Over the past 12 months or so, there have been rumblings from the Australian Taxation Office (ATO) about work-related deductions being claimed by salary and wage employees so we thought we’d take a look at where they are coming from.
Approximately 18 months ago, the ATO began a program of random audits reviewing work-related deductions claimed by taxpayers. It had previously been our experience the ATO were only getting in contact with taxpayers if there were specific concerns in relation to 1 or more of tax returns.
The Commissioner has previously raised concerns about “questionably high” total expenses claimed across all taxpayers of $22 billion for the 2014/15 financial year. Following audits and reviews of returns for that year, there were revenue adjustments (tax bills issued) of over $1.1 billion.
We often hear complaints from workers the ATO should be chasing the big companies rather than focusing on us. The reality is the ATO do place huge amounts of resources reviewing the affairs of high net wealth individuals and large businesses. There are also $1.1 billion reasons why the ATO are seriously looking at work-related deductions.
In order for you to claim a deduction against your income, an expense must
- Have been incurred by you – this generally means paid by you and not reimbursed by your employer
- Must be incurred in gaining or producing your assessable income. The expense cannot be capital in nature, private in nature, otherwise non-deductible under law
- You must comply with substantiation rules. – generally, means keeping the receipt for amounts spent but also includes other documents such as log books which may be specific to the type of expense you wish to claim
Some of the common claims which cause confusion
- Uniforms and protective clothing – complying with employer dress codes does not equal an allowable deduction. Not all items are “protective clothing” and unless an item has a logo or identifies your occupation, it is unlikely to be uniform.
- There is no standard deduction of $150 for laundry. While there is an exemption from having to substantiating laundry deductions of up to $150, you must still verify you wear a uniform which meets acceptable guidelines and you incurred the expense as opposed to your employer engaging a laundry service to clean uniforms.
- There isn’t a standard deduction of $300 without receipts. Generally, if your total work-related deductions are less than $300, you don’t need to have receipts. However, you still need to demonstrate you incurred expenses and how they are used to produce your income. If your total work-related deductions are over $300, then you basically need to have receipts for every dollar.
- If a car is salary packaged, you are unable to claim on your tax return as your employer technically owns the car and they are responsible for its running costs.
- I can claim 5,000 kms in my car because I don’t have to have receipts. This is a method of allowing taxpayers who legitimately use their car for work-related travel to lodge a claim efficiently without having to do a log book and keep every receipt for vehicle running costs.
- Bank statements alone are not necessarily valid to substantiate claims. While we have seen cases where the ATO have accepted bank statements as evidence of an expense being incurred, this isn’t always the case. For example, a bank statement showing a purchase made at Fuel Station doesn’t substantiate petrol expenses given the possibility of purchasing other items such as food and drinks.
It is our view several mindsets amongst the community have contributed to over claiming
- Others claim it and have done for years so it must be OK
- Everyone cheats a bit so why shouldn’t I
- Nobody will know if I claim a bit extra
- There are standard deductions for laundry, work-related expenses and car travel
- I need the money more than them
We have been telling our clients for years, if everyone claimed only what they are entitled to, the ATO would collect so much more money the Federal Government won’t know what to do with it all and ultimately income tax rates would be lower.
If you have claimed deductions you shouldn’t and the ATO finds out they will make you repay the extra tax. They will also then charge you interest at rates significantly higher than the banks are charging for mortgages and you will also very likely be charged a penalty of at least 25% of the tax.
I great example is the case of employees of Bechtel working on Curtis Island just off Gladstone. We first heard about it from a client who had friends caught up with it. Basically the ATO audited almost all employees of Bechtel working on the island in relation to significant overclaiming. One of the sources the ATO used to verify the non-deductibility of claims (as is becoming common) was to simply ask questions of the employer and use their answers against the workers.
Further details on the case can be found at https://www.gladstoneobserver.com.au/news/breaking-bechtel-workers-ato-claims-rejected/3183473/
For information about what deductions you may be entitled to claim get in touch.