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There can be varied sources for some of the myths about tax deductions for employees —pub-talk, BBQ-banter, hairdresser-homilies, what-your-taxi-driver-just-heard and many others. We sort out fact from fiction.

This year’s tax time saw media reports about various outlandish tax claims — for example the ATO being faced with claims for dental expenses, gambling losses, Lego sets, sunscreen (and an umbrella) for cigarette breaks, and even the cost of a wedding reception (all rejected, by the way). The ATO are having a field day auditing dodgy tax returns, which is why we take great care to protect our clients.

How certain myths are started about what can or can’t be claimed on tax is anyone’s guess, but it is these snippets of misinformation about allowable tax deductions that can lead unaware taxpayers to make incorrect claims — and get the taxman’s attention.

Let’s bust these common myths and focus on what you really can claim!

 

Fiction: Everyone can automatically claim $150 for clothing and laundry, 5,000km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money.

Fact: There is no such thing as an “automatic” or “standard deduction”. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you don’t need receipts for claims under $300 for work-related expenses, $150 for laundry expenses (note: this is for laundry expenses only and does not include clothing expenses) or if you are claiming 5,000km or less for car expenses under the cents per kilometre method, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.

Fiction: I don’t need a receipt, I can just use my bank or credit card statement.

Fact: To claim a tax deduction you need to be able to show that you spent the money, what you spent it on, who the supplier was, and when you paid. Bank or credit card statements alone don’t have this information. The only time you don’t need these details is if substantiation exceptions apply (here’s what the rules say about travel substantiation exceptions for example).

Fiction: I can claim makeup that contains sunscreen if I work outside.

Fact: We all like to look good, but unless you’re a  performer using stage make-up your cosmetics are a private expense and the addition of sun protection does not make it deductible. It may however be deductible if the primary purpose of the product is protection from sun damage (that is, it has a high SPF rating), and that the cosmetic component is incidental, and you need to work outdoors in the sun.

Fiction: I can claim my gym membership because I need to be fit for work.

Fact: While you might like to keep fit, there are only a very small number of people who can claim gym memberships, such as special operations personnel in the Australian Defence Force. To be eligible, your job would have to depend on you maintaining a very high level of fitness, for which you are regularly tested. Or you may be required to increase your fitness level for a physically demanding role, for example as a performer who has to do trapeze acts.

Fiction: I can claim all my travel expenses if I add a conference or a few days’ work to my holiday.

Fact: If you decide to add a conference or some work to your holiday, or a holiday to your work trip, you must apportion the travel expenses between the private and work-related components, and only claim the work-related component. If the primary purpose of your travel is private, then only the costs of a work related side trip may be considered deductible.

Fiction: I can claim my work clothes because my boss told me to wear a certain colour.

Fact: Unless your clothing is a uniform that is unique and distinct to your employer, or protective or occupation-specific clothing you are required to wear to earn your income, you won’t be able to claim it. Plain clothes, like black pants, are not deductible even if your employer told you to wear them.

Fiction: I can claim my pay television subscription because I need to keep up-to-date for work.

Fact: A subscription to pay television is not ordinarily deductible. Keeping up-to-date on news, current affairs and other general matters usually will not have a sufficiently close connection with your employment activities to provide a basis for deducting these subscriptions. They are essentially private expenses. If you work in the TV and film industry, then you could maintain a 4 week diary of typical viewing for genuine research purposes to apportion your work related expense.

Fiction: I can claim home to work travel because I need to get to work to earn my income.

Fact: For most employees, home to work travel is a private expense.

Fiction: I’ve got a capped phone and internet plan, so I can claim both business and private phone calls and internet usage.

Fact: Unless you only use your phone and internet for work, you have to apportion the cost between work-related and private usage and only claim the work-related portion of your expenses.

Fiction: I got paid ‘per diems’ so I can claim a deduction for the maximum ATO reasonable rates for daily meals and incidentals, without receipts.

Fact: This one is our favourite of all the pub tax myths, because it is just so persistent! No… you cannot. The substantiation exception does not work that way. You may only claim the amount you actually spent and no more. If you ate hamburgers every day, you cannot claim the cost of classy restaurant meals every day. You can only claim what the hamburgers would have cost you.  You can also only claim the substantiation exception if you were an employee in receipt of a bona-fide travel allowance under an award, and if the allowance is taxable. Sole traders have to keep receipts.

 


This information is only general in nature; it does not take into account your personal situation or objectives; it is not intended to replace professional advice and should not be acted upon. For professional advice regarding deductible expenses based on your individual circumstance,  please do not hesitate to contact us.