ATO deductions warning – pyjamas are off tax list but PPE is OK

Working from home has boosted tax deductions, but the ATO says some taxpayers cheekily claim something only B1 and B2 can.

Tax deductions for work-related expenses have climbed during tax time but some working-from-home taxpayers are taking it too far and trying to claim their PJs.

New figures from the Australian Taxation Office show four million refunds totalling $10bn have already been issued, with the average refund of $2599 up about 5 per cent on last year amid increased working from home tax deductions.

ATO assistant commissioner Tim Loh said almost 1.5 million people from 5.2 million lodgements so far had claiming working from deductions, and he singled out laundry expenses after some taxpayers had deducted pyjama costs.

“You just can’t get a deduction for PJs,” he said.

“There are only two people who can probably claim pyjama expenses and that’s B1 and B2.”

ATO assistant commissioner Tim Loh says mistakes are made in home office tax deductions.

Mr Loh also said there had been confusion around workers’ deductions for computer equipment and other home office items, which could be claimed in full if under $300 but otherwise had to be depreciated over several years.

“If you bought a $2000 computer on June 30 and use it for work purposes, your deduction for last financial year would be about $3,” he said.

People whose jobs required physical contact or proximity with others could claim for personal protective equipment such as face masks and sanitiser if they paid for these items themselves and had records, Mr Loh said.

Workers earning less than $126,000 are again in line for the low and middle-income tax offset of up to $1080 per person this year, which is paid via a tax refund.

Mr Loh said the ATO had expected higher deductions for working from home during 2020-21 because the pandemic had affected the entire financial year.

“In Victoria most people were working from home for all of the year,” he said.

H&R Block director of tax communications Mark Chapman said Victorians’ claims had been up more sharply than the rest of the country, but for overall deductions “the picture is mixed” with some higher and some lower.

“Travel, accommodation and meal claims are generally well down this year,” he said.

The ATO says only B1 and B2 can claim pyjama deductions. Picture: Inga Williams

The ATO offers three ways to claim home office deductions: an actual cost method with all records of expenses, a shortcut method of 80c per hour based on hours worked at home, and a 52c fixed rate method that is a hybrid of the other two.

Mr Chapman said the majority of workers were using the 52c rate for claiming working from home expenses.

“Many clients come into our office fully expecting to use the 80c rate but when we crunch the numbers, the 52c rate is generally preferred because of the additional claims for phone use, home internet and computer equipment depreciation,” he said.

Mr Chapman said taxpayers should keep all records to prove they incurred an expense, seek tax advice if unsure, and avoid claiming deductions for things such as personal grooming and business suits because these were not deductible.