The ATO believe millions of dollars can be saved by denying taxpayers overstated work related expense claims. The taxpayers in the firing line are those whose work-related deductions are higher than those of their peers.
Whilst these claims might be legitimate, large claims may cause the ATO to ask further questions. Therefore it is important to understand what you can and cannot claim, and what evidence you may need to provide.
Motor Vehicle Expense claims
In the following circumstances motor vehicle claims are accepted:
- Your home is your base of employment and you are required to travel to various workplaces during the day to carry our your employment duties,
- You carry bulky tools and equipment to work. The ATO now require you to verify from your employer that it is necessary for you to carry the bulky equipment to and from work as there is no safe storage place at work and that the equipment carried is essential to carry out work duties.
- You were required to travel to another workplace during working hours. In this example, you would need to prove that you were not reimbursed by your employer for these trips.
It’s important to note that motor vehicle expenses relating to travel to and from work can’t be claimed.
Since 1 July 2015, you can calculate motor vehicle expenses using log book method and/or cents per km method.
Work Related Travelling Expenses
Incorrect travel cost claims are also on the ATO hit list. You can claim costs for accommodation and meals if you are required to stay overnight to perform work related duties. Whilst many employees receive a paid travel allowance, which is normally reported on your payment summary, it doesn’t automatically mean that you can claim the full amount of the allowance as an expense. In order to do so you must have actually incurred the expense.
An allowance can be paid for accommodation, meals and incidental expenses up to the reasonable amounts set by the ATO for each category, without the need for substantiation. Reasonable amounts for the financial year ended 30 June 2017 are included within TD 2016/13.
Where the substantiation exemption is relied upon, the employee is still required to show the following:
- Calculation of claim,
- The expense was actually incurred,
- An entitlement to a deduction (eg: work-related travel was undertaken),
- A bone fide travel allowance was paid, and
- If accommodation is claimed, that commercial accommodation was used.
Other travel records (that is, a travel diary or similar document) must be kept where you are away from your ordinary place of residence for six or more consecutive nights. The records must contain particulars of each business activity undertaken during the relevant travel period. Entries must be made before the activity ends or as soon as possible afterwards, setting out:
- the nature of the activity,
- the day and approximate time when it began,
- the duration of the activity, and
- where the activity took place.
Work Related Clothing Expenses
Many taxpayers claim a deduction for purchasing work related uniforms and protective gear. Other clothing articles such as a white shirts, black pants and business suits will not be considered uniforms unless they have the employers logo permanently attached. Where the employer has a compulsory uniform that is strictly enforced, you may be able to claim a deduction for shoes, socks and stockings where they are an essential part of the uniform and are specified in your employers uniform policy.
You may also claim laundry expenses of up to $1 per wash for laundry of your allowable work related clothing articles. The ATO accept a claim of 50 cents per load where other laundry items are included in the same wash. Written evidence is necessary if the laundry claim if greater than $150.
The ATO is targeting how telephone and internet expense claims are calculated. You can claim up to $50 for work related telephone and internet expenses without the need to provide details, but you do need to prove that it was required for work. The ATO have indicated they will be looking to ensure that claims in excess of the $50 amount are correctly apportioned and supported by the appropriate documentary evidence. Apportionment methods can include either incidental use method, or actual use method as itemised on your phone bill.
Home Office Expenses
You may be entitled to claim running costs of your home office if you are required to work from home. The ATO may seek confirmation from your employer that you are required to work from home. Again a well-supported diary should be maintained to work out how much time you spent in your home office. Home office claims can be made using the ATO prescribed rate of 45 cents per hour.
It pays to get on the front foot and contact your Altitude Adviser to discuss what claims are appropriate and what documentary evidence you should keep.