The Australian Taxation Office says it will be vigilant in reviewing work-related deductions this financial year and experts say the taxman will be watching claims closely in this era of flexible work arrangements and ‘wellness’ practices.
On Tuesday Assistant Taxation Commissioner Kath Anderson informed Australians the ATO will continue to use real-time data to compare each individual claim against others in their profession and income bracket to identify higher than normal claims for travel, internet, and self-education expenses.
While employees are the most likely group to lodge their annual tax returns online, some operators of micro businesses also self-prepare their tax returns.
When it comes to claiming tax deductions for items relating to your work, the tax office has three golden rules: individuals have to have spent the money themselves and not been reimbursed by their employer or their business; it must be directly related to your ability to earn an income; and you have to be able to prove you have spent the money.
Anderson says too many Australian taxpayers think they can make claims, including work-related deductions, as long as they fit within the acceptable limits, even if they don’t legitimately have expenses in that area.
“Many taxpayers don’t have a good understanding of what deductions they can claim, and believe they can claim for items which they in fact can’t. Some taxpayers even think that you can make a standard claim of $300 without having spent the money,” she said.
Earlier in 2017, the ATO told SmartCompany it is investing more heavily in data analytics tools and will be looking at individuals’ social media accounts for any suggestions that their lifestyles don’t match up to the income they declare.
In the lead-up to the end of financial year, the tax office has highlighted the key deductions Australians tend to mistakenly believe they are entitled to, driving home the message that self-education and travel expenses have strict caveats attached to them.
Lisa Greig, principal at Perigree Advisers, tells SmartCompany self-employed people and business owners often come to her with the incorrect idea that they are able to automatically make claims even though they may not have actually incurred an expense.
“What you find is people try to use $300 here and there, and they sort of think, ‘I can claim it, so i don’t have to justify it. But that creates a break between substantiation [spending the money] and justification,” Greig says.
Even though self-employed people have plenty on their plates at the end of the financial year, planning and documenting claims is incredibly important, says Greig.
Here are key areas the ATO says it will be focused on this tax time.
“People are working more and more from home now, so you really have to be aware of travel claims,” Greig says.
The ATO advises individuals probably can’t claim trips between home and work, car expenses (unless your work requires you to transport bulky items), or car expenses that come from a salary sacrifice arrangement.
Greig says self-employed people should sit back and think about how they would “prove there’s a nexus [between the claim] and your accessible income.”
Earlier this year, founder of Healthy Business Finances Stacey Price told SmartCompany there’s one question business founders and self-employed people should be asking when making any sort of claims: “If it’s a genuine work deduction, then why is your employer not paying for it?”
Greig says a continued focus on ‘wellness’ and personal development at work can lead to many people over-claiming on self-education expenses.
The ATO has also pointed to this, telling punters it is on the lookout for “self-education expenses when the study doesn’t have a direct connection to your current employment – your future or dream jobs don’t count”.
Just because something is related to your personal interest set, doesn’t mean it will be directly related to your ability to earn an income through your business, so Greig advises care should be taken when making personal work-related deductions in this area.
“Like, I heard of someone claiming a motorbike course because it helped with wellness … but you need to be able to justify it for your work,” she says.
Use of phone and internet
Claims for phone and internet use are also becoming more complicated as more and more people work from home, but the ATO advises it will only be honouring deduction claims for the portion of fees that is actually used for work.
“Only the work-related portion counts,” the tax office says of phone and internet connections on private accounts.
Greig says in the lead-up to filing your tax return, self-employed people should take care not to over-claim on meals bought at cafes or restaurants during things like pitching or client meetings.
“One thing a lot of people get wrong is food and drink. Even if you’re having a drink in a cafe, it is not considered deductible,” she says.
While larger corporates might cover work-related expenses for client meetings and travel, the environment is much more restrictive for those running their own operations, Grieg says.
The ATO also warns on over-claiming for meal expenses for travel, which are not work-related deductions unless an individual is required to work away from home overnight.
Self-employed super contributions
If you’re self-employed you may be able to claim a deduction for contributions made into super. While the rules are changing on this from next financial year, for the 2017 financial year you cannot claim this if more than 10% of your income for the year came from salary or wages. The ATO has a guide to when you can make these deduction claims here.
Receipts tend to go flying the minute you’ve paid for something, so Greig recommends using the ATO’s myDeductions app or a similar receipt storage platform throughout the year to make the process of working out deductions easier.
“Take a photo, scan it, or keep a record. And even if you just keep a diary or logbook, make sure you say, ‘you bought petrol here’, for example, and why you’ve done this,” she says.
ATO assistant commissioner Deborah Jenkins says the tax office’s tools are now available to more business operators so they can make detailed records throughout each year.
“For the first time this year, sole traders can also use the myDeductions tool in the ATO app to keep track of your business expenses,” she says.