ATO continues spotlight on business owners who wrongly claim travel deductions: Questions to ask before making a claim

SmartCompany, March 28, 2017

Business owners traveling for work may need to be careful what deductions they claim from the Australian Taxation Office (ATO), after a farm supervisor was denied over $30,000 in deductions.

Fairfax reports the ATO is continuing its focus on workers and business owners who incorrectly claim deductions for work-related travel, with the tax office recently winning a case in the Administrative Appeals Tribunal against a farm supervisor.

Glen Walker claimed deductions for meals, groceries, accommodation, fuel for his car, and mobile and Internet access over two years, totalling $30,782.

Read more: ATO has its eye on SME owners’ social media accounts: Why you should make sure your tax records are in order

Walker claimed these deductions as he moved from farm to farm for his supervising work. In 2015 the tax commissioner disallowed these deductions, and Walker applied for a review of this decision. On March 14, Administrative Appeals Tribunal Deputy President Ian Molloy affirmed the original decision, and found none of the expenses “arose from the nature of his work”.

“His travel to those locations, from the Sunshine Coast or elsewhere, was not a requirement of his employer, or of his employment, but a product of his choice to work,” Molloy said in the decision.

“Such travel was not a fundamental part of his work.”

When seeking deductions, business owners should keep in mind whether travel is a fundamental part of their work, says Lisa Greig, tax consultant and principal at Perigee Advisers. However, with the disruption of traditional working and business practises brought on by the gig economy, Greig says it can sometimes be hard to tell.

“It’s one of those things: is the deduction private or is it relating to work?” Greig told SmartCompany.

“With all this disruption and services such as Airtasker, people are becoming a lot more itinerant. You could have 20 different people working for you all over the city, or you could be working for yourself.”

An ATO spokesperson told SmartCompany it is “is generally concerned that some individuals may be seeking to claim travel and other expenses as an itinerant worker where they are not entitled to do so”.

The ATO says it is focusing on three “golden rules” for work related expenses, including that “you must have spent the money yourself and weren’t reimbursed, it must be directly related to earning your income, and you must have a record to prove it”.

Greig believes there’s a significant “grey area” when it comes to claiming travel expenses on tax, and many unclear claims are still being “tested” in court. However, she maintains there are some clear-cut examples.

“Going from your home to your place of work is considered private travel, so it’s not deductible. But if you run your business from home, travelling to and from seeing a client is considered a business expense,” she says.

“Additionally, travel in order to conduct extra study can be claimed as long as the study is directly related to your role or your career.

“With tax time approaching, this is a timely reminder of what you can and can’t claim as deductible expenses.”

SME owners should be “mindful” of claiming expenses

Despite more and more business owners and employees being mobile in their work in the modern day, Greig questions if the ATO’s rules have “kept up” with the way Australians work now.

Also, with the ATO’s renewed focus on data matching, Greig believes it’s much harder to claim deductions that aren’t “bona fide”.

“SME owners have to be more mindful of what they’re claiming now, you’ve got to make sure any expenses you claim are directly business related,” she says.

“Ask yourself: is the money I’m spending directly related to earning my income?”

Earlier in March, an ATO spokesperson told SmartCompany the office had its eye on industries where it sees frequent instances of businesses reporting “unrealistic income relative to the assets and lifestyle of the business and owner”.

Speaking generally about deductible expenses, an ATO spokesperson says “Individuals are entitled to claim deductions for expenses related to their work – no more and no less”.

“Individuals need to ensure that large claims are substantiated with evidence of the actual expenditure.”