Despite a temporary slowing of audit activity by the Australian Taxation Office (ATO) due to the impact of COVID-19, we are now seeing this activity increase again. In particular, work-related expenses is an area in which we have experienced the ATO’s scrutiny. With the 2021 lodgement due date fast approaching, this is a timely reminder of the supporting documentation and evidence you would be expected to produce if the ATO were to audit these claims in your personal tax return. It should be noted that this list focuses on common work-related expense claims and is not exhaustive.
Work-related car expenses
Car expenses are calculated using either the cents per kilometre method or the logbook method.
With the cents per kilometre method, you are expected to provide written evidence as to how you worked out the business kilometres by producing diary records of work-related trips (or any other records that use a similar tracking method).
When using the logbook method, you may be requested to provide the following:
- Details of how your claim was calculated including the description and amount of each expense.
- Copies of the purchase or lease documents for your car.
- Copies of the original receipts for all car expenses claimed in the income year.
- Copies of your logbook and odometer records.
- Any other evidence to confirm that the travel claimed was undertaken in your car while carrying out your employment duties e.g., copy of your job description or your employment contract.
The ATO has highlighted common issues relating to logbook claims:
- A logbook has not been kept or has not been kept correctly. You must maintain a correct logbook even if your work-related use is 100%.
- Your usage of the vehicle has changed significantly since the logbook was kept. A change in work or private use by more than 10% is a significant change.
- The number of cars you used for work changes, or you used multiple vehicles for work and did not keep concurrent logbooks.
- The car’s odometer readings were not recorded at the start and end of the logbook period.
- The private and work use of the car recorded during the 12-week logbook period is not representative of your travel throughout the year.
Work-related travel expenses
If you claim travel expenses, you would be expected to provide the following:
- An employment contract, job description or duty statement showing that you needed to travel while performing your work.
- Details of any travel allowance or reimbursements received.
- An explanation of how your travel was work-related.
- Details of any persons that accompanied you and their relationship to you.
- A travel diary for each trip that was more than 6 nights in duration. The diary must show what you did each day for work and/or private purposes while travelling.
- Details or an explanation of how you apportioned your claim.
- Copies of receipts for all meals, accommodation, flights and incidentals you are claiming.
The most common issues encountered with travel expense claims is failing to keep a travel diary and claiming expenses when you do not have written evidence to substantiate your claim.
Other work-related expenses
COVID-19 – working from home
This method is temporary and can only use be used to calculate your deduction between 1 March to 30 June 2020 in the 2019-20 income year and the 2020-21 and 2021-22 income years. It allows you to claim 80 cents for each hour you work from home and covers all deductible running expenses.
You will need to provide a copy of your diary, timesheet, roster, or other evidence that shows how often you worked from home.
Mobile and/or home telephone
Sufficient audit evidence would be an explanation of how the phone was used for work and how you calculated your claim. This includes evidence of the total cost of the services for the income year and an itemised bill with the outgoing private and work-related calls clearly marked. If an itemised bill cannot be obtained, a diary should be maintained covering a representative four-week period showing your work-related and private use of the service.
You would be expected to provide an explanation of how the Internet was used for work and how you calculated your claim. Further, you would need to provide evidence of the total cost of the service for the income year and how you established the work-related portion e.g., a diary covering a representative four-week period showing your work-related and private use of the service. Be sure to exclude the Internet usage of other members of your household in your calculation.
All other expenses
The ATO would expect to see copies of invoices or receipts for the expenses, an explanation as to how the expenses were connected to your employment duties and details of how you calculated the work-related portion of the expenses.
Generally, you need to keep your tax records for five years from the date you lodge your tax return. Keeping adequate records throughout the income year makes it easier for tax agents to prepare your personal income tax return and prevents a situation where you are having to retrospectively construct your records at tax time. The latter is likely to you leave you worse off, as deductible expenses may be forgotten or the documentation you end up providing may be inadequate for claiming.
If you require any assistance understanding record keeping requirements please contact your Hall Chadwick advisor.