Tax Tips: ATO cracks down yet again on work-related expenses

written by: Evan Lowenstein

In a report dated July 2018, the Australian Tax Office (ATO) indicated that there has been a large increase in the claims being made by individuals for work-related expenses.

There has been a huge increase in errors made by individuals uncovered by the ATO in its investigations and it has calculated that there is an amount of 8.7 billion dollars of foregone revenue.

This is approximately three times the revenue lost by the corporate sector.

The ATO’s investigations into claims for work-related expenses have uncovered a huge increase in errors made by individuals.

78% of all returns examined by the ATO contained errors and, as a lot of the returns were prepared by agents, the ATO have put some accounting firms on notice to get their affairs in order.

The message here is clear: that being complacent about claiming expenses is no longer an option.

We are going to see increased scrutiny of these individual returns with subsequent audit procedures which will lead to an increased work load and stress on both clients and tax agents.

I would recommend the following very simple remedy to avoid scrutiny:

• Make sure the claims are legitimate work-related deductions.
• Make sure you have adequate and full substantiation of the expenses you wish to claim; ie receipts, travel diaries, notations of business use etc.
• Take out audit insurance that we have on offer to our clients. In the case of review or an audit, this insurance may cover your accountant’s additional costs in complying with various ATO requirements.


The specific areas that the Tax Commissioner has identified as being subject to scrutiny are: excessive travel claims, laundry deductions and car expenses.

USE A DIARY TO VERIFY YOUR CLAIMS

For example: with mobile phone and internet expenses, a diary kept over a four week period that shows the percentage of business, as distinct from private use, should be sufficient proof of a business claim.

Other areas that the ATO are keen to focus on are rental properties; and also making sure all cash income is declared.

As far as rental properties go, the ATO have found that some taxpayers are claiming interest on loans that were used to finance private purchases; and that holiday homes that were used privately have had deductions incorrectly claimed.

Again clients are reminded to be wary of these issues and only to claim expenses that relate to the income production of the property.

SHARING ECONOMY

As part of its focus on the sharing economy, the ATO has indicated that it intends to collect a lot more data to identify people who are part of the sharing economy, be it Airbnb businesses or UBER.

The ATO will use its data matching capabilities to determine which taxpayers are incorrectly reporting their income from these online platforms.