Tax time: Work expenses and holiday home rental claims to come under ATO scrutiny

The West Australian, Wednesday,20 June 2018

More Australians are saving their tax returns for a rainy day, but is this the best use for your tax return? Scott Phillips has the answers.

June is here which can mean only one thing: tax time is just around the corner.

The Australian Taxation Office (ATO) is on a mission to bridge the gap between what Australians are paying and what they should be paying.

In its crosshairs this year are work expenses relating to your car and clothing, as well as holiday home rentals.

Work-related car expenses totalled $8.8 billion in 2016-17.

Vehicles:

The ATO says work-related car expenses totalled $8.8 billion in 2016-17.

Assistant Commissioner Kath Anderson said it was “a lot of money” and Australians expected the ATO to ensure people were not over-claiming.

“We are particularly concerned about taxpayers claiming for things they are not entitled to like private trips, trips they didn’t make and car expenses that their employer paid for or reimbursed,” she said.

Ms Anderson said the ATO could identify unusual claims thanks to enhanced technology and by comparing taxpayers in similar occupations.

“Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job,” she said.

“Unless you have a work-related need to travel while performing your job, you won’t be able to claim a deduction.

“For example, travelling from home to work is not deductible for most people.”

The ATO says too many taxpayers are claiming for normal clothing, such as a suit or black pants.

Clothing:

With claims up 20 per cent over the last five years, the microscope will also hover over work-related clothing and laundry expenses.

The ATO believes taxpayers are making a number of mistakes from claiming ineligible clothing, claiming for something they did not buy and being unable to explain how their claim was calculated.

“Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims,” an ATO spokesman said.

“However, far too many are claiming for normal clothing, such as a suit or black pants.”

Union fees, mobile phone and internet can form part of legitimate claims.

“Other work-related expenses”:

The ATO has promised “other work-related expenses” will also come in for attention, with 6.7 million taxpayers recouping a record $7.9 billion in deductions for these types of claims in 2016-17.

Legitimate expenses can include union fees, mobile phone and internet, however the ATO says they are only deductible if they meet the three golden rules: You must have paid for it and not been reimbursed; it must be directly related to earning your income and not a private expense; and you must have a record to prove it.

H&R Block’s director of tax communications Mark Chapman said the ATO was going hard on these areas simply because it believes too many people are claiming deductions they are not entitled to.

“Having said that, it’s important to note that if you’re genuinely entitled to make a claim, don’t be deterred by the ATO’s crackdown,” he said.

“If you’re not sure if you’re eligible to claim a deduction for a particular item, talk to an accountant or tax agent who will be able to give you guidance and possibly highlight some claims you didn’t know you could make.”

Property expenses are the second biggest source of tax deductions.

Holiday home rentals:

Holiday home rentals will also come in for attention, with the ATO targeting the large number of “mistakes, errors and false claims” made by property owners who use their premises for personal holidays.

The rule is that you can only claim deductions for your holiday home if your property is genuinely available for rent, not for times when you have used it for your own personal holidays or let friends and family stay rent-free.

Mr Chapman said it was “not too surprising” to see the ATO cracking down here considering property expenses are the second biggest source of tax deductions and more than two million Australians own a rental property.

“The key to getting your property claims right is to understand what you can and can’t claim and to take professional advice,” he said.

“There have been recent changes to block some types of tax deductions that most property owners have previously claimed – like travel costs to their rental property or depreciation on certain items of plant and equipment – so it’s easier than ever this year to make inadvertent mistakes; some professional guidance is essential.”

Preparing for tax time:

More generally, Mr Chapman said there were simple things you could do to prepare for tax time, including collating invoices and receipts for expenses you think might be deductible.

“Don’t forget that if you can’t prove you spent the money, you can’t claim the deduction so it definitely pays to make sure you have all your paperwork ready by the time you start to prepare your return,” he said.

“If you can’t find a receipt or invoice, a bank or credit card statement will do provided the expense is highlighted and you can clearly tie the amount on the statement back to the item you bought.”

He said is was also not too late to spend some money on tax deductible items.

“If you buy a work-related capital item like tools, a phone, tablet, handbag or briefcase, the entire cost can be written off straight away provided it costs less $300,” he said.

“You can also make charitable donations and provided the donation is more than $2 and to a deductible gift recipient, the donation will be deductible.”

Mr Chapman said rental property owners could also consider making extra payments on their mortgage before June 30, with the interest “tax deductible”.