The main issues before the Tribunal were:
- Whether Mr Reid was entitled to deductions for his work-related car expenses pursuant to the logbook method (rather than the cents per kilometre method).
- Whether Mr Reid was entitled to the other work-related expenses, particularly with respect to his home office.
- Whether it was appropriate that Mr Reid be liable to administrative penalties for the relevant periods at 25% of the shortfall amount for failure to take reasonable care.
Work-related car expenses
The Tribunal agreed with the ATO that there were multiple inconsistencies indicating the logbook entries were not made contemporaneously. This was primarily because they were not made at or as soon as possible after the end of the relevant journeys and that the entries were inconsistent with other documents and information provided by the taxpayer to the ATO.
Examples of the mistakes in the logbook that were highlighted in the Tribunal’s decision included:
- inconsistencies between the day of the week and the date;
- the same odometer readings were recorded for different dates;
- business journeys were recorded on days the taxpayer’s employer’s record indicated he was sick and on personal leave; and
- dates were repeated.
As a result, the Tribunal held Mr Reid was not entitled to use the logbook method because the purported logbook was not kept in accordance with S.28-125(2).
TAX TIP – Understanding the logbook substantiation requirements
Generally, a log book is valid for five years, being the income year, it is kept plus the next four years (e.g., if the log book was last kept in the 2015 income year, then a new log book will be needed for the 2020 year). Refer to S.28-115.
However, where there is a major change is an individual’s circumstances (e.g., they change jobs) the logbook may no longer be representative of their typical pattern of travel. As a result, it would be prudent to keep another 12-week logbook.
A log book must cover at least 12 continuous weeks throughout which the taxpayer held the car (or the entire period the car was held for less than 12 weeks) and may span different income years (i.e., a log book may overlap the start or the end of an income year as long as some of the log book period covers the year for which the claim is being made.)