A professional sales commission agent has been largely unsuccessful before the AAT in claiming deductions for work-related expenses, including home office expenses, various grocery items and overtime meal allowances.

Background

The taxpayer was a professional sales commission agent. His employer did not provide him with a dedicated office or workspace. In his 2010 to 2012 income tax returns, he claimed large deductions for home office expenses and work-related travel. Originally, the taxpayer claimed that 31.6% of his house (including the family living room, which he called the "meeting room", and a roof storage area) was being used solely for work purposes.

The taxpayer was audited on his 2010 tax return (where he claimed over $97,000 worth of expenses to reduce his taxable income to $21,000). When the matter came before the AAT in 2014, it disallowed numerous home office deductions and rejected his claim that his living room was a "meeting room", but allowed a home office percentage of 11.7% (see Re Ogden and FCT [2014] AATA 385).

The current case concerned the taxpayer's deduction claims in his 2011 and 2012 tax returns. His original claims (which changed throughout the course of the audit and AAT proceeding), totalled over $63,000 for 2010–2011 and over $53,000 for 2011–2012, which represented at least 30% of his employment income. The Commissioner disallowed various deductions and applied a 25% shortfall penalty for failing to take reasonable care.

When the matter came before the AAT, the claims that were still in dispute included the amount of the home office expenses, overtime meal allowances, "staff and client amenities" (including toilet paper, pocket tissues, Bega Stringers Cheese, Tiny Teddies and Weight Watchers Lamingtons), "business meals" for his accountant, a desk in his son's bedroom, sunscreen, sunglasses and $383 on a pair of RM Williams rubber-soled shoes, which the taxpayer claimed prevented his computer being damaged by static electricity. The taxpayer also claimed expenses spent on a Dora the Explorer pencil case, heart and star shaped stickers, depreciation on an outdoor patio setting and a $5,388 payment to his seven-year-old son for "secretarial assistance" (a claim which the taxpayer abandoned during the proceedings).

Decision

The AAT found that the taxpayer's home office claims were "wildly excessive", and that the taxpayer and his representatives failed to critically analyse how these claims helped produce the taxpayer's assessable income. In particular, the AAT said that the claim that the family living room was being used solely for work meetings "should never have been made", noting that the taxpayer's approach had been to find "some relationship, no matter how remote" to his work in order to claim deductions. In relation to an initial claim for 31.6% of his home loan interest expenses, the AAT said it was "difficult to understand how a registered tax agent could allow such a claim to be made". The AAT found that the taxpayer's home office represented around 1.8% of the family home.

The AAT rejected everything claimed under "staff and client amenities", as it considered the products were overwhelmingly consumed by the taxpayer's family, thereby making the claims "outrageous and utterly unacceptable". The claimed meal allowances were also rejected in their entirety. Regarding expenses on the rubber-soled shoes, the AAT commented that it appeared to be yet another example of the taxpayer's evidence ranging from "the exaggerated to the implausible", and accordingly rejected the claim. The AAT did not seek to disturb heating and lighting expenses that the Commissioner had allowed, but noted that the taxpayer was "fortunate" to have been allowed these.

Considering the various deductions claimed, the AAT said a 25% administrative penalty appeared "somewhat generous" to the taxpayer. The AAT gave leave to the Commissioner to reconsider the penalty issues, and to consider whether to apply a 20% uplift, given the numerous statements made by the taxpayer and how they changed over time. It also noted that different levels of culpability may apply to different statements.

Re Ogden and FCT [2016] AATA 32, AAT, File Nos 2014/5943; 2014/5957; 2014/6763; 2014/6764, Frost DP, 29 January 2016, www.austlii.edu.au/au/cases/cth/AATA/2016/32.html.