Employees guide for work expenses
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What this guide is about
Relying on the Employees guide for work expenses
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This Employees guide for work expenses will help you as an employee to decide whether your expenses are deductible and what records you need to keep to substantiate them.
Not all expenses associated with your employment are deductible. This Guide explains:
- how to determine if an expense is deductible against your employment income
- how to apportion your expenses if they are only partly deductible
- how to work out whether you can claim a deduction in the year you incurred the expense or whether you need to claim a deduction for a decline in value over a number of years
- what records you need to keep.
The examples used throughout this Guide assume that the people in them are employees and not in business.
What's new in the 2020-21 and 2021-22 income years
- The temporary shortcut method, which was introduced to help employees working from home during the COVID-19 pandemic, was extended to 30 June 2022. It is therefore available to use to work out deductions for working from home expenses for the 2020-21 and 2021-22 income years.
- Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? was released. This Ruling provides guidance on when an employee can and can't claim a deduction for the cost of travel by airline, train, taxi, car, bus boat or other vehicle.
- Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances, and living-away-from-home allowances was released. This Ruling provides guidance on when an employee is entitled to claim a deduction for accommodation, food and drink expenses.
- Section 25-125 of the Income Tax Assessment Act 1997 (ITAA 1997) was introduced. This section allows employees to claim a deduction for the cost of COVID-19 tests incurred after 1 July 2021 for the purpose of testing to determine whether they can attend or remain at their workplace.
More detail on changes we have made can be found at the end of each Part of this Guide.
- Working from home expenses
- Practical Compliance Guideline PCG 2020/3 Claiming deductions for additional running expenses whilst working from home due to COVID-19
- Practical Compliance Guideline PCG 2021/3 Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location - ATO compliance approach
- Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses?
- Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances, and living-away-from-home allowances
- COVID-19 tests
Common myths about work expense deductions
There are many myths about deductions that may lead you to make an incorrect claim. Here are some of the most common.
Myth: Everyone can automatically claim $150 for clothing and laundry expenses , 5000 km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn't spend the money.
Fact: There is no such thing as an 'automatic' or 'standard deduction'. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you don't need receipts for claims under $300 for work-related expenses, $150 for laundry expenses ( note: this is for laundry expenses only and doesn't include clothing expenses) or if you are claiming 5,000 km or less for car expenses under the cents per kilometre method:
- you must have spent the money
- it must be related to earning your income, and
- you must be able to explain how you calculated your claim.
Myth: I don't need a receipt; I can just use my bank or credit card statement.
Fact: To claim a tax deduction, you need to be able to show that you spent the money, what you spent it on, who the supplier was and when you paid. Bank or credit card statements alone don't have this information. The only time you don't need these details is if substantiation exceptions apply.
Myth: I can claim makeup that contains sunscreen if I work outside.
Fact: Cosmetics are usually a private expense and the addition of sun protection doesn't make it deductible. However, it may be deductible if the primary purpose of the product is sunscreen (that is, it has a high SPF rating), the cosmetic component is incidental, and you need to work outdoors in the sun.
Myth: I can claim my gym membership because I need to be fit for work.
Fact: Very few people can claim gym membership fees. To be eligible, your job would have to depend on you maintaining a very high level of fitness, for which you are regularly tested, for example special operations personnel in the Australian Defence Force.
Myth: I can claim all my travel expenses if I add a conference or a few days' work to my holiday.
Fact: If you decide to add a conference or some work to your holiday, or a holiday to your work trip, you must apportion the travel expenses between the private and work-related components and only claim the work-related component.
Myth: I can claim my work clothes because my boss told me to wear a certain colour.
Fact: Unless your clothing is a uniform that is unique and distinct to your employer, or protective or occupation-specific clothing you are required to wear to earn your income, you won't be able to claim it. Plain clothes, like black pants, aren't deductible even if your employer told you to wear them.
Myth: I can claim my pay television subscription because I need to keep up to date for work.
Fact: A subscription to pay television is not ordinarily deductible. Keeping up to date on news, current affairs and other general matters usually won't have a sufficiently close connection with your employment activities to provide a basis for deducting these subscriptions. They are essentially private expenses.
Myth: I can claim home to work travel because I need to get to work to earn my income.
Fact: For most of us, home to work travel is a private expense.
Myth: I've got a capped phone and internet plan, so I can claim both business and private phone calls and internet usage.
Fact: Unless you only use your phone and internet for work, you have to apportion the cost between work-related and private usage and only claim the work-related portion of your expenses.
How this document is set out: