Weird tax deduction temptation is up but ATO data matching is too

Taxpayers turn up their creativity when financial times are tough, but the ATO is watching. See the list of 10 weird claims.

Are poodles tax deductible guard dogs? Experts and the ATO think not. Picture: Chris Kidd

Attempts at bizarre tax deductions are growing as the cost of living continues squeezing households, but it’s never been tougher to sneak a dodgy refund past the Australian Taxation Office.

Breast enhancements, poodle “guard dogs” and groceries are among some of the odd deductions people have tried and been denied by the ATO, and tax specialists say it may know more about your money today than you do.

H&R Block director of tax communications Mark Chapman said unusual and incorrect tax deductions were more likely when people were hit hard by other household costs.

“If people are really struggling, they will embellish deductions and claim for things that they are not entitled to,” he said.

“But some people will simply try to game the system anyway.”

Mr Chapman said H&R Block dealt with 750,000 taxpayers each year so “it’s fair to say we’ve seen our fair share of strange claims”.

One of the weirdest was from a television personality who bought a new suit each time he appeared on screen. He tried to claim the suits – which are conventional clothing and not deductible – and also tried to claim a deduction for donations as he gave each single-use suite to charities.

“Without a receipt, there is no possible deduction,” Mr Chapman said.

H&R Block’s Mark Chapman.

Mr Chapman said people had tried to claim for cosmetic surgery, but the ATO disallowed medical procedures, which meant while adult entertainers could claim for things such as dance lessons and lingerie, breast enhancements were of the table.

“A lady – with no known connection to the adult industry – who tried to claim that her enhancements were necessary for work was facing even more of an uphill battle,” he said.

Chartered Accountants Australia and New Zealand tax leader Susan Franks said “being creative over being realistic comes with a risk”.

“The ATO has sophisticated data analytics which it uses to benchmark expenses between people in a particular industry,” she said.

“Any claims outside the norm will be questioned.

“Some creative deductions include claiming the cost of your family dog as a guard dog, dental and manicure costs by ordinary workers, or your kids’ crayons as work-related expenses.

“In prior years the ATO has denied tax deductions for a wedding, gifts of Lego and a car to family members, childcare costs, private school fees and health insurance.”

Ms Franks said the ATO focused heavily on amounts claimed under “other expenses” because a high percentage of those deductions were often incorrect.

She said it was tempting to try for larger tax deductions in tough times but claims must be legitimate, and as more people used side hustle platforms for extra income this money was “often ‘forgotten’ when tax returns are being completed”.

However, the ATO tracked transactions on ride sharing, taxi travel and accommodation platforms, and was widening its data matching this year to include food delivery, e-books, podcasts, and hiring assets from handbags to parking spaces, Ms Franks said.

Mr Chapman said “the ATO’s data matching capability is now huge”.

“The ATO knows so much about you that you don’t necessarily know,” he said.

This includes employment records, bank records, government agency data and property transfers.

DENIED TAX DEDUCTIONS

• A pet poodle as a guard dog

• Car costs for carrying hairdressing scissors and clippers

• A new suit for a TV appearance

• Breast enhancements

• Martial arts training for a nightclub bouncer

• Dental work

• A wedding

• Children’s crayons

• Donating second-hand clothes

• Grocery purchases

Source: H&R Block, CA ANZ

Originally published as Weird tax deduction temptation is up but ATO data matching is too