The Australian Taxation Office (ATO) has issued a warning that it will be paying extra attention to people claiming higher than expected deductions during tax time this year. It will focus on taxpayers claiming work-related deductions that are higher than usual compared to other taxpayers in similar industries, particularly deductions for travel, car expense claims for transporting bulky tools, internet, mobile phone and self-education expenses.
With over eight million Australians claiming work-related deductions each year, the Australian Taxation Office (ATO) Assistant Commissioner Graham Whyte is prompting people to make sure they are claiming the correct deductions this tax time.
From 2016 the ATO has been able to check taxpayers deductions in real-time as they complete their online return. It also takes a closer look at any unusual deductions and contacts employers to validate these claims. From 2016 there have been changes in the rules for calculating car expenses and taxpayers need to use a logbook or the cents per kilometre method to support their claims.
“Australians claim over $21 billion in work-related expenses each year, and we want to support taxpayers to claim what they are entitled to – no more, no less,” Mr Whyte said. The ATO acknowledges that most taxpayers want to do the right thing, but mistakes are constantly being discovered and while the amounts at an individual level are relatively small, collectively the overall impact is significant.
Mr Whyte said in 2014-15, the ATO conducted around 450,000 reviews and audits of individual taxpayers, leading to revenue adjustments of over $1.1 billion in income tax.
He went on to state “Deliberately making incorrect claims is an easy way to get into some serious trouble. It’s just not worth it.”
The ATO has the capability to scrutinise each tax return lodged using increasingly sophisticated tools and data matching analytics. This means the ATO can identify and review income tax returns that may omit information or contain unreasonable deductions. When a red flag is raised, the ATO will investigate further and if your claims seem unusual they will either check them with your employer or ask you to substantiate your claims.
To assist taxpayers making claims for work-related expenses, the ATO has a series of occupation guides and other general advice available on its website to help people in specific industries understand and correctly claim the expenses they may be entitled to.
The ATO has stated that there are three golden rules you must consider before making a work-related expense claim:
1) must have spent the money yourself, not been reimbursed
2) it must be related directly to earning income
3) must keep a record to prove it.
If taxpayers are using myTax to lodge their tax returns, they will receive a real-time warning if their claims for work-related deductions are unusually high compared to other taxpayers in similar occupations.
The ATO has highlighted the following real-life case studies and lessons to be learnt from taxpayers making incorrect work-related expense claims:
1) make sure your claims are justified
A dairy farm employee claimed deductions totalling almost $19,000. When the ATO spoke to his employer, they said that the employee was provided with all the tools and work gear he needed to undertake his duties. The employee’s deductions were disallowed in full.
2) make sure you weren’t reimbursed already
A business analyst who travelled between Shanghai and Australia for work, claimed over $46,000 in travel expenses. When the ATO contacted the employer, they were advised that this employee was reimbursed for the cost of all his meals, accommodation and travel within Australia and internationally. Consequently, the claims were disallowed.
3) make sure you are getting good advice
A tiler lodged his tax return using a registered tax agent and claimed over $4,000 in deductions that related to his car, based on transportation of bulky equipment to/from work. The ATO contacted his employer who confirmed he was not required to transport any such bulky equipment to work and also advised that secure lockers were provided at work to store tools. His claim was disallowed and tax agent was reminded to undertake proper enquiries to determine his clients’ eligibility to deductions.
4) make sure you have evidence to support your claims
A sales consultant claimed over $38,000 for car and other work-related expenses. When asked to provide evidence to support her deductions it became apparent that she had overstated her expenses as she could not provide receipts to substantiate her claims. After discussions with the ATO, she agreed to substantially reduce her expense claims and she was asked to pay a tax shortfall of over $8,000 plus penalties.
5) make sure your claims are related to your work
A computer network engineer claimed over $4,000 in deductions relating to car, travel, clothing and other work-related expenses, as well as the cost of managing his tax affairs. When queried, the engineer told the ATO he travelled interstate for both work and private purposes, his clothing expenses were for the purchase of general business attire and his claims for managing tax affairs related to managing the family trust. The engineer’s claims were disallowed by the ATO because they appeared to be of a personal nature and he was unable to substantiate his claims with written evidence.
6) make sure you know what is and isn’t deductible
A factory meat processing worker claimed $12,800 for various deductions. When the ATO requested evidence of his claims, the taxpayer was unable to produce receipts with the exception of the donations which were automatically deducted from his pay. Also, when ATO contacted his employer, they were advised that the worker was not required to travel for work purposes and that all protective gear and tools required to perform his duties were supplied by the company. The worker’s deduction claims were disallowed except for the gifts and donations which he was able to verify.
7) make sure you back up your data
A soldier from Canberra claimed $1,500 for self-education expenses and $5,000 for gifts and donations. When the ATO requested evidence to substantiate these claims, the soldier said all his receipts were stored as images on his tablet, which had fallen into his child’s bathtub and no longer worked. The claims were disallowed.
8) make sure you were at the conference/course
A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When the ATO checked, they found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.
9) incorrect log book
A taxpayer claimed deductions for car expenses using the logbook method. The ATO found they had recorded kilometres in their logbook on days where there was no record of the car travelling on the toll roads, and further enquiries identified that the taxpayer was out of the country. Their claims were disallowed.
Source: Australian Taxation Office
Contact Solve Business Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.