The ATO has warned taxpayers to avoid making incorrect claims for work-related expenses at tax time this year. This year, the ATO is using real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses for work vehicles, travel, internet and mobile phones, and self-education. 

Many taxpayers do not have a good understanding of what deductions they can claim, and believe they can claim for items which they in fact cannot. For example, some taxpayers think they can make a standard claim of $300 without having spent the money. This isn't true! While receipts are not needed for claims up to $300, taxpayers must have actually spent the money claimed, and be able to show the ATO how they worked out their deductions if asked. Deductions for work uniforms are a common area of confusion for employees at tax time.

Commissioner flags work-related expense claims as a problem area

In a wide-ranging address to the National Press Club in Canberra, ATO Commissioner Chris Jordan recently stated that the next big challenges for the ATO are influencing community attitudes about paying tax and minimising "tax gaps".

No tax system has, or ever will have, zero gaps, but the challenge is to minimise them, he said. For large corporates, the ATO believes that the tax gap is around $2.5 billion – equivalent to about 6% of collections. Mr Jordan said the gap suggests that the ATO is collecting around 94% of the corporate tax that it should be getting from this market, with 91% coming in voluntarily and 3% through compliance interventions. This $2.5 billion gap is well below the figure of $50 billion thrown around by various commentators, he said. However, the ATO considers that the tax gaps for small business and individuals are likely to be bigger than those for the large market.

For individuals, Mr Jordan said the risks of non-compliance are mainly around work-related expenses, with over $22 billion in claims for 2014–2015. Random and risk-based audits are showing many errors and over-claims for work-related expenses, stemming from legitimate mistakes and carelessness through to recklessness and fraud, Mr Jordan said.

The ATO is also concerned about the large number of incorrect claims made for work-related clothing and laundry expenses and the cents-per-kilometre method for car expenses. In 2014–2015, around 6.3 million people made claims against clothing expenses, totalling almost $1.8 billion. On that basis, the Commissioner said that almost half of the individual taxpayer population was required to wear a uniform, protective clothing or had special requirements for items like sunglasses and hats. While many of these claims would be legitimate, Mr Jordan wondered how many people have assumed that they can just claim $150 regardless of whether they have spent that amount on the required items. Similarly, he said some individuals are claiming for car expenses but their employers have told the ATO there is no requirement for the employees to use their car for work, or individuals are making claims that are excessive, with the assumption that no explanation is required.

Appeal case: work-related expenses partly allowed

In a recent appeal case, the Administrative Appeals Tribunal (AAT) has partly allowed a taxpayer's claims for work-related motor vehicle expenses, work-related travel expenses, self-education expenses and other work-related expenses for the year ended 30 June 2012: Amin and FCT [2017] AATA 1042.

During the relevant year, the taxpayer was a vendor relationship manager at a company that provided infrastructure management services. He claimed various amounts for work-related motor vehicle expenses, work-related travel expenses, self-education expenses and other work-related expenses which the Commissioner disallowed.

The AAT said the only substantive tax issues for it to decide were whether the taxpayer was entitled to the deductions for the following:

  • Work-related motor vehicle expenses: the AAT found that the taxpayer failed to prove the legitimacy of his $36,079 claim. Based on the limited evidence before the AAT, it was not convinced that the taxpayer was required to travel as part of his employment in the relevant year and did not any claim for work-related car expenses. Among other things, the AAT noted that the taxpayer apparently "claimed to be using his Maserati vehicle 100% of the time for work purposes. This was contrary to the log book, to the extent that was reliable, that referenced some private usage".
  • Work-related travel expenses: the taxpayer had claimed $7,185. The AAT allowed the full cost of air fares for the taxpayer's US trip for a work-related conference and meetings (the Tribunal held that the costs could not be apportioned), but held that accommodation expenses should be apportioned (as they were charged separately).
  • Work-related self-education expenses: the Tribunal allowed some, but not all, of the $21,944 in self-education expenses that the taxpayer had claimed.
  • Other work-related expenses: The taxpayer had claimed an additional $8,371 of expenses. The AAT allowed depreciation on a computer, which it was satisfied it was used in gaining or producing the taxpayer's assessable income, but disallowed the other claimed work-related expenses.