The tax office it seems has become obsessed with work related expenses. Usually we get emails, and notifications but this year they’ve gone crackers.
They wheeled out Tim Loh, the assistant commissioner at the ATO who came out and started wagging a finger at us tax agents who complete tax returns. I thought I was back at school.
He warned us that they are concentrating on work-related expense claims now that tax time was near. They are particularly concerned about claims related to working from home, personal protective equipment, clothing and laundry, self-education, car and travel.
“Particularly where someone’s deductions are much higher than others with a similar job and income. We will also look closely at anyone with significant working-from-home expenses that maintains or increases their claims for things like car, travel or clothing expenses.”
“You can’t simply copy and paste previous year’s claims without evidence. But we know some of these unusual claims may be legitimate. So, if you explain your claim with evidence, you have nothing to fear.”
The ATO has for several years taken the screws to work related expenses. That’s because about 8.5 million Australians claimed nearly $19.4 billion in work-related expenses for the 2020 income year.
And they have been putting pressure on us tax agents. A few tax agents have lost their licences and been reported for making claims on their client’s tax returns for excessive work related expenses.
The Tax Office pointed to 2020 data that showed the value of car and travel expenses dropped by nearly 5.5 per cent, while the value of clothing expense claims saw an increase of about 2.6 per cent, as frontline workers were faced with “first-time” expenses for items like face masks and sanitiser. They also noted that some travel expenses are not claimable.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Mr Loh said. “But, if you are working at home, we would not expect to see claims for travelling between work sites, laundering uniforms or business trips.
“We also want to reassure the community that we will be sympathetic to legitimate mistakes where good-faith efforts have been made. However, where we spot people deliberately claiming things they’re not entitled to, we will take firm action.”
For taxpayers whose jobs require them to come into physical contact or close proximity to customers or clients, items like gloves, face masks, sanitiser and anti-bacterial spray may be claimed as work-related expenses.
The ATO advised that while the temporary shortcut method is available to those claiming work-from-home deductions this year, personal and occupancy expenses, among others, cannot be claimed through any method.
The ATO also warned that employees cannot claim rent, mortgage interest, property insurance, or other land taxes and rates. The Tax Office said that working from home does not make a taxpayer’s home a place of business for tax purposes.
But the ATO has been serious about this for several years now.
You see, usually small claims such as mobile phone deductions and internet deductions is not something the ATO gets too excited about. But in a recent case they did.
And that was because other claims were made which the tax office considered high. So, they decided to look at everything.
It was ruled that internet costs of $179 in one year and $730 in a second year be disallowed. In addition, they also disallowed mobile costs expenses of $930 over two years. You would think it was not worth the trouble for the ATO to go after such small claims, but it was not about the money. It was because the taxpayer thought the ATO would not check (or that they are stupid) and that they would get away with claims.
You see the taxpayer had not kept records for the internet claims, so the taxpayer attempted to justify his claims by producing his internet browsing history. Although some websites visited were related to his job but ruled that other, such as Facebook, were unrelated to his employment.
His claim was denied but the ATO did allow a $50 deduction for each year even though he had failed to produce “reliable contemporaneous records.”
His claim for mobile phone expenses was also rejected on the basis that he failed to keep a record of his usage.
The audit was started because the ATO was concerned about the taxpayer claiming the maximum 5,000 business kilometres under the cents per kilometre method. At the time they dd not give two hoots about internet and mobile phone costs. You see 3.6 million taxpayers claimed motor deductions claiming a whopping $7.2 billion. And this just in personal returns. Business returns claims are much higher. You can see why the ATO is looking into motor claims whether these claims are in personal or business returns.
Once they determined that the taxpayer had made inaccurate and false claims for mileage claims they decided to check everything else – which meant the internet and mobile came into play.
If those excess car claims had not been made, the ATO probably would never have looked at the internet and phone claims.
So, the claims were disallowed and the ATO decided to charge penalties and interest on top which meant the taxpayer ended up paying more than 100% over and above of what they saved. Eg if they saved $5,000 in taxes, they ended up paying the tax office $10,000 after interest and penalties.
It may have been worse because there is no way the taxpayer would have done this on their own. As some stage of the audit process a tax agent would have got involved. This means payment of accounting fees unless audit insurance is held.
So, our advice is:
- Be reasonable – only claim what is reasonable. You need to be able to sit in front of the taxman and justify your expense with a straight face.
- We will make claims on your behalf if we believe they are justified. It is your responsibility to ensure you have proper receipts and records for all claims. If we cannot justify it, we will not make the claim.
- And please do not ask us to make claims that are not genuine. We love you and we love getting tax refunds for you but we will not jeopardise our licence for it.
- If you are claiming phone and internet costs you need to keep a record of what you do for 4 weeks. Based on this a claim should be made.