The Commissioner has identified the top 10 tax myths and misunderstandings that are those involved in preparing individual tax returns have, including tax agents prepared and self-prepared returns. And generally, they relate to substantiation of work related deductions.
MYTH #1: Claim $150 for clothing and laundry, 5,000 kilometres at 66 cents for car related expenses, or $300 for work-related expenses
The first and main myth the Commissioner identifies is that everyone can automatically claim $150 for clothing and laundry, 5,000 kilometres at 66 cents for car related expenses, or $300 for work-related expenses, even if they didn’t spend the money.
The Commissioner states that these are just record-keeping exemptions that provide relief from the need to keep receipts in certain circumstances.
However, they are not an automatic entitlement or a “standard deduction” for everyone.
While you don’t need receipts for claims under $300 for work related expenses, $150 for laundry and 5,000 kilometres, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.
But let’s look at where these myths come from…
$300 standard deduction???
The rules regarding the required substantiation for work related deductions are found in Division 900 (and Division 28) of the ITAA97.
Division 900 covers substantiation requirements for work expenses (Subdivision 900-B), car expenses (Subdivision 900-C) and business travel expenses (Subdivision 900-D).
These substantiation rules only apply to individuals (section 900-5), and only applies to employees or those who have similar withholding as employees (see list in section 900-12).
Section 900-15 states that even if a “work expense” meets the conditions for a deduction (for example section 8-1), there will be no deduction unless the individual substantiates it “by getting written evidence.”
Under section 900-30, a work expense is a loss or outgoing you incur in producing your salary or wages and includes travel and meal allowance expenses, Division 40 deductions and section 25-60, 25-65 and 25-100 deductions.
The written evidence must be retained for 5 years from the due day for lodging an income tax return or when the return is lodged, whichever is later (section 900-25).
There is a “small total of expenses” exception. Subsection 900-35(1) ITAA97 states:
If the total of all the *work expenses (including *laundry expenses, but excluding *travel allowance expenses and *meal allowance expenses) that you want to deduct is $300 or less, you can deduct them without getting written evidence or keeping travel records.
To be clear, the $300 rule is just a relief of having to have written evidence of a certain type, which are explained in Myth #2 below.
One more time… While you don’t need receipts for claims under $300 for work related expenses, $150 for laundry and 5,000 kilometres, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.
MYTH #2: “I don’t need a receipt, I can just use my bank or credit card statement”.
The Commissioner states this is only the case if the statement meets the written evidence requirements in Division 900.
What is written evidence is covered in Subdivision 900-E. It states that written evidence can be a document from the supplier of the goods or services the expense is for. The document must set out:
- The name or business name of the supplier; and
- The amount of the expense, expressed in the currency in which it was incurred; and
- The nature of the goods or services (if the document the supplier gave you does not specify the nature of the goods or services, you may write in the missing details yourself); and
- The day the expense was incurred (if the document does not show the day the expense was incurred, you may use a bank statement or other reasonable, independent evidence that shows when it was paid); and
- The day it is made out.
In Practice Statement Law Administration PSLA 2005/7 (as updated to July 2015), the Commissioner states:
Where the above documents are insufficient, we accept the following documents (or combinations of documents) as acceptable evidence of expenses:
- bank statements
- credit card statements
- BPAY reference numbers, combined with bank statements, or
- BPAY reference numbers, combined with tax invoices.
So, if the credit card statement or bank statement does not cover this information then there is no deduction. And in many cases the credit card will not have what the good or service actually is!