Tax time is just around the corner and the ATO is putting the work-related expenses (WREs) under the microscope after taxpayers claimed some $7.9 billion in “other” work-related expenses. The ATO suspects that workers are rorting the work-related tax deductions in order to minimize their tax burdens.
So in 2018, the Tax Office will place a greater emphasis on substantiation when it comes to “other” work-related expense claims. Even the expenses claimed under the substantiation exemptions will have to be proved one way or the other. This year, small mistakes in the claims will attract a regulatory action so it will be upon the tax agents or taxpayers to go the extra mile in obtaining accurate information on work-related expenses from their clients.
The increased surveillance is in response to what appears to be brazen claims by some taxpayers on work-related expenses.
The “Other” Work Related Expenses
The other work-related expenses refer to the other expenditures that are not part of the standard work-related expenses such as car expenses, clothing, self education and overseas travel.
Under the current provisions of substantiation exemptions, taxpayers can claim substantiation exempt deductions on small expenses that cost less than $300 such as laundry work, mobile and internet costs, phone bills, tools and equipment used in work, union fees and overtime meals among others. The substantiation exemptions were put in place to ensure that taxpayers don’t have to keep volumes of receipts for every small work-related expenditure made each year.
However, the Tax Office still requires taxpayers to show “through other means” that these expenses were actually incurred. The onus will now be on the client to prove the costs in order to avoid regulatory action. This also adds a workload on tax agents who now have to push their clients to the extremes to get as much information and substantiation as possible on their WREs.
The Three Golden Rules
The ATO has three golden rules on making deductions claims on work-related expenses:-
- The taxpayer must have spent their own money on the work-related expenses and were not re-imbursed for it.
- The work-related expenses must be directly related to the earning of your income.
- There must be records to prove the expenses
Proof of Smaller Claims
Perhaps the most confounding will be the requirement for proof of smaller claims. While the ATO does not require proof of purchase and other forms of records for the work-related deductions that amount to less than $300, the client still has to show how they worked out these deductions.
Talk to your tax agent
If you will be claiming “other” work related deductions this year, talk to your accountant for advice on any support records or proof that may be required to substantiate the claims and avoid trouble with the Tax Office.
While there are substantiation exemptions for small deductions, it is still prudent to keep receipts of work-related purchases that you can use to back up your deductions claims in a Tax Tribunal or with the Tax Office. If you don’t have the records, at least have evidence on how you have worked out the claims.
Talk to a professional accounting firm Melbourne today for assistance in filing accurate tax returns that will meet the compliance requirements of the Tax Office.