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Taxpayers need to exercise more caution when filing tax deduction claims now that the Australian Taxation Office (ATO) is cracking down on potential false claims this tax time.

The ATO has previously expressed its intent to implement more stringent measures as part of its crackdown on the $8 billion “tax gap,” which also prompted it to send hundreds of thousands of “please explain” letters to Aussies who have questionable tax deduction claims.

What tax deductions are flagged down?

In addition to the changes it’s making in relation to tax deduction claims, the ATO is keeping a close eye on work-related expenses like car, clothing and laundry expenses.

More than 3.6 million taxpayers made car expense claims which amounted to more than $7.2 billion in 2018 while clothing and laundry claims totaled to approximately $1.5 billion in 2018. There was approximately six million people who claimed for these expenses but it’s unlikely half of those taxpayers were required to wear job-specific clothing, according to Assistant Commissioner Karen Foat.

Tax deductions without receipts

While it is imperative that taxpayers are able to provide evidence (receipts) of the claims, not all items require receipts—$150 for laundry expenses and $300 for work-related expenses

However, the ATO can enquire about how it was calculated or even speak with employers to confirm if the individual’s role warrants such expenses, like a uniform.

The ATO has expressed concern about the number of individuals claiming for conventional clothing they wear to work as well as clothing that is required by a specific dress code—both are different from, and don’t qualify as, uniforms, protective clothing, or occupation-specific clothes.

Those who can not provide evidence of their claims will not only be denied the deduction, but may even be penalised for failing to exercise diligence with their tax returns.

Using a sophisticated data analytics system, the agency can identify unusual claims by comparing an individual’s claims against those with similar jobs. It can also flag taxpayers who claim for certain items when other people with the same job don’t usually make claims on such items.

Claiming tax deductible expenses

Basic rules when claiming a deduction:

  • The taxpayer must have incurred the expense and has not been reimbursed by their employer or business.
  • Provide evidence the item is directly related to the individual’s job.

For more details on work-related expenses, the ATO has a more comprehensive guide here.

Don’t get in hot water by over-claiming tax deductions. Work with a tax professional to avoid penalties and get the right tax refund amount. Reach out to us and schedule a consult by clicking here.

This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.