The ATO are set to continue their focus on ways to reduce unsubstantiated or ‘dodgy’ claims this tax season. They are now armed with more resources and they have access to a wide range of information to allow data matching to capture undeclared income or incorrect claims.
To help taxpayers they have released their 2019/2020 hit list of areas that they will be focusing on with it once again heavily weighted in the work related claims space.
The first thing to remember when claiming work related deductions is that to be deductible, they must relate to the job you are being paid to do. In addition to this, you need to be able to substantiate your claim by way of some form of paperwork. This may be a receipt, an invoice or a bank statement that can prove that you incurred the expense.
Below is a list of the areas the ATO are watching and what you can do to ensure you are not caught out doing the wrong thing this tax time.
Claims for work-related clothing
A deduction is available for the purchase and cleaning of eligible work-related clothing with an exemption from keeping receipts offered if a taxpayer spends less than $150 in laundry expenses. It is important to note that the distinction in relation to this deduction is that the costs must be incurred in relation to eligible work-related clothing. The ATO are concerned that too many taxpayers are claiming these costs in relation to conventional clothing that is not distinctive and lacks protective qualities and is therefore not eligible for the deduction.
Eligible work-related clothing is clothing that allows public to easily recognise your occupation (eg. checked trousers for a chef), clothing and footwear that you wear to protect yourself from the risk of illness or injury (eg. steel capped boots) or clothing that is a work uniform which is usually specified in your employer’s uniform policy or the employer has registered the design with AusIndustry.
Whilst the exemption to keeping receipts is in place if you are incurring costs pertaining to eligible work-related clothing, we recommend that you keep all receipts and/or diary entries to assist in substantiating your work-related clothing claims.
Deductions for home office use
If you’re an employee who regularly works from home, you may be able to claim a deduction for expenses relating to that work. Some of the things you can claim include:
- Running expenses (heating, cooling, lighting or cleaning)
- Phone & Internet (work-related portion)
- Decline in value of computer/office equipment
Where taxpayers can be caught out, and the ATO has raised this as a concern, is in the claiming of occupancy costs such as rent, rates and interest on a mortgage. If you run your own business from home and it is your principal workplace then you can claim a portion of occupancy costs. However, if you are an employee working from home or you have a home office but your principal workplace is elsewhere, you are not eligible to claim occupancy costs.
There are further rules associated with the claiming of home office expenses and other tax implications from using your home as a principal place of business and claiming occupancy costs. As such, we recommend you speak with your advisor to make sure you maximise your income tax deduction without triggering any other tax implications in the future.
Overtime meals claims
A deduction is available for expenses on food and drink when working overtime if the following criteria apply:
- you are paid an overtime meal allowance under an industry award;
- you have incurred expenses to pay for food and drinks; and
- you limit your claim to the reasonable allowance expense set annually by the ATO.
No written evidence is required in support of the claim if it is below the reasonable allowance limit, however, the ATO may ask for substantiation on how the claims are calculated.
If a deduction claimed is more than the reasonable amount limit, the entire claim must be substantiated with written evidence.
This is an area the ATO are watching as they are concerned taxpayers are claiming these types of costs when they do not meet all eligibility criteria as specified above.
Mobile phone and internet costs
It has always been a requirement for taxpayers to calculate their private use versus work related use of phones and internet and to limit any claims to the work-related use component.
The ATO are focusing on record keeping in this area and it will be important for each taxpayer to be able to substantiate how they have established their work-related use component.
The ATO have advised that in order to claim work-related phone and internet expenses of greater than $50 per annum you should keep records that are representative of a four-week period in each income year. These records can include diary entries, electronic records, and bills.
Taxpayers should also be mindful that if they are reimbursed by their employer for work-related use then this should be factored into their claim to ensure that their claims are not overstated.
Motor vehicle claims
The ATO is concerned that too many taxpayers are automatically claiming 68-cent-per-kilometre flat rate up to 5,000km regardless of the actual amount they have travelled. Whilst receipts for travel related costs incurred under this method are not required, taxpayers must be able to substantiate the kilometres they have travelled if asked to do so by the ATO.
Given the ATO’s concern in this area, do not be surprised if you receive a please explain letter should you continue to claim the flat 5,000km per annum moving forward.
$300 dollar or less deductions without receipts
If an individual’s work-related deductions add up to $300 or less, they are not required to keep receipts or other proof of purchase. The ATO’s concern in relation to this claim is that taxpayers may be making the claim without having incurred any expenses at all. Whilst receipts are not required for this level of spend, if asked to do so you will still be obliged to prove how the money was spent and to explain why the claim is reasonable.
Other areas on the ATO watch list include:
Rental Property Activity
This will include monitoring excessive rental property deductions, such as interest, apportioning of income and expenses between joint owners is done correctly and ensuring that any private use of holiday homes is accounted for correctly.
With platforms such as Uber and Airbnb opening up the ability for taxpayers to share assets and services to generate an income stream, the ATO will be watching closely to make sure that income and expenses are determined and declared correctly.
What can you do to stay off the ATO’s radar?
The ATO will continue to get more tech savvy in tracking our income and expense activity. The introduction of reporting requirements such as single touch payroll and the range of information the ATO can data match to check our spending activity means there is really nowhere to hide.
Good record keeping processes, claiming only the expenses that relate to the income you generate and claiming only those costs you incur is a good start to staying off the ATO’s radar. The next thing you can do, and possibly the most important thing, is speak to your trusted advisor. Your trusted advisor can make sure you are maximising your claims and provide guidance on what records to keep and what you can be doing differently to improve your after tax position. If you would like to speak to one of our specialists, please email us at email@example.com and we will be in touch.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.