Work related Expenses
Last year over seven million people claimed more than $12 billion in
deductions for work-related expenses.
The Tax Office looks at claims for work-related expenses very closely. In
2006-07 we contacted more than 240,000 people about their claims.
We find a range of common mistakes as well as claims that are false or cannot
be substantiated.
For the 2007 tax return the Tax Office will review a range of deduction
claims including expenses for motor vehicles, self-education, home-office and
travel.
Each year a number of occupations are selected for specific focus because
they have above average work-related expense claims, a high number of
work-related expense claimants or because the ratio of work-related expense
claims are high compared to the salary and wages.
For the 2007 tax return the Tax Office will focus on:
- tourism, travel consultants and guides
- fitness and sporting industry employees
- construction tradespeople who are employees
- guards and security employees, and
- a continued focus on mining site employees.
The following rules will help ensure you get it right:
- You must have incurred the expense in the year you are claiming for.
- The expense must be work-related and not private. If the expense has
been reimbursed by your employer it cannot be claimed.
- Receiving an allowance from your employer does not automatically entitle
you to a deduction.
- If your claims total more than $300, you need written evidence. You can
use records other than paper receipts
A deduction is allowable if your client can show that an expense was:
- actually incurred
- meets the deductibility tests, and
- satisfies the substantiation rules.
Actually incurred
Your client must have incurred the expense in the relevant year of income
(for example, to claim a deduction in your 2006 income tax return, you must have
incurred the expense between 1 July 2005 and 30 June 2006).
Deductibility test
Your client must, in the first instance, be able to show that work related
expenses were incurred in the course of gaining or producing assessable income,
unless the losses or outgoings are capital, or are of a capital, private or
domestic nature.
For an expense to be allowable as a deduction, your client must be able to
show:
- the essential character of the expense is income-producing
- there is a nexus between the outgoing and the assessable income in that
the nature of the outgoing is incidental and relevant to the gaining of
assessable income, and
- there is a necessary connection between the particular outgoing and the
operations or activities by which your client most directly gains or
produces assessable income.
Substantiation
If your client can demonstrate that an expense is allowable, then
substantiation rules must be met.
Your client must have written evidence to prove their claims if the total
claims exceed $300. The records must prove the total amount, not just the amount
over $300.
The $300 limit does not apply to claims for car expenses, meal allowance,
award transport payments allowance, and travel allowance expenses. There are
special written evidence rules for substantiating these types of expenses.
- Motor vehicle claims made using log book method when there is no log
book.
- Clothing being claimed when qualifying conditions are not met.
- Self education claims made when there is no work connection at the time
the expense is incurred.
- Students receiving AUSTUDY or ABSTUDY payments incorrectly claiming self
education expenses against those payments.
- Taxpayers incorrectly calculating depreciation and not apportioning
deduction claims between business and private use. This applied particularly
to home computer and mobile phone claims.
- Claims made for meal expenses when no overtime meal allowance received.
- Claims when there is no connection to current employment income.
- Ongoing FID claims. FID was abolished with effect from 1 July 2001.