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Tackling False Employment-Based Clothing Tax Deduction Claims
The rules and regulations of tax deduction in terms of employment attire have been called into question, leading the Australian Taxation Office to review work-related clothing and laundry expense claims.
Why do changes need to be made?
Last year alone it was estimated that there were around six million claimants for employment-based clothing tax deductions – and with them, a staggering $1.8 billion in claims. As there has been a 20% rise over the last five years, the legitimacy of the applications entered have been queried; in terms of how accurate their declarations may be.
Work-related clothing and laundry expenses have proven to be a grey area for both the ATO and claimants, prompting the need for stricter controls and more advanced analytics. Where the governing body struggles to determine the quality of claims, claimants can often be confused about what is and isn’t deemed as applicable.
Why might a claim be deemed as false?
While the majority of claims are seen to be legitimate, there are many that are being awarded when the application is ineligible. It is believed that some taxpayers are making claims based upon false reasoning, such as applying for concessions for non-uniform items simply because a boss or supervisor has stated that they need to wear specific coloured items.
This event is not classified as tax deductible and situations where non-standardised uniforms (such as this), non-issued protective clothing and even unlicensed occupation-specific clothing are all invalid for tax deductions.
As these ineligible items can all be accidentally or deliberately over-claimed, the ATO have been noticing more and more red flags; especially when considering that many applications have met the limitation of $150 (above this threshold requires detailed records).
Other instances where claims may be deemed as false include claiming for items that were not actually purchased (or were given as gifts), laundered items that were not employment-based and inexplicable cost calculations such as claiming $15 for a shirt that usually costs $7.
Some believe that the $150 threshold entitles the claimant to deductions, even if their requirements do not meet this level of costs, when it was actually put into place to alleviate record-keeping requirements for those who have lesser needs and is not an automatic entitlement for all tax-payers.
Other illegitimate clothing items
Aside from understandable misinterpretations, there are a number of clothing items that are not deemed as valid for tax deduction claims. Apparel such as:
- Black trousers
- Black or white footwear
- Fashionable uniform alternatives
- Items that are not standardised uniform
This covers clothing that is bought for work in specific (even by order of the company), such as a white shirt and coloured trousers, that may not be deemed as official uniform, as well as items bought to suit company-run functions. In short, expenses for any form of conventional clothing are not deductible under any circumstances.
When to claim
Written evidence is not necessary for a claim to be awarded but having purchased valid work-related clothing is a must.
The ATO provides this information in relation to Cleaning of Work Uniform written evidence requirements:
If you don’t need to provide written evidence for your laundry expenses, you may use a reasonable basis to work out your claim. For washing, drying and ironing you do yourself, we consider that a reasonable basis for working out your laundry claim is:
- $1 per load – this includes washing, drying and ironing – if the load is made up only of work-related clothing, and
- 50 cents per load if other laundry items are included.
If you choose a different basis to work out your claim, we may ask you to explain that basis.
Valid items include standardised company uniform, necessary protective items and occupation-specific clothing. All of these need to meet the requirements needed to earn your income and must be proven purchases to ensure the legitimacy of the claim.
Every return is now subject to close examination, with analytics being used to undertake detailed comparisons of others in their respective fields, so it is now more important than ever to submit a valid claim.
Lindale Insurances Pty ltd ATF Lindale Insurances Trust ABN 27 027 421 832 is a corporate Authorised Representative of Millennium3 Financial Services Pty Ltd AFSL 244252 and ABN 61 094 529 987. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement. For Australian Residents Only.
Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of Melennium3. They cannot be reproduced in any form without the express written consent of the author.