Tax time is looming and this is the time when many of us start thinking about our deductions – What we can claim, and what we can’t. Well, the Australian Taxation Office (ATO) has started thinking about it too! And this year, they look to be casting a wide net when it comes to tax time focus – beware making those dodgy deductions!
The ATO’s Assistant Commissioner Kath Anderson said that last year, 6.7 million Australians claimed a record $7.9 billion worth of deductions, leading to suspicions of over-claiming. Earlier this week, Ms Anderson also told Fairfax that the ATO will be looking at a range of problematic areas this year, including cryptocurrency ownership and earnings from platforms like Uber. So, what is a ‘dodgy deduction’ and how can you be careful not to claim one? Let’s find out!
What’s classified as a ‘dodgy deduction’ at tax time?
“What is a ‘dodgy deduction’?” I hear you ask. Here are some examples straight from the ATO:
- Claiming private use under business use
An example: A wine expert, working at a high-end restaurant, took annual leave and went to Europe for a holiday.
He claimed thousands of dollars in airfares, car expenses, accommodation, and various tour expenses, based on the fact that he’d visited some wineries. He also claimed over $9,000 for cases of wine!
All his deductions were disallowed when the employer confirmed the claims were private in nature and not related to earning his income.
- Falsifying logbook records
Another example: A taxpayer claimed deductions for car expenses using the logbook method.
The ATO found they had recorded kilometres in their logbook on days where there was no record of the car travelling on the toll roads, and further investigation identified that the taxpayer was actually out of the country at the time. The claims were disallowed.
- Faking attendance
For our final example: A medical professional made a claim for attending a conference in America. Checks found the taxpayer was still in Australia at the time of the conference.
The claims were disallowed and the taxpayer received a substantial penalty.
The ATO has sophisticated systems allowing them to match data from banks, financial institutions and online exchanges. This enables them to gain a clear picture of taxpayers’ situations and the legitimacy of their claims.
What are the ATO cracking down on this year?
The ATO has warned that the following deductions, often claimed under “other” work-related expenses, will be under intense scrutiny this year:
- Home office expenses
- Uniform costs
- Mobile phone bills
- Internet expenses
Other areas include cryptocurrency ownership and gig economy earnings from platforms like Uber.
What criteria must ‘other’ work-related expenses meet?
The ATO has said that in order to claim “other” work-related expenses a deduction claim must meet each of the following three criteria:
- You must have paid for it and have not been reimbursed
- It must be directly related to earning your income and not a private expense
- You must have a record to prove it
The ATO is recommending Australians keep on top of their receipts this year, and where possible to make a distinction between what portion of an expense is actually being used for work.
What are the consequences of claiming a ‘dodgy deduction’?
If you don’t make a reasonable or genuine attempt to get your tax deductions right, or are intentionally claiming ‘dodgy deductions’, you may receive a penalty.
Therefore, deliberately making incorrect claims is an easy way to get into some serious trouble – It’s just not worth it!
The penalty amount is calculated using either a statutory formula – most false or misleading statement penalties are calculated this way – or in multiples of a penalty unit.
If you’re liable for a penalty, the ATO will notify you in writing of the reason for the penalty, the amount and the due date for payment, which will be at least 14 days after the notice is given.
You can find out more about the penalties on the ATO website.
Now, you should have a much better idea of what a ‘dodgy deduction’ is, so you can be more careful not to claim one.
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