Work related expenses and rental claims, set to be targetted by The Australian Tax Office (ATO)

Here’s a tip for tax time: be certain about your work-related expenses.

Almost 14 million Australians lodge income tax returns and claim billions of dollars in tax deductions, the highest being for work related expenses and rental claims.

Assistant Commissioner at the ATO, Karen Foat said while some people sometimes make legitimate mistakes, the ATO was concerned many people were deliberately making dodgy claims in order to get a bigger refund.

“We are still concerned that some taxpayers aren’t getting the message that over-claiming will be detected and if it is deliberate, penalties will apply,” she said.

There was no such thing as a standard tax deduction. While people could claim $300 for general work-related expenses, $150 for work-related laundry and up to 5,000 kilometres travelled for work without a receipt, she said taxpayers still need to have incurred the expense and be able to substantiate it.

The ATO’s data analytics matches more than 600 million transactions annually. It also compares taxpayer claims with others earning similar amounts in similar jobs.

Deliberate attempts to overclaim can attract penalties of up to 75 per cent of the claim.

The ATO is also reminding employees that they may not get a paper payment summary this year, as this is now reported directly into ATO online systems and can be accessed by either myTax or registered tax agents.

Ms Foat encouraged taxpayers to wait a few weeks before lodging their tax return.

“We know from previous years that the early birds who lodge in the first weeks of July are far more likely to make mistakes or submit incomplete data,” she said.

The three big themes the ATO said it was focusing on this year include people overclaiming work-related expenses, people overclaiming rental expenses, and people not declaring all of their income.

Over-claiming Work Related Expenses

False claims on work-related expenses make up a large proportion of the tax gap, according to Ms Foat, who said it was an ongoing problem across all professions.

Car travel claims, in particular, are something people commonly get wrong.

“What we often see is that they are claiming for trips to and from work which you cannot claim unless it’s required to transport bulky equipment,” she said.

“If you are travelling between two workplaces or your work requires you during your work day to go out and attend certain appointments etc and use your own vehicle, that’s when you can legitimately claim car expenses.”

You also need to keep a record of your trips so you can prove they were work-related.

Claiming deductions on uniforms is another area that often trips up taxpayers. Last year, around six million people claimed on work-related clothing and laundry expenses totalling nearly $1.5 billion.

But Ms Foat said it was doubtful half of all taxpayers were required to wear uniforms.

The rules around what is and is not recognised as a uniform can be confusing, but a good rule of thumb, according to Ms Foat, was that it must be compulsory, distinctive or occupation-specific.

“Most people think that if you are required to wear black pants and white shirt or you need to wear a suit for work, they think they can claim that when in fact they can’t,” she said.

Last year a quarter of all clothing and laundry claims were exactly at the record-keeping limit. But don’t think that we won’t scrutinise a claim because we don’t require receipts.

Declaring your Income

Sophisticated data analytics are used to scrutinise every tax return for dodgy claims.

But the ATO’s high-tech tactics don’t end there. They could also be quietly following you on social media to help spot if you are living beyond your means.

Photos of you enjoying expensive holidays, fancy cars and million dollar mansions can all be red flags worthy of further investigation for the ATO.

So if your declared income is $40,000 then you might be asked to justify how you managed to afford that five-star trip on a luxury yacht that got so many likes on your Instagram.

Over-Claiming on Rental Deducations

Rental property owners are also in the sights of the ATO this year with audits scrutinising rental deductions set to double after research showed errors in nine out of 10 returns. More than 2.2 million Australians claimed $47 billion in rental deductions in 2017-18.

The ATO audited more than 1,500 taxpayers last year over rental claims and handed out penalties totalling $1.3 million. The ATO is intending to triple the number of audits it conducts this year to 4,500.

ATO officers will be utilising a range of information, including from accommodation booking platforms, financial institutions, property transactions and rental bonds to weed out rorters.

Ms Foat said some examples of problematic claims include people initially claiming their mortgage interest bill on their rental property but then refinancing and buying a boat or doing kitchen renovation in the home they are living in, but still claiming the interest on the rental property.

There is also an issue with people putting in claims for the entire cost of capital works, such as a bathroom renovation, in a single year, rather than spacing it out over a number of years.

And, if you are renting out a property on an accommodation site like Airbnb, don’t think you will be able to get away with not declaring the income, because the ATO is watching.

“We can see if someone is likely to have had investment income from renting out a property and if that income doesn’t show up in their return then that’s a red flag for us,” Ms Foat said.

Those with holiday homes were also not able to claim expenses for a full year if they were living in the home for part of the time.

The ATO will also be looking closely at income earned through other sharing-economy services, such as those driving an Uber or carrying out paid tasks via the Airtasker platform.

‘One in five car claims are exactly at the maximum limit’

So… What should you do?

Keep your receipts – more than half of all claims that are disallowed are because people have not kept their receipts.

Holmans has an app that helps keep track of your deductible receipts through the year to make it easier when it comes time to lodge a return.

You can’t claim it if you didn’t spend it – Despite rumours to the contrary, you can’t claim minimum deductions for expenses such as uniforms and laundry if you didn’t actually lay out any money.

The ATO won’t ignore claims just because they are small – The ATO has warned claims for deductions at the record-keeping limit that don’t require a receipt are still scrutinised.

The buck stops with the taxpayer, so getting an accountant to lodge your tax return does not mean you won’t get into trouble for any dodgy claims.

“Tax professionals can only really base the information you’re providing them so people need to take some accountability for that,” Ms Foat said.