More attention given to home office expenses claims by Tax Office.
In the past year, about 6.7 million taxpayers claimed a record of $7.9 billion in deduction for ‘other work-related expenses’, which includes home office expenses.
The amount claimed raised reports with high number of mistakes, errors and questionable claims for home office expenses. Therefore, ATO has recently advised that it will be increasing attention, scrutiny and education on these claims this tax time.
ATO has particularly flagged their concerns over the following claims:
- expenses that taxpayer did not pay for;
- expenses that their employer has reimbursed them for;
- private expenses;
- expenses with no supporting records
Whilst additional cost incurred as a direct result of working from home can be claimed, taxpayers has to mind the private expenses not to be included into the claim.
ATO has reportedly indicate that one of biggest issues faced is people usually claims the entire amount of expenses (which includes personal items) rather than just the extra portion relating to work.
However, ATO is not limiting the claims provided the taxpayer is able to demonstrate that they have incurred additional costs of running expenses (e.g. electricity for heating, cooling, and lighting).
In contrast, employees are generally not able to claim any portion of occupancy-related expenses such as rents, mortgage repayments, property insurance, land taxed and rates.
ATO has given the warning that they may contact employers to verify expenses claimed for working from home. In addition, it is expected that a lot of claims may get rejection where the taxpayer has not kept adequate records to prove that they have legitimately incurred the relevant expense and that the expense was related to their work.
As with the claiming of deductions in general, supporting records must be kept when claiming work-from-home expenses. This includes receipts, diary entries and itemised phone bills. Again, only the additional work-related portion of the relevant expenses is deductible.
Sophisticated systems and analytics to spot claims that do not ‘add up’ and claims that are out of the ordinary compared to others in similar occupations, earning similar income, has been deployed in ATO. This would generally reduce the chances of error or mistakes in claims as well as heightening the accuracy of the claims.
Finally, ATO reminds all taxpayers the following 3 golden rules:
- the taxpayer must have spent the money themselves and have not been reimbursed;
- it must be directly related to earning the taxpayer’s income, not a personal expense; and
- the taxpayer must have a record to prove the expense.
If you have queries and doubts, don’t hesitate to drop us a call or a mail at Verus Accountants and Advisors. We have sufficient expertise to assist your needs and ensure you do not have to get into unnecessary hassles with the ATO. Let your worries in tax related matters be ours to own.