Every year, the Australian Tax Office (ATO) weighs into millions of deductions, many of which are disallowed because they don’t directly relate to expenses incurred in earning an income. Others are knocked back simply because there is a lack of evidence to support the claim or to prove it is in fact work-related.
“It is important to know what you’re eligible to claim before lodging your tax return and to make sure you don’t claim more than you’re entitled to,” says ATO assistant commissioner Kath Anderson.
A spokeswoman for the ATO supplied My Business with several real-life examples of the deductions it knocked back last financial year, either because of a deliberate flouting of the rules or simply due to confusion about what can and can’t be claimed.
- A financial services professional made a claim for a one-day motorcycle riding course as a self-education expense, justifying it as a workplace health and safety requirement.
- A rail worker claimed $1,225 in work-related expenses: $300 for clothing and laundry, $85 for sunscreen and $840 for phone. On request for verification, the rail worker said their agent told them this was a standard claim they were entitled to make based on their occupation.
- A sales consultant made claims for $6,000 in work-related car expenses, more than $3,000 in clothing costs and other general expenses related to gifts to customers and colleagues including underwear, toiletries and a shoe rack. She denied a request to contact her employer to verify the claims. As such, she was unable to substantiate the car expenses or that the miscellaneous expenses were work-related, and realised after lodging her return that her clothing expenses were ineligible given her suits did not have a company logo. She had to pay back over $8,000 in tax and received a penalty for reckless lodgement of a tax return, which was reduced due to her cooperation and making a voluntary disclosure.
There are plenty of other examples of people pushing the envelope on what constitutes a legitimate tax deduction – one accounting firm revealed cigarettes and martial arts courses had been proposed by over-eager clients.
Another accountant said one client attempted to claim more than $5,000 for secretarial services – on investigation, this turned out to be for his toddler son answering the phone on occasion.
Regardless of whether you complete your own tax returns or have an accountant or bookkeeper manage it on your behalf, the ATO spokeswoman made a point of noting that “all taxpayers are solely responsible for the information provided in their return regardless of how they lodge.”
What are the most commonly misunderstood tax deductions?
According to the ATO’s Ms Anderson, some of the biggest misconceptions around tax deductions relate to:
- Standard claims up to $300: “Some taxpayers even think that you can make a standard claim of $300 without having spent the money. You don’t need receipts for claims up to $300, but you must have actually spent the money, and be able to show us how you worked out your deduction if asked.”
- Uniform expenses: “To legitimately claim your uniform, it needs be unique and distinctive, such as a uniform with your [business] logo, or be specific to your occupation and not for everyday use, like chef’s pants or coloured safety vests.”
- Travel between home and work: “Generally you can’t claim a deduction for these because they’re considered private travel.”
- Car expenses for transporting bulky goods: Generally you can only claim these travel costs if you need the bulky tools to do your job, the business requires you to transport this equipment and there is no secure area at your business premises to store the equipment.