Review your Work-Related Expenses for the 2024 Financial Year

The Australia Taxation Office (ATO) is urging taxpayers to consider the three “golden rules” when claiming expenses in preparation for their 2024 financial year income tax return.

The ATO Assistant Commissioner, Rob Thomson, has emphasised that work-related expenses are a key focus for the ATO this financial year.

“Make sure you don’t just ‘copy and paste’ your deductions from last year because you might be missing out on everything you’re entitled to” said Mr Thompson.

The Golden Rules

The ATO has encouraged taxpayers to consider the “golden rules” before claiming a deduction for work-related expenses.

• You must have spent the money yourself;
• The expense must directly relate to earning your income and
• You must have a record (e.g. receipt) to prove it.

Mr Thompson stated there’s a common misconception that you can automatically claim $300 for work-related expenses without proof, but this isn’t accurate. If your total claim for work-related expenses is under $300, you may not need receipts, but you must demonstrate that you spent the money and how you calculated your claim amount if questioned by the ATO.

The ATO provides occupation and industry-specific guides to assist taxpayers with what they can claim and what records they need to keep.

Working from home expenses

For the 2024 financial year, a taxpayer can use either the fixed rate or the actual cost method when calculating working from home expenses for tax deductions.

Last year, the ATO revised the calculation of the fixed rate method to include a broader range of expenses with an increased rate. This revision has also increased taxpayers' liability for record keeping when claiming working from home expenses using the fixed rate method.

Using the fixed rate method, you must not only record the actual number of hours you worked from home but also require evidence you paid for each running expense covered by the fixed rate method.

For example, if you incurred a phone and an electricity expense, you must keep at least one evidence for each expense like a copy of your electricity or internet bill.

The evidence for recording actual numbers of hours can include a timesheet, spreadsheet, diary, or any log where you note the days you work from home and the hours worked.

On the other hand, the actual cost method requires a record that represents the hours you work from home (such as detailed timesheet, periodic roster or diary showing at least a 4-week regular pattern of work) and evidence for every expense incurred to be claimed using the actual cost method (such as detailed invoices).

Car expenses

A taxpayer can claim a deduction for car expenses using a logbook method or cents per kilometre method, but they must ensure they meet eligibility requirements to claim a deduction.

The following must be satisfied for car expenses to be deductible:

• You must own or lease the car (excluding novated leases);
• The expenses must be for work-related trips;
• You must have spent the money yourself and weren’t reimbursed, and
• You must have the required records.

The logbook method requires you to maintain a logbook that records your work-related trips for a continuous period of at least 12 weeks, which should represent your travel throughout the year. Each logbook is valid for up to five income years.

You must keep receipts or other records of your car expenses and use your logbook to calculate the deductible portion.

Your logbook must include:

• The destination and purpose of each journey;
• The odometer reading at the start and end of each journey;
• The total kilometres travelled during the period;
• Odometer readings at the start and end of the logbook period;
• Odometer readings at the start and end of the income year you use the logbook;
• The cents per kilometre method allows you to claim a set rate per kilometre, covering all eligible and
• Actual car expenses, including registration, insurance, repairs, fuel, and depreciation costs. These costs cannot be claimed separately elsewhere in your return.

The cents per kilometre method limits up to 5,000 kilometres per car during a financial year for the deduction. You are still required to have records for how you worked out your work-related kilometres.

It is also important to note that you cannot claim trips between your home and place of work, with exceptions in limited circumstances only.

Case study: ATO’s record-keeping rules affirmed in latest decision

In relation to ATO’s focus on taxpayer’s record keeping, a recent decision by the Administrative Appeals Tribunal (AAT) in Copley and Commissioner of Taxation (Taxation) [2024] AATA 8 aligns with the ATO’s attention on taxpayer’s record keeping.

The AAT upheld the Commissioner’s decision to deny a taxpayer’s car and other work-related expenses deductions due to insufficient substantiation. This guidance highlights the critical need for adequate supporting documentation to validate claims for work-related deductions.

The evidentiary burden lies with the taxpayer, and even if the Commissioner acknowledges that expenses may appear to be deductible, deductions will be denied if strict substantiation requirements are not met.

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.