ATO cracks down on ‘other’ work-related deductions

THE tax man has set its sights on a whole category of dodgy work-related deductions this year, warning Aussies it’s “not OK”.

A BUILDER who was caught out trying to falsely to claim more than $10,000 worth of overtime meal expenses has been slapped down after attempting to appeal the tax man’s penalty.

The Administrative Appeals Tribunal last month found Seppo Kael was not entitled to claim deductions for food and drink purchased during overtime, because he was not paid an overtime meal allowance under an award.

Instead, the allowance was an artificial construction, “carved out” of his gross salary and submitted as a deduction by his tax agent, David McNeice. “The applicant’s statements, in his tax returns, that he was entitled to those deductions were false and misleading,” AAT senior member James Popple found.

Mr McNeice was also the agent for an IBM salesman who tried to claim $5400 worth of “secretarial” payments to his seven-year-old son, who “sometimes ran upstairs to the study when the phone was ringing, answered the phone and then handed it to his father”.

In that case, the AAT last year found Gary Ogden had also claimed, as deductible “stationery”, a wall chart, Texta colour pens, a “Dora the Explorer” pencil case, heart- and star-shaped stickers, crayons and art brushes.

“For the avoidance of doubt, I find that none of those were used in the course of gaining or producing his assessable income,” AAT deputy president Stephen Frost said at the time. “Plainly, they are items purchased for use by his children.”

Both cases highlight the tax man’s focus area for the coming year — claims for “other” work-related expenses. On Tuesday, ATO assistant commissioner Kath Anderson said 6.7 million taxpayers claimed a record $7.9 billion in such claims last year.

The ATO said 1.3 million of those taxpayers had been emailed to follow up, with $100 million of incorrect claims adjusted since July 2016. “It’s not OK for someone to expect the rest of us to pay for their private expenses,” Ms Anderson said in a statement.

“If your expenses are for both work and private use you can only claim a deduction for the work-related portion. We are seeing quite a few examples of people trying to claim the whole expense, including the private portion.

“Like some who incorrectly claim their entire phone and internet bundle, and others who claim an overseas study trip even though they had a holiday as part of the trip. These might not always be big amounts, but together they add up.”

Legitimate “other work related expenses” can include home office, union fees, mobile phone and internet, overtime meals and tools and equipment, but they are only deductible if they meet the “three golden rules”.

“Firstly, you must have paid for it and not been reimbursed, secondly, it must be directly related to earning your income and not a private expense, and thirdly, you must have a record to prove it,” Ms Anderson said.

“Many taxpayers make legitimate claims, but we are also seeing errors in some claims, and some taxpayers are making risky or outright false claims. Substantiation will be a key focus area for the ATO this year

“It’s important that you have a record of the expense and can demonstrate how you calculated your claims. Every year we disallow lots of claims because there is no evidence to prove the expense. Yet it’s so easy to keep an electronic record.

“If a claim raises a red flag in the system, we will investigate further. We have a range of strategies to make sure people pay the correct amount of tax, ranging from help and education through to audits and even prosecution for more serious cases.”

Penalties can range up to 75 per cent of the shortfall amount, plus interest. Australians claim around $22 billion in work-related expenses annually, and ATO commissioner Chris Jordan last year warned the amount of dodgy claims was likely to be greater than the $2.5 billion unpaid corporate tax bill.

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