How lenient is the ATO with tax claims?
As one of the prime governing bodies in Australia, the ATO’s job is to ensure fair and reasonable methods are employed go generate revenue for the country and equally, fair and reasonable methods are available to claim deductions in the course of generating revenue for individuals and businesses.
Yet, every year businesses & individuals try their luck with tax claims that they ‘believe’ either don’t need substantiation or those that somehow fall below the ATO’s radar.
Here is what the ATO website states about deductions you can claim:
“When completing your tax return, you're entitled to claim deductions for some expenses, most of which are directly related to earning your income.”
And, to claim a work-related deduction:
you must have spent the money yourself and weren't reimbursed
it must directly relate to earning your income
you must have a record to prove it.
One area that used to be widely mis-understood was that of vehicle deductions.
A tool of trade vehicle, i.e. those that are solely used for the purpose of business such as utes and trucks are relatively straightforward.
However, vehicles used by professional services – sales people and the like, require substantiation.
What can I claim for vehicle expenses?
The two methods available from 1 July 2015 are:
cents per kilometre method (with some changes)
logbook method (with no change to its rules).
You can find more information about the actual methods on the ATO website - car expense claims.
Regardless of method though, you must be able to substantiate that your car was used for business purposes and that, if you’re an employee, you were not reimbursed for the use of your car by the employer.
So, what areas are the ATO cracking down on in 2018 from an individual’s point of view?
Incredibly, about six million people last financial year claimed work-related clothing and laundry expenses, with total claims adding up to nearly $1.8 billion which was a 20% rise over the last five years.
Assistant Commissioner Kath Anderson said, “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.”
And that’s the issue – if you’re required to wear a uniform for work, then claiming laundry, dry cleaning and ironing as an expense may well be quite legitimate.
However, if you wear standard black pants, a suit or even casual clothes to work – then this is a no-go zone – be warned! This is somewhat a common question asked by people working with chains like David Jones and Myers who are required to wear black pants.
So, what triggered the ATO to home in on laundry expenses?
A quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records.
The ATO now employs highly sophisticated tracking and monitoring technology that looks at patterns and anomalies - that enables them to, almost, act immediately rather than months or years down the track.
And the ATO website lists a number of legitimate tax claims, including travel to and from work (with conditions).
Many small-medium businesses are missing out on these legitimate claims – simply because they choose to engage in their own tax preparation.
Aperture Accounting can help unlock tax opportunities for small-medium businesses, contact us today on - 1300 APERTURE or 1300 273 788.