SBS Accountants & Advisors
|Posted on May 9, 2018 at 5:15 PM|
ATO driven to scrutinise car claims this tax time
The Australian Taxation Office (ATO) has announced that it will be closely examining claims for work-related car expenses this tax time as part of a broader focus on work related expenses. Assistant Commissioner Kath Anderson said over 3.75 million people made a work-related car expense claim in 2016–17, totalling around $8.8 billion. That is a large claim made. And while most people want to do the right thing, the rules can be a bit tricky for some and there are a lot of mistakes being made. There is particular concern about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer has paid for or reimbursed.
There are only two ways to calculate a deduction for car expenses :
- the cents per km method which is limited to claims for work-related travel up to 5,000 kms, and
- using a log book to determine the work-related percentage of actual expenses incurred.
Each year around, 870,000 people claimed the maximum amount under the cents-per-kilometre.
It is legitimate to claim for 5,000 kilometres if you did actually do them as part of earning your income. However, it is concerning that some taxpayers mistakenly believe that 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. It’s true that claims of up to 5,000 kilometres using the cents per km method don’t require a log book. However, 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 for work, and how often. The cents per kilometre method is there to simplify
The ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics. They compare taxpayers to others in similar occupations earning similar incomes. Their models are especially useful in identifying people claiming things like home to work travel or trips not required as part of the taxpayer's job. Unless you have a work-related need to travel while performing your job, you won’t be able to claim a deduction. For example, travelling from home to work is not deductible for most people. There are a few exceptions, like if people travel from site to site or are required to transport bulky tools or equipment and their employer does not provide them with secure storage at work. However, simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.
The ATO is advising taxpayers that they may request proof that you were required to undertake the travel for work. A good way to check that your travel claim relates to your work is to ask yourself - did your employer require you to do that travel as part of your duties, or did your employer require you to transport bulky tools or equipment to and from work? The ATO may ask for a letter from your employer confirming that this was the case.
The ATO is also warning taxpayers to not double-dip. You can’t claim expenses you didn’t pay for, including when your employer provided the vehicle or reimbursed your expenses, including under a salary sacrifice arrangement or novated lease. There are three golden rules for taxpayers to remember to get it 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 / diary / calclations to prove it.
Workers who are entitled to claim a deduction must keep accurate records. The ATO has to disallow lots of claims because the taxpayer didn’t keep the right records. But the myDeductions tool in the ATO app can help make keeping records easier. The app is particularly useful for people who use their car for work, as it helps them track trips using GPS, point-to-point or the odometer method. At tax time this data can be sent directly to a tax agent or uploaded into myTax.
A traffic supervisor claimed over $11,000 for work related car expenses, and provided a logbook to substantiate his claim. However, upon investigation it was discovered that the logbook wasn’t printed until the following year. The taxpayer admitted the logbook was fraudulent and it was ruled invalid. Even though the logbook was invalid, the taxpayer was able to provide other evidence to show that he had travelled at least 5000 kilometres for work-related purposes. In this case, The ATO used the cents per kilometre method to calculate the taxpayer’s deduction. His claim was reduced from over $11,000 to under $4,000.
Claiming for home to work travel
A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres. He advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work. The taxpayer was advised that home to work travel is a private expense and is not an allowable deduction. His claim was reduced to $0 and the ATO applied a penalty for failure to take reasonable care.
Claiming for expenses paid for by employer
The ATO recently investigated a taxpayer who claimed $3800 for transporting bulky tools to and from work. He advised that he was required to transport the tools as there was no secure area to store them at his place of employment.However, when the ATO spoke to his employer they advised that the taxpayer was provided with a company car at all times and was not required to use their own car to transport tools. Additionally, the employer provided all tools and did not require the employee to transport them. The ATO reduced the taxpayer’s claim to $0 and applied a penalty as the taxpayer did not actually incur any work-related car expenses.
Incorrect claiming of home to work travel (not-so-bulky tools)
A tiler lodged his tax return using a registered tax agent and claimed over $4,000 in deductions relating to his car (based on transporting bulky equipment), travel and tools. To verify the tiler’s car claims, the ATO contacted his employer who confirmed that he was not required to transport any equipment to work that would be considered bulky – just a few pencils and a utility knife. The employer also advised that secure lockers were provided at the work site to store tools. When asked to provide records of the travel and tools expenses, the tiler produced receipts for car parts, and receipts for all-day parking at the same workplace (not for travel between different worksites or jobs). The tiler’s claims for purchasing tools, carrying bulky equipment and car parking were disallowed because they were private expenses, not directly related to earning his income.
Double-dipping – claiming for a car which is under a novated lease
An employee manager claimed $3,800 in work-related car expenses. When the ATO asked the taxpayer to verify that they owned the car and it was registered in their name, it was discovered the car was under a novated lease. Under a novated lease, the employer makes the lease payments and generally incurs all the running costs of the car. An employee who claims a deduction for these expenses is double-dipping. All deductions were disallowed and we applied a penalty for failing to take reasonable care.