Calculating deductions for an income tax return generally means following the guidance of the Australian Taxation Office (ATO), legislation and rulings from the Commissioner of Taxation. According to this guidance, work-related deductions, such as the costs associated with laundry and work uniforms, can usually be claimed on your income tax return. However, a recent case has seem a claim for work-related deductions denied; demonstrating that individual circumstances should always be taken into consideration alongside the guidance.
Determining Work-Related Deductions
Let’s explore firstly, how you can claim a work-related deduction.
In relation to income tax returns, there are numerous deductions an employee can claim. Under the Income Tax Assessment Act 1997, “the Act”, an employee can claim deductions for work-related expenses, provided they satisfy a number of ‘tests’. In a recent case, a lack of substantiation of expenses led the Administrative Appeals Tribunal to disallow these deductions, even though they were proven to be linked to the employee’s work.
Section 8-1 of the Act provides that an employee may deduct a work-related expense if the following are satisfied:
- The expense is incurred in gaining or producing assessable income (positive test)
- The expense is not a loss or outgoing of capital
- The expense is not private or domestic in nature
- The expense is incurred in relation to gaining exempt or non-assessable, non-exempt income
- Another provision of tax law does not prevent the expense from being deducted
If the employee can substantiate the expense with documentation or written evidence, and the above tests are met, then the work-related deduction should be allowable.
Key Facts of the Case – why were work-related deductions denied?
Let’s now get into the specifics of the case. Mr Lambourne was employed by the Australian Defence Force as an electronics technician with the Navy. He also performed ancillary duties, including one as a military fitness leader. In his 2017 income tax return, Lambourne claimed work-related deductions for the following:
- Work-related clothing – navy uniform
- Other work-related expenses for items used in the navy i.e., a scientific calculator, gym equipment and a laptop.
The key issue was whether Lambourne could deduct these work-related expenses from his income tax return.
The decision, on appeal, was that the work-related deductions were denied. This was on the basis that the work-related expenses claimed were not incurred in gaining or producing assessable income during the 2017 year.
Implications of these work-related deductions being denied
The Tribunal’s decision brought about some troubling concerns. There was a concern that the ruling could mean that when a taxpayer acquires goods at their own discretion and not the direction of their employer, the expense may not be deductible. However, the Australian Taxation Office noted that the decision in the Lambourne case applied to and is confined to specific circumstances and facts, and does not alter the ATO’s view of the broader principles at play.
This case highlights the importance of the facts and circumstances that are closely considered when the ATO is reviewing and approving claims for work-related deductions. The outcome of this particular case demonstrates that the rules have exceptions. Not only is substantiation required for a deduction to be claimable in this case, but it must be linked with employment.
Understanding what can and cannot be claimed as work-related expenses can be difficult to navigate, not to mention staying up-to-date with the latest criteria and case rulings. This is where engaging the services of experienced accounting and taxation professionals, such as the team at The Quinn Group, can really be of benefit. The Quinn Group can support you in preparing and lodging all aspects of your income tax return to ensure that you are complying with the necessary rules and obligations. This includes assisting you to legally claim work-related expenses that you are entitled too, and not mistakenly claiming items that you aren’t entitled to.
If you would like help with respect to work related deductions, please contact one of our experienced accountants by by submitting an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment