Unsubstantiated or higher-than-expected tax deductions relating to cars, travel, clothing, mobile phone and internet use, and rental properties are among the top claims the Australian Taxation Office (ATO) will be eyeing this tax time.
Each year, almost 14 million Australians lodge income tax returns and claim tens of billions of dollars in tax deductions, the highest being for work-related expense claims and rental claims.
Assistant Commissioner Karen Foat said while some people sometimes make legitimate mistakes, the ATO was concerned many people were deliberately making dodgy claims in order to get a bigger refund.
“We are still concerned that some taxpayers aren’t getting the message that over-claiming will be detected and if it is deliberate, penalties will apply,” she said.
The three big themes the ATO said it was focusing on this year include people overclaiming work-related expenses, people overclaiming rental expenses, and people not declaring all of their income.
There was no such thing as a standard tax deduction. While people could claim $300 for general work-related expenses, $150 for work-related laundry and up to 5,000 kilometres travelled for work without a receipt, she said taxpayers still need to have incurred the expense and be able to substantiate it.
“We see people treating these as almost a free kick and we’re concerned about that,” Ms Foat said.
The ATO’s data analytics matches more than 600 million transactions annually. It also compares taxpayer claims with others earning similar amounts in similar jobs.
Deliberate attempts to overclaim can attract penalties of up to 75 per cent of the claim.
The ATO is also reminding employees that they may not get a paper payment summary this year, as this is now reported directly into ATO online systems and can be accessed by either myTax or registered tax agents.
Ms Foat encouraged taxpayers to wait a few weeks before lodging their tax return.
“We know from previous years that the early birds who lodge in the first weeks of July are far more likely to make mistakes or submit incomplete data,” she said.
ATO plans to triple number of audits over rental claims
More than 2.2 million Australians claimed $47 billion in rental deductions in 2017-18.
The ATO audited more than 1,500 taxpayers last year over rental claims and handed out penalties totalling $1.3 million.
The ATO is intending to triple the number of audits it conducts this year to 4,500.
Ms Foat said some examples of problematic claims include people initially claiming their mortgage interest bill on their rental property but then refinancing and buying a boat or doing kitchen renovation in the home they are living in, but still claiming the interest on the rental property.
“The other thing we see is people who are claiming capital works or capital assets in a single year when either of those things need to be written off over a number of years,” she said.
“For example, somebody who has done up their bathroom in their rental property, that’s structural works and needs to be written off at 2.5 per cent over 40 years.
“Or when it comes to assets — say you’ve got something like an air-conditioning system and it breaks down and you replace it — the cost needs to be claimed over the effective life of the asset.”
She said many people earning income through sharing-economy services, such as Airbnb, were still not declaring the income.
“Some people think it’s a hobby. We say, ‘there’s no such thing as a rental hobby’,” she said.
The ATO will also be looking closely at income earned through other sharing-economy services, such as those driving an Uber or carrying out paid tasks via the Airtasker platform.
‘One in five car claims are exactly at the maximum limit’
In the 2017-18 financial year, about 7 million Australians claimed $16.5 billion in work-related expenses.
This included more than 2.8 million Australians making work-related car expense claims totalling $6.2 billion.
The ATO is worried that too many taxpayers are automatically claiming the 5,000 kilometres limit regardless of the actual amount of travel.
“One in five car claims are exactly at the maximum limit that doesn’t require receipts,” Ms Foat said.
Under the cents-per-kilometre method, taxpayers do not need to keep receipts, but they do need to be able to demonstrate how they worked out the number of kilometres they travelled for work purposes.
“While some claims of exactly 5,000 kilometres are legitimate, we’ve found many people are unable to show how they’ve arrived at this amount, and as a result they’ve had their claim reduced or disallowed in full,” Ms Foat said.
“Simply driving between work and home is not enough to warrant a deduction.”
She said taxpayers also need to keep records to prove how they have worked out the claim.
Meals, accommodation, clothing must relate to your work
There were 1.1 million people claiming $1.5 billion in work-related travel expenses in 2017-18.
Ms Foat said a common problem was people trying to claim a travel expense such as meals and accommodation that they either had not incurred or for which they had already been reimbursed by their employer.
She gave the example of blatantly dodgy claims in the past, where someone had claimed travel expenses for their wedding, which they tried to disguise as work-related.
There were six million people claiming $1.5 billion in clothing expenses relating to their job in 2017-18.
Ms Foat said the ATO would be checking taxpayers who incorrectly claimed the exemption from keeping receipts for $150 on laundry expenses.
People believed that because they were required to wear black pants and white shirt for work, they can claim for that.
“But they are not distinctive uniforms so they can’t claim for it,” she said.
And she said if they are able to claim they need to have incurred the cost.
“We saw an example where a doctor was claiming $150 for cost of washing his scrubs, but the hospital was washing the scrubs. So that was disallowed,” she said.
Self-education expenses cannot be for a new job
In 2017-18 there were 450,000 people claiming $900 million in self-education expenses.
Ms Foat said one of the biggest concerns here is where people claim for a course that they are not eligible for.
“So if I’m a nurse studying to be a doctor — something that’s going to get me a different role to the one I am currently in — it’s not eligible,” she said.
There were also 6 million people claiming $6.5 billion in “other” work-related expenses such as home office, and mobile phone and internet use.
Ms Foat said the biggest issue here was in relation to apportionment.
“That is, people try to claim their whole mobile phone or whole internet plan when they use it only partially for work,” she said.
“If people are wanting to make the claim, they need to have to have some sort of reasonable basis for it,” she said, adding that it was a good idea to keep a diary for a month if there were multiple users in a home.
Deductions for home office use, including claiming for “occupation” costs such as rent, rates and mortgage interest, were not allowable unless the person was actually running a business from their home.
In addition, she said there was a whole host of other things that people try to claim but that are not deductible.
“These include things like child support, gifts to family and medical costs,” she said.