The ATO has found that certain “higher risk” expenses are typically incorrectly claimed by taxpayers time and again. If your clients persist in suggesting the following expense claims, it will pay to go over the details to make sure the claim is not knocked back.
Travel between home and work
Travel between home and work is generally considered as private, and accordingly the expense is not deductible. However, in some circumstances, travel expenses are claimable — however recommend to your clients that they tread carefully, as this has been a hot focus area for the ATO. A general list of eligible and ineligible claims is laid out in the table below.
ATO example: A railway guard claimed $3,700 in work-related car expenses for travel between his home and workplace. He indicated that this expense related to carrying bulky tools – including large instruction manuals and safety equipment. The employer advised the equipment could be securely stored on their premises. The taxpayer’s car expense claims were disallowed because the equipment could be stored at work and carrying them was his personal choice, not a requirement of his employment.
This is a broad category that is receiving close scrutiny from the ATO. The general rule is that self-education expenses are deductible when the course you undertake leads to a formal qualification and has sufficient connection to your current employment and:
- maintains or improves the specific skills or knowledge you require in your current employment, or
- results in, or is likely to result in, an increase in income from your current employment.
Those courses that do not have a sufficient connection to your current employment are not deductible even though they might be generally related to it, or enable you to get new employment. Consider the inappropriate claims identified by the ATO below.
ATO example 1: A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When the ATO checked, it found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.
ATO example 2: A taxpayer claimed self-education expenses for the cost of leasing a residential property, which was not his main residence. The taxpayer claimed he had to incur the expense of renting the property as he “required peace and quiet for uninterrupted study which he could not have in his own home”. This was not deductible.
In addition to the rental expenses, the cost of a storage facility was claimed where “the taxpayer needed to store his books and study materials”. He claimed this was needed because of the huge amount of books and study material associated with his course and had no space in his private or rented residence where these could be housed. This was not deductible. The cost of renting the property was around $57,000, with additional expense of $7,500 for the storage facility. The actual cost of the study program he attended that year was only $1,200.
Car expenses are generally deductible if you use your own car or a car you lease in the course of performing your job as an employee, unless it is not work-related. The extent of any private use for the car is not claimable.
While there are two methods to calculate car expense deductions – the cents per kilometre method (66¢ per km for 2015-16), and the log book method – for the latter method a car logbook and odometer reading must be maintained to substantiate the claim on the business-use percentage. In this regard, the ATO has been focusing on log book readings to ensure that they are valid, otherwise deductions are denied.
ATO example: A taxpayer claimed deductions for car expenses using the logbook method. The ATO found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further inquiries identified that the taxpayer was out of the country. Their claims were disallowed.
Cost of tools and equipment
Another deduction people get wrong is where they incorrectly calculate extent of work usage for tools, equipment or other assets. Examples of tools, equipment or assets include:
- computers and software
- desks, chairs and lamps
- filing cabinets and bookshelves
- hand tools or power tools
- protective items, such as hard hats, safety glasses, sunscreens and sunglasses
- professional libraries
- safety equipment, and
- technical instruments.
Generally, the cost of the tools itself is on capital account and therefore not immediately deductible. A deduction is usually allowed for depreciation under the Uniform Capital Allowance provisions (Division 40 ITAA97).
However, for small value items of $300 or less, an immediate deduction may be claimable if used for work-related purposes. Note that if the asset is part of a set, its total value must be $300 or less.
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