What the Tax Office wants to know about claims for work related expenses

A copy of the advice provided by the Tax Office to Tag Agents

 

  1. The Schedule of Work Expenses ( SWE) is an addition to the electronic lodgment service for 1998. The Australian Taxation Office (ATO) will ask some tax agents to provide schedules for their clients and checks will be in place to ensure that the schedules are provided and adequately completed. This guide is primarily for those agents.
  2. Other agents may also choose to prepare the SWE as a client education and record keeping tool and these instructions may help. We believe that the information required to complete the schedule is the minimum needed for proper consideration of whether claims should be made. Such records (whether retained or lodged) can assist in responding to any ATO queries at a later time. The level of audit activity is reduced where the ATO has some confidence that return preparation processes are adequate.
  3. These instructions are not intended to be a guide to deductible work expenses. They should be used to ensure that, when submitted, the SWE includes sufficient information to show that claims are deductible.
  4. Only send the SWE to the ATO if claims for work expenses exceed $300. Please note that this threshold is not necessarily the substantiation limit—total work expense claims may exceed $300 but not be subject to substantiation. If the schedule is completed, all expense claims should be shown, including those expenses which are not subject to substantiation. An example would be a claim for car expenses of more than $300, using the cents per kilometre method.
  5. We do not require you to send written evidence but we may ask for the evidence at a later date if we start an audit.

If we require a SWE for your client, it is important to provide full details of the claims. The first step for each expense is to explain the connection between the expenses and the client’s work. Itemise expenses accurately, show the type of records available and, where relevant, the basis of estimates, calculations and apportionment.

Where you have not provided or not completed a requested schedule, we may delay assessment until you provide the relevant information. ATO auditors will usually contact you to seek the information. If you subsequently do not provide it or it does not show claims to be deductible, we may make adjustments to the return.

As part of ATO’s procedures for checking schedules, we will audit a number of returns of taxpayers required to submit schedules.

Schedule format

The schedule is divided into 5 parts, in line with the work related deduction labels on the individual income tax return.

For each label, the SWE asks for:

an explanation of how any expenses claimed are related to the work

the amount claimed for each sub-category of expense within the label. If expenses are claimed for more than one car, the expenses for each car and the method used to calculate the claim are requested.

additional information for each sub-category of expense. Depending on the type of expense, the schedule may require an explanation of what evidence was kept or will be obtained to substantiate the claim, and/or the calculation method.

The schedule lists the most common sub-categories of expense. Other expenses not fitting those descriptions can be individually added.

There are codes available to explain the most common types of evidence and calculation methods. The various software packages will generally use these in menus to make preparing the schedules quick and easy. While the menus will cover most evidence and calculation possibilities, there is provision to add other types.

Key Issues

Attention to the following 4 key issues will reduce the likelihood of further enquiries from the ATO.

Connection to work

You should fully explain the relationship to income-producing activities. It may be necessary to explain the duties of the job, as they relate to the expense claimed.

The expressions ‘necessarily incurred for work’, or ‘expenses of the job’ are not sufficient—they do not explain the connection to work. An example of a sufficient explanation would be:

‘My work duties include collecting the mail, for which I use my own car to travel from work to the post office and return.’

Claims for clothing or laundry also require a description of the relevant clothing. This is particularly important for protective and occupation specific clothing—explain these characteristics.

You do not need to explain financial institutions duty, government duty tax, union fees and award overtime meal allowance expense claims.

Estimates and calculations

Where a claim is based on an estimate—for example cents per kilometre claims and laundry expense claims—give details of the basis used to make the estimate.

 

Don’t use the term ‘reasonable estimate’—it is an assertion, not an explanation, and is insufficient. An example of a sufficient explanation of how an estimate was made would be:

‘I went to the post office and back twice per week for 47 weeks, with the round trip being 14 kilometres. In addition my diary shows 11 other occasions when I went to the stationery shop for work with a round trip of 10 kilometres.’

Apportionment

Some types of expenses may require apportionment—for example, depreciation and telephone expenses. Explain the basis used for any apportionment.

It is not sufficient to nominate a flat amount or percentage used without further explanation—

‘50% of depreciation claimed’ states how the expenses were apportioned but does not explain the basis. A sufficient explanation of the basis of apportionment would be:

‘Based on a diary kept by myself and other users of the computer for a representative period, the expense has been apportioned as 55% work related.’

If an item of plant is claimed to be used 100% for work related purposes, some indication should be provided on how it was established that there was no private use of the equipment, eg. diary entries for a representative period.

In relation to computers and mobile telephones claimed as 100% work related, you should therefore provide some indication that the apportionment issue was considered but is not required.

Evidence

Most expense types will require an indication of what evidence is, or will be, available to substantiate the claim. If we subsequently audit the tax return, we will expect that the evidence stated in the schedule will be available.

In relation to depreciation claims, this means the evidence available to support the original cost of assets, not just the depreciation schedule.

Menus/codes

Most claim types require an explanation of the evidence relied upon. Some expense types require an explanation of how the claim was calculated. Most electronic lodgment service software will have menus to select from, including:

Evidence

invoice/receipt

group certificate

diary

allowance—an allowance was received and the nature of the claim requires no other substantiation

not required—total expenses subject to substantiation is less than $301

other evidence (narrative description required)

 

Calculation—how you arrived at the amount claimed

ruling rate fully expended (overnight travel, overtime meals, laundry rates from TaxPack)

actual cost (for example on a receipt, group certificate, invoice—subject to any reimbursement)

diary

logbook

other (explanation required)

Multiple selections are possible; you may have a combination of different evidence types available within an expense type—for example, both receipts and a diary.

In an evidence context, ‘diary’ means records made by the taxpayer to record details of expenses of $10 or less, up to a total of $200, and undocumentable expenses. In a calculation context it means that the basis of apportionment or the calculation of kilometres and so on is a diary record or similar.

GUIDE TO COMPLETING THE SCHEDULE OF WORK EXPENSES

Item D1—Work related car expenses

Complete the section of the schedule that asks you to explain why you used your car for work purposes. If the method used is cents per kilometre you should also explain how the estimate of kilometres was made. If using the 12% of original value or one third of expenses method, explain how you estimated business travel to be more than 5000 kilometres.

In the appropriate area of the schedule provide details of your car (make and model), the amount you are claiming and the method you used to calculate your claim. A separate entry is required for each car claim.

If the method you used is cents per kilometre, select the engine capacity which provides the rate to be used.

For other methods explain the evidence available to support the claim and how you calculated the claim. In the case of a log book claim, when selecting ‘log book’ as the calculation basis you should also provide the business percentage claimed.

Item D2—Work related travel expenses

Complete the section of the schedule that asks you to explain how these expenses related to your work, including a description of the travel and purpose.

Fill in the amount you are claiming for each expense type.

Complete the section of the schedule that asks you what type of written evidence and/or other records you have kept to support each claim.

If claiming domestic or overseas travel or an award transport allowance expense, you should also explain also how you calculated the claim. In the case of claims using daily rates show the calculation—daily rate(s) and number of days.

If claiming ‘Other’ expenses, include a description of the expense. Several categories of ‘Other’ are possible.

 

Item D3—Distinctive uniform (compulsory or non compulsory), occupation specific or protective clothing, laundry or dry cleaning expenses

Complete the section of the schedule that asks you to provide a description of the clothing items you are claiming and why you needed to use them for work purposes.

Fill in the amount you are claiming for each expense type.

Complete the section of the schedule that asks you what type of written evidence and/or other records you have kept to support your claim (not required for laundry claims of $150 or less).

If claiming laundry expenses of $150 or less, explain the calculation basis and the actual calculation—for example, ‘Ruling rate: $1 per wash x 2 washes per week x 48 weeks’.

If claiming ‘Other’ expenses, include a description of the expense. Several categories of ‘Other’ are possible.

 

Item D4—Work related self-education expenses

Complete the section of the schedule that asks you to explain how these expenses related to your current work activities.

Provide the name of the course of study and the institution through which you are doing it.

Fill in the amount you are claiming for each expense type.

For each expense type explain the evidence available to support the claim (explanation is not required for travel expenses).

If you are claiming travel expenses or computer expenses, describe the method of calculation. It may be necessary to explain how you apportioned any computer claim.

If claiming ‘Other’ expenses, include a description of the expense. Several categories of ‘Other’ are possible.

Take account of the section 82A reduction—this may be from nil to $250.

Item D5—Other work related expenses

Complete the section of the schedule that asks you to explain how these expenses related to your work. This is not required for claims for Financial Institutions Duty, government duty taxes, union fees and overtime meal allowances.

Fill in the amount you are claiming for each expense type.

For each expense type, explain what type of written evidence and/or other records you have kept to support your claim.

If claiming overtime meal allowance, home office, telephone, computer, other depreciation or ‘Other’ expenses explain also the basis of calculation. This may require an explanation of the basis of apportionment. For overtime meal allowance expenses include the number of meals and the rate(s) claimed.

If claiming ‘Other’ expenses, include a description of the expense. Several categories of ‘Other’ are possible.

If claiming overtime meal allowance expenses, you should ensure that the income label for allowances is addressed.

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