THE ATO’S INTEREST IN WORK RELATED EXPENSES

The ATO has in recent times been active in reviewing deductions claimed by employees as work related expenses where the employee receives an allowance as a part of their salary package from their employer.  

The recent activities of the ATO shows that the ATO feels that there is more work to do on this issue, as evidenced by detailed publications from the ATO about Bechtel employees at Curtis Island. 

COMMON ERRORS BY EMPLOYEES

Allowances provided by employers can cover a number of expenses which would ordinarily be an expense of the employee which may or may not be deductible. 

The ATO’s focus has been on deductions which are claimed by employees because they receive an allowance for that expense but which is expense which the employer pays for over and above the allowance it pays to its employee.    

Common errors include where employees have claimed deductions for:

  • meal expenses where a meal is provided by the employer;
  • the cost of meals (including overtime meals) which were not connected with the employee’s work;
  • car expenses for travel between home and a terminal point or local airport;
  • accommodation expenses, where accommodation was provided by their employer;
  • non-work related mobile phone and internet expenses.   

HOW ALLOWANCES WORK

The type of allowance received by the employee will impact on what deduction may be available to an employee and what disclosure is required to be made by the employee to the ATO. 

The general position is that an employee is not automatically entitled to a deduction for an expense simply because they receive an allowance from their employer as a part of their employment.  The employee must incur the expense as a part of their employment in order to claim a deduction.

The Commissioner publishes what he believes are reasonable rates in which deductions may be claimed without evidence where an allowance is received by an employee.  This does not mean that employees can automatically claim this deduction but it may mean that the employee is not required to provide supporting documents to the Commissioner in support of the deduction claimed. 

THE VOLUNTARY DISCLOSURE

If you think you have made a mistake, the time to amend your returns for the 2013/2014 and 2014/2015 tax years may be now, depending on time restrictions that apply for amended assessments. 

What can employers do to help their employees?

While there is no legal obligation on employers to educate their employees on how allowances work, it is clear that employees may not understand how allowances work. 

Employers might be in a position to provide assistance to their employees through holding information sessions.  However, employers must balance providing information to their employees with information versus providing tax advice.

WHAT SHOULD YOU DO IF YOU ARE AN EMPLOYEE?

Employees should:

  • understand what expenses their allowance relates to;
  • understand whether or not an amount is deductible as a work related expense;
  • keep receipts or records of any expenses that the employee is seeking to claim a tax deduction for;
  • when in doubt, an employee should seek assistance from their tax agent when preparing their tax returns.