The Australian Taxation Office is warning taxpayers to keep strict records of “other” work-related tax deductions, with the assistant commissioner of taxation saying Australians are “making risky or outright false claims”.
In a memo to taxpayers on Tuesday, assistant commissioner Kath Anderson said the tax office will be shining the spotlight on all claims made that fall into the category of “other” work-related deductions.
Claims in this category can include home office expenses, mobile phone and internet bills and work equipment, but the tax office believes many of the more than 6 million Australians who claim this type of deduction are over-claiming or don’t understand they are entitled to deductions for.
Last year, Australians claimed $7.9 billion in “other” work-related deductions.
“If your expenses are for both work and private use you can only claim a deduction for the work-related portion,” Anderson said.
“We are seeing quite a few examples of people trying to claim the whole expense, including the private portion. Like some who incorrectly claim their entire phone and internet bundle, and others who claim an overseas study trip even though they had a holiday as part of the trip.”
Anderson reinforced there are three key criteria when it comes to claiming a deduction for expenses incurred while earning an income: individuals must have paid for the item themselves and not been reimbursed; the item must be directly related to earning an income; and the taxpayer must have a record to prove it.
Founder of Healthy Business Finances, Stacey Price, says it’s clear the “other” claims category is one the ATO is “continually looking at” because of the tendency for incorrect claims.
“For me, the problem is that business owners and individuals think it [the claims category] is just a big bucket — a lot of things go in the bucket then, ‘happy days’. But you still have to prove it. You can’t just say, ‘I had a course, it’s $200, I’ll throw that in there’.”
Price says she commonly sees clients attempting to claim expenses that are not directly related to their earning of an income — for example, teachers or other professionals putting down claims for yoga or fitness courses. However, any work claims must be related to a taxpayer’s everyday work.
“It really comes down to the nature of the job you hold,” she says.
Over the past few years, the tax office has highlighted claims that fall well foul of the proper guidelines, including fining a taxpayer for claiming deductions for 39 packets of Monte Carlo biscuits and more than $5000 in secretarial services that were supposedly performed by his son, who was seven at the time.
Last year, the Administrative Appeals Tribunal also rejected claims from a former public servant, who argued she should be entitled to deductions for $3000 in clothing expenses after buying work clothing from stores like Harrods.
Claims a case-by-case basis
Price believes the tax office has issued a warning at this point in the year to remind taxpayers it is critical to keep receipts and records for any claims they plan to make.
“You need to prove you have spent the money, and a bank statement alone is not necessarily proof of that,” she says.
Businesses and individuals should remember that tax claims work on a case-by-case basis, Price says, meaning just because a friend or colleague is making a claim, doesn’t mean you can also do this.
Eligibility to make a claim comes down to how an individual earns and income, and how the expense contributed to that.
“You just really can’t ask random, open ended questions of your friends about what they claim. What one person can claim is really not the same as the next person,” she adds.