ATO Eye on Work-Related Deduction Claims

The ATO has signalled that it will pay close attention to work-related expenses claimed as deductions by individuals lodging their 2013–2014 tax returns. The ATO says incorrect expense claims are becoming easier to detect. This year, the ATO says it will not be limiting its attention to particular occupations. Rather, it will pay particular attention to work-related expense claims relating to the following:

  • overnight travel;
  • transporting bulky tools and equipment; and
  • the work-related proportion of use for computers, phones or other electronic devices.

The ATO says expenses claimed by an individual must have been incurred, and must be work-related and not private. If reimbursement by the individual’s employer is likely then this should be carefully monitored as reimbursed expenses cannot be claimed. Also, the ATO notes that receiving an allowance from your employer does not automatically entitle you to a deduction. Furthermore, records to support claims must be kept.

In addition to these focus areas, the ATO says it will continue to review incorrect or excessive claims for all other work-related expenses.

The ATO has also highlighted the following items as common mistakes made by individuals when claiming work-related expenses:

  • making claims for home office, mobile phone and computer expenses without any evidence supporting how the claims were apportioned between private expenses and work-related expenses;
  • incorrectly claiming travel between home and work as a work-related expense; and
  • receiving a travel allowance and claiming the full amount without actually having spent that much.

Recent cases of denied claims

The following are some recent cases before the Administrative Appeals Tribunal (AAT) which had denied (or largely refused) the taxpayers’ deduction claims for expenses.

Work-related and investment deductions reduced significantly

In Ogden v FCT [2014] AATA 385, the AAT confirmed that the taxpayer, a professional sales commission agent, was not entitled to various work-related deductions and personal investment deductions on the basis he had not discharged the onus of proof in regard to the items in dispute, except in relation to certain minor items.

The taxpayer during the relevant year was employed by two business entities that required him to use his own motor vehicle to visit clients and attend meetings. He claimed that, as he was not provided with a permanent office by either of his employers, but attended the employers’ offices for sales meetings and used the “hot-desking” method, he could claim deductions for the use of parts of his home as a home office, car space, and other related expenses – as well as claim various personal investment expenses. Originally the taxpayer had claimed over $97,000 worth of expenses which reduced his taxable income to just over $21,000 in the year in question. After various concessions by the Commissioner, only some $57,000 of expenses remained in dispute.

However, the AAT found that the taxpayer was not entitled to a deduction for the totality of the amounts that remained in dispute. For example, it found that work-related travel expenses involving accommodation and meals were not properly substantiated or were of a private nature. The AAT found that, on the basis of the evidence, only 11.7% of expenses (including mortgage interest, heating, lighting, cleaning, insurance, rates etc) should be allowed as a deduction. The AAT held that the 25% shortfall penalty for failing to take reasonable care should be maintained in all the circumstances. It also found there were no grounds for reduction of the shortfall penalty to 10% in view of the taxpayer’s medical condition as there was no evidence before the AAT of such matters.

Tax withheld and work-related expenses disallowed

In Taxpayer v FCT [2014] AATA 106, the AAT affirmed the Commissioner’s decision to disallow tax withheld and various work-related expenses claimed by a taxpayer.

The taxpayer was a computer programmer who was both an employee and a director of a company. For the year ended 30 June 2007, he lodged an income tax return claiming tax withheld of $98,640 and various work-related expenses totalling $53,262. The Commissioner audited the taxpayer and disallowed the tax withheld claimed as well as all the work-related expenses. An amended assessment and a 25% shortfall penalty notice was subsequently issued to the taxpayer. The taxpayer objected, and the Commissioner allowed a decrease of the taxpayer’s gross income, and also allowed in part some of the work-related expenses totalling $3,198. The taxpayer then applied for a review of the decision with the AAT. Broadly, he argued that the amended assessment was excessive as the company did not deduct PAYG instalments from the payments made. He also contended he incurred the various work expenses in the course of his role as a director of the company.

The AAT agreed with the Commissioner’s submission that the PAYG withholding amounts do not fall within the taxpayer’s right of objection to the original amended assessment or to his right to object against the reviewable objection decision. In relation to the work-related expenses claimed by the taxpayer, the AAT found there was no evidence that the taxpayer earned any income as a director or expected to earn any income from the role. Further, it stated the expenses incurred were payments made on behalf of the company rather than payments made in gaining and producing assessable income. Therefore, it agreed with the Commissioner’s submission that the taxpayer had not established that the amended assessment was excessive. Finally, the AAT found the taxpayer did not take reasonable care in lodging his 2007 income tax return, knowing there to be deficiencies. Hence, it held the taxpayer was liable to the 25% shortfall penalty imposed and that it would not exercise its discretion to remit the penalty in whole or in part.

Deductions for work-related expenses denied

In Yeates v FCT [2014] AATA 10, the AAT affirmed the Commissioner’s decision to deny various work-related expenses that a taxpayer claimed for the 2008 income tax year, as it found he had not discharged the onus of proof.

The taxpayer was a senior pilot employed by an airline. During the relevant period, he claimed various expenses including meals and accommodation, private car expenses, home office expenses, Foxtel fees, landline expenses and credit card expenses. After allowing a percentage of some expenses in the objection decision, the amount in dispute between the Commissioner and the taxpayer was $19,498.68. The taxpayer argued that his employment required the expenditures in order to carry out his work.

The AAT found, based on the evidence, that the taxpayer’s employer did not require him to have a home office and other equipment to carry out his duties and, when travelling, the employer provided all overnight accommodation and other associated costs claimed by the taxpayer. Therefore, it found the taxpayer had not discharged the onus of proof in relation to the deductions claimed. It also affirmed the 25% administrative penalty imposed by the Commissioner.