As the end of the financial year approaches, it's crucial to understand the substantiation requirements for claiming tax deductions on your 2024 tax returns.

Proper substantiation ensures compliance with Australian Taxation Office (ATO) regulations and maximises your allowable deductions.

Read below for a comprehensive guide on what you need to know about substantiation requirements for various deductions.

Why Substantiation Matters

Substantiation is the process of proving that you incurred an expense and that it qualifies as a deductible item under tax law. The ATO requires adequate documentation to support the claims made in your tax returns. Failing to provide proper substantiation can result in penalties and the denial of your deduction claims.

General Substantiation Requirements

For most work-related expenses, you must keep written evidence, which can include receipts, invoices, or bank statements. This documentation should include:

1. The name of the supplier
2. The amount of the expense
3. The nature of the goods or services
4. The date the expense was incurred
5. The date of the document

Specific Substantiation Requirements

1. Work-Related Expenses

These include expenses such as travel, uniforms, and tools. For these deductions, you generally need to keep:

- Receipts or invoices

- Travel diaries for overnight trips

- Written evidence for car expenses, including a logbook if you use the logbook method

2. Home Office Expenses

If you work from home, you can claim a deduction for home office expenses. There are two methods to claim these expenses:

- Fixed Rate Method: You can claim 67 cents per hour for running expenses. No receipts are required, but you need to keep a record of hours worked at home. If you make a claim using this method, then you cannot make a separate claim for phone, internet or stationery expenses.

- Actual Cost Method: You can claim the actual expenses incurred, such as electricity, phone, and internet. This requires keeping detailed receipts and records of work-related usage. The substantiation requirements for using this method have been explained in a previous article.

3. Motor Vehicle Expenses

If you use your car for work purposes, there are two methods to claim deductions:

- Cents Per Kilometre Method: You can claim a set rate per kilometre up to a maximum of 5,000 km. You don't need receipts, but you must be able to show how you calculated your work-related kilometres. The rate for the 2024 financial year is 85c per km.

- Logbook Method: You need to keep a logbook for a continuous 12-week period, detailing your work-related and personal travel. You'll also need odometer readings and receipts for fuel and other car expenses.A logbook can last for up to five years provided certain conditions are met.

4. Self-Education Expenses

To claim self-education expenses, the course must be directly related to your current job. Substantiation includes:

- Receipts for course fees, textbooks, and travel

- Evidence of the course being work-related

Digital Substantiation

The ATO accepts digital records, so you can store your receipts and invoices electronically. If the ATO requests them, ensure they are clear, legible, and easily accessible. Various apps are available to help you track and store your receipts digitally.

Tips for Effective Record-Keeping

1. Keep Records Consistently:

Regularly update your records to avoid a last-minute scramble at tax time and minimise the chance of missing any deductions.

2. Use Technology:

Leverage apps and software designed for tracking expenses and storing receipts.

3. Separate Personal and Business Expenses:

Maintain separate accounts or methods of payment for personal and work-related expenses to simplify tracking and substantiation.

4. Review ATO Guidelines:

Regularly check for updates on substantiation requirements on the ATO website.

If you are unsure about the substantiation requirements for any expenses you think you may be eligible for, please contact us so we can help you meet the requirements.