ATO warning for work-related car claims

The ATO’s Assistant Commissioner, Kath Anderson, has issued a warning for taxpayers who are making what they may believe are “standard” deductions in regard to vehicle expenses, especially when it comes to the cents per kilometre method.

While it is true that written evidence for deductions based on up to 5,000 kilometres is generally not needed when making such claims, Anderson reminds taxpayers they must still have actually incurred these expenses:

They do need to be able to show that they were required to use their car for work, and how they calculated their claim.”

$8.5 billion in work-related car expense claims

For the 2015-16 income year, the ATO recorded a total of $8.5 billion in work-related car expense claims, with a “significant proportion”, it says, right at the limit that does not require detailed written records. The ATO is determined to limit what it can of this revenue leak.

Anderson says:

While we have no issue with people using the cents per kilometre method, and we expect that most claims at this threshold may be legitimate, but we are reminding people that there’s no such thing as a ‘free pass’ when it comes to deductions.”

The ATO provides information for taxpayers on work-related car claims, which may help explain the facts. It has also provided three case studies illustrating misapplied claims.

Example of an unreasonable deduction

A railway guard claimed deductions for car expenses in travelling to and from work, basing his claim on the fact that he carried bulky tools (including his flag, safety vest, handheld radio, torch, instructions, and timetables) in his car.

He attracted an audit because his deductions were much higher than those of other people in the same occupation. His employer advised us that secure facilities for equipment were available on the business premises, so the transportation of equipment was the employee’s choice.

For this reason, expenses relating to travelling to and from work are not an allowable deduction in this situation, and the taxpayer had to pay $2,000 for tax owed plus interest.

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