One area that can cause some confusion is the deductions section and it even gets more complicated when you’re claiming work-related expenses.
Whether you’re preparing your individual tax return yourself or are using a registered tax agent, it’s important to get your deductions right.
What is a work-related expense?
As the term implies, a work-related expense is an expense that you incurred whilst you were performing your work duties.
To claim a deduction for a work-related expense, it must satisfy the following criteria:
- It must be directly related to earning your income
- You must have a record or proof to substantiate your claim, like a receipt
- You must have spent the money and not have been reimbursed by your employer.
It’s possible that the expense was for both private and work purposes. If this is so, you can only claim a deduction for the work portion of the cost.
What are the general record keeping guidelines for work-related expenses?
In terms of record keeping, there are two thresholds that you need to be aware of:
- If the total claim for work-related expenses is less than or equal to $300, you will not be required to provide written evidence; however, you must be able to show how you worked out your claim.
- Whereas, if the total claim for work-related expenses is greater than $300, you will need to provide written evidence to substantiate your claim. The $300 doesn’t include certain claims such as car expenses, meal allowance, award transport payments allowance and travel allowance expenses. There are specific written evidence rules regarding these claims.
What are the types of work-related expenses?
Below are the most common types of work-related expenses.
Work-related car expenses
These are expenses, incurred whilst performing your work duties, for a car you either owned, leased, or hired under a hire-purchase agreement. Examples of work-related car expenses where you may be able to claim a deduction can include:
- Attending meetings or conferences
- Collecting supplies or delivering items
- Commuting from your normal workplace to an alternative workplace (e.g. a client’s premises) and then either back to your normal workplace or directly home.
In most instances, you can’t claim a deduction for travel between home and your workplace as this is generally considered to be private in nature; however, there are some exceptions to this. A good example would be when you carry bulky products, tools or equipment (e.g. ladders, wheelbarrows, cement mixers, large musical instruments, presentation materials, etc.) that your employer requires you to use for work and they can’t be left at work (e.g. no secure area at work to store them).
Depending on your personal circumstances, there are two methods available to calculate your deduction with car expenses:
- the cents per kilometre method; and,
- the logbook method.
It’s imperative that you understand the rules regarding these methods in terms of their correct use and the required record keeping.
For example, if you want to use the cents per kilometre method to calculate your deduction with your car expenses:
- You can only claim a maximum of 5,000 business kilometres per car. For claims above this amount, the logbook method must be used.
- Your claim is based on 66 cents per kilometre for 2016–17 financial year.
- You will not be required to provide written evidence; however, you must be able to show proof of how you worked out your claim, for example, via diary records of your work-related trips.
Take note that if you received an allowance from your employer in relation to car expenses, you’ll need to include it on your tax return.
Work-related travel expenses
Work-related travelled expenses are travel expenses that you incurred in performing your work duties. Examples of work-related travel expenses where you may be able to claim a deduction can include:
- Road and bridge tolls
- Public transport such as air, bus, train and taxi fares
- Meal, incidental and accommodation expenses you incurred whilst away overnight for work.
The records you need to keep for travel expenses can depend on whether you receive a travel allowance (and, if your claim exceeds the reasonable allowance amount), the length of your trip and if it’s domestic or international travel.
For example, if you receive a travel allowance (and, your claim exceeds the reasonable allowance amount), the travel was more than six nights in a row and domestic in nature then you will need written evidence and to keep a travel diary. Your travel diary should contain details such as dates, places, times, and duration of your activities and travel.
Remember, as a general rule, if you received an allowance from your employer in relation to travel expenses, you’ll need to include it on your tax return.
Work-related clothing, laundry and dry-cleaning expenses
Work-related clothing, laundry and dry-cleaning expenses are expenses that you incurred to perform your work duties. Examples of where you may be able to claim a deduction for these expenses include:
- Protective clothing e.g. sun protection clothing, steel-capped boots, safety-coloured vests, or non-slip nurse’s shoes
- Occupation-specific clothing e.g. robes worn by barristers or a chef’s checked pants
- Uniform e.g. non-compulsory (registered with AusIndustry) or compulsory
- Laundering and dry-cleaning of the abovementioned clothing.
However, you can’t claim a deduction for an expense incurred in purchasing or cleaning ordinary clothes you wear for work.
In terms of record keeping, to claim a deduction, you may need to have written evidence that you purchased the abovementioned clothing and diary records or written evidence of the cleaning of these clothing items.
For example, if your claim for washing, drying and ironing exceeds $150, and your total claim for work-related expenses is greater than $300 (excluding car, meal allowance, award transport payments allowance and travel allowance expenses) then you must provide written evidence such as receipts and diary entries.
However, if you received an allowance from your employer in relation to work-related clothing, laundry and dry-cleaning expenses, you’ll need to include it on your tax return.
Other types of work-related expenses
You may be able to claim a deduction for other types of work-related expenses such as:
- self-education expenses
- home office expenses
- internet expenses
- tools and equipment expenses.
This is a just general overview of work-related expenses that you may be able to claim. As you can see, this can be a complex and sometimes confusing area. That’s why it’s important to seek advice from a registered tax agent who can help you better understand your personal circumstances in relation to your eligibility, and the required recordkeeping to claim a deduction for work-related expenses.
Stonehouse has relationships with quality accountants / tax agents, so feel free to Contact an Adviser if you are looking for a referral.