims for unsubstantiated deductions – Expenditure not incurred in gaining or producing assessable income – Tax shortfall – Objection decision set aside in part and affirmed in all other respects
LEGISLATION
Income Tax Assessment Act 1997 (Cth) ss 8-1, 28-25, 28-100, 28-150, Subdivs 28-F, 900-C
Income Tax Assessment Regulations 1997 (Cth) Sch 1
CASES
Handley v Federal Commissioner of Taxation (1981) 81 ATC 4165
SECONDARY MATERIALS
Taxation Ruling TR93/30
REASONS FOR DECISION
Dr P McDermott RFD, Senior Member
22 October 2013
INTRODUCTION
Mr Schlottmann, the applicant, has lodged an income tax return for the 2009/2010 income year (“the relevant period”). On 9 December 2011, the Commissioner of Taxation (“the Commissioner”) notified the applicant that he had disallowed the deductions for work related car expenses, work related clothing expenses and other work related expenses that were claimed in the applicant’s income tax return. On 19 December 2011 the applicant was issued with a notice of amended assessment and a notice of assessment of shortfall penalty, which detailed a shortfall interest charge and an administrative penalty, respectively. The applicant has objected to the disallowance of part of the claimed deductions in relation to work related car expenses and other work related expenses. This objection was rejected and the applicant now seeks review of that objection decision by this Tribunal.
AMOUNTS IN DISPUTE
I have to determine whether the following amounts in dispute (as stated in the objection) are properly deductible under income tax law:
(i)$10,104.00 for work related car expenses; and
(ii)$6,497.00 for other work related expenses.
I appreciate that the applicant claimed higher expenses for work related car expenses and other work related expenses in his income tax return. The case of the applicant was based upon the claims made in the objection and he did not seek leave to raise any claims not stated in the objection.
The applicant was available for questioning by the respondent. However, the applicant, who was represented by his tax agent, did not give any evidence in support of his claims before he was questioned on behalf of the Commissioner.
ISSUES
The issues therefore are whether:
(i)a deduction should be allowed for work related car expenses; and
(ii)whether a deduction should be allowed for other work related expenses for the relevant period.
Each of these claims will be separately considered:
Work Related Car Expenses
In his income tax return the applicant claimed work related car expenses of $12,983.00. In his objection the applicant claimed $10,104.00.
The claim of the applicant is based upon the use of two cars, a Toyota Yaris and a Mazda 6.
Where deductions are sought for business travel involving the use of a car the amount of the deduction is determined in accordance with Division 28 of the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997”). Under this Division there are four different methods for claiming car expenses: the cents per kilometre method, the 12% of original value method, the one-third of actual expenses method and the log book method.
One matter that has to be determined is the business use of the Toyota Yaris. In the income tax return the applicant claimed business use for the Toyota Yaris.[1] In his income tax return he states that a log book was kept for this vehicle. The applicant in giving evidence stated that he maintained a log book for the Toyota Yaris, but handed that log book to his employer for the purpose of claiming car expenses. He has failed to substantiate his claim as required by s 28-100 of the ITAA 1997. As such there is no evidence that the log book complied with Subdiv 28-F of the ITAA 1997. The applicant has claimed that his use of the Toyota Yaris was predominantly for business use. The applicant in his income tax return has claimed 17,150 business kilometres and that he has 98% business use as shown in the log book, although the applicant has not retained the log book as required by s 28-150 of the ITAA 1997.
[1] Exhibit A, T-Document 5, p. 31.
During the hearing the Commissioner conceded that the applicant should be allowed a deduction for the use of the Toyota Yaris for business use under the cents per kilometre method. However, this method is only available for the first 5,000 business kilometres travelled. Based on 63 cents per kilometre, having regards to the engine size of the car,[2] multiplied by the maximum number of business kilometres which can be claimed (the first 5,000), the applicant would be entitled to a deduction of $3,150.00.[3]
[2] See Sch 1 of the Income Tax Assessment Regulations 1997 (Cth).
[3] See s 28-25 of the ITAA 1997.
I have to consider whether a deduction should be allowed for the use of the Mazda 6.
The applicant in his income tax return claimed 4,852 business kilometres and that he has 33% business use as shown in the log book, although the applicant has not kept a log book as required by Subdiv 28-F of the ITAA 1997. The applicant in giving evidence confirmed that a log book was not kept for the Mazda 6. The tax agent in his letter of 11 September 2011 has also confirmed that a log book was not kept for the Mazda 6.[4] I do not consider that there should be any deduction for car expenses under the log book method where there is no substantiation of expenses as required by Subdiv 28-F and Subdiv 900-C of the ITAA 1997. The applicant in giving evidence remarked that he “was not travelling that much in the Mazda” and that the car was “predominantly used for family”. Having regard to these statements I do not consider that any deduction of car expenses for the Mazda 6 is warranted under the cents per kilometre method. Certainly there is no basis for a deduction under the one-third of actual expenses method which has now been claimed by the applicant or the 12% of original value method. This is because there is no evidence that the car travelled more than 5,000 business kilometres during the year as required under these methods.[5]
[4] Exhibit A, T-Document 7, p. 43.
[5] Exhibit A, T-Document 7, p. 96.
Other Work Related Expenses
In his tax return for the relevant period the applicant claimed other work related expenses of $13,785.00. The objection of the applicant contends that the applicant should be allowed a deduction of $6,497.00.[6] I have earlier mentioned that the applicant did not give any evidence in support of his claims before he was questioned on behalf of the Commissioner. I am not satisfied that the applicant has discharged the onus of proving that this expenditure was incurred in gaining or producing his assessable income in accordance with s 8-1 of the ITAA 1997. I do not consider that the applicant should be allowed any part of this claim.
[6] Exhibit A, T-Document 5, p. 22.
I have dealt with all of the other work related expenses that were claimed as deductions, and which remain matters of contention,[7] separately below.
[7] See Exhibit E, Para 7 and Attachment A.
The applicant claimed $76.94 for motivational books. At the hearing the applicant contended that he should be allowed a deduction of $53.95 for a purchase of books that was made at a time when the applicant was unemployed. The tax agent of the applicant submitted that every professional salesperson has to read and listen to motivational books and tapes, respectively. The applicant, in giving evidence, remarked “it’s unfortunate that we didn’t keep a record of the name of the book and that’s all I can say on that”. I cannot be satisfied on the evidence before me that this expenditure is related to his employment.
The applicant claimed a total of $878.55 for gratuities, some were purchased at a time when the applicant was unemployed. One gratuity which was claimed as a purchase turned out to be a refund (see, eg, Diva, 11 April 2010, $39.98). At the hearing the amount in dispute was said to be $663.65, this claim for gratuities was reduced to $566.00. The applicant was extensively cross-examined on various purchases and was unable to give evidence as to who the various gratuities were given to. For example, the applicant was questioned about a purchase on 16 October 2009 from Coast Country for the sum of $39.99. The applicant stated he would “assume that it’s some sort of alcoholic beverage, whether it be champagne or something”. Another example of what was said to be a gratuity was the purchase on 2 February 2010 of a tote bag from the Colorado Bag Company. When the applicant was asked who was given the tote bag the applicant replied: “I don’t know”. There is, in my view, no evidence to establish why the applicant should be allowed a deduction for any of the purchases of what were claimed to be gratuities.
The applicant claimed a total of $270.21 for printing and stationery. The items that were claimed include the purchase of a jigsaw puzzle and drink a trainer. Some items were purchased at a time when the applicant was unemployed. The applicant reduced his claim to $170.10 but there is no evidence before me as to why the applicant should be allowed a deduction for these items.
The claim of the applicant for postage of $21.35 was reduced to $11.45 taking account of purchases which were made when the applicant was unemployed. The applicant was asked about an expense for postage which was incurred at a time when the applicant was employed, the applicant was unable to advice who was the addressee of the mail. There was no evidence to prove that the expenditure on postage by the applicant is related to his employment.
The applicant claimed a total of $388.00 for telephone calls on the basis that 53% of the cost of telephone services of $733.03 should be allowed as a deduction. At the hearing the applicant reduced this claim to $298.00 to take into account the times when he was unemployed. There is no cogent evidence as to why these telephone calls were related to his employment. There are no records, such as diary notes, to indicate the purposes of the calls. In giving evidence he was unable to say why particular telephone numbers were called by him. One telephone number that the applicant claimed to be a business number was in fact the telephone number of a local preschool that his children had attended.
The applicant claimed a total of $737.00 for the internet, which was reduced to $572.00 at the hearing. There was no evidence given as to why this claim was related to his employment.
The applicant has claimed a total of $1,133.00 for depreciation of various items of expenditure. There is no basis for these items to be claimed as a deduction. The applicant did not give any cogent evidence as to why the various items were needed in his employment.
The applicant claimed a deduction of $199 for the purchase of computer software at a time when he was unemployed. The applicant did not give any cogent evidence as to why the purchase of this software is related to his employment.
A considerable part of the other work related expenses that were claimed as a deduction relate to a home office that was kept by the applicant for his employment. In making claims for home office expenses the applicant claimed 2/8 of the total cost of home expenses, this proportion is said to be based upon the floor area of the home office and garage. There was no evidence of the actual floor area of the home office or garage. In my view the claims for these expenses cannot be allowed as a deduction. There is a long standing decision of the High Court of Australia which concerned claims by a barrister who had a home study as well as chambers in town. His claim for deductions for interest paid on his home, as well as rates and insurance premiums relating to his home were disallowed on the basis that the expenditure was private or domestic in nature: see Handley v Federal Commissioner of Taxation (1981) 81 ATC 4165; TR93/30, Para 14. In my view the expenses relating to the home office of the applicant is also of a private or domestic nature.
Reliance was placed upon TR93/30 for the deduction of what was said to be home office expenses. Certainly that tax ruling recognises that a taxpayer can claim a deduction where part of the home is either set aside exclusively to carry out a business or forms a taxpayer’s sole base of operations for income producing activities.[8] However this is not the case here. During the relevant period the applicant was employed by three different employers. The terms of the employment contracts that the applicant had with all three employers required the applicant to work from the business premises of each employer.[9] The applicant did not provide any evidence from any of these employers to contradict these documents. The fact that the applicant chose to work from home can be regarded as a matter of convenience rather than a requirement of his employment. There is in my view no basis for the applicant to be allowed a deduction for expenditure relating to his home.
[8] TR93/30, Para 4.
[9] Exhibit A, T-Document 7, pp. 60-76; and Exhibit C, Supplementary T-Document 4, p. 449.
The applicant claimed a total of $6,739.73 for home loan interest. This amount being 2/8 of the total interest of $26,958.90. At the hearing the applicant modified the claim to take account of the period of unemployment by reducing the claim to $2,074.00. I do not consider that there is any basis for the applicant to be allowed a deduction for this interest, which is a private or domestic expense.
The applicant claimed $469.68 for council rates and $282.07 for water rates, these amounts being 2/8 of the actual charges. I am not satisfied that the applicant should be allowed a deduction for his council rates and water rates as well as his rubbish removal charges of $279.00 (which were reduced to $214.00) as these are of a private or domestic nature.
I would not allow the cost of $562.00 (being a proportion of $1,716.07) for heating and lighting. There was no cogent evidence before me to justify this deduction. Quite typically under TR93/30 modest amounts are allowed for this expense, but this is not appropriate in the applicant’s case.
The applicant claimed the cost of $275.00 as being 25% of the total amount that was paid for the insurance of the home and its contents. Even if this amount is reduced to $137.00 to take into account the periods that the applicant was not employed, these expenses are of a private or domestic nature and are not deductible.
The applicant claimed a total of $150.00 for what was said to be the cleaning of the home office. At the hearing the applicant contended that expenditure of $155.00 on these items could be substantiated. I do not consider that there is any basis as to why any of these items of expenditure should be allowed. There was certainly no suggestion that clients visited his home. I also note that some of these items were purchased at times when the applicant was unemployed, eg, 11 November 2009, 15 November 2009, 21 December 2009, 29 December 2009 and 5 January 2010. In giving evidence the applicant admitted that he would purchase dishwashing powder irrespective of whether or not he was employed. There is no basis for why the expenses for cleaning of the home office should be allowed as deductions.
The applicant claimed $47.50 for pest control, which was reduced to $36.44. This claim occurred at a time of unemployment and would appear unrelated to his employment.
The applicant claimed $52.80 for “carpentry” which included a power tool holder, screws, turf grass, a tape measure, etc. This amount is 2/8 of the cost of these items. The applicant did not give evidence of why these items of expenditure are related to his employment. I do not consider that the applicant should be allowed a deduction for these items of “carpentry”.
The applicant claimed $356.05 under the heading of “equipment”. At the hearing the applicant abandoned claims for items valued at $17.80 and $6.13. The applicant did not give any cogent evidence as to why the items of “equipment” are related to his employment. I do not consider that the applicant should be allowed a deduction for the purchase of “equipment”.
No reason was put forward to disturb the imposition of an administrative penalty and interest. However, these amounts will need to be adjusted on a pro rata basis to accommodate the allowable deduction for the Toyota Yaris as discussed above. During the hearing the applicant conceded that claims were made in respect of expenditure that was made at a time when the applicant was unemployed.
DECISION
34. The objection decision is set aside, in so far, as it relates to the use of the Toyota Yaris and the objection decision is remitted to the Commissioner with the direction that the applicant should be allowed a deduction for the use of the Toyota Yaris under the cents per kilometre method in accordance with the reasons of this Tribunal, together with any necessary adjustment to penalty and interest. The objection decision is otherwise affirmed.
I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of
Dr P McDermott RFD, Senior Member...............................[Sgd].........................................
Associate
Dated 22 October 2013
Dates of hearing 15 August, 12 September 2013 Advocate for the Applicant Mr David McNeice Solicitor for the Respondent Ms Alice Liang, Australian Taxation Office
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