Taxpayer denied deduction for work expenses of $60,000

The Administrative Appeals Tribunal (AAT) has confirmed that a mechanical engineer with a PhD qualification was not entitled to deductions for various work-related expenses of approximately $60,000 that he claimed in the 2014 tax year. This finding was made subject to certain minor deductions that the Commissioner conceded and several others the AAT allowed. The denied expenses in question were motor vehicle expenses (around $3,000), self-education expenses (around $48,000) and other work expenses (around $7,000).

Motor vehicle expenses

In relation to the motor vehicle expenses, the taxpayer claimed he was required to use his car to travel to meetings with clients and to visit sites, then continue with his work duties at home. He also claimed that he was required to carry “confidential and sensitive documents” to and from work and therefore was entitled to a deduction on this basis. However, the AAT found that the taxpayer did not prove his expenses were work-related rather than private in nature. The AAT noted in particular that the taxpayer’s employer did not “‘reference” any requirement for him to attend work-related client meetings or make site visits.

In respect of the taxpayer’s claim for motor vehicle expenses on the basis that he was carrying “confidential information”, the AAT found that, in fact, the information related to patents and other trade secret information which belonged to him and which had nothing to do with his employment or where he was studying. Furthermore, the AAT stated, even if he were carrying confidential information relating to his employer between home and work, he would not be entitled to claim a deduction for his motor vehicle expenses on that basis alone.

Self-education expenses

The taxpayer argued that the self-education expenses he had claimed (for physical products such as instrumentation equipment) related to an invention he was working on to license to another company, and that this was his own business or “industry”. In disallowing this claim, the AAT found the expenses had nothing to do with his employment or his university course and therefore there was no requisite connection with any income-producing activity. The AAT also noted that an engineer engaged in developing a device was not engaged in a business, and he had failed to substantiate some of the expenses.

Other work-related expenses

In relation to a range of miscellaneous work-related expenses the taxpayer had claimed (including mobile phone charges, internet costs, professional membership fees, conference fees and depreciation), the AAT found that virtually all were not properly substantiated in any way. Both the Commissioner and the AAT itself were not satisfied that a deduction should be allowed on the basis of the “nature and quality” of any other evidence regarding the incurrence of the expense pursuant to s 900-195 of the Income Tax Assessment Act 1997 (ITAA 1997).

Shortfall penalty

Finally, the AAT was not satisfied that the Commissioner had incorrectly decided to impose 25% shortfall penalties for failing to take reasonable care. It said this in view of, among other things, the fact that the taxpayer was a very knowledgeable and highly credentialed professional and academic, and the deductions he claimed were “significant” in contrast to his assessable income for the relevant year. Likewise, the AAT found there were no grounds for the Tribunal to exercise its discretion to remit any part of the penalty.

Re Vakiloroaya and FCT [2017] AATA 95, AAT, Ref No 2015/6422, Lazanas SM, 31 January 2017, http://www.austlii.edu.au/au/cases/cth/AATA/2017/95.html.

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