It’s now clear that the ATO are taking deductions more seriously than ever. To stamp out false deduction claims the government have dedicated over $130m of additional resources to help the ATO increase their compliance activities targeting the taxpayer… yes you!
The ATO has provided some analysis and the biggest concern identified lies within the grey and murky realm of “Work related expense” claims. This could be an exaggeration of a correct claim or a complete fabrication but either way the ATO will now have the resources to potentially question more taxpayers than in previous years and in turn this could lead to more audits. A timely, costly and stressful process for anyone.
WHAT DOES THIS MEAN FOR YOU?
It feels like the taxpayer is under the microscope, and unfortunately that’s exactly how things are.
Firstly, all three of the following requirements need to be met in order to make a successful deduction claim.
- You must have incurred the expense in the first place and not been reimbursed by your employer.
- The expense must directly relate to earning your income.
- You need to have kept a record of this expense to prove it.
These have always been in place but as mentioned before there is more scope now for the ATO to actually look at individual tax returns.
The ATO has always expected the taxpayer to provide documentation to substantiate any expense claim, but in reality they haven’t had the resources to provide enough compliance on individual tax returns. As far as we can tell though the landscape has now changed, with the ATO having the resources to complete their compliance checks and now potentially follow up on individual returns more regularly.
It’s now even more important for the taxpayer to make sure that they can provide the substantiation for any deductions in their return. The taxpayer will be required to disclose and present key information for each expense being claimed by either the tax agent or, by the ATO during an audit. If you are lodging your own tax return then please keep in mind that proof of the expense will be required!
DEDUCTIONS YOU CAN CLAIM
The ATO has a tremendous amount of information on the type of typical work-related deductions that can be claimed including vehicle and travel; clothing, laundry and dry-cleaning; home office; self-education and tools, equipment and other assets. Not to mention other deductions including cost of managing tax affairs; gifts and donations; interest, dividend and other investment income deductions and personal super contributions. Refer to https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/ for more details.
They also have an occupation and industry specific guide that provides information on typical deductions that someone in a certain job or industry could potentially claim. It’s recommended you have a look at this list and see if there are any expenses on the list that you have actually paid for but hadn’t considered making a claim for. https://www.ato.gov.au/Individuals/Income-and-deductions/Occupation-and-industry-specific-guides/ Please always take into consideration the three requirements above before making a new deduction claim.
Substantiation exceptions
There are several expenses that can be claimed without substantiation. These include;
- Work related expenses not exceeding $300
- Laundry not exceeding $150
- Travel allowance expenses for domestic and overseas deductible travel expenses
- Overtime meal allowance expenses, and
- Car expenses under the cents per km rule.
Beware that a substantiation exception does not extinguish the requirement for a taxpayer to demonstrate that the amount claimed satisfies the deductibility requirements. Automatically claiming these deductions is a perfect example of where the ATO will look a little deeper into the tax return. If the taxpayer isn’t careful then this screams ATO audit.
KEEPING RECORDS
During the year you’ll receive all types of documentation that you will need to make deduction claims at the end of the financial year. Please bear in mind that any proof of purchase for a deduction needs to be kept for 5 years from when you lodge your tax return.
As already mentioned, substantiation is required for deductions but there are specific rules that apply to certain work-related expenses, which include;
- Car expense
- Travel expense
- Clothing, laundry and dry-cleaning
- Phone and internet
- Working from home (Home Office)
- Self-education
- Depreciating assets
There are examples of record keeping on the ATO website for these expenses but a conversation with your friendly accounting professional will also provide you with the information.
Other typical items and information required to maintain healthy records would be;
- Keeping any receipts (If there are going to be a large amount of receipts then create a running spreadsheet through the year. This would 100% make your life easier come tax time). The ATO would accept photos of your receipts as evidence. This is by far the best and clearest way to substantiate any expenses.
- Bank statements.
- Payment summaries.
- Dividend statements.
- Managed Fund statements.
NEED HELP?
If your tax return is becoming a bit much and you need some guidance from your local tax and accounting professionals, then please don’t be afraid to give us a call.
Gone are the days of exaggeration and here are the days of substantiation.
Matthew Dix – Accountant @ Scanlon Richardson Financial Group