This tax time, the ATO will be closely examining claims for work-related clothing and laundry expenses. Assistant Commissioner Kath Anderson said, "last year around six million people claimed work-related clothing and laundry expenses, with total claims adding up to nearly $1.8 billion. While many of these claims will be legitimate, we don't think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing." Clothing claims are up nearly 20% over the last five years and the ATO believes many taxpayers are making mistakes or deliberately over-claiming.
The ATO says that around a quarter of all clothing and laundry claims were exactly $150, which is the threshold above which taxpayers are required to keep detailed records about the expenses. "We are concerned that some taxpayers think they are entitled to claim $150 as a 'standard deduction' or a 'safe amount', even if they don't meet the clothing and laundry requirements", Ms Anderson said.
She said the $150 limit is there to reduce the recordkeeping burden, but it is not an automatic entitlement for everyone. "While you don't need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim", the Assistant Commissioner said.
Ms Anderson also warned that "far too many are claiming for normal clothing, such as a suit or black pants. Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line. Others think they can claim normal clothes because they bought them just to wear to work."
The ATO is concerned that the results from its random audit program show lots of taxpayers over-claiming by a small amount. "We know that some people think $150 is not a large amount and that nobody will notice if they over-claim. But while $150 might not be big individually, when you multiply it over millions of taxpayers, it adds up to a lot. And besides, no matter how small, other Australians shouldn't be expected to wear your over-claiming."
Case studies from the ATO
An advertising manager claimed $1,854 for clothing and laundry expenses. Her claim was for clothing purchased at popular fashion retail stores. When the ATO contacted her, she said she represented her company at work functions and awards nights and was required to dress a certain way. The ATO explained that expenses for conventional clothing are not deductible, even if the taxpayer is required to wear them for work, and/or only wear them for work.
A car detailer claimed work related laundry expenses of over $20,000 per year over two years. When questioned, the taxpayer told the ATO he worked out the laundry expense at the rate of $227 per hour, as he valued his personal time. He then made a voluntary disclosure that his claim was excessively high and in no way a reasonable amount to claim. The ATO said the taxpayer's claims were reduced to $0 in accordance with his voluntary disclosure. As he made a voluntary disclosure before the audit progressed, no penalties were applied.