When filing your 2015 tax return this year, it is crucial to exercise caution when claiming expenses as tax deductions to minimise the chances of catching the attention of the ATO and potentially facing an audit. Seeking guidance from a knowledgeable tax advisor can significantly assist in navigating this process smoothly.
Expenses incurred to earn assessable income are generally tax deductible, but it is important to note that not all expenses are qualify for deductions under the tax law. Examples of these non-deductible expenses are discussed below.
- Vaccination – the cost of vaccination is generally not deductible as it is considered a personal medical expense (they are private). It is a common misconception among airline employees that they can claim this cost as a tax deduction, but this is incorrect. Only medical expenses and tax rebates can be claimed.
- Entertainment expenses – the costs of you personally having a fine lunch or enjoying a nice bottle of wine with your client or co-worker are generally not deductible. Where an employer pays for this cost may become tax deductible, but fringe benefits tax would be applicable.
- Childcare and education costs – these costs are not deductible as they are not directly related to earning an income. There may be tax rebates available from the government.
- Speeding and parking fines – the tax law explicitly disallows you from claiming any fines imposed due to breaching Australian or foreign law.
- Commuting from home to work – costs incurred commuting between home and work are generally not deductible unless the employee must carry heavy or bulky equipment daily.
- Grooming costs – costs such as cosmetics, skincare products and hairdressing are generally not deductible (they are private in nature).
- Driver’s licence cost – holding a driver’s licence is not deductible, even if it is a requirement of your employment.
- Volunteer work costs – costs incurred in performing your volunteer work are not deductible. This is because you are not gaining any assessable income. The costs cannot be claimed against other income earned (i.e. salary)
- Police checks – the cost for an employee to obtain a police check for a prospective employer is not tax-deductible, as it is incurred before earning any assessable income.
- Expensive cars – there are a few methods for claiming a car’s running costs, but the claim on the cost of the car is capped at a set depreciation limit. The limit for the 2015 income year is $57,466, so even if you were to buy a $300,000 Porsche, you still could only claim $57,466 of depreciation expenses over the car’s effective life.
In summary, to ensure you don’t run into trouble with the ATO and have your deductions denied, carefully consider these factors when considering whether to claim an expense.
- The expense was incurred in earning assessable income;
- The expense is not private in nature or a capital expense;
- The tax law does not explicitly disallow the claim (i.e. fines);
- You have written evidence or records to support your claim.
If you have questions or are unsure whether you can claim an expense, please call us.
*Correct as of July 2015
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
