Work Related Expenses - What can I claim?

One of the ATO’s main focus areas throughout the 2017 Tax Season was incorrect claims for Work-Related Expenses. The ATO have stated that this will increase in the upcoming 2018 Tax Season

It’s important to know what you can and can’t claim before you lodge and don’t claim more than you are entitled to.

Unfortunately many tax payers don’t have a good understanding of what they can claim, and they claim things they’re not entitled to.

If you are claiming work related expenses the Three Golden Rules to remember are:

Firstly- You have to have spent the money and not been reimbursed,
Secondly - There must be a direct connection to earning your income,
and Thirdly – You need to have a record to prove it.

You may be able to claim deductions for work-related expenses you incurred whilst performing your job as a PAYG Tax Payer (employee).

You incur an expense in an income year when:

you receive a bill or invoice for an expense that you are liable for and must pay (even if you don't pay it until after the end of the income year), or
you do not receive a bill or invoice but you are charged and you pay for the expense.

These expenses include:

Motor Vehicle expenses, including fuel costs and maintenance
Travel costs
Laundry and Clothing expenses
Self Education expenses
Union Fees
Home computer and phone expenses
Tools and Equipment expenses
Journals and Trade magazines and subscriptions

You may also be able to claim some deductions which are not work related. They are:

Interest and Dividend deductions for Investments
Deductions for Gifts and Donations
a Deduction for the cost of managing your tax affairs.

Work-Related Expenses – In Detail

The following information explains the rules for claiming work-related expenses for PAYG taxpayers (employees) and the written evidence that the ATO may request of you during a review or audit.

Please note: this information may not cover all written evidence that the ATO may request at any time during a review or audit, this is subject to the individual circumstances of each case.

Rules for claiming Work-Related Expenses

As previously stated the Three Golden Rules to claim a deduction for a work-related expense you:

must have spent the money yourself and you were not reimbursed
the expense must be directly related to earning your income
you must have a record to prove it.

If there was a private component, you can only claim a deduction for the work-related portion of the expense.

You must have spent the money

You must have incurred the expense in the relevant income year (for example, to claim a deduction in your 2017 income tax return, you must have incurred the expense between 1 July 2016 and 30 June 2017).

Deductibility test

You can only claim deductions for work-related expenses where they were incurred by you in the course of gaining or producing your assessable income, and are not of a capital, private or domestic nature.

For an expense to be deductible, it must be:

incurred in performing your employment activities – for example, travel, home office and phone expenses
sufficiently connected to your activities – for example, work tools/equipment, eligible clothing and self-education expenses, the connection between the expense and your income earning activities must be more than remote or minor, and the incurring of the expense not merely peripheral to the activities.

If there was a private component, you can only claim a deduction for the work-related portion of the expense.

Records and Substantiation

If you can demonstrate that an expense is deductible, then substantiation rules must be met.

Rules for written evidence to substantiate deductions

You must have written evidence to prove your 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, or travel allowance expenses. There are special written evidence rules for substantiating these types of expenses.

Written evidence

The documentation must be in English unless the expense was incurred outside Australia.

The following constitute written evidence.

A document from the supplier of the goods or services that shows the:
name of the supplier
amount of the expense
nature of the goods or services – if not shown, your client may write this on the document before they lodge their tax return
date the expense was incurred
date of the document.

Another document or combination of documents containing the information listed above, examples include:
bank and other financial institution statements
credit card statements
BPAY reference numbers (may be called receipt or transaction numbers)
email receipts
PAYG payment summary (may show union fees)
paper or electronic copies of documents – must be a true and clear reproduction of the original.

Evidence recorded by the taxpayer:
for expenses of $10 each or less, providing the total of these expenses is not more than $200
if you has been unable to obtain written evidence, for example, for toll or parking fees where a receipt cannot be obtained.

Each of these items of evidence must show the same details as a document from a supplier as described at the top of this list.

Claims of $300 or less

You do not need written evidence but the ATO may ask you to explain how the claim was worked out and why the claim is reasonable, based on the requirements of your occupation.

Exclusions from record-keeping requirements

Specific exclusions from record-keeping or substantiation requirements are available for certain work expenses. These include the following.

Total work-related expense claims of $300 or less.
Laundry ($150 or less).
Travel expenses that are covered by a travel allowance and are within the reasonable allowance amounts the ATO publish. However, you may still be required to show the basis for determining the amount of your claim, that the expense was actually incurred, and that it was for work-related purposes (refer to Taxation Ruling TR 2004/6).
Small expenses ($10 each or less and not more than $200 in total).

How long to keep records

You need to keep written evidence for five (5) years from the due date for lodgement of the tax return in which the deduction is claimed. If the return is lodged after the due date, the five (5) years start from this later date.

Please be aware that if you are in dispute with the ATO over a deduction in a particular tax return after the five (5) years has ended, the relevant records must be kept until the dispute is resolved.

If you have claimed a deduction for decline in value, written evidence must be kept for five (5) years from the date of your last claim for decline in value. This period is also extended if, when the five years end, you are in a dispute with the ATO that relates to a depreciating asset.