The ATO has announced that this year they will be paying close attention to taxpayers claims for ‘other’ work-related expense deductions.

Expenses of this nature can include home office, union fees, mobile phone and internet, overtime meals and tools and equipment. $7.9 billion in claims of this type were recorded last year by approximately 6.7 million Australian taxpayers.

The ATO will be looking for expense claims that are higher than other taxpayers who are in the same occupation and may contact employers to validate claims.

As these expenses are incurred throughout the year, we are reminding clients of the importance of good record keeping to ensure you have the evidence to back up legitimate claims and calculations.

The ATO is also warning against claiming private expenses where they are bundled with work expenses. If your expenses are for both work and private use, you can only claim a deduction for the work-related portion.

“We are seeing quite a few examples of people trying to claim the whole expense, including the private portion. Like some who incorrectly claim their entire phone and internet bundle, and others who claim an overseas study trip even though they had a holiday as part of the trip,” said ATO Assistant Commissioner Kath Anderson.

Substantiating your expense claims

According to the ATO, there are “golden rules” which apply to expense deductions:

1. You must have paid for the expense and not been reimbursed.

Note that expenditure may be deductible if you have received an allowance rather than a reimbursement from the employer.
See TR 92/15 on the difference between an allowance and a reimbursement.

2. The expense must be directly related to earning your income and not a private expense.

If the expense is for both work and private use (e.g. mobile phone or internet), you can only claim a deduction for the work-related portion.

3. You must have records to prove your claim.

Generally, records to support all deductions must be kept for five years from lodgement.
You must have written evidence to prove their claims if the total claims exceed $300. The records must prove the total amount, not just the amount over $300.
The $300 limit does not apply to claims for car expenses, meal allowance, award transport payments allowance, or travel allowance expenses. There are special written evidence rules for substantiating these types of expenses.

Claiming home office expenses

If you’ve set up a home office, or run your business entirely from home, you need to be aware of the allowable tax deductions you can claim and how to keep records that substantiate your claim.

Home office expenses fall into two broad categories: occupancy costs and running costs.

1. Occupancy costs can include rent, mortgage interest, rates, repairs, cleaning and house insurance premiums.

2. Running costs include:

Home office equipment including computers, printers and telephones. You can claim the full cost (for items up to $300) or the decline in value (for items $300 or more).
Work-related phone calls (including mobiles) and a portion of phone rental.
Heating, cooling and lighting – you can claim the proportion of utility bills that directly relates to the time you spend working in your home office.
Cost of repairs to your home office furniture and fittings.
Cleaning expenses.
Computer consumables, stationery, telephone and internet costs.

Home office occupancy expenses can only be claimed if your home is also your principal place of business and you’ve set aside a dedicated area for the running of your business.

If you only work from home occasionally then you can’t claim occupancy expenses – even with a dedicated work at home area. You may however be entitled to claim a deduction for running costs.

Read our article Home Offices – What You Can and Can’t Claim for further information on calculating these expenses.

Claiming tools and equipment

If you buy tools, equipment or other assets to help earn your income, you can claim a deduction for some or all of the cost. Tools and equipment used for both work and private purposes will need to be apportioned so you’ll need to keep records (such as a diary) to show how you worked out your claim.

The type of deduction you claim depends on the cost of the asset:

Items that don’t form part of a set and cost $300 or less, or form part of a set that together cost $300 or less, can be claimed as an immediate deduction.
Items that cost more than $300, or that form part of a set that together cost more than $300, can be claimed as a decline in value.

You can also claim the cost of repairing and insuring your tools and equipment and any interest on money you borrowed to purchase these items.

Claiming overtime meals

If you are paid an overtime meal allowance under an industrial award and buy food and drink on overtime, you can claim up to the reasonable allowance expense amount the ATO have set without getting written evidence.

However, you can still only claim the amount you have actually spent. If you need to claim more than the reasonable allowance expense amount, you need to keep written evidence of your expenses.

Generally, you must include amounts received as overtime meal allowances as income on your tax return. However, if your award overtime meal allowance was not shown on your payment summary and was not more than the reasonable allowance amount for each meal, you don’t have to include the amount on your tax return providing that you:

Have fully spent the allowance, and
Don’t claim a deduction for overtime meal expenses.

See TD 2016/13 for more information on reasonable travel and overtime meal allowance expenses. Note that this ruling is currently being updated. The draft taxation ruling TR 2017/D6 is currently subject to submissions.

Claiming deductions for specific industries and occupations

You may be able to claim deductions for expenses that relate to specific kinds of work. The ATO have issued a suite of taxation rulings for these employees to help you correctly claim the work-related expenses you are entitled to.

Further help:

The Marsh & Partners team can help you get your expense claims right and have many years’ experience dealing with ATO audits and substantiation requests.

If you would like further advice about your work-related expense claims, or need help setting up a record keeping system, please contact our bookkeeping team. As well as being expense claim experts, our bookkeepers offer expertise in:

Fringe Benefits Tax

Payroll advice and calculations

Payment summaries and reporting

ATO payment arrangements

Contractor payments

Find out more about our Bookkeeping Services.

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