Not all expenses associated with your employment are deductible. There are many myths about deductions that may lead you to make an incorrect claim.
In the article, we will debunk some of the most common myths to help you as an employee decide whether your expenses are deductible and what records you need to keep to substantiate them.
Myth: Everyone can automatically claim $150 for clothing and laundry expenses , 5000 km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money.
Fact: There is no such thing as an ‘automatic’ or ‘standard deduction’. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you don’t need receipts for claims under $300 for work-related expenses, $150 for laundry expenses (note: this is for laundry expenses only and doesn’t include clothing expenses) or if you are claiming 5,000 km or less for car expenses under the cents per kilometre method:
- You must have spent the money
- It must be related to earning your income, and
- You must be able to explain how you calculated your claim.
- Laundry expenses
- Car expenses
- Substantiation requirements
- Exceptions and relief from substantiation requirements
Myth: I don’t need a receipt; I can just use my bank or credit card statement.
Fact: To claim a tax deduction, you need to be able to show that you spent the money, what you spent it on, who the supplier was and when you paid. Bank or credit card statements alone don’t have this information. The only time you don’t need these details is if substantiation exceptions apply.
Myth: I can claim makeup that contains sunscreen if I work outside.
Fact: Cosmetics are usually a private expense and the addition of sun protection doesn’t make it deductible. However, it may be deductible if the primary purpose of the product is sunscreen (that is, it has a high SPF rating), the cosmetic component is incidental, and you need to work outdoors in the sun.
Myth: I can claim my gym membership because I need to be fit for work.
Fact: Very few people can claim gym membership fees. To be eligible, your job would have to depend on you maintaining a very high level of fitness, for which you are regularly tested, for example special operations personnel in the Australian Defence Force.
Myth: I can claim all my travel expenses if I add a conference or a few days’ work to my holiday.
Fact: If you decide to add a conference or some work to your holiday, or a holiday to your work trip, you must apportion the travel expenses between the private and work-related components and only claim the work-related component.
Myth: I can claim my work clothes because my boss told me to wear a certain colour.
Fact: Unless your clothing is a uniform that is unique and distinct to your employer, or protective or occupation-specific clothing you are required to wear to earn your income, you won’t be able to claim it. Plain clothes, like black pants, aren’t deductible even if your employer told you to wear them.
Myth: I can claim my pay television subscription because I need to keep up to date for work.
Fact: A subscription to pay television is not ordinarily deductible. Keeping up to date on news, current affairs and other general matters usually won’t have a sufficiently close connection with your employment activities to provide a basis for deducting these subscriptions. They are essentially private expenses.
Myth: I can claim home to work travel because I need to get to work to earn my income.
Fact: For most of us, home to work travel is a private expense.
Myth: I’ve got a capped phone and internet plan, so I can claim both business and private phone calls and internet usage.
Fact: Unless you only use your phone and internet for work, you have to apportion the cost between work-related and private usage and only claim the work-related portion of your expenses.
To claim a deduction against your assessable employment income, the work expense must meet several conditions.
Expenses related to your employment are referred as work expenses or work-related expenses.
You can only claim an expense as a general deduction if it meets all of the following conditions:
- You actually incurred the expense
- The expense was incurred gaining or producing your employment income
- It is not capital or capital in nature
- The expense is not private or domestic
- The expense was not incurred in gaining or producing exempt income or non-assessable non-exempt income
- You satisfy the relevant substantiation requirements – that is, the taxpayer has written evidence of the expense incurred (if required).
The due date for lodging your income tax return for the 2021–22 income year is 31 October. However, if you use a registered tax agent to lodge your return, the due date for lodgment is likely to be later than 31 October, possibly even as late as May next year.
If you don’t use a registered tax agent, you risk delays to your tax refund (if any) if you lodge your tax return before your income statement is marked as ‘Tax ready’, i.e. pre-filled with pertinent information from employers, banks, government agencies and health funds.
About our adviser:
Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
Check out KMT Free Resources to download tax guides and deductible checklists.
Reference: Employees guide for work expenses – ATO
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or professional advice from a qualified accountant at KMT Partners.