The taxman has a hit list, so get your work deductions right!
This tax time, the Tax Office is continuing to pay close attention to the $19.5 billion in work-related expenses claimed each year as deductions by individuals when they lodge their tax returns.
Unlike previous years however, the Tax Office said it will not be limiting its attention to particular occupations. Instead it has promised that attention will be paid to certain categories of deductions.
The Tax Office said it will therefore focus on work-related expense claims relating to:
- overnight travel
- transporting bulky tools and equipment; and
- the work-related proportion of use for computers, phones or other electronic devices.
Of course the Tax Office will not neglect examining other claims. "If taxpayers are claiming work-related expense deductions, they must have spent the money, they must be related to their job and they must have a record to prove it," it said.
The Tax Office said it often sees people who do not separate private expenses from legitimate work-related ones. "You should claim deductions only for things you paid for with your own money that relate to earning your income."
Some of the common mistakes it sees include:
- making claims for home office, mobile phone and computer expenses without any evidence supporting how the claims were apportioned between private expenses and work-related expenses
- incorrectly claiming travel between home and work as a work-related expense
- receiving a travel allowance and claiming the full amount without actually having spent that much.
Basically,the Tax Office accepts a claim if there are records to back it up - but if not, there could be a problem. By way of example, it cites the case of a taxpayer who, over two income years, claimed approximately $27,000 in car expenses. The taxpayer attempted to support the claim using an incomplete logbook.
During the Tax Office's investigation, it was found that the trips claimed were for traveling to and from work, which are considered private in nature and not deductible. The result was that the taxpayer was required to pay almost $10,000 in tax and penalties.
Home office expenses
This is an area of deduction claims that continues to be a focus, and there are many legitimate expenses that can be claimed for a home office. However, also by way of warning, the Tax Office has highlighted the case of a teacher who attempted to make a huge claim for home office expenses.
The claim was for more than 3,000 hours of work-related use of a home office at 34 cents per hour, but without evidence. This meant use of the home office of approximately eight hours every day for work purposes. No evidence was provided to support the taxpayer's claim, so the claim of over $13,000 was disallowed in full.
As well, the taxpayer's claim for internet access, telephone and mobile phone use was adjusted as this was not broken down between private and work-related use. The Tax Office said a diary covering a typical four week period for use of these items would have been acceptable, but no such evidence was provided to support the claim. As a result, the claimed $1,250 was disallowed.
Finally, the taxpayer claimed for IT equipment and software but did not show how these items were split between private and work-related use. To support the claim the taxpayer was asked to provide estimates of work-related and private use over a four week period but they were unable to even provide this - with the result that their claim of more than $9,200 was disallowed in full.
The Tax Office said that in total, the taxpayer's home office expense claims were adjusted by almost $40,000, and they were required to pay almost $17,000 in tax and penalties.