Tax Deduction “Pub Test”

The ATO has revealed a list of “unbelievable” tax deduction attempts to remind taxpayers that their air fryer purchase “generally won’t make the cut”.

With its priority list for the fast-approaching tax time, the ATO has reminded taxpayers that its role is to collect and correct the amount of tax that is owed and that exaggerated deduction attempts would not be tolerated.

Wild examples

According to the ATO, over the years, it had received ‘wild’ work-related expense tax claims which simply do not make the cut. Some of the most “outrageous” deduction attempts last year included a mechanic trying to claim an air fryer, microwave, two vacuum cleaners, a TV, a gaming console, and gaming accessories as work-related, which the ATO immediately denied as the expenses were of a personal nature.

In another example, a truck driver tried to claim swimwear based on the reasoning that it was hot so they had stopped in transit and wanted to go for a swim; again the claim was denied based on being of a personal nature.

Finally, the ATO revealed that a manager in the fashion industry attempted to claim over $10,000 in luxury-branded clothing and accessories to be “well presented at work” and to attend events, dinners, and functions, which the ATO rejected.

ATO Assistant Commissioner Robert Thomson has confirmed that while some people had tried their luck with unusual work-related deduction claims, most people realised that in order to claim an expense, it needed to meet strict criteria.

Focus on work-related and working from home expenses

This year, the ATO has confirmed it will be focused on areas it saw frequent errors, including work-related expenses, working from home deductions, and in respect to multiple income sources. According to the ATO, work-related expenses must have a close connection to income-earning activities and taxpayers should be prepared to back it up with records such as a receipt or invoice. If deductions don’t meet the ‘pub test’, then it would be unlikely for a claim to meet the strict criteria.

Don’t fall into the trap of thinking you can claim expenses like travel to and from work and childcare costs. These expenses are personal in nature and cannot be claimed. When in doubt look for guidance on the ATO website or speak with us to help clarify. Don’t just claim it and hope for the best as penalties and interest will most likely apply.

The working from home deduction was noted to be one of the most claimed work-related expenses each year, with many of the 10 million people who claim a work-related deduction claiming one relevant to working from home.
To claim a working from home deduction, you must be working from home to fulfil your employment duties and there must be records to prove incurred additional expenses due to working from home.

1. The fixed rate method would allow taxpayers to claim 70¢ for every hour worked from home and covers additional running expenses difficult to apportion, like internet, phone usage, electricity, and stationery.
2. To claim the actual cost method, taxpayers must have records of all expenses claimed and the work-related use of the expenses to back up the deduction.

Common sense

The ATO is reminding Australians to declare all sources of income, and make sure they are included on their income tax return. This includes side-hustles, for example, if you are providing ride sourcing services or selling services via an app. The ATO notes they discourage people from making fraudulent claims “because the ATO will not be laughing”.

If you need help to understand what you can or can’t claim as a work-related expense, please contact our team, we are more than happy to provide guidance.

Download our Tax Deductions and Substantiation Fact Sheet for guidelines to some of the most common tax deductions.