Taxpayer slammed on (lack of) record keeping

The AAT has upheld the application of a 50% penalty to a taxpayer for ‘recklessness’ in claiming deductions that couldn’t be substantiated.


In the 2011/12 tax year, the taxpayer made the following claims for tax deductions in relation to his work as a car salesman:

  • work-related car expenses of $23,065;
  • work-related clothing and laundry expenses of $645; and
  • other work-related expenses, including phone expenses and a car dealer’s licence expense, of $10,605.

Following an audit, these were reduced to nil, $150 and nil, respectively, and the ATO also imposed a penalty of $6,092, being 50% of the tax shortfall of $12,184 (on the basis the taxpayer was ‘reckless’).

Reasons for Decision

The taxpayer claimed that his conduct was unintentional and that the penalty was unfairly imposed on him, being “more severe than would be imposed in a court if he had been convicted of criminal conduct”.

However, it was established during the trial that:

  • the taxpayer had not maintained a log book in relation to his claim for car expenses;
  • the car dealer’s licence expense was not incurred in the relevant financial year;
  • laundry expense records were not maintained (in any event, there was no requirement from his employer to wear specified clothing or shoes, and the taxpayer described his ‘work uniform’ as “merely whatever clothing he happened to be wearing on a particular day”); and
  • phone records indicated that the taxpayer had two mobile phones (one used by his wife), that the account included home internet charges and that non-work related international calls were included.

Therefore, the AAT was satisfied that the taxpayer was grossly negligent in claiming the deductions included in his tax return, and that his conduct was more serious than mere failure to take reasonable care, so the 50% penalty was appropriate.