Deductions on the ATO watchlist and what you need to know

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If you have been working from home and are planning to claim all those new expenses that you normally would not claim when you were in the office? Continue reading as the ATO will be focusing on four types of expenses relating to working from home this year:

  1. Personal expenses such as coffee, tea, and toilet paper – sadly these remain personal and non-deductible.
  2. Expenses related to a child’s education, such as online learning courses or laptops.
  3. Claiming large expenses up-front (instead of claiming depreciation for assets) – the instant asset write-off only applies to businesses and not employees.
  4. Occupancy expenses such as rent, mortgage interest, property insurance, land taxes, and council rates, which cannot generally be claimed by employees working from home.

These will be on the watch, particularly when using the ‘actual’ method to claim deductions related to working from home. If you are using the “short-cut” or “standard cents per hour” methods, you are on the safe(r) side.

We explain what you can and can’t with the different methods in this article here.

Using the “shortcut” or “standard” methods does not mean you are automatically out of the woods, to use the short-cut or standard cents per hour methods you still need to have some evidence of the calculation of the number of hours worked from home. Below are some examples that might be useful for this purpose:

  • Timesheets – you can do your own or get these from your workplace.
  • Activity logs or
  • Agreements with employers – your updated employment agreement specifying that you work from home.

Another “warning” issued by the ATO was about copy/pasting deductions. Mainly when claiming work-related expenses like car and travel. If you are working from home then you are predicted to decrease your car and travel use in your 2021 tax returns. So, think twice before claiming 38 hrs a week working from home and 5,000 kms. The ATO mentioned that they will be on the lookout for “copy and paste” previous year’s claims without evidence to support the deductions being claimed.

However, the ATO is aware that other deductions may increase, for example:

  • Clothing and laundry – particularly for nurses or frontline workers
  • Protective or cleaning items like hand sanitiser and face masks.
  • Depreciating equipment – things like computer monitors, desks, and chairs.

Going back to the “actual” method, it is important to have sufficient proof and records before making a claim. Here is an example of what the ATO will NOT be accepting.

In this case, the taxpayer had claimed 100% of home internet for work-related purposes, and upon review, it turns out that sites like Facebook were visited and did not relate to the taxpayer’s employment, therefore, the assessment was considered incorrect, and the claim was rejected. On top of that, the ATO reviewed other deductions and reduced mobile phone claims and uniforms.

The point here is that claiming 100% of an expense is clearly going to attract the ATO’s attention, and you will need sufficient documentation/records to prove your claim.