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As the May tax deadline looms, Sylvia Gallagher of the ATO focuses on a few common errors and highlights some work-from-home claims the office will definitely rule out.
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ATO focuses on dodgy work-from-home claims
04 March 2022
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11 minute read
Deductions for biscuits, toilet paper and doggy day care are just a few of the more ambitious WFH claims to be rejected by the ATO in a bumper year for refunds.
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By mid-February the ATO had processed nearly 11.9 million returns and issued almost 9.5 million refunds at an average of $2,700 each.
But the ATO was taking a special interest in WFH deductions, acting assistant ATO commissioner Sylvia Gallagher said, with 4.1 million taxpayer claims already exceeding last year’s figure and a huge increase on 2019, when there were just 1.4 million.
Work-related expenses would continue to look different from the pre-COVID period for some time, Ms Gallagher told the Accountants Daily Strategy Day in Sydney last week.
She said almost one-in-five taxpayers took advantage of the temporary WFH shortcut method to claim deductions, which was introduced as work patterns changed during the pandemic.
It allowed taxpayers to claim 80¢ an hour WFH expenses and would be extended until the end of this financial year, with further extensions a decision for the government.
She said one advantage of the shortcut method was that clients did not require a dedicated workspace at home, a necessity for other forms of claim.
“Sometimes the other method is more appropriate but if clients claim the 80c they can’t claim anything else,” she said.
And with WFH the single largest source of deductions, the ATO would disallow anything that fell outside its guidelines.
“We’re noticing weird and wonderful claims where things don’t add up,” Ms Gallagher said. “So this is something we’re keeping an eye on, especially coming out of the pandemic.
“People are still claiming travel expenses and laundry expenses when they’re working from home full time.”
The fact that something was typically provided at work, she said, did not automatically make it deductible.
“We’ve seen claims for toilet paper, tea, coffee and biscuits because ‘if they’re provided at work then you should be able to have them at home,’ Ms Gallagher said.
“We’ve seen people claim for the cost of hotel quarantine, because they have to quarantine and they have to work.
“Doggy daycare is another one. Someone didn’t actually want their dog at home because it’s too destructive, so they decided they were going to try to claim doggy daycare.
“And good old Ugg boots – who doesn’t love a pair of Ugg boots.
“Obviously, we didn’t accept any of those.”
Another claim ruled out of bounds concerned the cost of setting up children for homeschooling.
Ms Gallagher said the ATO had made many adjustments to work-related expense claims and stressed the three golden rules still applied:
- The money must have been spent, and not reimbursed.
- The expense must have been directly related to income.
- There had to be a receipt.
“While people might have spent the money on a work-related expense if they don’t have the records, we have to rule it out,” Ms Gallagher said.
And while the intention was to exclude COVID testing from FBT, this was not yet law so records should be kept.
It was also important to only claim the work-related portion of any expense.
“People claim 100 per cent of phone use, but we know that a lot of people use a percentage of their phone for work and personal,” Ms Gallagher said.
Ms Gallagher also highlighted some common mistakes in claiming deductions for rental income, the second most frequent cause of adjustments by the office.
Common mistakes included rental property owners incorrectly claiming costs incurred in travelling to rental properties or claiming for interest on a loan that was only partially related to the rental property.
“We find that people are claiming interest for loans including a boat or going on holiday. We see that and act on that,” Ms Gallagher said.
It was also important to distinguish between ongoing repairs and capital work on property improvement.
“Obviously you can repair damage once you’ve already acquired the property but for existing damage, that’s not tax deductible,” Ms Gallagher said.
“Repair and maintenance for something that’s broken, damaged or deteriorating is immediately deductible, but if there is an improvement that’s deductible over time.”
So fixing a roof tile would be deductible, she said, but replacing the whole roof is a capital work.
She admitted it was a complex area and said the ATO offered a range of online tools and explanatory videos.
Ms Gallagher will also be present at a second Accountants Daily Strategy Day this Wednesday (9 March) in Melbourne.
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