How to survive an ATO audit on your personal tax return
If your work related expense claims, on your personal income tax return, fall out of the average for your occupation, it is likely that the ATO will be calling you for evidence of the claims.
By collecting evidence and documentation for your claims, you will be in a better position to argue your case if your tax return is selected for an audit.
Below are some of the areas that are ALWAYS on the ATO audit hit list.
D1 Work related car expenses
Cents per KM method
To claim your work related car expenses under the cents per KM method, you will need to consider and retain the following:
How have you worked out your business km per car?
Copies of purchase or lease documents for your car
Copies of car registration to prove ownership of the car
Why you were required to use your own car for work?
If you are carrying bulky tools, you need to provide a list of work items carried and weight and size
If you have bulky items in a bag – what is the size dimensions of the bag and the weight? Do you have secure storage to keep them at work?
You need to have some evidence from your employer that km travelled related to your job – a letter from the employer, a copy of an award or a copy of your employment contract will be needed
Ensure you limit the claim for km to 5,000km
Log book method
To claim your work related car expenses under the log book method, you will need to consider and retain the following:
You need a description of each expense item and the amount claimed for each
You need copies of original receipts for all items (except for fuel, which can be estimated)
Copies of purchase documents to prove the depreciation calculations
Copies of car registration to prove ownership of the car
You need to maintain a correct logbook:
you need the date of the start and finish of the logbook period
the car’s odometer readings at these dates
the number of km travelled in the period for each journey undertaken
the number of business km travelled should be shown separately
details need to be provided as to what the reason for the travel is
you need to maintain a log book even if the business use is 100%, or if you have regular patterns for travel
the logbook needs to be for a continuous period of 12 weeks
you need a new log book if you change your car or change the frequency of car usage
If you are carrying bulky tools, you need to provide a list of work items carried and weight and size
If you have bulky items in a bag – what is the size dimensions of the bag and the weight? Do you have secure storage to keep them at work?
D2 Work related travel expenses
Travel expenses
To claim your work related travel expenses, you will need to consider and retain the following:
You need to prove your travel was performed in the course of your employment by way of an employment contract, job description, duty statement or a letter from your employer
You need to provide details of any travel allowances or reimbursements received
If you travelled for more than 6 days, you need to keep a travel diary
If your trip is part business/part personal, you need evidence as to how you apportioned the business %
You need to keep relevant receipts
If you are claiming based on the ATO’s reasonable amounts, you still need details to prove you incurred the expenses for business purposes. Things that the ATO look for are:
hotel booking confirmations
credit card or bank statements showing accommodation or meal expenses
menus from places you ate at
the cost of those meals; or
the number of nights you slept away from home and the location
To claim the Commissioner’s reasonable amounts, you need to have received a travel allowance
Even if you are relying on the ATO reasonable amount, do not claim more than you have actually spent
Tolls
You need copies of your toll statements or receipts, which shows the amount you want to claim
You need to show how incurring tolls related to your work requirement to travel
Parking
You need copies of receipts or other documents (such as bank statements where the amount was direct debited), which shows the amount you want to claim
You need to show how incurring parking costs related to your work requirement to travel and the % of business usage
Public Transport
You need to retain copies of tickets or public transport card statements
You will need to show how your travel on public transport was work related and the % of business usage
Taxis and Uber (and other rideshare services)
You need copies of receipts, account statements or bank statements (for direct debits)
You will need to show how your travel by taxi or rideshare service was work related and the % of business usage
Motor vehicle expenses (for vehicles not classed as a car)
These have a carrying capacity greater than one tonne or 9 passengers
If your claim relates to the transport of bulky tools and equipment provide a list of all work items carried, the weight and size (if work items are carried in a bag provide the dimensions and weight of the bag); and details of the types of secure storage available
Copies of the purchase or lease documents including evidence the carrying capacity was over one tonne or 9 or more passengers
Copies of the vehicle registration certificate or papers
Explanation and supporting documents, such as a diary of how you calculated your work use percentage
A list of each expense and amount claimed
Copies of original receipts for all expenses (including fuel and oil costs)
Copy of the depreciation schedule or details of how you calculated your claim, including the effective life and the method used (prime cost or diminishing value
An explanation of how you calculated the work-related portion for each item
D3 Work related clothing
Work uniforms
To claim the cost of a work uniform:
It must be distinctive eg with a logo; or occupation specific eg a chef checked pants; or protective in nature
There must be a strictly enforced policy making it compulsory to wear that clothing at work
You need to provide a copy of your employer’s uniform policy; or a description of the uniform you were required to wear and copies of receipts
You can claim the cost of renting, altering, repairing and cleaning any of the above work-related clothing
You CANNOT claim the cost of purchasing plain clothes, such as black trousers, white shirts, suits and stockings, even if your employer requires you to wear them
Laundry
You need to provide a description of the work-related clothing or uniform worn and details of how you calculated your claim
If the laundry claim exceeds $150, provide receipts
For laundry expenses that do not exceed $150, the claim can be based on a cost of $1 per load if you wash only your work clothes; or 50 cents per load if you wash other clothes together with your work clothes
You CANNOT claim the cost of cleaning plain clothes, such as black trousers, white shirts, suits and stockings, even if your employer requires you to wear them
Dry cleaning
You need to provide a description of the work-related clothing worn and copies of receipts
Protective clothing
Protective clothing must be to protect against injury or illness, or to protect damage to ordinary clothes whist undertaking your employment duties
You are required to keep copies of the receipts
COVID-19 Protection
If your specific employment duties require you to have physical contact or be in close proximity to customers or clients while carrying out your duties or you are involved in cleaning premises:
you can claim a deduction for expenditure on items such as gloves, face masks, sanitiser, and antibacterial spray
you are required to keep copies of the receipts
D4 Work-related self-education expenses
Self-education expenses related to your work as an employee are deductible if you work and study at the same time and can satisfy any of these conditions:
You are upgrading your qualifications for your current employment
You are improving specific skills or knowledge used in your current employment
You are employed as a trainee and you are undertaking a course that forms part of that traineeship
You can show that at the time you were working and studying, your course led, or was likely to lead, to an increase in income from your current employment
Documents necessary for you to substantiate any claims are:
a list of the expenses and the amount of each expense claimed
full details of the course you undertook
the name of the institution where it was undertaken
the date you began your course
whether you were a full-time or part-time student
a copy of your course outline
the nature of each expense and the amount claimed
an explanation as to how the course directly relates to your employment at the time you were undertaking the course
your employment contract including a job description or a duty statement
copies of original receipts or other documents
D5 Other work-related expenses
Home office expenses - running costs
There are two ways to calculate your running expenses:
Fixed rate per hour
You need to provide an explanation of the work performed from your home office
You need to maintain a diary, over a representative four-week period
Provide other evidence that shows how often you worked out of your home office
You need details of how you calculated your claim
2. Actual costs
You need to provide an explanation of the work performed from your home office
You need a floor plan of your home, with the home office space identified.
Floor plan should show the total floor area of the house and the area of the home office
The depreciation schedule or details of how you calculated your claim
Provide evidence that shows how often you worked out of your home office if you claimed electricity, heating, cooling and lighting
Provide evidence of the total cost of the utility service for the year of income such as a copy of your utility bills and the cost per unit of power used - refer to your utility bill for this information
Home office expenses - occupancy costs
Employees are generally not able to claim occupancy expenses
You can only claim the work-related proportion of your occupancy expenses in two very limited circumstances where:
the space in the home is a place of business and not suitable for domestic use eg doctors surgery
no other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer's business as an office - you will require a letter from your employer to confirm this
COVID-19 – Temporary working from home measures
A temporary simplified method allows you to claim 80 cents for each hour you work from home and covers all deductible running expenses
You will need to provide a copy of your diary, timesheet, roster or other evidence that shows how often you worked out of your home
You will need a letter from your employer ststing you are required to work from home
Mobile and/or home telephone
You need to provide an explanation of how the phone was used for work and how you calculated your claim
You need to provide one itemised bill with either the outgoing private and outgoing work-related calls clearly and distinctly marked and tallied as a representation of the expenses incurred
You need to provide a diary covering a representative four-week period showing your work related and private use of the service
Internet
You need to provide an explanation of how the internet was used for work and how you calculated your claim
You need to allow for usage of other members of your household
You need evidence of the total cost of the service for the year of income and calculations of how you established the work-related portion
Union dues
You need to provide evidence to show you paid the amount of union fees that you are claiming in the income year
Memberships or professional registrations
You need to provide copies of invoices, payslips or bank statements showing the total amount paid in membership fees for the income year
You need to provide details of why the expense was connected to your work
Overtime meal expenses
You need to provide evidence (such as an employment contract or payslips) confirming you were paid an overtime meal allowance
You need credit card or bank statements showing meal expenses
It is useful to keep menus from places you ate at and the cost of those meals
You need to calculate the number of instances you worked overtime and were paid an overtime meal allowance
Books and magazines / professional library
You need to provide an explanation of how each item relates to your employment duties
You need copies of receipts, invoices or other documentation which shows you incurred the amount claimed
Where the expenses are partially private in nature, you need the details of how you worked out the work-related portion of the claim
Computer parts, consumables and/or stationery
You need to provide copies of purchase invoices or receipts for all items
You need an explanation for how the expenses were connected with your employment duties
Provide details of how the work-related portion of your expenses were worked out
Short Course Training/On the Job Training
To claim deductions for short courses or on the job training, you need to provide:
A list of the expenses and the amount of each expense claimed
Full details of the course or training you undertook
A copy of your course or training outline
The name of the institution or facility where it was undertaken
The date(s) you began and completed your course or training
The nature of each expense and the amount claimed
An explanation as to how the course or training directly relates to your employment
Your employment contract including a job description or a duty statement
Copies of original receipts or other documents to support each expense included in your claim
Purchase of equipment and Depreciation
To claim the purchase of equipment and depreciation, you need to provide:
An explanation for how each item relates to your employment duties
Copies of purchase invoices or receipts for all items
An explanation of how you calculated the work-related portion for each item
If the purchase price is above $300, you can only claim a depreciation portion per year – you need to provide the depreciation schedule or details of how you calculated your claim
Sun Protection
Provide copies of invoices or receipts for the expenses
Provide an explanation of how your employment duties expose you to the sun for prolonged periods
Provide details of how you worked out the work-related portion of the expenses
All other expenses
Provide copies of invoices or receipts for the expenses
Provide an explanation for how the expenses were connected to your employment duties
Provide details of how you worked out the work-related portion of the expenses
D9 Gifts or donations
Provide a copy of receipts or any other documents you have to support this claim
The receipt must show:
the name of the charity
the recipient’s Australian business number (ABN)
date that each gift or donation was made
the nature and amount of each gift or donation
Easy Tax Solutions can assist you with preparing your income tax returns, so contact us if you have any questions at admin@easytax.solutions. For some occupation specific tax guides, have a look at our FREE download resources!
