The Australian Taxation Office continues to take aim at tax payer work-related deductions for the coming tax season, even as Australian Citizens have expense claims fall by $1Bn over the last financial year. Although this is considerably less than the ATO’s alleged $4.4Bn loss to illegitimate or unsubstantiated claims, it has been decided that substantial efforts will remain to further scrutinize these deductions moving forward.
To ensure you don’t come under the ATO’s microscope, please read on.
Unsubstantiated travel deductions
Several common vehicle related deductions seem to be particularly under the microscope, as the ATO continues to investigate unsubstantiated travel deductions claimed by individuals. Taxpayers are being further investigated for out of date or questionable logbooks, and business use percentage continues to come into question. Keeping a logbook for at least twelve weeks is critical to avoid scrutiny, and, generally speaking, tracking all business- and work-related expenses in order to substantiate any cost that may fall under investigation is recommended, lest the ATO decides to strike it from the tax return entirely.
Work-related clothing deductions
Further, it is urged to remember that the ATO has strict guidelines on what constitutes as work-related clothing deductions. Although the new Nike Air Max’s might help prevent you from slipping at work, they need to follow the stringent guidelines of the ATO in order to qualify as a deduction. Primarily, the clothing you wear needs to be either occupation specific, protective, a compulsory uniform, or a non-compulsory uniform registered with AusIndustry. This varies wildly from occupation to occupation, and if you can substantiate that you use your apple smart-watch for work related purposes for a portion of the day, by all means include it in the tax return, but be ready for the ATO to follow up with enquiries regarding the matter. Overall, this is ruled by the means test of all work-related deductions – does the cost incurred have a direct nexus in gaining or producing your assessable income?
Is your claim REALLY legit?
Recently, deductions have been rejected for egregious travel costs to and from work (where it was found a crane operator did not, in fact, incur $11,461 of costs for travel to and from work), the purchase of name brand shoes as a rowing coach, a police officers gym membership (who substantiated the nexus by the frequent need to break up brawls), and the all too often ‘need’ to claim that wristwatch on the tax return, for business purposes.
Other common, but refuted, work-related deductions the ATO regularly bounce back include travel to and from work/home, non-work-related apparel and equipment, and employer reimbursed expenses all seem to be in the focus of the Australian Tax Office. Generally and broadly speaking, there is a reason why tax agent fees are deductible in the following financial year, and allowing a professional to interpret the Taxation Rulings and guidelines the ATO frequently updates can assist in reducing invalid claims which will prominently stand out to an auditor, which results in more time, effort, and riffling through last years’ receipts, lest your claims be stricken from the return.