Expenditure you incur as an employee in the course of your employment is generally deductible under the tax law.
However, the ATO is aware that not all claims are genuine or made correctly, and has warned that it is becomng easier for it to detect noncompliant expense claims.
In the past, the ATO has paid particular attention to claims for work-related expenses relating to:
- car expenses, including those for transporting bulky tools;
- deductions for travel, internet access and mobile phones; and
- self-education expenses.
Expenses you claim as deductions on your individual tax return must have actually been incurred, and they must be work-related – not private expenses. The ATO is also continuing to review excessive claims for work-related expenses.
If it is likely that your employer will reimburse you, you should monitor your expenses carefully – reimbursed expenses cannot be claimed as tax deductions. Also, the ATO warns that receiving an allowance from your employer does not automatically entitle you to a deduction. You must keep records to support all of your claims.
The ATO has said it will contact employers to verify claims it considers to be “unusual”, and highlighted the following as common mistakes people make when claiming work-related expenses:
- making claims for home office, mobile phone and computer expenses without evidence supporting how the amounts were apportioned between private expenses and work-related expenses;
- incorrectly claiming travel between home and work as a work-related expense; and
- receiving a travel allowance and claiming the full amount without actually having spent that much.
ATO case studies
The ATO has provided the following case studies:
Car expenses: transporting bulky tools
A car mechanic claimed $3,850 in car expenses for carrying their large toolbox to and from work each day. The employer told the ATO that they supply all of the necessary tools at the workshop for the mechanic to do their job but they preferred to use their own tools. The car expenses were disallowed because the mechanic chose to use their own tools, rather than the tools provided by their employer. Travel from home to work is private and not tax deductible. The mechanic was required to pay back more than $2,000 in tax and penalties.
For each day a boilermaker worked away from home, they received a travel allowance from their employer. The boilermaker’s payment summary showed they were paid a travel allowance of $8,000 during the year, the same amount that the boilermaker claimed as a deduction.
The employer paid the travel costs to get the boilermaker to and from work and provided accommodation and all meals. The claim for travel expenses was disallowed because the boilermaker did not spend any money. As the travel allowance was shown on the boilermaker’s payment summary, it needed to be included as income on their tax return. After penalties were applied, the boilermaker received a bill for almost $4,000.
Car and uniform expenses
A real estate agent claimed work-related motor vehicle and work-related clothing, laundry and dry-cleaning expenses. During the audit process they provided allegedly false tax invoices from a commercial car wash and dry cleaner to support the deduction claims. The real estate agent was prosecuted, pleaded guilty and was fined $4,000.
Mobile phone expenses
A labourer claimed $1,200 in other work-related expenses for use of their mobile phone. The labourer told the ATO they used their phone at work to keep in touch with their coworkers but did not have records to show this usage. When the ATO spoke to the labourer’s employer, they were told the labourer was not required to use their mobile phone as part of their duties. The ATO accepted that the labourer may have occasionally used their mobile phone for work purposes and allowed a claim of $50 for the year.
A retail sales assistant claimed a deduction for self-education expenses of $5,165 for course fees relating to a Bachelor of Arts degree. As the degree did not directly relate to the assistant’s current job, and there was no requirement to undertake further education, the claim was disallowed.
An insurance broker claimed work-related expenses of over $65,000 in their tax returns. As well as car expenses, they claimed expenses for entertaining clients. When asked to prove the claims, the broker provided receipts for significantly less than the amounts claimed. Many of the receipts were for meals on weekends and with the broker’s family, and personal expenses such as school fees and pool supplies. When the insurance broker’s vehicle logbooks were compared with other data held by the ATO, it became apparent that they were fabricated. The claims were substantially reduced and the broker was penalised for making false statements in their returns.The broker was found liable for tax, penalties and interest of over $75,000.
If you’re claiming work-related deductions in your tax return this year, take care. Genuine work-related expenses are generally deductible, but the ATO has warned that it will continue to check individual taxpayer claims carefully to make sure they comply with the law.