Tax office’s $150 deduction warning
The ATO has sent out a warning saying it will target Australians making false claims on clothes and laundry bills after it cost the system $1.5 billion last year.
It's not against the rules to claim uniforms or laundry costs as part of a tax return but about six million made claims last year and it became clear to the Australian Taxation Office that too many are "pushing the boundary".
In 2018, a quarter of those claims were for the minimum amount needed without a receipt - another sure sign the system is being cheated, says assistant commissioner Karen Foat.
"You must have spent the money you are claiming on buying or cleaning eligible clothes," she said. "While you don't need receipts for claims up to $150, we can ask how you calculated your claim.
"We may even ask your employer if you have a required uniform."
Ms Foat said many get confused at tax time thinking that non-branded regular clothes worn at work can be claimed.
"Your workplace may expect you to wear clothing items like suits or black pants," she 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 has sophisticated tools which studies each return to catch those who are claiming out of pattern compared to their industry and income level, the assistant commissioner said.
"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," Ms Foat said.
"We don't ignore incorrect claims just because they are small, because small amounts add up. "No matter how small, it's not OK to expect other Australians to pay for your dodgy claims. "The ATO will be taking strong action this tax time to protect honest taxpayers who are claiming the right amount - no more and no less."
"Firstly, people will have their claims removed," she told news.com.au.
"But if we do find that people are deliberately pushing the boundaries then they not only have their claims removed but they can face penalties."
The ATO has promised to be more aggressive this year amid a dramatic escalation in its crackdown on the $8.7 billion "tax gap".
Car expenses will also be closely scrutinised, along with investment property deductions and earnings from cryptocurrencies and sharing economy platforms like Uber.
"I think just the intensity of the focus is probably different this year," said H&R Block director of tax communications Mark Chapman.
"The ATO has been given additional resourcing by the government to back up the work they're doing in relation to noncompliance. I think we'll see far more audits and more letters in relation to incorrect claims around work-related expenses and property, and we'll see far more data-matching around cryptocurrency and the sharing economy."
Mr Chapman said "hundreds of thousands of people" had received letters last tax time after their claims were flagged as unusual or the ATO discovered undeclared income by cross-checking data provided from third parties.
"An audit is really just one component," he said. "They do a lot of investigation in this space through technology - they data-match, they have benchmarks, if expenses are outside the norm people will get a letter which is not a full audit, it invites them to think again."
Mr Chapman said the most important thing to remember was that if you "can't substantiate it, you can't claim it". "Make sure you've got the receipt or invoice or bank statement that proves you incurred the expense," he said.
WORK EXPENSES TO WATCH*
• Claims for work-related clothing, dry cleaning and laundry expenses. The ATO has flagged it will be checking taxpayers who take advantage of the exemption from keeping receipts for people who spend less than $150 on laundry expenses. The ATO believes too many people are claiming this without actually incurring the expense.
• Deductions for home office use, including claiming for "occupation" costs like rent, rates and mortgage interest, which are not allowable unless you're actually running a business from home.
• Overtime meal claims
• Union fees and subscriptions
• Mobile phone and internet costs, with a particular focus on people who are claiming the whole (or a substantial part) of the bill for their personal mobile as work related.
• Motor vehicle claims where taxpayers take advantage of the 68-cent-per-kilometre flat rate available for journeys up to 5000km. The ATO is concerned too many taxpayers are automatically claiming the 5000km limit regardless of the actual amount of travel.
• Incorrectly claiming deductions under the rule that allows taxpayers who have incurred work-related expenses of $300 or less in total to make a claim without receipts. The ATO believes some taxpayers are claiming this - or an amount just under $300 - without actually incurring the expenses at all.
DODGY PROPERTY DEDUCTIONS*
• The ATO has announced it will be paying close attention to excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
• It will also be looking at the incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income rather than jointly.
• It will be looking at holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can't be claimed. This is particularly important for holiday homes where the ATO regularly finds evidence of homeowners claiming deductions for their holiday pad on the grounds it is being rented out when in reality the only people using it are the owners, their family and friends, often rent-free.
• It will be keeping a close eye on incorrect claims for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and pushing back against claims that don't stack up.
SHARING ECONOMY SHAKE-UP*
• The ATO will also be looking closely at those working in the shared economy to ensure income and expenses are correctly reported.
• Examples include transporting passengers for a fare (Uber), renting out parking spaces, providing skilled services such as web or trade services (Airtasker), supplying equipment or tools, completing odd jobs, errands or deliveries, or renting out equipment such as tools, musical instruments or sports equipment.
• Renting out a room or house for accommodation is a big one. Airbnb hosts are the obvious example. The ATO is believed to be particularly concerned about taxpayers claiming the full CGT main residence exemption when part of their main residence has been rented out through Airbnb - the law prevents a full CGT exemption where part of a main residence has been used to earn income.
* Source: H&R Block