Car claims in the crosshairs
The Australian Taxation Office (ATO) is warning taxpayers that they are paying close attention to claims for work-related car expenses this tax time.
Assistant Commissioner Kath Anderson wants taxpayers to avoid getting tripped up by making claims that they can’t justify, citing ‘standard’ claims as a common error.
“Some people think they are entitled to a ‘standard deduction’ for car expenses, using the cents per kilometre method, but this is not the case.|
“While it’s true that you don’t need written evidence for claims of up to 5,000 kilometres per year, you do need to be able to show that you were required to use your car for work, and how you calculated your claim.
“Over 3 million people made a work-related car expense claim in 2015–16, totalling around $8.5 billion. A significant proportion of these claims were right at the limit that does not require detailed records,” she said.
“While we have no issue with people using the cents per kilometre method and we expect that most claims at this threshold may be legitimate, but we are reminding people that there’s no such thing as a ‘free pass’ when it comes to deductions.
Ms Anderson said the ATO wants people to claim what they’re entitled to, no more and no less.
Car expenses incurred in performing your duties as an employee are generally deductible, but taxpayers usually can’t claim trips between home and work unless they’ve got a good reason, such as carrying bulky tools or equipment to work.
“If you make a claim for transporting bulky tools, you need to be able to prove you were required by your employer to take these items to work, and that there was no safe place to store them.”
“It is also important to make sure you don’t double-dip. In other words, you cannot claim expenses that have already been paid by your employer, including salary sacrificing arrangements,” she said.
Ms Anderson said there are three golden rules for taxpayers to remember to get it right.
“One – you have to have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it.”
The myDeductions tool in the ATO app can help make keeping records easier, and at tax time you can send your deductions to your tax agent or upload them directly to myTax. The app is particularly useful for people who use their car for work, as it helps them track trips using GPS, point-to-point or the odometer method. This year myDeductions is available to sole traders as well as individuals.
Ms Anderson said taxpayers who are confused about what they can claim a deduction for should talk to their tax agent or visit the ATO website.
Off the rails
A railway guard claimed deductions for car expenses in travelling to and from work, basing his claim on the fact that he carried bulky tools (including his flag, safety vest, handheld radio, torch, instructions and timetables) in his car.
He attracted an audit because his deductions were much higher than those of other people in the same occupation. His employer advised us that secure facilities for equipment were available on the business premises, so the transportation of equipment was the employee’s choice. For this reason, expenses relating to travelling to and from work are not an allowable deduction in this situation, and the taxpayer had to pay $2,000 for tax owed plus interest.
Double dipping deductions
An employee manager claimed $3,800 in work-related car expenses. When we asked the taxpayer to verify that they owned the car and it was registered in their name, we discovered the car was under a novated lease arrangement. Employees who have a novated lease arrangement are not considered to have expenses in relation to the car, as their employer leases the car on their behalf. Claiming a deduction for these expenses is considered double-dipping.
All deductions were disallowed and we applied a penalty.
Crossing the line
A school crossing safety officer claimed work-related car expense for travel between his home and workplace. He indicated that this expense related to the carriage of bulky tools – a safety sign for the school crossing. However the school told us that the sign was securely stored on school property each day. The taxpayer’s car expense claims were disallowed because the trip from home to work was private in nature and did not involve the transportation of the sign.
Low income earners may need to lodge
If your client’s taxable income is under the tax-free threshold they may still need to lodge a tax return.
Common reasons for this include, if they:
- had pay as you go (PAYG) withheld from payments received during the year
- had a reportable fringe benefits amount on their PAYG payment summary
- had reportable employer superannuation contributions on their PAYG payment summary
- made a loss or can claim a loss made in a previous year
- were an Australian resident for tax purposes and had exempt foreign employment income and $1 or more of other income
- are entitled to the private health insurance rebate but did not claim their correct entitlement as a premium reduction
- were a liable or recipient parent under a child support assessment unless they received one or more Australian Government allowances, pensions or payments (listed on the Individual tax return instructions 2017 at question 5 or question 6) for the whole year and their income was less than $24,154.
Bills for increase in Medicare levy to 2.5%
Nine other Bills have been introduced to increase the following rates that are linked to the top personal tax rate:
- the FBT rate for the 2019-20 and later FBT years will be 47.5%;
- the Medicare levy component of the rate of income tax on no-TFN contributions income will be 2.5% for the 2019-20 and later income years;
- the superannuation excess non-concessional contributions tax rate will be 47.5% for the 2019-20 and later financial years;
- the Medicare levy component of the superannuation excess untaxed roll-over amounts, and the Medicare levy component of the income tax (TFN withholding tax (ESS)) tax rate will be 2.5% for the 2019-20 and later income years;
- the family trust distribution tax rate will be 47.5% for the 2019-20 and later income years;
- the trustee beneficiary non-disclosure tax rate will be 47.5% for the 2019-20 and later income years;
- the untainting tax rate will be 48.5% for the 2019-20 and later income years.
Could you have unclaimed money?
Seven ways a deduction won’t work
Protect yourself against phone scams
The ATO is warning the public to be aware of a phone scam that is again circulating where fraudsters are intimidating people into paying a fake tax debt over the phone. The aggressive scam attempts to force people to pay a fake tax debt over the phone by threatening arrest if they don’t comply.
Assistant Commissioner Thomas Ryan said that the ATO makes thousands of outbound calls to taxpayers a week, but would never contact taxpayers about a debt in this threatening manner and urges people to protect their personal details.
“We take your privacy seriously. We urge you to be alert to these types of scams and never send money or give your financial details to someone you don’t know and trust,” Mr Ryan said.
“Generally the ATO would send an SMS or letter to remind you that a payment was due. If we don’t get a response from this we would then call you to discuss payment. If you do have a tax debt we encourage you to contact us early on 1800 008 540 so we can discuss your circumstances,” Mr Ryan said.
If people receive a call from the ATO and are concerned about providing their personal information over the phone, they should ask for the caller’s name and phone them back through the ATO on 1800 008 540 (8.00am–6.00pm, Monday to Friday). People should also contact the ATO via this number if they think they may have fallen victim to a phone scam.
For more information and examples of recent scams visit the ATO website or scamwatch.gov.au
Claiming Work Related Expenses?
The ATO have advised that they are paying extra attention to people who are over-claiming work related expenses.
To get your deductions right you need to satisfy the following rules:
- you must have spent the money and were not reimbursed
- it must be directly related to earning your income, and not of a private nature
- you must have a record to prove it.
Information you might also like to know
- you need to consider if your employer would confirm the expenses were required to earn your income and that you were not reimbursed
- you are not automatically entitled to claim standard deductions. Exceptions to keeping written evidence makes things simpler (for example using the cents per kilometre method for car expenses), but you still need to have spent the money and be able to show how you worked out your claims.
- receiving an allowance from your employer does not necessarily entitle you to a deduction.