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Penalty for unsubstantiated work-related deduction claims

The AAT has recently affirmed a decision of the Tax Commissioner to impose a penalty on an individual equal to 50 per cent of the tax shortfall .....

... amount arising from deduction claims for work-related expenses that were unsubstantiated.

The taxpayer made claims as a car salesman for work-related expenses of $30,000 plus for several years. The Tax Commissioner determined that most of the claims were unsubstantiated and imposed a penalty of approximately $6,000, representing 50 per cent of the tax shortfall of the 2012 year.

The individual did not dispute that the claims were unsubstantiated, but argued that the penalty was severe and that he was unable to pay all of the penalty. The AAT noted, among other things, that the individual did not retain invoices or receipts, or provide satisfactory evidence to substantiate the claims. The AAT was of the view that the individual's conduct was more serious than mere failure to take reasonable care, and held that the penalty imposed was appropriate.

It is not clear if the other years were also subject to penalties – if not the taxpayer may have got off lightly!

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