The ATO on Thursday warned taxpayers that it will set its sights on ineligible work-related expense claims come tax time, issuing expense advice to those planning to make claims related to working from home, personal protective equipment, clothing and laundry, self-education, car and travel.
“While it’s good to see most people have been doing the right thing, our data analytics will be on the lookout for unusually high claims this tax time,” said Tim Loh, assistant commissioner at the ATO.
“Particularly where someone’s deductions are much higher than others with a similar job and income. We will also look closely at anyone with significant working-from-home expenses that maintains or increases their claims for things like car, travel or clothing expenses.
“You can’t simply copy and paste previous year’s claims without evidence. But we know some of these unusual claims may be legitimate. So, if you explain your claim with evidence, you have nothing to fear.”
According to the ATO, about 8.5 million Australians claimed nearly $19.4 billion in work-related expenses for the 2020 income year.
The Tax Office pointed to 2020 data that showed the value of car and travel expenses dropped by nearly 5.5 per cent, while the value of clothing expense claims saw an increase of about 2.6 per cent, as frontline workers were faced with “first-time” expenses for items like face masks and sanitiser.
Mr Loh said that, as the pandemic forced swathes of the workforce to work from home, work-related expenses are expected to spike for the 2021 income year. However, taxpayers should be aware that some expenses, like travel, might not be eligible.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Mr Loh said. “But, if you are working at home, we would not expect to see claims for travelling between work sites, laundering uniforms or business trips.
“We also want to reassure the community that we will be sympathetic to legitimate mistakes where good-faith efforts have been made. However, where we spot people deliberately claiming things they’re not entitled to, we will take firm action.”
For taxpayers whose jobs require them to come into physical contact or close proximity to customers or clients, items like gloves, face masks, sanitiser and anti-bacterial spray may be claimed as work-related expenses.
However, to claim PPE, a taxpayer must have used the items(s) for work and paid the upfront cost themselves, the ATO said.
On work-related expense claims related to clothing and laundry, self-education, car and travel, the Tax Office said it expects last year’s downward trend to continue.
“In 2020, we saw a decrease in the value of work-related expenses for cars, travel, non-PPE clothing and self-education as a result of the introduction of travel restrictions and limits on the number of people who could gather in groups,” the ATO said.
“We expect this trend to continue in the 2021 tax returns. If an employee is working from home due to COVID-19, but needs to travel to their regular office sometimes, they cannot claim the cost of travel from home to work, as these are still private expenses.”
The Tax Office also reminded taxpayers that the temporary shortcut method for claiming work-from-home expenses will be available for the full 2020–21 financial year.
The method, which in January was extended to 30 June this year, allows taxpayers to claim a fixed rate of 80 cents an hour for all running expenses incurred as a result of working from home, as opposed to calculating costs for specific expenses.
The ATO earlier this month urged all taxpayers to be aware that, while the temporary shortcut method will remain available to those claiming work-from-home deductions this year, personal and occupancy expenses, among others, cannot be claimed through any method.
Personal expenses like coffee, tea and toilet paper cannot be claimed by taxpayers who were forced to adapt from hybrid working arrangements last year. Other ineligible expenses include those related to a child’s education as well as large upfront costs.
Those could include any asset that costs over $300, like a computer, which can’t be claimed immediately and should instead be spread out over a number of years.
The ATO also warned that employees generally aren’t able to claim rent, mortgage interest, property insurance, or other land taxes and rates. The Tax Office said that working from home does not make a taxpayer’s home a place of business for tax purposes.
The ATO warned that claiming occupancy expenses could expose some taxpayers to capital gains tax when they leave their homes.
John Buckley is a journalist at Accountants Daily.
Before joining the team in 2021, John worked at The Sydney Morning Herald. His reporting has featured in a range of outlets including The Washington Post, The Age, and The Saturday Paper.