This tax time, the ATO, as usual, has nominated some tax claim hot spots that it will be paying attention to — and which you could warn clients who may be likely to claim these deductions with abandon.
For example, the ATO has already flagged that it will be checking returns for taxpayers who take advantage of the exemption from keeping receipts when spending less than $150 on laundry expenses. The ATO believes that too many people are claiming this without actually incurring the expense.
In an announcement issued 4 June, the ATO said that for last financial year around six million taxpayers claimed work-related clothing and laundry expenses that totalled about $1.5 billion. It said that 25% of all laundry and clothing claims were exactly at the record-keeping limit.
Assistant Commissioner Karin Foat said in the ATO announcement that it viewed as “unlikely” that so many working taxpayers would be required to wear uniforms, protective clothing or occupation-specific clothing to earn assessable income.
“Your workplace may expect you to wear clothing items like suits or black pants,” Foat said. “But an official ‘dress code’ doesn’t qualify as a uniform and you can’t make a claim for normal clothing, even if your employer requires you to wear it, or you only wear it to work.”
The ATO also points out that its increasingly thorough data analytics capabilities can identify unusual claims by comparing taxpayer returns to others in similar occupations. “Our data analytics will flag claims that are significantly above the average in occupations that regularly claim for laundry, like chefs or security guards. It will also flag claims made by people in occupations that usually don’t claim, like office workers,” she said.
Helping your clients correctly calculate their laundry claim
If a client is claiming $150 or less for clothing and laundry (and less than $300 for work-related expenses in total), they will be well advised to:
- Make sure their claim is for eligible clothing (occupation-specific, protective or uniform). Remind them that they can’t claim for plain or conventional clothing, even if their employer requires them to wear it, and even if they only wear these at work.
- Calculate their claim for washing, drying and ironing at:
- $1 per load if the load is made up only of work-related clothing
- 50c per load if they include other laundry items
- The ATO, especially this tax time, may ask for some sort of substantiation to demonstrate how often they wore their eligible clothing (for example, evidence that a taxpayer worked three shifts a week for 48 weeks in a year).
Case studies where clothing claims were knocked back
A retail assistant working in a fashion store claimed more than $700 for store brand clothing she had purchased and was expected to wear to work. As the clothing was conventional she was not able to claim a deduction, and her claim was disallowed.
A stockbroker claimed the cost of purchasing suits, which he regarded as his ‘work uniform’. While many workplaces have a written or unwritten dress code, his suits are considered conventional or everyday clothing and his claim was refused.
Conventional clothing such as black trousers and a white shirt, or a suit, are not sufficiently distinctive or unique to an employer. Clothing in a specific colour or brand isn’t enough to classify clothing as a uniform.
If a client is seeking more guidance on what can or can’t be claimed, here is an ATO web page that should help.