The ATO’s Assistant Commissioner Kath Anderson has sounded a warning for taxpayers who are making what they may believe are “standard” deductions in regard to vehicle expenses, especially when it comes to the cents per kilometre method.
While it is true that written evidence for deductions based on up to 5,000 kilometres is generally not required when making such claims, Anderson reminds taxpayers they must still have actually incurred these expenses. “They do need to be able to show that they were required to use their car for work, and how they calculated their claim,” she says.
For the 2016 income year, the ATO recorded a total of $8.5 billion in work-related car expense claims, with a “significant proportion”, it says, right at the limit that does not require detailed written records. It is determined to limit what it can of this revenue leak.
“While we have no issue with people using the cents per kilometre method, and we expect that most claims at this threshold may be legitimate,” Anderson says, “but we are reminding people that there’s no such thing as a ‘free pass’ when it comes to deductions.”
The ATO has provided three case studies illustrating misapplied claims.
Off the rails
A railway guard claimed deductions for car expenses in travelling to and from work, basing his claim on the fact that he carried bulky tools (including his flag, safety vest, handheld radio, torch, instructions and timetables) in his car.
He attracted an audit because his deductions were much higher than those of other people in the same occupation. His employer advised us that secure facilities for equipment were available on the business premises, so the transportation of equipment was the employee’s choice. For this reason, expenses relating to travelling to and from work are not an allowable deduction in this situation, and the taxpayer had to pay $2,000 for tax owed plus interest.
Double dipping deductions
An employee manager claimed $3,800 in work-related car expenses. When the ATO asked the taxpayer to verify that they owned the car and it was registered in their name, it discovered the car was under a novated lease arrangement.
Employees who have a novated lease arrangement are not considered to have expenses in relation to the car, as their employer leases the car on their behalf. Claiming a deduction for these expenses is considered double-dipping.
All deductions were disallowed and the ATO applied a penalty.
Crossing the line
A school crossing safety officer claimed work-related car expense for travel between his home and workplace. He indicated that this expense related to the carriage of bulky tools – a safety sign for the school crossing. However the school informed the ATO that the sign was securely stored on school property each day. The taxpayer’s car expense claims were disallowed because the trip from home to work was private in nature and did not involve the transportation of the sign.