Deductions you can claim: Understanding work related expenses

With tax time here once more, the Australian Taxation Office (ATO) has taken the opportunity to issue a fresh ‘health warning’ on how to best avoid incorrect claims for work-related expenses.

The ATO’s media release highlights three golden rules for getting your expense claims right:

  • You have to have spent the money yourself (and not have been reimbursed);
  • The claim must be directly related to earning your income; and
  • You need a record to prove you have incurred the expense.

The ATO also highlights its ability to use real-time data to compare your expense claims with people in similar occupations and income brackets. Obviously, this is a sophisticated technological process which means the ATO are readily able to detect non-compliance.  This detection process should not be under-estimated and it is for this reason it is important to get your expense claims right the first time, to ensure that you do not inadvertently increase your risk of audit or review by the ATO.

It is worth noting the ATO also used the media release to pour cold water on the popular myth, that you can make a ‘standard’ expense claim of $300, without having spent the money. This confusion stems from the fact that while you do not need receipts for expense claims of up to $300, you must have incurred the expense and can be called upon to support this. From a practical perspective, keeping receipts for all of your expense claims is by far the safest approach, no matter how onerous this may seem. In this regard, the ATO suggests its myDeductions tool accessible through its app can assist both individuals and sole traders.

The other common trap covered, is the ability to make expense claims for uniforms (which have to be unique and distinctive) or other work related clothing (which needs to be specific to your occupation). In other words, you cannot claim expenses for everyday clothes even if you only wear them to work and this is required by your employer. The example used, is the requirement by your employer, that you wear black pants and a plain white shirt (most common in the hospitality industry).

The deductibility of employee travel costs still causes confusion and this is covered in a draft ruling recently issued by the ATO.  The general rule remains, that your ordinary costs for travelling between home and your regular work location are not deductible.  Very broadly, transport expenses (e.g. car, bus, train or airfares) are deductible where the travel is undertaken in performing your work activities.

Whether your travel is deductible, is very much a question of fact, but the draft ruling specifies that you also have to consider whether:

  • Your work activities require you to undertake the travel;
  • You are paid, directly or indirectly, to undertake the travel;
  • You are subject to the direction and control of your employer for the period of travel; and
  • These factors have been contrived to give a private travel the appearance of work travel.

The ATO website is peppered with good quality guidance on work-related expenses in many different ‘user friendly’ forms that can be readily accessed.  It goes without saying you should follow the ‘golden rules’ highlighted above and to keep your tax agent happy, it is important that you:

  • Keep a close track of your work-related expenses throughout the year;
  • Retain the appropriate receipts or other documentation in support of your claims; and
  • Be in a position to explain the work-related nature of your expenses.

If you seek any further clarity or guidance around how to best avoid incorrect claims for work-related expenses, we encourage you to contact your local adviser for more information.

By Martin Whyte
Partner – Tax