Work Related Travel under the Microscope with the ATO

Sarah Keenan

Associate Director Business Services

cars on a highway at sunset with city in background

Taxpayers be aware

In the 2015-2016 financial year there were individual tax returns lodged reporting salary and wages income by 10.6 million taxpayers. The total amount of deductions by these taxpayers was $35.6 billion, so it’s no wonder the Australian Tax Office(ATO) have decided to take a look into these employment related deductions further.

Of the total deductions by individuals, $2.05 billion was claimed on work related travel expenses and $8.7 billion on work related car expenses. Car expense claims, now account for more than 40% of all work related deductions, a 10% increase over the last 10 years.

ATO Assistant Commissioner, Kath Anderson, has announced that of the 3.75 million people claiming car and travel expenses they are unsure of how much is wrongly being claimed. However audits are revealing that there are mistakes being made.

With that in mind the ATO has announced that it will be closely examining claims for work related car expenses in the 2017-2018 financial year. It’s timely that we revisit what is a tax deductible claim.

A random analysis of tax returns revealed a concerning level of incorrect claiming and over-claiming which ATO Assistant Commissioner, Kath Anderson,  attributed as a result of “complacency” about the following three golden rules of deduction not being observed:

  1. You must have spent the money and not been reimbursed
  2. It must relate to your work (not private expenditure) ; and
  3. You must be able to prove your expenditure if asked.

After the ATO released real life examples of people “rorting” the system they have decided to crackdown on work related travel and car expenses. Taxpayers who do input false and misleading claims face a minimum fine of $4,200 and a maximum fine of $12,600 with evidence of intentional misleading.

Approximately 900,000 people last financial year claimed car deductions through the “cents per km method”, which is limited to 5000 km and requires no log books or evidence unless the company, business or individual is audited.

“It is legitimate to claim for 5000 km if you actually do them as part of earning your income.

We are concerned that some taxpayers mistakenly believe this is a standard deduction they are entitled to, without needing to provide any evidence of having travelled that distance, or even having undertaken any travel at all” Ms Anderson said.

“You still need to have done the kilometres as part of your job and be able to show how you calculated your claim, for example by keeping a diary of places you have had to drive to work, and how often. The cents per km method is there to simplify record keeping, not to provide a free ride” she said.

With additional funding announced of $130.8 million over 4 years to assist the ATO to increase compliance activities and deter the over-claiming of entitlements, you need to be confident you have everything in order to sleep well at night. If you are unsure about what you are able to claim, please do not hesitate to contact our team of accountants who specialise in business services to discuss this further.

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