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Avoid having troubles with the ATO – Tips to substantiate claims for online purchases

Given the ATO has access to so much information, this serves as a timely reminder for businesses who purchase tax deductible assets from peer to peer websites such as Gumtree, Trading Post or on Facebook groups.

To help you avoid having troubles substantiating your claims with the ATO, we’ve listed below tips on how you can prove such deductions.

Ensure that you have a written document to authenticate the purchase.

Ideally, you must secure a document that proves that such a purchase took place. The written evidence should set out:

• The name or business name of the supplier;
• The amount of the expense expressed in the currency it which it was incurred;
• The nature of the goods or services;
• The day the expense was incurred; and
• The day it is made out.

Note that there are two exceptions to these requirements:

• A bank statement or other reasonable independent evidence showing that the item was paid must be submitted, the document must show the day the expense was incurred.
• You may write the missing details before lodging your returns for the income year, if the supplier did not specify in the document the nature of the goods and services.

Prepare a document for the vendor to sign.

Some vendors on these platforms are individuals who are just getting rid of stuff they no longer need and not running an actual business, therefore, they may not be ready to provide the document that you need.  One way to go about this is to prepare the document containing all the details yourself and then have the vendor sign it.

If, however, the vendor does not want to provide related details, such as their address, both you and the seller should countersign a document stating where the deal took place, as well as the date and time it happened.

Keep related transaction receipts.

Any receipt or document related to the transaction (e.g. a receipt from the café where the deal took place, bank receipt of the withdrawal near the time of the transaction with the similar amount paid to the vendor) may help in substantiating the claim.

Take screen shots or photos to support your claims.

Other files that may support such deductions could be a screenshot of relevant messages between you and the seller, an advertisement of the item/s being sold, or photo evidence of the exchange of goods and money.

It can be quite tricky ensuring that you have the right documents to prove your claims. If you need any assistance or have any questions when lodging your returns, please contact McKinley Plowman tax accountants by clicking here.

written by:

Nigel Plowman

Prior to forming McKinley Plowman, Nigel specialised in management consulting and international accounting, enjoying success in Australia and in the United Kingdom. His extensive experience in management consulting, international accounting and innovative tax structures has been a major driver in the success of McKinley Plowman as well as the many businesses he has steered towards new levels. Nigel is dedicated to fast-tracking his client goals with cutting edge tax and business strategies. He is a member of the CPAs and the Taxation Institute of Australia and enjoys developing tax strategies that work well here and around the world.