ATO renews focus on car deductions

Chris Jordan, Australian Tax Commissioner
Chris Jordan, Australian Tax Commissioner

The tax office has restated its examination of people who claim more than they are entitled to around a car travel deductions as part of a broader compliance crackdown.

The ATO noted that over 3.75 million people made a work-related car expense claim in 2016-17, totalling around $8.8 billion, of which around 870,000 claimed the maximum amount under the cents-per-kilometre method.

The announcement follows comments from tax commissioner Chris Jordan that some tax practitioners were “deliberately scamming or cheating the system”, which then received the backing of Tax Practitioners Board chair Ian Taylor, describing the ATO’s focus on clothing and laundry expenses as “fair”.

 In addition, ATO made a commitment earlier this year to focus on ‘other’ work-related expenses, after $7.9 billion in claims were recorded last year between about 6.7 million Australian taxpayers.

ATO assistant commissioner Kath Anderson said that the ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics.

“We compare taxpayers to others in similar occupations earning similar incomes. Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job,” Ms Anderson said.

“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.”

Ms Anderson said that while the rules can be a bit tricky for some, and that most people want to do the right thing, the ATO is seeing a lot of mistakes.

“We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed,” she said.

Last year, the ATO issued a similar warning, with Ms Anderson noting a “significant proportion” of claims were at the limit of the 5,000 kilometres mark that did not require detailed records.

She said the cents-per-kilometre method of calculating deductions for expenses is to simplify record-keeping, not to provide a free ride.

“It’s true that claims of up to 5,000 kilometres using the cents per km method don’t require a log book,” Ms Anderson said.

“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.”

Property depreciation tax changes passed

As part of the 9th of May 2017 federal budget, the Australian Government proposed amendments to legislation relating to plant and equipment (division 40) deductions.
The proposed changes, outlined in Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 , have now been legislated after being passed by the Senate on the 15th of November 2017.
This has resulted in a change to the Income Tax Assessment Act 1997 and denies property investors from claiming income tax deductions for the decline in value of ‘previously used’ depreciating assets (plant and equipment) within residential investment properties.
The government’s intention in making this legislation amendment was to deliver an integrity measure which addressed concerns that some plant and equipment assets were being depreciated by successive property investors in excess of their actual value.
These changes affect investors who purchase second-hand residential properties after 7:30pm on the 9th of May 2017 by limiting the depreciation they can claim on existing plant and equipment assets.
The following video has been prepared by BMT Quantity Surveyors to explain the changes.

Deductions against government assistance payments are no longer available

In the 2011-12 Budget the government announced that it would make changes to disallow deductions against government payments.

On 27 June 2012 these changes came into effect when the legislation received royal assent. The new law is effective 1 July 2011 and expenses that relate to meeting the ongoing requirements to receive certain government assistance payments can not be claimed as a deduction.

Government assistance payments that are no longer eligible for deductions include:

  • Austudy
  • ABSTUDY
  • Newstart Allowance

This brings the long fight by the ATO against deductions from student allowances to an end. The ATO lost the court cases so the government chnaged the last. See http://thomsonhall.com.au/wordpress/tag/education/ for ealier parts of this story.