Work-related expenses are to be carefully scrutinised by the ATO in relation to tax returns lodged in respect of the year to 30 June 2017.
The Commissioner, Chris Jordan, in his address to the National Press Club of Australia on 5th July 2017, has referred to the $22billion claimed by Australian taxpayers in relation to work-related expenses.
The most common claims relate to car expenses ($8billion), home office related expenses ($7billion), travel expenses ($2billion), uniforms ($1.6billion), and self-education costs ($1.1billion).
6.3 million people claimed uniform related expenses. Meaning half the work force (i.e just over 12 million people) are effectively claiming they wear uniforms to work. This seems surprising since the costs of ordinary outfits worn to work are not claimable as uniforms.
In addition, this year when we review the reports on our tax agent’s portal relating to information submitted directly to the ATO, there will be a new message that will display if work-related expenses claimed in your 2016 tax return were high in comparison to clients in similar occupations and income range in the prior year. This is not meant to scare you but it is useful to know that the ATO are definitely paying closer attention to expenses being claimed.
In order to claim a work-related expense, the following rules must be kept in mind:
The taxpayer must have incurred the expense in the year in respect of which the claim is made;The expense must be work-related and not private in nature;The expense must not have been reimbursed by your employer.
It is also worth remembering that just because you have an allowance from your employer, it does not automatically entitle you to a deduction. You must still actually incur the expense.
If your claims exceed $300 you will need to be able to support the claim with written evidence. If less than $300 you will not need written evidence but you may be called upon to prove that you did incur the expense. Claiming $290 as a work-related expense in circumstances where no expense has actually been incurred is illegal and will land the taxpayer in trouble.
A particular problem area can arise where an expense is partly work-related. The difficulty can arise in determining what proportion of the overall expenses can be claimed as a deduction. An example of this is the use of a mobile phone. Rarely are mobile phones used 100% for work purposes and in most cases some appropriate reasonable proportion can be claimed. This reasonable percentage of the overall cost should be claimed and no more.
The following items can also give rise to work-related expenses in relation to which a legitimate deduction can be claimed as an employee:
Briefcases, calculators, and personal organisers, diaries and log books, first aid courses, income protection insurance, interest on money borrowed to finance work-related purchases, overtime meal expenses, postage, professional seminars etc, reference books, stationery, subscriptions, certain level sun protection treatments, technical journals and periodicals, tools of trade, and union fees.
A brief summary of claiming work-related car and travel expenses.
You can include the costs of trips:
between two separate places of employment (for example, when you have a second job)from your normal workplace to an alternative workplace while you are still on duty and back to your normal workplace or directly home from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises to work there for the day).
You cannot claim normal trips between your home and your workplace, even if:
you did minor work-related tasks at home or between home and your workplace you travelled between your home and workplace more than once a day you were on call there was no public transport near work you worked outside normal business hours your home was a place where you ran your own business and you travelled directly to a place of employment where you worked for somebody else.
There are two methods that can be used to claim Motor Vehicle deductions and you are entitled to use the method that gives you the best deduction.
Cents per Kilometre method
Your claim is based on a set ATO rate of 66 cents for each business kilometre. You can claim a maximum of 5,000 business kilometres. Information required – a) Car make & model b) Registration details c) Business KM travelled
Your claim is based on the business-use percentage of the expenses for the car.Expenses include running costs and decline in value but not capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs.To work out your business-use percentage, you need a logbook and the odometer readings for the logbook period.You can claim fuel and oil costs based on either your actual receipts or you can estimate the expenses based on odometer records that show readings from the start and the end of the period you had the car during the year.You need written evidence for all other expenses for the car.Information required – a) Car make & model b) Registration details c) Summary of total expenses d) log book business % details.Your logbook is valid for five years. If this is the first year you are using this method, you must have kept a logbook during the year. It must cover at least 12 continuous weeks.
Remember however, in each case the expense needs to be work-related and not reimbursed by your employer. In many instances, some of the expenses listed above are not work-related (e.g. sun protection treatments) or often reimbursed by the employer (e.g. stationery, tools of trade, diaries and log books).
You need to keep records of your expenses. You can use a simple online accounting system such as Xero, Quickbooks or even an Excel spreadsheet.
Another very good option is the ATO app that is available. It has a mileage log, you can take photos of your receipts so you can retain them electronically and it very easy to use (just don’t forget to back it up in case something happens to your phone!)
The bottom line is – taxpayers are entitled to claim all their legitimate tax deductions but no more. Care needs to be taken to ensure that you do not step over the boundary that separates legitimate from illegitimate tax claims. If the taxpayer is genuinely entitled to a tax deduction they should claim it in full!
If however you are in any doubt, please don’t hesitate to get in touch with your Hemisphere Accounting Consultant to discuss your deductions further to ensure you claim every deduction you are entitled to.