Tax time and what the tax office is watching

Are the suits you wear to work every day tax-deductible? It is that time of year again to get your tax affairs in order.So what is the Australian Taxation Office targeting this year?

This year, the Australian Taxation Office ((ATO)) will be closely monitoring work-related clothing and laundry expenses.

That is because there has been a 20 per cent rise in the number of claims over the past five years, climbing to a value of $1.8 billion.

ATO assistant commissioner Kath Anderson says 6.3 million people claim what they wear to work is tax-deductible.

"That's half of all taxpayers claiming clothing and laundry expenses. Now while many of those will be legitimate, we know that some people are making mistakes, and that's why it's a focus area for us." 

So what can you claim?

A tax adviser at H&R Block, Mark Chapman, says protective clothing such as that worn on construction sites is permissible.

"What you can't do is claim for conventional clothing. So, if you wear a normal business suit, whether male or female, then that's not claimable. If you're working in a restaurant and you're just wearing a pair of black trousers, then that's not claimable." 

He says so is a uniform that is unique and distinctive to an employer, such as occupational clothing like chefs' pants.

Kath Anderson, with the tax office, says there are other myths that need to be dispelled.

"They can't claim expenses for normal clothing that they happen to wear to work, even if their boss told them to wear a particular colour or an item from the latest line, or even if they only wear those clothes to work." 

Ms Anderson adds another mistake people make is claiming what they believe to be a standard clothing deduction of $150.

"Even if they weren't required to wear a uniform or occupation-specific or protective clothing. Now last year, around 1.4 million people claimed exactly $150. Now many of those will be legitimate, but we know that some people are claiming a standard deduction or a safe amount. Now just to be clear, the $150 is there to ease record-keeping, it's not an automatic entitlement for everybody."

She says, in other categories, cryptocurrencies like bitcoin are also on the watch list.

"The tax office views cryptocurrency as an asset, and that means, if you bought and sold or otherwise disposed of your cryptocurrency, there will be tax implications. And, in particular, if you've got a capital gain, you need to include it in your tax return."

Kath Anderson notes the rise of the gig economy, such as ride-sharing services and room-letting, also has the tax office's attention.

"The gig economy is a great way to make some extra income. But you need to remember that you also need to declare that income on your tax return, just like all your other income. And that's the case regardless of whether you're an employee or a contractor."

Mark Chapman says the most common questions accountants are asked all relate to deductions.

"Somebody wants to claim a deduction, but they've lost the invoice, they've lost the receipt, they can't prove that they've spent the money, and then the question is very often, 'Can we claim the deduction?' Unfortunately, in that case, very often the answer is no." 

Kath Anderson is encouraging all taxpayers to seek advice.

"We've got some pretty sophisticated analytics and access to lots of data, and we do scrutinise every return. Now this year, we will be increasing our investment, not just in our education and assistance but also in our reviews and audits. So if you're planning to fudge it, just be aware that your chances of getting caught have just gone up."



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