Genuine work-related expenses are generally deductible under Australia’s tax law. However, data cross-matching is making it easier for the ATO to detect incorrect expense claims. Particularly under scrutiny this year are work-related deduction claims that relate to:
-vehicles, including those used to transport bulky equipment;
-travel, internet and mobile phones, and
-self-education.
The ATO has also highlighted the following areas where mistakes are commonly made:
-making claims for home office, mobile phone and computer expenses without any evidence to support how private and work-related costs have been apportioned;
-incorrectly claiming travel between home and work as a work-related expense; and
-receiving a travel allowance and claiming the full amount without actually having spent that much.
Golden rules of claims
Here are the ATO’s three golden rules to help make sure you’re claiming only the deductions you’re entitled to:
1.You must have spent the money yourself. This means you can’t claim any amount that your employer paid for you (for example, when your employer pays for training) or that you paid but your employer reimbursed.
2.Your claims must be for expenses directly related to earning your income.
3.You need to keep records to prove that you paid all of the amounts you claim.
While you don’t need to actually show receipts up front for standard claims up to a total of $300, you must be able to show how you worked out your deductions if the ATO asks.
The ATO will also keep reviewing claims for work-related expenses that it considers excessive, and will contact employers to verify “unusual” claims from their employees.
Here are some recent tax cases and ATO examples of what can’t be claimed as work-related deductions. If you’re not sure about what items and amounts you can claim, talk to us – we can help make sure that the amounts in your tax return are supported by evidence and acceptable for your situation.
Recent cases
Car expenses: transporting bulky equipment
In the recent case Re Rafferty and FCT [2017] AATA 636, a taxpayer was denied a deduction for the costs of transporting equipment to and from work. She claimed a deduction of $22,147 for work-related car expenses, arguing that she was required to carry bulky tools and equipment (protective clothing and equipment provided by her employer; shirts and trousers) to and from work to clean and store them. The Administrative Appeals Tribunal (AAT) agreed that it was not necessary for the taxpayer to take home her hard hat, safety glasses, hearing protection or headlight to clean them. The overalls were laundered by her employer, the shirts and trousers could not be considered bulky and the storage facilities at the taxpayer’s workplace were adequate and secure. Her claim for the amount was therefore not supported and the AAT agreed with the ATO’s decision to deny the deduction. The Commissioner imposed an administrative penalty of 25% of the tax shortfall.
Travel expenses: claiming travelling companions’ expenses
The interesting case Re WTPG and FCT [2016] AATA 971 highlighted issues with claiming travel companions’ expenses. The taxpayer, who had disabilities, had his wife accompany him to conferences overseas and claimed her travel costs as a work-related deduction. The taxpayer’s wife had accompanied him as a carer because his employer did not provide one. The ATO had ruled that his wife’s travel expenses were not directly related to the taxpayer’s income-producing activities, so couldn’t be claimed. The AAT agreed with that ruling.
ATO examples
Car and uniform expenses
A real estate agent claimed work-related motor vehicle and work-related clothing, laundry and dry-cleaning expenses. During the audit process he provided allegedly false tax invoices from a commercial car wash and dry cleaner to support his deduction claims. The real estate agent was prosecuted; he pleaded guilty and was fined $4,000.
Mobile phone expenses
A labourer claimed $1,200 in other work-related expenses for use of his mobile phone. The labourer told the ATO they used their phone at work to keep in touch with their co-workers but did not have records to show this usage. When the ATO spoke to the labourer’s employer, they were told the labourer was not required to use their mobile phone as part of their duties. The ATO accepted that the labourer may have occasionally used their mobile phone for work purposes and allowed a claim of $50 for the year.
Self-education expenses
A retail sales assistant claimed a deduction for self-education expenses of $5,165 for course fees relating to a Bachelor of Arts degree. As the degree did not directly relate to the assistant’s current job, and there was no requirement to undertake further education, the claim was disallowed.
False claims
An insurance broker claimed work-related expenses of over $65,000 in his tax returns. As well as car expenses, he claimed expenses for entertaining clients. When asked to prove his claims, he provided receipts for significantly less than the amounts claimed. Many of the receipts were for meals on weekends and with his family, and personal expenses such as school fees and pool supplies. When the insurance broker’s vehicle logbooks were compared with other data held by the ATO, it became apparent that they were fabricated. The insurance broker’s claims were substantially reduced and he was penalised for making false statements in his returns. He was found liable for tax, penalties and interest of over $75,000.
