The most common mistake committed by taxpayers on their tax returns is claiming deductions based on myths. Most of these erroneously calculated claims stem from heeding advice from well-intentioned family and friends. Several taxpayers claim deductions for their purchase of handbags and gym memberships, both of which have stringent requirements as to the connection with the taxpayer’s production of assessable income. So, this tax time, let’s help you brush up some facts and bust some myths!
Handbags (or briefcases or satchels)
According to the ATO, the cost of your handbag can be claimed as a deduction when this handbag is used predominantly for work – carrying workpapers, diaries and electronic devices (that are also used for work).
Solely private use of the handbag is not deductible as it is not related to you producing your assessable income. This includes carrying your lunch, beauty and hygiene products. When the bag is used for both private and income-producing purposes, the amount of the deduction may be based on the amount of time you use the bag for work purposes.
For bags costing up to $300 and used for work purposes, the amount can be claimed immediately. For bags costing more than $300, the claim needs to be worked out using its effective life.
A 12-week logbook of the handbag use detailing the length of time and type of use of the bags would come in handy when working out your deduction and if the ATO audits your return.
Most people like to keep fit, but this is not enough reason for the ATO to allow them to claim this as a deduction. The basic principle, as always, is that a connection between your income production activity and the expense should be strong to constitute a tax deduction.
Although you might be employed to undertake physical activity and maintain a high standard of fitness such as a PE teacher, police officer, firefighter or a model, the ATO generally says gym memberships for these occupations are private in nature. Only a small number of people can show this income-expense link clearly (e.g., special operations in the Australian Defence Force).
Despite this perceived drawback for most taxpayers, other items can be claimed in relation to their fitness industry such as clothing, fitness equipment, business-use of car, travel and self-education expenses.
Further things to think about
When working out expenses to be claimed as deductions, there are three golden rules that taxpayers should abide by:
- You spent your own money (and were not reimbursed by your employer).
- The spending should be directly related to your ability to earn you current income. If mixed with private use, it is possible to apportion the expense to work use and private use.
- There must be a receipt or other proof of purchase.
If you’re not sure about your specific situation and what tax deductions you can be claiming, please contact our office to discuss further.