With the 2025 tax season fast approaching, the Australian Taxation Office (ATO) is reminding taxpayers to be careful when claiming work-related expenses.
This is in reaction to a spate of claims that didn’t quite pass the ‘pub test’. To give you a few examples of what didn’t get through…
- A mechanic attempting to claim an air fryer, microwave, two vacuum cleaners, a TV, a gaming console and gaming accessories as work-related expenses.
- A truck driver seeking to deduct swimwear purchased during transit due to the hot weather
- A fashion industry manager attempting to claim over $ 10,000 in luxury-branded clothing and accessories for work-related events.
These claims were deemed personal in nature and lacked a sufficient connection to income-earning activities. The advice here would be: if in doubt, leave it out or run it by us.
2025 priorities
The ATO is focusing on areas where frequent errors occur, including:
- Work-related expenses: As above, claims must have a clear connection to income-earning activities and be substantiated with records, including receipts or invoices. Even if an expense seems to relate to income-earning activities, it can’t usually be claimed if it is a private expense. There are a wide range of common expenses that typically don’t qualify for a deduction.
- Working from home deductions: taxpayers must prove they incurred additional expenses due to working from home. The ATO offers two methods for calculating these deductions: the fixed rate method and the actual cost method (see below for more details).
- Multiple income sources: all sources of income, including side hustles or gig economy work, must be declared. Each source may have different deductions available.
Working from home deductions
For those working from home, there are two methods to calculate deductions:
- Fixed rate method: claim 70 cents per hour for additional running expenses such as electricity, internet and phone usage even if you don’t have a dedicated home office. This method can only be used if you have recorded the actual number of hours you worked from home across the income year. A reasonable estimate isn’t enough.
- Actual cost method: claim the actual expenses incurred, with records to substantiate the claims. This method potentially enables a larger deduction to be claimed, but it comes with more onerous record-keeping obligations.
It’s important to note that double dipping is not allowed. For instance, if you claim deductions using the fixed rate method, you can’t separately claim a deduction for your mobile phone costs.
As always, if you’re unsure or need assistance with your tax return, please don’t hesitate to get in touch with us.
