Background to Reid’s case
The pertinent facts of Reid’s case are outlined below.
- The taxpayer (Mr Reid) was employed as a ‘channel manager’ by two different employers for two different periods being:
- Amcom Pty Ltd (‘Amcom’) from 17 October 2011 to July 2015; and
- Metronode/Nextgen Group Holdings Pty Ltd (‘Nextgen’) from 7 December 2015 to 30 June 2016.
- During the 2017 income year, after receiving a default assessment for the 2013 income year, income tax returns were lodged for the 2012, 2014, 2015- and 2016-income years, shortly after which an ATO initiated audit commenced. The primary focus of the ATO audit was the taxpayer’s substantial WREs, including car expense claims and other WREs, including home office related expenses.
- The ATO subsequently reduced the taxpayer’s claims primarily due to insufficient substantiation, applying a tax shortfall penalty under S.284-75(1) of Schedule 1 to the TAA 1953 of 25% for failure to take reasonable care.
Car expense
- During the relevant period, the taxpayer owned a Mercedes Benz motor vehicle which he claimed to have used predominantly as a work vehicle, arguing a 91.21% business usage under the logbook method.
- The taxpayer claimed that he always had two vehicles, with the second vehicle being used primarily for personal travel. He produced a logbook (a result of a number of different spreadsheets he purportedly maintained) as evidence of the substantial business use of the relevant ‘work’ vehicle.
- His first employer, Amcom advised that the taxpayer was required to use his motor vehicle for work purposes and confirmed that he was paid an annual car allowance of $15,000 as compensation.
- The taxpayer claimed a total of $86,793 of car expense deductions under the logbook method over the four-year period in question.