FY2023
These are audits conducted by the ATO on individuals each year.
They often target high deduction claims > $8,000 or > 10% of gross salary at Labels D1 to D5 on the individual tax returns.
The good news is that you get three goes at passing the audit by producing appropriate documentation for various areas in the ATO and independent tribunal the AAT (Administrative Appeals Tribunal).
My clients who have been audited have said to me that it takes on average 21 hours of document preparation plus a lot of stress.
http://www.daviddouglas.com.au/TaxRecords.htm
Level 1 is the ATO Desk Auditor:
A desk auditor said to me that she had a case load of 1,000 clients per year. My response was that as she had asked for over 200 photocopied pages of invoices, receipts, explanations, diaries and letters from the employer that there was little chance of her reviewing my client in a day and then write her audit report.
I asked her if she would contact me if there were any deficiencies in my clients records or explanations. She told me that she would contact me if there was anything that she needed. I rang her every two days for updates and she told me that she was happy with all my documentation and explanations. Two weeks later she failed my client on all deductions saying that we had not given her any records.
I put a complaint in to the ATO which was dismissed as they believed her version. I contacted the ATO Ombudsman (now The Inspector General of Taxation) to register a complaint and we were eventually allowed to resubmit our documents via registered mail and we subsequently passed on a review.
What I learnt from this was that the ATO is under resourced at this level and has very little chance of remembering emails or telephone conversations. I now record all conversations with the ATO audit area.
I have found it extremely time consuming and futile lodging a complaint within the ATO. Your time is better spent keeping a photocopy of your original submissions and then lodging an appeal to the ATO within 60 days
For Claims of Expenses > $8,000 or > 10% of salary, I recommend you lodge nil tax deductions then object to your assessment notice:
This way you will avoid the Desk Auditor who may waste your time and impose penalties (up to 90% on tax payable) plus interest.
Level 2 is the ATO Appeals Area:
The Appeals or objections area is a section of the ATO where you may appeal or object to an assessment notice or decision from within the ATO within 60 days. This is just as hard to succeed here as in desk audit. I would try and limit your time with this area the view to move your case to the AAT as quickly as possible.
If you are not successful at this level I suggest that you appeal to the AAT with in 60 days of the notice of the Commissioner's decision.
Level 3 is the AAT (Administrative Appeals Tribunal) from $87 for tax refunds < $5,000:
The AAT is an independent tribunal set up to hear tax cases. It costs $87 for Tax Claims Tribunal < $5,000 or $884 ($100 for concessions) to appeal which is refundable if you win. The ATO requires additional money and resources to take on any case at the tribunal. As a result the ATO may seek a settlement prior to the hearing.
RECORDS YOU NEED TO PASS A TAX AUDIT FOR LABELS D1 TO D5
NEVER SEND IN ORIGINAL DOCUMENTS ONLY PHOTOCOPIES
D1 - Work related car expenses
Motor Vehicle Logbook
1. An explanation as to why it is a tax deduction. You would usually write a small
paragraph.
2. A letter or email from your employer supporting your explanation.
3. A 12 week logbook fully completed showing detailed daily starting and finishing
odometer readings, the addition of the work kms as a % of total kms and 30 June
reading completed at the front of the logbook, the purpose of the journey e.g.
carrying bulky equipment to and from work with no secure lockup, photos of the
bulky equipment. See example.
4. Proof of ownership. This means the purchase contract.
5. Fuel Receipts or calculation based on average fuel consumption and purchase
price. e.g. Your car travels 15,000 kms for the year @ 500 kms on 50 litres @ $1.45
per litre. Fuel = $2,175 without receipts.
6. The Finance Agreement and detailed calculation of interest charges for each year.
7. Registration receipt.
8. Insurance receipt.
9. Repairs and maintenance receipts.
10. RACQ and car washes receipts.
Travel to and from work is usually not a tax deduction.
Some exceptions are:
1. Carrying bulky equipment with no secure lockup at work.
(Bulkiness of equipment is determined by size & weight. For tradesmen it could mean a minimum of a 40 kg tool box plus other items e.g. nail guns, drills, drop saws, materials, etc. Bulkiness is also determined by size e.g. Ladders, bench horses, large oil drums, spare tyres, etc.) If in doubt ask for a private ruling.
2. Travel between two places of work.
3. Travel to attend meetings and then to home or work.
4. Travel from home or work to see clients and then back to home or
work.
5. Some travel to a place of education.
6. When you travel overnight for
work.
This only applies to motor vehicles whose carrying capacities are
1 ton or less or fewer than 9 passengers.
Most of my clients use the ‘log book
method’ or the ‘set rate per kilometre method’.
D2 - Work related travel expenses
1. An Explanation as to why it is a tax deduction. You would usually write a small
paragraph.
2. A letter or email from your employer supporting your explanation.
3. You must have a diary showing your overnight towns. You must not stay in one
town more than 21 days. You must keep actual itemised receipts for meals and
incidentals purchased at Food-marts such as Coles, Woolworths, IGA, Aldi,
Food-works, Roadhouses, etc.
4. Meal purchases on credit cards from restaurants e.g. McDonalds, KFC, Hotels,
cafes, etc. usually pass written evidence requirements.
5. If you are using the ATO bone fide travel allowance you must prove a regular
pattern of expenditure for a minimum 28 days using, diaries, receipts and bank
or credit card statements
statements.
TD 2017/D6 OVERNIGHT TRAVEL EXPENSES WITH NO TRAVEL ALLOWANCE PAID
CONDITIONS
1. You must be away from your ordinary residence. You must sleep away from your home.
2. You must not stay in one town for more than 21 consecutive days (Roads and Traffic Authority of NSW case; MT 2030).
3. You must keep a diary and written evidence. Try photographing these with your mobile.
PLEASE SUMMARIZE THE FOLLOWING:
Air fares
Taxis or car hire
Accommodation
Meals
Water
Alcohol - e.g. wine & beer
Snacks
Toiletries
Reading materials - e.g. newspapers, magazines, books, etc.
Movies - e.g. DVDs, in-house, cinema, etc.
EMPLOYERS
Most employers usually pay for only accommodation and meals for their employees but there are many other incidental expenses that are not reimbursed, these are usually a tax deduction. e.g. alcohol, snacks, toiletries, movies, etc.
D3 - Work related uniforms, protective clothing, laundry and dry cleaning
1. An Explanation as to why it is a tax deduction. You would usually write a small
paragraph.
2. A letter or email from your employer supporting your explanation.
UNIFORMS AND PROTECTIVE CLOTHING
30 June 2021
Work related uniforms, protective clothing and laundry
Laundry
Laundry: You may claim up to $150 without receipts or less or you may use a reasonable basis to calculate the amount e.g. $1 per load for work related clothing.
Dry cleaning without receipts may fall under items that cost less than $10 up to $200. Sometimes if you use a regular dry cleaner they may be able to give you an annual tax receipts based on their records.
Protective clothing
Protective clothing is generally tax deductible if it is designed to protect:
Steel capped boots, high visibility shirts, fluroescent trousers, fire proof clothing, non-slip safety shoes, aprons, etc.
Conventional clothing
Conventional clothing is not deductible e.g. King Gee drill pants, jeans, etc unless they have a logo or a fluroescent strip sewn on for safety.
Strictly enforced uniforms
Strictly enforced uniforms are usually deductible as well as accessories such as stockings, footwear, socks and jumpers unless it is conventional clothing.
Non compulsory uniforms
Non compulsory uniforms are usually not tax deductible unless they are registered with AusIndustry or they have a logo.
D4 - Work related self-education expenses
1. An Explanation as to why it is a tax deduction. You would usually write a small
paragraph.
2. A letter or email from your employer supporting your explanation.
COURSES
Courses include fees (but not HECS), books, laptops, internet, stationery, home office expenses, some travel to a place of education.
You do not need receipts for up to $200 of items that cost less than $10. The $200 is a total for the whole tax return.
The course must relate to your current income producing activity, not income that will be made in the future. e.g. Medical School expenses are not a tax deduction for a doctors income in the future.
If your course is run by a university, TAFE or college you must reduce your expenses by the first $250.
D5 - Other Work related expenses
1. An Explanation as to why it is a tax deduction. You would usually write a small
paragraph.
2. A letter or email from your employer supporting your explanation.
3. You must keep a 28 day diary for your mobile, laptop, iPad, etc. You may draw a
diary on an A4 pad with a line down the middle and number 1 to 28 days down the
left hand side then write Work and Private on the left and right hand sides
respectively then record your time per day on each side. You then calculate as a %
work time v total time.e.g 28 hours work v 10 hours private = 28/38 hours = 74%
work expense x receipts.
4. You must have 2 diaries for your mobile. One months itemised telephone calls and
a 28 day diary for data downloads.
HOME OFFICE
Method 1
You may claim home office electricity based on floor area e.g. 5%. x $400 (electricity bill per quarter) x 4 = $80. This area must be for the sole purpose of home office. It cannot be for multi-use e.g. dining room table.
Furniture, desks, fax machines, filing cabinets, book shelves, pictures, carpets, blinds, etc may be depreciated at usually 20%.
Depreciable Items < $300 may be 100% depreciated.
E.g. desk $250 x 100%, chair $120 x 100%, carpet $1,000 x 20%, blinds $600 x 20% = $690
Method 2
You may use the ATO 45c per hour rate to claim electricity, gas and depreciation of furniture. You must keep a 4 week diary.
E.g. 52c x 20 hours per week x 52 weeks = $540.80.
WORK EXPENSES
iPhone, mobiles & home phone
Computers - iPad, Macs, laptops & desktops
Computer supplies
Stationery - Cartridges, diaries, pens & office sundry
Internet
Self education, conferences and courses.
PRIVATE USE APPORTIONMENT
If there is private use (other than incidental use) a 28 day diary is required each financial year or where the work % changes by more than 10%.
A diary can be a simple A4 pad with a line in the middle with work & private on opposite sides.
RECORDS
You may claim $200 worth of items costing < $10 without receipts.
TOOLS AND OTHER WORK RELATED EXPENSES
TOOLS
Tools are usually 100% deductible except for the following:
For employees if a tool costs > $300 you must depreciate it usually at 20% per year. e.g. nail guns, drills, etc.
For ABN businesses depreciate business assets as follows:
Up to 30 June 2023 tools and equipment up to $150,000 and cars $64,741 may depreciate at 100%. After 1 July 2023 $20,000 - 100% and cars $68,108 - 25% depreciation.
You do not need receipts for up to $200 of items that cost less than $10. The $200 is the maximum for the
whole tax return.
SUN PROTECTION AND SUN GLASSES
Includes sun glasses, sun screens and hats.
You do not need receipts for up to $200 of items that cost less than $10. The $200 is a total for the whole tax return. Reduce by cost of prescription lens.
TOLLS & PARKING
You do not need receipts for up to $200 of items that cost less than $10. The $200 is a total for the whole tax return.
LICENCES
The licence or renewal expenses must relate to your current income producing activity not income that will be made in the future.
The initial cost of some licences may not be a tax deduction. e.g. the initial cost of obtaining a truck, earth moving or heavy
machinery license as the expense has occurred at a point too soon.
SECURITY/CRIMINAL CHECKS ATO TR 98/6 PARA 177
Security checks are usually not deductible as the expense happens at a point too soon before the income is earned.
Renewal of criminal checks may be deductible as you are currently earning income e. g school teacher's blue cards.
The ATO allows the preparation of resumes and travel to attend an interview as a tax deduction against Centrelink income.
Google: ATO Tax Return Integrity Supporting Documentation
What should you do if you receive a notification that you are being audited?
1. Ring the ATO and ask them specifically what they require?
Most taxpayers do not respond because they think that the ATO already knows who they are. Remember that you are usually dealing with a computer.
2. The ATO will usually want to verify who you are so they may ask for a date and reference number from your last Notice of Assessment, a copy of your payment summary and contact details of your employer or payroll officer.
3. The ATO will usually want to verify all deductions so you will need to photocopy all receipts, diaries, logbooks, employer support letters and send via registered mail to the ATO. Do not email scans of documents to the ATO as they frequently do not reach the auditor due to fire walls and other issues.
4. You will require logbooks and/or 28 day diaries, explanations and employer support letters for the following:
Motor Vehicles, Mobiles, Laptops, Computers, iPad, Internet, overnight travel expenditure, other items, etc.
5. The ATO may wish to verify your address, that you are living in Australia or living with a spouse or children so you must have documents proving this such as an electricity or telephone bill, passport, etc.
ALL THE ABOVE ISSUES ARE VERY TIME CONSUMING, DIFFICULT AND STRESSFUL TO DEAL WITH SO BEST OF LUCK
DISCLAIMER
The information provided in the above documents is not intended to be, nor should it be construed as tax advice. Any specific recommendation for a client can only be done after their individual circumstances have been determined by David Douglas Accountants.
We have clients from the following locations:
Brisbane, Albion, New Farm, Teneriffe, Newstead, Windsor, Wilston, Bowen Hills, Wooloowin, Herston, Lutwyche, Hamilton, Eagle Farm, Gordon Park, Fortitude Valley, Clayfield, Ascot, Hendra.
Morayfield, Burpengary, Caboolture, Bellmere, Wamuran, Narangba, North Lakes, Mango Hill, Kallangur, Dakabin, Deception Bay, Bribie Island, Elimbah, Kippa-Ring.
We do tax returns for individuals, trusts, companies, partnerships, contractors, ABNs and sole traders.
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