The Australian Taxation Office (ATO) is targeting work-related expense claims and has already contacted one million taxpayers to address overclaims made under work related expenses.
As we have noticed, earlier this year the Australian Taxation Office (ATO) declared it would be increasing its focus on work-related expenses (WRE). “Last year, 6.7 million taxpayers claimed a record A$7.9 billion for ‘other’ work-related expenses,”
It is revealed that this year the ATO has already contacted one million taxpayers to address non-compliance surrounding WRE, with adjustments reaching A$100 million.
Benchmarking Process Used in WRE Reviews
Claims in each area of WRE – work-related travel, vehicle usage, uniforms, training, and so on – can be measured against the average claim for the same occupation, with red flags potentially raised when claims exceed that average, leading to a total WRE risk score. “Any individual that has claims above the average is at risk of looking suspect in the eyes of the tax office,”
Keeping work-related claims clean
While motor vehicle costs claimed under cents per kilometer basis does not require substantiation, ATO may request a copy of detailed itinerary about your work related travels or sound reasoning about the purpose of the travel. It is also important to make sure claims such as travel, mobile phones and car-related expenses are correctly apportioned and substantiated.
It is also essential to ensure yous are aware of the ATO’s three “golden rules”: 1. to claim an expense they must have paid for something and not been reimbursed; 2. it must be directly related to earning income and not a private expense; and 3. they must have a record to prove it.
If claims seem high, the ATO may take the opportunity to assess and possibly alter a tax return if the claim breaks one of these golden rules. If the case goes to review, penalties of 25 per cent (failure to take reasonable care), 50 per cent (recklessness), and 75 per cent (intentional disregard) can be taken from the shortfall amount.
The following are most common work-related expenses explained:
D1 Work-related car expenses
Deduction for work-related car expenses are claimed under Item D1 in respect of a car which an employee owns, leases or hires under a hire-purchase agreement. Deductions can only generally be claimed for the use of your car in performing work-related duties; attending work-related conferences away from your normal workplace; travelling between two separate places of employment where one of those places is not your home; travel from your normal workplace to an alternative workplace; and travel from your home to an alternate workplace and then to your normal workplace. Accordingly, a deduction is not available for travel between home and work except in limited circumstances such as the demonstrated need to carry bulky goods. You cannot claim a deduction for car expenses if reimbursed by your employer.
Note: A motor vehicle will only be a car if it is not a motor cycle or similar vehicle and has been designed to carry a load of less than one tonne and fewer than nine passengers.
you may choose which of the following two methods is applied to calculate the deduction:
- Cents per kilometre method
The claim is based on a set rate for each business kilometre travelled, being $0.66 cents per kilometre regardless of the vehicle’s engine capacity. Business kilometres includes kilometres travelled in the car in the course of earning assessable income including any work-related activities. The taxpayer can claim costs by applying that set rate up to a maximum of 5,000 business kilometres.
Taxpayers must be able to show how they reasonably estimated the amount of business kilometres travelled. For example, the you may have documented their eligible work-related trips in a diary or some other written record. However, it is not necessary to comply with the substantiation provisions.
Note: The ATO has previously expressed the view that it is concerned that car expense claims based on the cents per kilometre method may be overstated in certain cases as it is necessary to establish that the claim is based on work-related or business kilometres travelled which must be based on reasonable estimates.
- Log book method
The claim for each car expense deduction (e.g. fuel, repairs, registration insurance, and the decline in value of the car) is multiplied by the business use percentage of a car as determined using a log book for a continuous 12-week period. This business percentage is the amount of business kilometres travelled divided by the total number of kilometres travelled during the 12-week period. The business use percentage established in the log book can then generally be used in the subsequent four years to calculate car expense deductions unless there has been a change in the pattern of use of the car. In addition, written evidence of car expense deductions must be retained including receipts, invoices and credit card statements as required under the substantiation provisions.
- Work- Related Travel Expenses
- public transport, air travel and taxi fares
- bridge and road tolls, parking fees and short-term car hire
- expenses for motorcycles and vehicles with a carrying capacity of one tonne or which holds nine or more passengers such as utility truck some panel vans
- expenses incurred on petrol repair and maintenance costs on a car that is not owned or leased by the you but some other person.
If your employer requires the you to travel overnight, some associated costs like accommodation, meals and incidental expenses may be deductible. To make a claim the you must be able to show that:
- the travel was undertaken for work purposes
- you was away from home for a relatively short period (e.g. overnight)
- you must have a permanent home at a location away from the work location to which they are travelling
- the expense has been incurred by the you and not reimbursed
- you kept a diary (for certain travel which is more than six nights away from home).
- Work-Related Uniform Expenses
The purchase and laundering of the following clothing may be deductible:
- protective clothing and safety footwear: clothing or footwear that is specifically designed to protect against risk of death, disease, injury or damage or
- compulsory uniform: non-conventional clothing that identifies the employee as being employed by a particular employer which is a policy strictly enforced by the employer or
- non-compulsory uniform: non-mandated uniform or clothing which clearly identifies an individual’s employer which is registered with AusIndustry or
- occupation specific clothing: clothes that identify a person as a member of a specific profession, trade, vocation, occupation or calling and which are not for everyday use.
Refer to Taxation Ruling TR 98/5 for further details.
You must have receipts, invoices or other written evidence (such as diary records) in relation to laundry and dry cleaning expenses if the amount of any claim is greater than $150 or if the total claimed for work-related expenses exceed $300. Where You did the laundry themselves they are allowed to use a reasonable basis to calculate the deduction such as $1 per load for work-related clothing or $0.50 per load of other laundry items were included. Further information is available on the ATO website.
Note: You cannot claim the cost of purchasing or laundering conventional clothing (like black pants or white shirts), even if the employer requires them to wear it.
- Work-Related Self-Education Expenses
Self-education expenses are generally allowable where the course of study is to maintain the taxpayer’s skills in their current employment, or increase the taxpayer’s skills in that person’s current occupation, which will result (or will be likely to result) in an increase in income from current employment. Examples of such costs include course fees, tuition fees, student union fees, textbooks, stationery, computer consumables (e.g. printer cartridges), trade and professional journals, certain travel expenses, internet and phone usage and depreciation. Where applicable such costs must be apportioned between eligible expenses incurred for study purposes and those for private purposes. Receipts, invoices and diary records must be retained to evidence claims.
For further details of eligibility requirements and types of deductions available refer to Taxation Ruling TR 98/9.
Note: you are unable to claim fees for courses that only relate to your current employment in a general way or which are undertaken to help gain new employment or an initial qualification.
Note: The ATO pays particular attention to these items so ensure that all claims can be substantiated appropriately. Note also that $250 of eligible self-education expenditure is not allowable.
Note: Deductions for self-education costs cannot be offset against Government assistance programs including Austudy, ABSTUDY and youth allowance.
Note: Deductions for the cost of formal education courses provided by professional associations and seminars, education workshops or conferences connected to work should be disclosed at Item D5 concerning ‘Other work-related expenses’.