If you are planning to claim higher than expected deductions during tax time this year then you may expect to come under the watchful eyes of the ATO.
Assistant Commissioner Graham Whyte announced the ATO’s ability to check out work-related expense claims has become more sophisticated due to updates in technology and the extensive use of data:
If we see a claim that appears to be unusual we will check it with the employer. Most people want to do the right thing, but we have seen mistakes, and even cases of people deliberately doing the wrong thing.”
Golden rules for making a work-related expense claim
Make sure your claims for work-related expenses are right by using the series of occupation guides or other general advice available on the ATO website. These guides help people in specific industries understand and correctly claim the expenses they may be entitled to.
Mr Whyte revealed three golden rules for you to consider when making a work-related expense claim:
You must have spent the money yourself and not have been reimbursed.
The expense must be directly related to earning your income.
You must have a record to prove your expenditure.
Tools to help with your tax deduction
myTax – your claims are compared with the claims of taxpayers in similar occupations and with similar income, giving you a real-time warning if your claims are unusually high in comparison.
myDeductions tool in the ATO app – lets you record your expenses without having to worry about lost or faded receipts and can be uploaded to myTax or your registered tax agent for your next tax return.
7 lessons from other taxpayers claiming dodgy deductions this year
Lesson 1: Make sure your claims are justified
A dairy farm employee claimed deductions totalling almost $19,000 including expenses for travel, tractor hire, tools and safety gear, internet and phone.
When the ATO spoke to his employer, they said the employee’s duties involved milking cows and changing irrigation. He was provided free rent in a house beside the farm where he worked and he was not required to travel elsewhere for work purposes.
The employer also provided a tractor, although the employee didn’t need to use it to undertake his duties. The employer confirmed that the employee was not required to use his mobile phone or internet for work purposes and that he was provided with all the tools and work gear he needed to undertake his duties.
The employee’s deductions were disallowed in full. The ATO educated him about his entitlements and warned him to undertake proper inquiries before making claims in future.
Lesson 2: Make sure you weren’t reimbursed already
A business analyst who travelled between Shanghai and Australia for work, claimed over $46,000 in travel expenses. When asked to substantiate his claims, the analyst produced receipts for rent, meals, laundry, phone, taxi and train travel expenses while in Shanghai.
When ATO contacted the employer, they were advised that this employee was reimbursed for the cost of all his meals, accommodation and travel within Australia and internationally.
The analyst’s claims were disallowed on the basis that the expenses were private, incurred while he was at home in Shanghai, between trips to Australia for work.
Lesson 3: Make sure your are getting good advise
A tiler lodged his tax return using a registered tax agent and claimed over $4,000 in deductions relating to his car (based on transporting bulky equipment), travel and tools.
To verify the tiler’s car claims, the ATO contacted his employer who confirmed that he was not required to transport any equipment to work that would be considered bulky – just a few pencils and a utility knife. The employer also advised that secure lockers were provided at the work site to store tools.
When asked to provide records of the travel and tools expenses, the tiler produced receipts for car parts, and receipts for all-day parking at the same workplace (not for travel between different work sites or jobs). The tiler’s claims for purchasing tools, carrying bulky equipment and car parking were disallowed because they were private expenses, not directly related to earning his income.
His tax agent was reminded to undertake proper enquiries to determine his clients’ eligibility to deductions and has since improved his business practices.
Lesson 4: Make sure you have evidence to support your claim
A sales consultant for a motor dealer claimed over $11,000 for car expenses, $3,000 for clothing expenses and almost $24,000 for other work-related expenses. When asked to provide evidence to support her claims, it became apparent that she had overstated her car claims and falsely claimed clothing expenses, including costs for underwear and everyday work wear. The sales consultant produced receipts for personal items including perfume, gift hampers, pillows and movie tickets.
After discussion with the ATO, she agreed to reduce her clothing expense claims to nil. Her car expenses and other expenses were substantially reduced and she was asked to pay a tax shortfall of over $8,000 plus penalties.
The ATO reminded the tax agent of the requirement to verify work-related deduction claims and ensure appropriate record keeping practices.
Lesson 5: Make sure your claims are related to your work
A computer network engineer claimed over $4,000 in deductions relating to car, travel, clothing and other work-related expenses, as well as the cost of managing his tax affairs.
When queried, the engineer told the ATO he travelled interstate for both work and private purposes, his clothing expenses were for the purchase of general business attire and his claims for managing tax affairs related to managing the family trust.
The engineer’s claims were disallowed by the ATO because they appeared to be of a personal nature and he was unable to substantiate his claims with written evidence.
The ATO educated the engineer about his entitlements and record keeping obligations. He was grateful for the advice, agreeing to amend his tax return and be more careful in future years.
Lesson 6: Make sure what is and isn’t deductible
A factory meat processing worker claimed $12,800 in deductions including expenses for car, travel, clothing, meals, safety gear, tools and equipment. He also claimed deductions for gifts and donations, and the cost of managing tax affairs.
When the ATO requested evidence of his work-related travel, clothing and other expenses, the worker was unable to produce receipts to substantiate his claims. He advised the ATO that he did not keep receipts for any of his expenses, with the exception of the donations which were automatically deducted from his pay.
When ATO contacted his employer, they were advised that the worker was not required to travel for work purposes, either daily or overnight. The employer also stated that all protective gear and tools required to perform his duties were supplied by the company.
The worker’s deduction claims were disallowed except for the gifts and donations which he was able to verify. The ATO advised the worker that travel between home and work, and meals consumed during normal work hours are considered private expenses and are not usually deductible.
Lesson 7: Make sure you backup your data
A soldier from Canberra claimed $1,500 for self-education expenses and $5,000 for gifts and donations. When the ATO requested evidence to substantiate these claims, the soldier said all his receipts were stored as images on his tablet, which had fallen into his child’s bathtub and no longer worked.
We reminded the soldier to keep a backup of any receipts related to future claims. There is an option available in the myDeductions tool. We highly recommend you regularly backup your data in case you can no longer access data on your device – for example, if you lose your phone.
