What’s the deduction mistake on the ATO’s radar right now?

19th July, 2017

Over 1.6 million Australians are doing something that’s grabbing the attention of the Australian Tax Office (ATO).

Every year, around tax time, the ATO tells us what it’s looking out for.

This is to give people a heads-up, and to hopefully decrease the number of people incorrectly claiming deductions on expenses.

This year it’s focusing on clothing expenses.

The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’ circumstances will vary for end of financial year

ATO Commissioner Chris Jordan recently flagged it in a speech to the Press Club, and the ATO has started to ramp up its warnings about people incorrectly claiming deductions on work clothing.

Assistant Commissioner Kath Anderson said today that deductions claimed on clothing and laundry expenses has increased a whopping 20 percent over the last five years to a grand total of $1.8 billion.

Over 6.3 million people made a work-related expense claim for clothing and laundry expenses last year.

“While this increase isn’t a sign that all these taxpayers are doing the wrong thing, it is giving us a reason to pay extra attention,” she said.

A common misconception, she said, was that you can claim a deduction on clothing if you wore it to work at some point – which is false.

“For your clothing to be eligible for a deduction,” said Anderson, “it needs to be occupation-specific clothing or a uniform that is unique to the organisation you work for.”

That ripping blazer you have may be unique, but it may not be unique to the organisation you work for.

READ: Tax changes for labour hire companies and recruiters

The $150 myth

Anderson said it was a myth that you could claim up to $150 without spending money on appropriate clothing or laundry.

While record-keeping requirements may be a bit looser for claims up to this amount, it doesn’t mean you can just automatically claim it.

What’s more, the number of people seeking to take advantage of the looser record-keeping requirements is making the ATO a bit suspicious.

It turns out that over 1.6 million taxpayers are claiming exactly $150.

“We expect many of these claims to be legitimate, but the results of our random audits shows that people are making mistakes,” said Anderson.

She said that while some people may seek to bend the rules a touch, a lot of inappropriate deductions are made because people are given bad advice from their mates.

Or, in some cases, by people selling clothing trying to close a sale.

“I heard a story recently about a taxpayer purchasing everyday clothes who was told by the sales assistant that they could claim a deduction for the clothing if they also wore them to work,” said Anderson.

It’s why talking to a tax professional is vitally important. Get advice from a registered tax agent to make sure everything is above board.

Need to find an experienced tax agent? Find one here