When completing your tax return, you’re entitled to claim deductions for certain expenses directly related to your income.
To successfully claim a deduction for work-related expenses:
- You must have spent the money out of your own pocket
- You must have not been reimbursed for it already
- It must be directly related to earning your income (Ie. Incurred in performing your employment activities)
- You must have a record to prove it
Also keep in mind that you can only claim the work-related part of expenses. Therefore, if you have an expense that you’d like to claim but it relates to both work and personal use (Eg. fuel or tolls) you can only claim the work-related portion in your tax return.
Let’s expand a bit more on these four factors so you’re 100% clear on the requirements.
You Must Have Spent The Money
It’s fascinating how many people still try to claim deductions for work-related expenses that they never even paid for. Please don’t do this!
The ATO systems are getting much more sophisticated and even have the ability to detect inconsistencies and compare what you’ve claimed compared to others in a similar role or industry. If you claim over and above the norm, you could be flagged by the ATO and eventually audited.
Do you really want to be troubled with an audit? We didn’t think so.
If you feel that you have a valid claim but have been unable to get a receipt or cannot find it, you must at least be able to prove the amount paid in your bank or credit card statement. But, you must be able to show when and to who it was paid as well as the nature of the goods and services provided.
You Must Not Have Already Been Reimbursed
For some, it can be tempting to try and claim work-related expenses that you’ve already been reimbursed for. Again, we highly recommend against this…
Trying to take advantage of the system or find loop holes in the system is never a good idea and could again result in being flagged by the ATO and receiving an audit.
It Must Be Directly Related to Earning Your Income
If the expenses you’re trying to claim do not relate to your income, please don’t try and claim it.
Despite what some have thought previously, no, your dog, holidays to Paris or even cigarettes cannot be claimed as work related expenses. And it’s legit, some have actually tried this…
If you’re not sure whether something is claimable or not, please seek advice from us first and we’ll be able to give you some guidance.
Keeping Records of Work-Related Expenses
If your work-related expenses exceed $300, you must have records to support your claims. There are some exceptions to this rule (Eg. Certain car, travel or meal expenses).
One of the key records to keep is a receipt from the supplier you purchased the goods or services from. The receipt must show the:
- Name of supplier
- Amount paid (expense)
- Nature of the goods or services
- Date it was paid
- Date of the document (receipt)
There are some instances where you do not need a record as evidence of your payment, however you will still need to be able to show that you actually spent the money and how you calculated the claim.
You can’t just claim an automatic deduction up to the specified amount where the money has not been spent.
How Long Do I Need to Keep My Records For?
You need to keep your records for five years from the date you lodge your tax return.
The ATO can ask you to produce receipts at any time during this period, which is why it is important you have sufficient evidence for your claims. If you did not obtain a receipt from a supplier, you can still claim a deduction if the ATO can be convinced that you spent the money and it was directly related to your income.
If you plan to claim the cost of a depreciating asset, for example a laptop or machinery, you must have a depreciation schedule in addition to your receipt of purchase. Depreciation schedules can be quite tricky to calculate, which is why it’s often best left to your accountant who knows what they’re doing.
But, I Don’t Want to Keep A Whole Shoe Box of Receipts!
That’s fine. Did you know that your records don’t actually have to be in paper form? Electronic records can also count as sufficient evidence (Including photos of your receipts.)
Another handy resource is the “myDeductions” app by the ATO. This will help you to keep track of your records whilst on the go.
And did I mention, it’s FREE!
Then when tax time comes around, you can just send us copies of these records so we can refer to them when completing your tax return. Easy, hey!
We hope that has helped to demystify some of the questions you had about work-related expenses. Including what you need to be wary of when making claims.
Our next article, will explain work-related car and travel expenses in more detail. If considering claiming these as deductions in your FY19 tax return this should next on your list.