The ATO puts “standard deduction” claims on notice this tax season

The Ato Puts Standard Deduction Claims On Notice This Tax Season

The Australian Taxation Office (ATO) is making a broader push to quash the “standard deduction” claims on work-related clothing and laundry claims.  Over the last five years a 20% increase in work-related clothing claims has been recorded. Last year there was nearly $1.8 billion claimed in clothing and laundry expenses by over 6 million taxpayers.

Assistant Commissioner Kath Anderson expressed their concern that while many of these claims are legitimate, they do not believe that half of all taxpayers were required to wear uniforms, protective clothing or occupation-specific clothing.  Also, they noticed that around a quarter of clothing & laundry claims were exactly $150, which is precisely the threshold where tax payers are not required to keep detailed records. The ATO is concerned that some tax payers may think that they are entitled to claim $150 as a “standard deduction”, even though they do not meet the clothing and laundry requirements.

The ATO reiterated that the $150 limit for laundry expenses is granted to reduce the record-keeping burden but it’s not an automatic entitlement for everyone. While the ATO does not require written evidence for claims under $150, the claim must relate to the laundering of uniform, protective or occupation-specific clothing that the taxpayer is required to wear in earning their income and taxpayer must be able to show how the calculation was done.

Contrary to Commissioner Chris Jordan’s assertions that incorrect claims were more rampant in agent-prepared returns than the self-prepared returns, Mark Chapman, the H&R Block director of tax communications believes that the majority of incorrect claims come from self-prepared returns. In response to the ATO commissioner’s claims, Mr Chapman stated that “as tax agents, it is our job to make sure that clients claim everything they’re entitled to but equally that they don’t claim what they are not entitled to”.

To avoid confusion as to what are acceptable claims for uniforms, protective clothing, occupation-specific clothing & laundry, the following are some guidelines that have been gathered from the ATO website:

A taxpayer can claim the cost of a distinctive work uniform

(such as one with your employer’s logo attached permanently to it) and it must be either:

  • a compulsory uniform – a set of clothing or a single item that identifies you as being employed by the organisation. It must be compulsory to wear the uniform at work (a strictly enforced policy). Items may include jumpers, shoes, stockings and socks when they are an essential part of the distinctive compulsory uniform (the colour, style and type are to be specified in your employer’s policy).
  • a non-compulsory uniform – employer has registered with AusIndustry (check with your employer if you are not sure)

Additional claims include the cost of the following:

  • occupation-specific clothing which allows people to easily recognise that occupation
  • protective clothing and footwear to protect you from the risk of injury or illness, or to prevent damage to your normal clothes, caused by your work and/or work environment. Items may include sun protection clothing, fire-resistant clothing,  non-slip nurse’s shoes, steel-capped boots, safety-coloured vests, gloves, aprons, overalls, and heavy-duty shirts and trousers (not jeans). You can claim the cost of protective equipment (such as safety glasses and hard hats) at Other work-related expenses.

In addition, taxpayer can also claim the cost of cleaning, repairing, and renting any of the above mentioned work-related clothing.

Washing, drying or ironing yourself is also claimable by using a reasonable basis to calculate the amount, such as $1 per load for work-related clothing, or 50 cents per load if other laundry items were included.

Costs of purchasing or cleaning plain uniforms or clothes, such as black trousers, white shirts, suits or stockings are not claimable, even if your employer requires you to wear them.

Real Example

The ATO has confirmed that expenditure incurred by a swimming instructor in purchasing swimwear was not an allowable deduction.

The taxpayer worked as a swimming instructor and purchased swimsuits every six to eight weeks as a result of the damaging effect of the chlorine.  The ATO advised that although the clothing was specialised, it was still conventional clothing, indistinguishable from any swimsuit used for private purposes.

Many taxpayers fall foul of these rules and try to claim deductions for expenditure for ordinary clothing. Unless the clothing is protective, such as safety boots, etc., or certain uniforms, the expenditure is generally not deductible.

Source: Australian Taxation Office

If you are located on the Gold Coast or surrounding areas Contact Us at Solve Business Accountants if you need help with your business tax.

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