work related deductions

Common misconceptions regarding claiming work related deductions

Car expenses

  • When claiming work related motor vehicle deductions remember that you still need to be able to substantiate how you worked out the number of business kilometres you travelled using the cents per kilometre method.
  • In order to claim under the log book method – you must have a complete and valid log book.
  • Under the log book method, a log book will last for 5 years UNLESS you change the vehicle, your useage pattern changes, your employment changes. If any of these things change you MUST complete a new log book.
  • The motor vehicle expense deduction is not available to vehicles over 1 tonne – these expenses get claimed at D2 on the tax return (Travel Expenses).

Travel expenses

  • Remember that just because you receive an allowance from an employer does not automatically entitle you to a work related deduction. Travel allowance claims are only deductive where the tax payer sleeps away from home.
  • 1 tonne vehicles are not allowed to claim 100% of expenses – private useage must be taken into account
  • Parking expenses are not allowed to be claimed where an employee is traveling to and from work and parking at or near the workplace for more than 4 hours
  • Car washing expenses are not allowed where the vehicle is provided for the employee’s exclusive use

Uniform, Clothing & Laundry Expenses

  • Everyday clothing is not tax deductible, nor can a claim for laundry be made on these items.   This includes heavy duty conventional clothing such as drill shirts and trousers.
  • Only outdoor workers can claim sun protection clothing as a work related deduction.
  • If your claim for Laundry expenses exceeds $150 you must have written evidence eg diary entries and receipts
  • Conventional footwear including non slip are non deductible

If you are unsure as to the deductibility of your clothing and shoes consider the following tax rulings TR 97/12, TD 1999/62 and TR 98/5 or ask your accountant.

Self education expenses

There must be a nexus between the self education expense and the current income producing activity (Employment) otherwise these expenses can not be claimed.

Other work related expenses

  • Sunscreen and sunglasses – outdoor workers can claim these but you must adjust for private useage.
  • Home office – running costs can not be claimed on a floor percentage basis, you must use the ATO rate of $0.36 cents per hour only
  • Home Office – Occupancy costs – (Rent, mortgage interest, rates) you can not claim theses if the home is not a place of business – (A place of business would include signage and stationery nominating the address as a place of business and the area should not be readily suitable or adaptable for use as a private or domestic purpose such as a bedroom) Having a room set aside for doing admin work at the end of the day does not constitute a place of business.
  • Bank fees – you cannot claim these
  • All other expenses including computers, mobile phones, internet etc MUST be apportioned between private and business useage.
  • Vaccinations are not deductible
  • Subscriptions to staff associations or social clubs are not deductible

What are the requirements of your Tax Accountant?

  • Reasonable and direct questions need to be asked, we have also provided various checklists for you to use. (Available on our website)
  • It is not necessary for you to provide to us or have us view/sight all your receipts, we only need you to advise that you have adequate substantiation. REMEMBER, in the event of an audit you will be required to provide that substantiation to the ATO.
  • If we have suspicion that a client is making fraudulent claims we have the right to request to see the substantiating evidence, if the client refuses to provide the substantiation we can refuse to input the deduction and also terminate our services to the client.

What is written evidence?

The following can be used to substantiate your claims:

  • A document in English
  • Document from the supplier of the goods and services showing the name of the supplier, amount of the expense, nature of the goods and services, date incurred
  • Bank statements
  • credit card statements
  • BPAY reference numbers
  • email receipts
  • Invoices
  • Delivery notes
  • PAYG payment summary
  • Paper or electronic copies of documents
  • Warranty documents

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Dodgy Tax Claims

Dodgy Tax Claims – Work Related Expenses and Rental Expenses

ATO Targets Work-related Expenses and Rental Expenses

The tax office have confirmed that they will continue to monitor work-related and rental expenses claimed in 2016 income tax returns. In particular, they will be focusing on work-related car, travel, mobile phone and internet expenses as well as repairs and maintenance for rental properties.

The tax office advise there are 3 key rules for claiming work-related expenses:
– You have spent the money yourself
– It must be related to your current job; and
– Your must a record to prove it.

The tax office is receiving more data from third parties than ever before, including banks, employers, health insurers, state and federal agencies and overseas treaty partners. In some cases, the deductions claimed by tax payers have been disallowed because their information did not match with information provided by these third parties. Some examples include:

– An employee claimed car expenses for their home to work travel on the basis that they transport bulky tools, however the tax office contacted the employer who confirmed that these items can be securely stored at the place of employment.
– An employee claiming travel expenses for an overseas holiday as work-related, however his employer confirmed that he was on annual leave and the trip did not relate to his work.
– A taxpayer claiming expenses for attending an overseas conference, however immigration records indicated that he was in Australia at the time of the conference.
– A taxpayer claiming car expenses based on the log book method, however toll road records did not correspond with the log book and further enquiries indicated that he was out of the country on the dates listed in the log book.

If claiming repairs and maintenance for a rental property, you must ensure that they were genuinely incurred while the property was available for rent and that they were to repair damage caused by the tenants.

If a claim is found to be incorrect, the expense will be disallowed and penalties may be imposed on the taxpayer.

We will also be providing an additional report to employee taxpayers this year. This report will advise if your work-related expense claims are outside the average for your occupation and income level. The tax office will be conducting reviews and may contact any clients whose deductions exceed the average. You should ensure that you are able to substantiate all expenses claimed in the event that this information is requested by the tax office. You are responsible for this proof even when you use a registered tax agent.

If you have any concerns regarding what you can claim in your tax return, please do not hesitate to contact our office.

The ATO have published an Article on Exposing dodgy deductions, to read the full article click here. Below is some case studies from the article:

Case Studies

Case study one

A railway guard claimed $3,700 in work-related car expenses for travel between his home and workplace. He indicated that this expense related to carrying bulky tools – including large instruction manuals and safety equipment. The employer advised the equipment could be securely stored on their premises. The taxpayer’s car expense claims were disallowed because the equipment could be stored at work and carrying them was his personal choice, not a requirement of his employer.

Case study two

A wine expert, working at a high end restaurant, took annual leave and went to Europe for a holiday. He claimed thousands of dollars in airfares, car expenses, accommodation, and various tour expenses, based on the fact that he’d visited some wineries. He also claimed over $9,000 for cases of wine. All his deductions were disallowed when the employer confirmed the claims were private in nature and not related to earning his income.

Case study three

A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When we checked, we found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.

Case study four

A taxpayer claimed deductions for car expenses using the logbook method. We found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further enquiries identified that the taxpayer was out of the country. Their claims were disallowed.

Case study five

A taxpayer claimed self-education expenses for the cost of leasing a residential property, which was not his main residence. The taxpayer claimed he had to incur the expense of renting the property as he ‘required peace and quiet for uninterrupted study which he could not have in his own home’. This was not deductible.

In addition to the rental expenses, the cost of a storage facility was claimed where ‘the taxpayer needed to store his books and study materials’. They claimed they needed this because of the huge amount of books and study material associated with his course and had no space in his private or rented residence where these could be housed. This was not deductible.

The cost of renting the property was around $57,000, with additional expense of $7,500 for the storage facility. The actual cost of the study program he attended that year was only $1200.