How to Substantiate You Your our Tax Claims and Maximise Tax Deductions Deductions We hope that the following enables you, the taxpayer, to derive three main benefits: 1. 2. 3. Help you get the maximum total of tax deductions available to you; Help you organise your tax affairs with ease….so you’ll be able to receive your refund more quickly; and Allow you to minimise the risk of problems in the event of an audit by the Australian Taxation Office. How to Organise Your Documentary Evidence While the ATO has nothing official to say about how you organise your receipts, there are some commonsense ways of creating a system that will allow you to collate, access and store your receipts with ease: • • Buying a refillable display book for about $ 3.00 from your local office supplies store or supermarket; and Storing receipts relevant to your needs in chronological order with the most recent receipt at the front of the display pocket. This system is cheap, simple, easy to store and portable. It should preserve your documents for at least the five years the ATO requires them to be kept. You may consider alternatives such as paper envelopes, manila folders, expanding files and document spikes, etc. Nature of Documentary Evidence Receipts, invoices and other documentary evidence must: • • • • • • Be in English or the language of the country where the expense was incurred; Have the date on which the expense was incurred; Name the person or business who supplied the goods and services; Show the amount of the expense in the currency in which the expense was incurred; Give details of the nature of the goods or services; and Show the date the document was made out. Note - A cheque butt alone is not regarded as suitable documentary evidence. Apportionment – Work Use or Private Use Many claims for deductions are made where expenses are both for work and private purposes. apportioned between work and private use. These should be In order to establish a pattern of usage you should maintain a diary for a period of at least one month. The diary can then be used to substantiate your claim, together with the relevant receipts and invoices. The diary should show all usage for the period and clearly set out the purpose (private or work use) in respect of each individual entry. Your claim can then be calculated by applying the percentage or work use established in the diary. Penalties If you can’t provide documentary evidence when required, you may be charged penalty tax on the claims you can’t substantiate, plus interest of approximately 20.00 % per annum. 2 Deduction Guidelines You can claim deductions for work related expenses you incurred while performing the duties of your job. Generally, a work related expense is incurred when you have spent the money, paid by cheque or credit. The basic rules to consider before you decide to make a claim are: • • • • • • You must incur the expense in this tax year; The expense must not be reimbursed by your employer; You must incur the expense in the course of earning your assessable income. You cannot claim expenses of a private, domestic or capital nature, for example, the costs of normal travel to and from work and buying lunch each day; If your total claims exceed $ 300.00, keep written evidence to prove the total amount, not just the amount over $ 300.00; The $ 300.00 limit does not include claims for car, meal allowance, award transport allowance and travel allowance expenses. Generally, you must have written evidence to prove your claims for these expenses; and You need to be able to show how you worked out your claims if the total claimed is $ 300.00 or less – you do not need written evidence. Receiving an allowance from your employer does not automatically entitle you to a deduction – you must still meet the above rules to make a claim. You can only claim the total amount you incurred even if the allowance is more, for example, if you received a tools allowance of $ 500.00 and your tool expenses were $ 400.00, the deduction you can claim is $ 400.00. How long you need to keep your records You must keep your written evidence for five years from 31 October or from the date you lodge your tax return, whichever is later. If, at the end of this period, you are in a dispute with the ATO that relates to a work expense or depreciation claim, you must keep the relevant records until the dispute is resolved. For depreciation expenses, you must keep records for the entire period over which you depreciate an item and five years from the date of your last claim. Claiming car expenses Do you have any car expenses relating to your work? Generally, the cost of travelling between home and work is a private expense and is not an allowable tax deduction. Just because you are on call, work unusual hours or you use your car because public transport is unavailable, does not change this general rule. Itinerant work If you are engaged in itinerant work you can claim a deduction for motor vehicle expenses you incur during work related travel. Not all building workers are engaged in itinerant work. Your work will be considered itinerant if you regularly travel to two or more work sites each day before returning home. Simply travelling to different work sites each day does not mean you are engaged in itinerant work. If you are claiming a deduction for motor vehicle expenses on the basis that you have been engaged in itinerant work, you will need to keep records to show that your work pattern was itinerant. These records could be a diary, a logbook or a similar document that shows your itinerant travel pattern. 3 Motor Vehicle – Carrying of bulky tools & equipment If you use your motor vehicle to carry bulky tools and equipment that you use to do your work and you cannot leave them securely at the work site, you may be able to claim a deduction for your motor vehicle expenses. You will need supporting records to show why the tools and equipment are considered bulky. You may also claim the cost of using your car to travel directly between two separate places of employment – for example when you have a second job. You can also claim the cost of using your car to travel: • • From your normal workplace to an alternative workplace while still on duty and back to the normal workplace or directly home; and From your home to an alternative workplace for work purposes and then to your normal workplace or directly home. Further, if you receive Austudy, you can claim the cost of using your car to travel between your place of education and your place of employment. Note: you can use one of four methods to work out your car expenses. In broad terms the more business kilometres you travel,, the more likely you’ll benefit from keeping a logbook. travel Travel Expense Records You can claim travel expenses directly connected with your work. If your travel was partly private and partly for work, you may claim only the part that related to work. Travel expenses you may be able to claim include meals, accommodation and incidental expenses incurred while travelling overnight for work, ie. Going to an interstate conference. Generally, if your travel does not involve an overnight stay you cannot claim for meals, even if you received a travel allowance. Other travel expenses that you may be able to claim include air, bus, train, tram and taxi fares, bridge and road tolls and parking and car hire fees. To substantiate your claim, the records you need include receipts, invoices or other travel documents that prove your travel expenses (including meals and accommodation). We recommend you maintain a travel diary to help you substantiate any such trip. Computer software Computer software used for the production of income should be amortised at 40 per cent per year. Donations You can make tax-deductible donations to organisations, including charities that give help in Australia, overseas aid funds, approved school building funds, public libraries, art galleries, museums and certain cultural/environmental organisations. Home office expenses You can claim expenses for home office equipment such as answering machines, beepers/pagers, computers, furniture and stationery. If any item costs more than $ 300.00 and has an effective life greater than three years, you cannot claim the cost as an immediate expense. You should claim depreciation. 4 If you have an office in your home, you may claim a portion of your gas, power and heating/cooling costs. The percentage claimable is determined by expressing the area of your office as a percentage of the area of your home. Journals and magazines Instead of buying work-related journals and magazines on a random basis, consider arranging subscriptions. Invoices/renewals provide documentary evidence, otherwise, obtain receipts. Also, instead of buying work-related newspapers on a random basis, consider arranging for home delivery. Accounts will provide documentary evidence, otherwise, obtain receipts. Medical expenses A rebate exists for 20.00 % of all medical expenses incurred over $ 1,500.00. In order to maximise the rebate, have one taxpayer claim all of the family’s medical expenses. Medical expenses include pharmaceutical expenses relating to an illness. They can also include payments for dentists, orthodontists, registered dental mechanics, opticians or optometrists. Professional library additions Taxpayers engaged in professional practices can claim deduction expenses for additions to professional libraries. For example, a solicitor may claim the purchase of a set of law reports, while an academic may claim the purchase of a textbook. Items which cost more than $ 300.00 and have an effective life of more than three years should be claimed as depreciable items. Seminars and conferences You can claim the cost of attending seminars, conferences or education workshops that are connected to your work activities. This includes registration and travel to and from conferences. If you travel interstate to conferences, or conferences include a residential course, you may also claim meal and accommodation costs. Self education expenses 1. Books, Stationery, Photocopying, etc. Self-education expenses are expenses related to a course of eduction provided by a school, college, university or other place of eduction. In this category you should list expenses such as textbooks, technical instruments and lecture pads. You cannot claim a deduction if the purpose of the self-education is to create a new income source or to get a new job. 2. Course Fees & Union Fees If you attend an educational institution you can claim course fees and student union fees providing you are not attending the course in order to obtain a new job. 3. Travel The following examples show whether travel is deductible: • • • • • Travel from home to school Then to work from school Travel from work to school Then back to work Travel from school to home Yes No Yes Yes No 5 Telephone expenses The cost of installing a home telephone used for business is a non-deductible capital expense. However, you may be able to claim part of the costs of phone rental if you are required by the terms of your employment to be on call, or are required to phone your employer or clients on a regular basis. You may also be able to claim the cost of calls from your phone if you make them in the course of your employment. A diary can be used to establish a pattern of business phone usage. Identify work-related calls from an itemised telephone account. Otherwise, reasonably estimate call costs by diarising calls over one month. Tools of trade In general, the cost of insuring, repairing or replacing tools of trade will be fully deductible. If a tool costs less than $ 300.00, it may be treated as an immediate deduction. If the cost is greater, it must be depreciated. Protective and Occupation Specific Clothing You may be able to claim the cost of renting or buying protective or occupation-specific clothing. This includes clothing that protects you from injury during work ie. safety boots, and clothing specific to your occupation but not everyday in nature. For example, a minister’s robes would be allowable. A waiter’s white shirt and black pants would not be allowable. Uniforms You can generally claim the cost of buying or renting a uniform that is unique and distinctive to your organisation. This includes registered non-compulsory uniforms and compulsory work uniforms not available to be worn by the general public. Ask your employer whether your uniform is registered. Laundry expenses You can claim the cost of washing, drying and ironing some work specific clothing. A reasonable basis to estimate your costs is deemed to be $ 1.00 per full load or 50 cents per load if non work related items are included. If total laundry claims exceed $ 150.00 you will need to keep a diary and receipts. To claim dry cleaning costs you must also keep receipts. Insurance premiums You may claim the cost of insurance premiums where the purpose of the expenditure is to receive compensating payments for the loss of income during a period of disability. Professional indemnity policy premiums may also be claimed as deductions. Dividend/Distributions Received You should keep statements from any company, corporate trust or public trading trust that pays you dividends or distributions. These statements will show the amount of franked and unfranked dividends that you received and the amount of any imputation credits paid and the tax (TFN amounts) deducted from unfranked dividends. 6 Interest received You need to record any interest you were credited with from financial institution accounts and term deposits. You also need to record any interest credited from the Tax Office for overpayments. In the case of joint accounts, show only your share of the interest. We hope that the above summary helps you to understand the substantiation requirements & some of the possible tax deductions that may be available. We bring to your attention that this list is not an exhaustive one and should you have any further queries, please do not hesitate to contact our office. For more information on tax deductions, deductions, contact ZJL Partners on (03) 9547 5022. Suite 6, First Floor, 49-54 Douglas St, Noble Park VIC 3174 PO Box 331, Noble Park VIC 3174 Tel: 03 9547 5022 Fax: 03 9547 0595 Email: [email protected] Website: www.zjl.com.au Please note this article is for information purposes only and does not constitute legal advice Liability limited by a scheme approved under Professional Standards Legislation