21st May, 2018

The tax deductions on this year’s ATO hit list

Every year the ATO makes it known what sort of deductions will be getting the eagle eye. So far, here’s what we know about this year.

The ATO publicly flags a couple of areas it’s looking at because (surprise, surprise) it’s not really trying to scrounge every dollar it can from you.

It just wants to stop people from over claiming (accidentally or otherwise), and the main drivers are:

  1. It costs the taxpayer money if people successfully claim deductions they’re not entitled to.
  2. Chasing up fraudulent claims is a time-consuming hassle, despite the ATO’s fancy tech toys on hand.

So, if the ATO stops people making fraudulent claims in the first place by giving them a heads-up, then it’s happy days all-round.

Aside from making certain your online accounting software is up to date, you should pay special attention to the things the ATO says it is targeting. Here’s what it’s flagged for this year:

Gig economy’ incomes

The ATO told The Pulse that it’d be looking closely at the incomes of so-called “gig economy” workers or those earning money from gig economy activities such as renting out a room on Airbnb.

“Individuals who choose to rent their vehicle or rooms in their homes through the sharing economy are entitled to certain deductions,” the ATO said.

“However, these expenses must relate directly to the earning of income and accurate records or receipts may be required to back up a claim. No matter how little you earn through car or room sharing, it’s important to include it in your tax return.

“The ATO can see when these transactions take place. We’ve sophisticated systems that can match data from hundreds of sources to identify where these peer-to-peer transactions are transferring money. We will be using this data to make sure claims are being put in correctly.”

Work-related expenses

The ATO also said it’s on the lookout for claims made for work expenses. There’s a trend to not give much proof that the claim is for a work-related activity.

It said 6.7 million Australians claimed a record $7.9 billion in work-related deductions last financial year, so it’s checking if people were claiming these correctly.

In the firing line are claiming deductions for entire phone call costs, when some of these phone calls were personal, and home-office expenses.

But the ATO said it’s also keeping a special eye out for work-related clothing expenses.

“Many taxpayers do wear uniforms, protective or occupation-specific clothing and have legitimate claims. However, far too many are making mistakes such as claiming for plain clothing they bought to wear to work, like a suit or black pants,” it said.

It turns out that you can’t claim a deduction for what’s called ‘conventional clothing’ even if your boss tells you to wear it.

The ATO said occupation-specific clothing can be chequered chef pants, while protective clothing like hi-vis safety vests and steel-capped boots can be claimed as deductions.

“While you don’t need written evidence for claims under $150, you must be able to show us how you calculated your claim,” it said.

“There’s no such thing as a standard deduction for clothing and laundry, and there’s no safe level to claim a deduction where you haven’t spent the money or where an expense isn’t directly related to earning your income.”

READ: Freelancers and tax time

Car expenses

The ATO advised there were $8.8 billion in car-related claims during the last financial year – coming from 3.75 million people.

That’s a whopping $2347 per person.

The ATO’s concerned that people are claiming private trips, trips they didn’t make, or trips or car expenses that have already been paid by their employers.

What made the ATO raise an eyebrow for car-expenses claims is that 870,000 people claimed the absolute maximum amount they could for work-related travel under 5000kms.

“It’s legitimate to claim for 5000 kilometres if you did actually do them as part of earning your income,” ATO Assistant Commissioner Kath Anderson said earlier this year.

“We’re concerned that some taxpayers mistakenly believe that this is a ‘standard’ deduction they’re entitled to, without needing to provide any evidence of having travelled that distance or even having undertaken any travel at all.”

While you don’t need to provide a log book for claims under 5000km, you need to provide some record of travelling to the places you said you did.

What’s more, the ATO’s data analytics unit’s getting better all the time – it’ll be able to match up your claim with others in your industry earning similar incomes.

So, claiming above the average claim may just ring the alarm.