You can’t claim that: Top 10 tax traps
Everyone has tax advice, but some advice, like that given by shop assistants, probably should be taken with a grain of salt. For starters, there’s no such thing as a “standard deduction”, the Australian Taxation Office’s (ATO) assistant commissioner Kath Anderson said.
It’s a common misconception that everyone is entitled to a $150 deduction for laundry, 5,000 kilometres for cars and $300 for work-related expenses, Ms Anderson said. But it’s simply not correct.
“While it’s true that you don’t need to keep detailed receipts for deductions up to those amounts, it’s not an automatic entitlement. You still need to meet the three golden rules
- you must have spent the money yourself;
- it must be directly related to earning your income; and
- you must be able to show us how you calculated your claim,” she said.
Further, falling into a trap like this can be an expensive mistake, the ATO said.
Top 10 myths:
1. I don’t need a receipt. My bank or credit card statement is good enough.
Nope. “Around half of the adjustments we make are because taxpayers didn’t keep proper records and therefore they could not demonstrate that they spent the money, what it was spent on and how the expenditure links to earning their income,” Ms Anderson said. “A credit card statement will not usually have enough detail to support the claim.”
2. My makeup contains sunscreen, so I can claim it because I work outside.
Nice try, but for most workers there isn’t a link to these purchases and earning an income.
“There are only a handful of taxpayers with special circumstances who can claim things like gym memberships or makeup containing sunscreen,” she said.
3. I’m claiming my gym expenses because I need to be fit for work.
Again, no. Unless you’re in special operations in the Australian Defence Force you probably won’t get away with this one.
4. My boss wants me to wear black, so I’m claiming my work clothes.
The ATO won’t fall for that, Ms Anderson said. Unless you wear a distinct uniform, or occupation specific clothing, this claim won’t pass the test.
5. I can claim travel expenses for this holiday because I also worked.
“One taxpayer recently took his family on a skiing holiday and claimed it was deductible because he attended a conference for a few days while he was there. He wasn’t very happy when $23,000 of his $25,000 claim was disallowed.”
6. I need to stay up-to-date for work, so I’m claiming Netflix.
According to the assistant commissioner, the growing number of taxpayers claiming their Netflix or Foxtel subscription due to work-from-home situations is a concern. The ATO said taxpayers need to apportion and identify the specific portion of expense that relates to work in order to receive the deduction.
7. I’m claiming my weekly travel expenses because I need to get to work to earn a living.
“For most of us, home to work travel is private since your boss doesn’t pay you until you get to work. There are limited circumstances where someone who has to transport bulky equipment can make a claim,” the ATO said.
8. My phone plan is capped, so I’m going to claim personal and work phone calls.
This won’t fly unless you use your phone exclusively for work. Otherwise, taxpayers can only claim the work-related portion.
9. My agent will take responsibility for my claims.
That’s a myth, Ms Anderson said. “Whether you prepare your own return, or you use an agent, you are ultimately responsible for ensuring your claims are correct,” she said.
10. I’m going to claim the “standard deduction”.
There’s no such thing. “Taxpayers listen to advice from many sources, including tax agents, colleagues, family and friends, and even helpful shop assistants. While some advice is correct, some isn’t and it’s leading to mistakes and errors that can be costly,” Ms Anderson said.
Clothing claims put through the wringer this tax time
A focus on work-related clothing and laundry expenses this tax time will see the Australian Taxation Office (ATO) more closely examine taxpayers whose clothing claims don’t suit them.
“Last year around 6 million people claimed work-related clothing and laundry expenses, with total claims adding up to nearly $1.8 billion. While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing,” Assistant Commissioner Kath Anderson said.
With clothing claims up nearly 20% over the last five years, the ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming. Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.
“Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Ms Anderson said.
“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”
Ms Anderson said the ATO also has conventional clothing in its sights this year. “Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims. However, far too many are claiming for normal clothing, such as a suit or black pants. Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line. Others think they can claim normal clothes because they bought them just to wear to work.
“Unfortunately, they are all wrong – you can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work”.
Ms Anderson warned taxpayers thinking of over-claiming that the ATO’s technology and access to data is improving each year.
Ms Anderson said there are three golden rules to follow which will help taxpayers to get their deductions right.
- you have to have spent the money yourself and can’t have been reimbursed,
- the claim must be directly related to earning your income, and
- you need a record to prove it.
Taxpayers who can’t substantiate their claims should expect to have them refused and may be penalised for failing to take reasonable care when submitting their tax return.
Case studies – Clothing claims hung out to dry
Incorrectly claiming for plain clothing
An advertising manager claimed $1854 for clothing and laundry expenses. Her claim was for clothing purchased at popular fashion retail stores. When we contacted her, she said she represented her company at work functions and awards nights and was required to dress a certain way.
We explained that expenses for conventional clothing are not deductible, even if you are required to wear them for work, and/or only wear them for work. The taxpayer’s clothing and laundry claim was disallowed in full, and a penalty for failing to take reasonable care was applied.
A lab technician claimed $2500 for the cost of purchasing protective boots and laundering his work uniform. He advised he had a very dirty job and mostly washed his clothes at the laundromat for around $9 a wash and $3 for drying. Unfortunately, he did not keep any receipts, so we could not verify his claim.
We reduced his claim for laundering his work uniform to $144, using the ATO’s reasonable basis.
If you want to claim the cost of cleaning your eligible work clothes, you need to keep receipts for amounts greater than $150. You can use a reasonable basis for claims up to $150, being:
- $1 per load if the load is made up of only work-related clothing
- 50c per load if you include other laundry items in the load.
Superannuation Guarantee Amnesty … Wait and See …
On 24 May 2018, the government announced the start of a Superannuation Guarantee Amnesty. The amnesty will be available retrospectively from 24 May 2018 to 23 May 2019, subject to legislation passing. This amnesty will allow non-complying employers to self-correct any unpaid superannuation guarantee amounts without penalty.
During this amnesty, Part 7 penalties will not apply, and these “catch-up” payments will be tax deductable. Interest will still have to be paid on the late payments.
It is paramount to note that this amnesty is not yet law – it is currently sitting before the House of Representatives.
GST & Low Value Goods
From 1 July 2018, GST will apply to taxable goods imported into Australia with a value of less than $1,000. Prior to this date overseas retailers were generally able to sell goods to Australian consumers without applying GST where the value of those goods was less than $1 000. Under the changes, the compliance burden will largely fall on overseas retailers selling goods to Australian consumers. However, freight forwarders and operators of electronic distribution platforms may also be impacted. Consumers will also feel an impact as it is reasonable to expect that overseas suppliers may increase their prices (by 10%), to take account of this new tax impost.
Under the changes, a supply will be taken to be connected with Australia and therefore subject to GST where the following conditions are met:
- The supply involves the goods being brought to Australia with the assistance of the supplier,
- The goods are low value goods, and
- The purchaser of the goods is a consumer.
Turning to the above conditions, suppliers will have “assisted bringing goods into Australia” where they have actually delivered the goods into Australia or procured, arranged or facilitated in the delivery of the goods. This includes making transport arrangements with third-parties or assisting the purchaser in relation to transportation. “Low value goods” are those whose value for Customs Duty purposes is less than $1 000 at the time when the price was first agreed. “Consumer” is a recipient who is not GST registered or, if they are, the purchase is unconnected to any enterprise they carry on in Australia. There is no Australian residency requirement. If you are registered for GST and buy low value imported goods for your business from overseas, you will need to supply your ABN at the time of purchase, so you won’t be charged GST.
If you or your business is not registered for GST, you will be treated as a consumer and unable to recover the GST charged by the overseas business.
The new law will impact the following three groups:
- Freight Forwarders
Freight forwarders will be treated as having made the supply where they deliver the goods to Australia as part of an arrangement with the purchaser. Where they meet the $75 000 turnover threshold, they will be required to register for GST. To discharge their GST obligations, they will need to glean from the supplier information about the supply such as the total price. They will need to recover the GST component directly from the recipient or indirectly from the supplier.
- Electronic Distribution Platforms
Operators of these platforms (such as websites, internet portals etc.), will be liable for GST on supplies of low value goods even though they may not have been the supplier of these goods. For example, a clothes shop in London may have signed up to a website such as eBay advertising a dress for $85. In this case, the GST obligations would fall to eBay not the supplier of the clothes.
Where a supply is made through an electronic distribution service and a freight forwarder is involved, the GST obligations will fall on the distribution service.
Consumers (particularly online shoppers), will also be impacted and can expect to pay more for overseas goods. However, with the abolished threshold only $1,000, GST price increases will be capped at $100 – so it is important not to overstate the impact.
Have you or your business this year sold a CGT asset or even the business itself and made a capital gain? If you are eligible for the Small Business CGT Concessions but cannot eliminate the gain using those concessions, consider deferring it for two-years under the CGT Rollover.
The CGT rollover (or replacement asset rollover as it is sometimes referred to) allows you to disregard a capital gain if you acquire a replacement asset or incur expenditure on making capital improvements to an existing CGT asset, within the three-year period commencing 12 months prior to a capital gain on the sale of a business asset. The gain can be deferred indefinitely (subject to conditions). Even where you do not acquire a replacement asset, by using the rollover you can defer the remaining amount of your capital gain (the amount that remains after you have applied the active asset reduction and the 50% CGT discount, if applicable) for at least two years. The concession can therefore be very beneficial from a cash-flow standpoint, in that you can delay the payment of CGT that would otherwise apply in the year the asset was sold.
Brandon sells a CGT business asset in the 2018/2019 income year which satisfies the rollover conditions. After applying the 50% discount, and the 50% active asset reduction, Brandon reduces his capital gain to $30,000. He then decides to apply the replacement asset rollover. To do this, Brandon lodges his 2018/2019 return and does not include the $30,000 capital gain.
At the time of lodging his return, Brandon had not acquired the replacement asset, nor had he incurred any improvement expenditure on an existing CGT asset (i.e. he had not satisfied the rollover conditions). Indeed, because of the prospective nature of the concession, it is not strictly necessary for Brandon to even have any intention of satisfying the rollover conditions (i.e. acquiring a replacement asset or incurring expenditure on improvements) at the time he elects to use the concession. Brandon has therefore been able to delay the payment of his CGT liability without incurring any replacement asset expenditure.
For the many more individuals claiming a superannuation deduction in their upcoming 2017/2018 tax returns, don’t forget to provide notice to your superannuation fund!
To be eligible to claim a deduction in 2017/2018 for contributions made to superannuation, the contribution must be made between 1 July 2017 and 30 June 2018.
In terms of timing:
- A contribution in cash is made when received by the fund
- A contribution by electronic funds transfer is made when the amount is credited to the superannuation fund’s bank account – this may occur sometime after you have done what is necessary to affect the payment, and
- A contribution by cheque is made when the cheque is received by the fund unless it is dishonored.
Since 1 July 2017, most individuals up to age 75 can claim an income tax deduction for personal after-tax superannuation contributions. Before this date, you could only claim a deduction for your personal contributions where less than 10% of your assessable income, your reportable fringe benefits and your reportable employer superannuation contributions (e.g. salary sacrifice contributions) for the year were from being an employee – this was known as the ‘10% Rule’. This rule prevented most employees from claiming a tax deduction for this type of contribution. This rule no longer exists.
With the scrapping of the 10% Rule, to claim a deduction only the following conditions now need to be satisfied:
- Age – All individuals under the age of 65 are eligible. Those aged 65 to 74 who meet the superannuation ‘work test’ (work for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which you plan to make the contribution). For those aged 75, the contribution must be made no later than 28 days after the end of the month in which you turn 75. Older taxpayers are ineligible.Minors – If the individual is under 18 at the end of the income year in which the contribution is made, they must derive income in that year from being an employee or carrying on a business.
- Complying Fund – The contribution must be made to a complying superannuation fund.
- Notice Requirements – To claim the deduction you must provide your superannuation fund with a Notice of intention to claim a deduction form (NOI) before you lodge your tax return in respect of that financial year. This can be obtained from the ATO website www.ato.gov.au
Having met these conditions, you can claim the full amount of the contribution (up to the concessional contribution caps – see later) in your personal tax return at Label D12.
In the recent Federal Budget, the Government announced measures aimed at improving the integrity of the notice process for claiming deductions for personal superannuation contribution. An additional $3.1 million of funding will be provided to the ATO to develop a new compliance model for deducting personal superannuation contributions. Currently, according to the Government, some individuals currently receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so under section 290-170 of the Income Tax Act. This results in their superannuation funds not applying the appropriate 15% tax to their contribution.