With the end of the financial year around the corner, the Australian Taxation Office (ATO) has already started signalling the deductions they will be reviewing on 2021 tax returns. So what is on their radar this year?
The ATO have been increasingly cracking down on taxpayers simply copying-and-pasting deductions from previous years, without having substantiation for the deductions. The ATO are expecting that deductions for car and travel will decrease, given the lockdowns and border closures during the 2021 financial year. Meanwhile, frontline workers, including those in the medical industry may have higher deductions for work related clothing due to purchasing scrubs, as well as purchasing items for use at work, such as face masks and sanitiser.
Taxpayers claiming 5,000 business kilometres travelled every year, or a “standard deduction” of $300 for work related expenses or $150 for work related clothing/laundry, should be prepared to show the legitimacy of their claims. While there are reduced record keeping requirements for these deductions, they are not automatic deductions and taxpayers still need to provide a basis for the calculation of the deductions.
The ATO also uses data analytics to compare deductions to other taxpayers with similar occupation codes and incomes and may review any unusually high claims.
Working from home claims
The ATO is expecting to see an increase in work-related expenses due to higher working from home deductions. Our previously published article outlined how to claim working from home expenses, including the use of the new “shortcut method” introduced by the ATO during 2020, which has been extended to apply for the full 2021 financial year.
The ATO will be reviewing working from home claims to ensure that these have been calculated correctly, and do not include any non-deductible items.
While many of the following items may be provided at your workplace, they are not deductible if you are working from home:
- Toilet paper
Occupancy expenses such as rent or mortgage payments, rates and insurance, are also not deductible for employees. Whilst a taxpayer may be working from home, the home is still a private residence, and not a “place of business”.
The ATO is also aware that some taxpayers plan on claiming a deduction for the cost of their children’s education, during the period of home schooling. Education costs that have been incurred during this period – for example, setting up online learning, and purchasing equipment such as iPads – are not deductible for the taxpayer (i.e. the parent).
The ATO is also reminding taxpayers that the cost of travelling from home to work or work to home is not deductible for most people, as it is considered private travel. This is still true if a taxpayer is working from home due to COVID, but needs to occasionally travel to their regular workplace.
What expenses can be claimed as a deduction?
The best way for taxpayers to safeguard themselves and prove the legitimacy of their deductions is to keep detailed records of all their expenses and how these relate to their work. In order to claim a deduction, an expense must meet the following criteria:
- The expense has been paid by the taxpayer and not reimbursed by the employer;
- The expense is related to your work and is not private in nature; and
- The expense can be proved (e.g. through a receipt or bank statement).
We recommend clients keep a folder with all receipts and a summary of work-related expenses throughout the year, including details about how deductions were calculated for work-related phone and internet, work-related car usage and a diary showing the hours that were spent working from home. This makes tax time a lot easier and also ensures all expenses are captured.