ATO targets work expenses, rental properties and more

The Australian Tax Office regularly flags tax compliance issues it has under the microscope.

But don’t think if an issue is not on that list, the ATO is not looking at it. The ATO’s administration of the tax system doesn’t work that way.

Take work-related tax deductions, a big ticket item in the deduction stakes.

Tax deductions claimed for work-related expenses are a “tax 101” item. The vast majority of taxpayers claim them – in fact, in 2011-12, some 8.5 million individual taxpayers claimed some work-related expenses. The claims have steadily increased over recent years. In 2009-10, they totalled $17.1 billion, while in 2011-12, they were $19.3 billion, a $2 billion increase over two years. Those expenses represent a significant cost to the revenue so it is not surprising the ATO has a particular focus on them as part of its compliance activities. And there are specific rules surrounding claiming such expenses.

This year, the ATO says it is using extensive data analysis to identify areas requiring attention across all work-related expense claims, regardless of occupation. However, the ATO says it is paying particular attention to work-related expense claims relating to:

• overnight travel;
• transporting bulky tools and equipment – the recent Ford AAT case on this issue  involving a train guard transporting equipment essential to his work from his home to work highlighted the kinds of issues involved in making such claims. The taxpayer lost the case essentially because his employer provided a secure locker at his work place for the equipment, so he did not need to transport it to and from work;
• the work-related use of computers, phones or other electronic devices.

Last year, the ATO paid particular attention to high work-related expenses claims made by: (i) building and construction labourers, construction supervisors and project managers; and (ii) sales and marketing managers.

Specific rules in the tax law specify the written evidence that an individual must obtain to substantiate deductible work-related expenses.

The ATO stresses that taxpayers claiming work-related expense deductions need to satisfy several basic requirements:

• they must have spent the money;
• the expense must be related to their job;
• they must have a record to prove it.

If that seems like “stating the bleeding obvious”, ask yourself why the ATO feels it necessary to remind taxpayers about it.

Rental property deductions

The current hot property market also has the ATO’s attention. The ATO says it is increasing its focus on rental property deductions. It says common errors made by rental property owners include:

• claiming rental deductions for properties not genuinely available for rent;
• incorrectly claiming deductions for properties only available for rent part of the year such as a holiday home;
• incorrectly claiming structural improvement costs as repairs when they are capital works deductions, such as re-modelling a bathroom or building a pergola; and
• overstating deduction claims for the interest on loans taken out to purchase, renovate or maintain a rental property.

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