The ATO will be increasing their attention on home office expense and ‘other work related expense claims come tax time next year after reports of approximately 6.7 million taxpayers claimed $7.9 billion in these deductions last year.
It was reported that this is due to a high number of questionable claims, mistakes and errors for home office expenses. The ATO have advised that they are putting measures in place to narrow down misleading and incorrect claims.
The ATO have noted their concerns relating to taxpayers who are claiming the following:
- expenses they never paid for;
- expenses that their employer has reimbursed them for;
- private expenses; and
- expenses with no supporting records.
Costs that are incurred as a result of working from home can be claimed however a high degree of caution must be exercised to ensure that private expenses are not claimed also.
One of the biggest mistakes the ATO have noticed is that taxpayers are claiming the entire amount of expenses. For example the whole amount of phone or internet expenses rather than the percentage relating to work.
If the taxpayer is able to provide evidence and demonstrate that they have incurred additional costs of expenses working from home (e.g. electricity for heating, lighting and cooling) then these are mostly deductible.
As a rule, employees are usually not able to claim any portion of occupancy related expenses such as; mortgage repayments, property insurance, land taxes, rates and rent.
The ATO are warning employees that they may contact their employers to verify expenses of such claims when working from home.
Adding to this, the ATO will not accept claims where adequate proof has not been provided that taxpayers have legitimately incurred the relevant expense/s and that the expense/s was related to their work. Supporting records must be kept when claiming working from home expenses which includes phone log book/itemised phone bill, diaries and receipts. More importantly, the only portion of the expense that is deductible is the additional work related portion.
With the increasing advancement in technology, the ATO are able to utilise modernised and sophisticated analytic software and systems which pin point deductions and claims that do not add up and are out of the ordinary compared to others in similar occupations earning similar income.
Lastly, the ATO recommend that taxpayers follow the ‘three golden rules’ when claiming work from home deductions:
- 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.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.