This month’s column will be relevant for individuals preparing and lodging their own tax return or providing information to their tax agent to prepare and lodge their tax return. In particular the focus will be on claiming work related expenses and in particular expenses relating to work related clothing laundry expenses, and car expenses claims.

The ATO has consistently identified that incorrect claims for work related expenses has been a major contributor to the tax gap for individuals that are wage or salary earners. The tax gap is the estimated difference between the tax actually collected and the tax that would have been collected if this group of taxpayers was fully compliant with the tax law. The ATO’s latest estimate for this tax gap was $8.3 billion for the 2018 income year.

As a consequence, the ATO has advised for the 2021 tax year that it will continue to expand its audit coverage of individual taxpayers (including the use of more sophisticated data matching techniques) to identify incorrect tax deductions claimed by individuals, especially work-related expense claims.

In order to claim work related expenses there are three requirements that must be satisfied:

• You must have incurred the expense yourself and not received reimbursement.
• You must have been incurred the expense in the course of earning assessable income and not include a portion that is of a private nature.
• You must have a record to prove the above.

1) Work Related Car Expenses D1

a) The Log Book Method
This method is more often used for cars that have a relatively high business use percentage such as cars used by employee sales representatives, real estate agents and tradies.

You must keep a valid log book, either digital or paper for at least a 12 week continuous period and follow the instructions carefully to record the odometer readings at the start and end of each trip and the odometer readings at the start and end of the period during the income year which the car was held by the individual. From this record you will calculate the business use percentage and apply that to each of the deductible car expenses.

If you fall into the trap of not having a valid log book that does not comply with the instructions you may miss out on a more significant deduction and have to rely upon the cents per kilometer method.

b) The Cents per Kilometer Method
From the 1st July 2020 the rate is 72 cents per kilometer up to a cap of 5000 km. Whilst you do not need written evidence you do need to be able to show how you worked out the your business kilometers such as producing diary records of work related trips. This method may be preferred if your annual business usage is well under 5000km.

Do not fall into the trap of claiming exactly 5000 kms without proof of how you arrived at such a “magic” number, and do not use the same number of kilometers as you claimed in the previous year. Do not claim travel from home to work and return unless you must carry heavy tools or equipment and have a suitable vehicle to accommodate such items.

If your pattern of work related travel was impacted upon due to the COVID-19 lockdowns and you were working from home or unable to work, then your claim for work related travel should reflect this impact.

2) Work Related Clothing Expense Claims D3

You may be able claim a deduction for the cost of buying, renting and repairing certain clothing such as work related uniforms and occupation specific or protective clothing. Furthermore at Item D3 of the Work Related Expenses Schedule you may also be able to claim for the cost of washing, drying and ironing or dry cleaning deductible work-related clothing.

If the amount of your claim for laundry or dry cleaning is less than $150 you will not need to provide written evidence, but you can claim $1 per load for washing, drying and ironing if the load comprises only work related clothing, or alternatively $0.50 per load if other laundry items are included.

Do not claim the same amount for work related clothing as in prior pre-Covid – 19 years if you have been working from home as the ATO will presume there has been no requirement to wear such clothing/uniforms whilst working from home.

The ATO has advised that it will be targeting false work-related clothing and laundry expense claims after having identified that around 6 million individual taxpayers collectively claimed nearly $1.5 billion in such deductions for the 2018 income year, so keep a record of your actual number of washes and don’t arbitrarily claim $150.

3) Claiming Working from Home Expenses

This area of work related expenses is quite complex and was covered comprehensively in my April 2020 column “Covid-19 Tax Update on Working from Home” and my May 2020 column “Further Tax Update on Working from Home” which you may access from The Diary’s archives or from the PTAS Accountants Website under Tax Tips & Diary Articles

Disclaimer:
The content of this article is not intended to be used as professional advice and should not be used as such. Some aspects of this topic can be quite complex, so if you are having difficulty preparing your own tax return you should consider consulting a registered tax agent, but do make sure you have adequate records to support your claims.
Brian Spurrell FCPA CTA Director, Personalised Taxation & Accounting Services Pty Ltd. 0412 011 946