The $1 tax rule you need to know
DODGY claims for clothing and laundry expenses will raise a "red flag" and could result in a washout this tax time.
The Australian Taxation Office says it will be more closely scrutinising work-related clothing and laundry expenses this year and is particularly focused on what many people mistakenly believe is a "standard deduction", or minimum amount that can be claimed without providing receipts.
"Last year around six million people claimed work-related clothing and laundry expenses, with total claims adding up to nearly $1.8 billion," ATO assistant commissioner Kath Anderson said in a statement.
"While many of these claims will be legitimate, we don't think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing."
In one case last year, an advertising manager claimed $1854 for clothing and laundry expenses related to clothing purchased at popular fashion retail stores. When the ATO contacted her, she said she represented her company at work functions and awards nights and was required to dress a certain way.
The ATO explained that expenses for conventional clothing were not deductible, even if the taxpayer is required to wear them for work, and/or only wear them for work. The woman's clothing and laundry claim was disallowed in full and she was fined for failing to take reasonable care.
In another case, a lab technician claimed $2500 for the cost of purchasing protective boots and laundering his work uniform. He told the ATO he had a very dirty job and mostly washed his clothes at the laundromat for around $9 a wash and $3 for drying.
Unfortunately, for him, he didn't keep any receipts so the ATO couldn't verify his claim. The ATO reduced his claim for laundering his work uniform to $144.
In a third case, a car detailer claimed work-related laundry expenses of more than $20,000 a year over two years. When questioned, he told the ATO he worked out his laundry expense by valuing his personal time at a rate of $227 per hour.
Realising he had been sprung, he made a "voluntary disclosure" that his claim was excessively high and in no way a reasonable amount to claim. The claims were reduced to $0 and because he came clean, no penalties were applied.
The ATO said with clothing claims increasing by nearly 20 per cent over the last five years, it believed many taxpayers were either making mistakes or deliberately over-claiming.
It said common mistakes included people claiming ineligible clothing, claiming for something without having spent the money, or not being able to explain the basis for how the claim was calculated.
"Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records," Ms Anderson said.
"We are concerned that some taxpayers think they are entitled to claim $150 as a 'standard deduction' or a 'safe amount', even if they don't meet the clothing and laundry requirements. Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone.
"While you don't need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim."
For laundry expenses including washing, drying and ironing, there is a simple formula to calculate how much you can claim if it's under $150 - $1 per load if the load is made up only of work-related clothing, and 50 cents per load if it includes other laundry items.
Ms Anderson said the ATO also had conventional clothing in its sights this year.
"Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims," she said. "However, far too many are claiming for normal clothing, such as a suit or black pants.
"Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line. Others think they can claim normal clothes because they bought them just to wear to work.
"Unfortunately they are all wrong - you can't claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work."
Ms Anderson warned that the ATO's technology and access to data was improving each year. "We now scrutinise every return and we have sophisticated analytics to identify unusual claims, including comparing taxpayers to others in similar occupations earning similar income," she said. "If a red flag is raised, we will investigate. It might be as simple as checking with your employer to check if you were required to wear uniforms or protective clothing."
A recent random audit by the ATO revealed lots of taxpayers were over-claiming by a small amount.
"We know that some people think $150 is not a large amount and that nobody will notice if they over-claim," Ms Anderson said. "But while $150 might not be big individually, when you multiply it over millions of taxpayers, it adds up to a lot. And besides, no matter how small, other Australians shouldn't be expected to wear your over-claiming."
She said the three "golden rules" to claiming deductions were you have to have spent the money yourself and can't have been reimbursed, the claim must be directly related to earning your income, and you need a record to prove it.
Taxpayers who can't substantiate their claims should expect to have them refused, and may be penalised for failing to take reasonable care when submitting their tax return.
"To avoid the risk, we recommend taxpayers store clothing and laundry receipts in the ATO apps' myDeductions tool," she said. "Keeping accurate records that can be uploaded to myTax or provided to a tax agent will make tax time much easier."
LAUNDRY CLAIM GUIDE
Are you claiming $150 or less for clothing and laundry, and less than $300 for work-related expenses in total?
• Make sure your claim is for eligible clothing (occupation-specific, protective or uniform). Remember, you can't claim for plain or conventional clothing, even if your employer requires you to wear it and even if you only wear it to work.
• Calculate your claim for washing, drying and ironing at: a. $1 per load if the load is made up only of work-related clothing, b. 50c per load if you include other laundry items.
• You may be asked to demonstrate how often you wore your eligible clothing (e.g., evidence that you worked three shifts a week for 48 weeks in a year).