We all want to get as much tax back as possible and ‘writing off’ expenses as work related or tax deductible is the way to do this. Of course you want to pay as little as possible and there is a lot of discussion about what you can claim but there are still expenses which can’t be written off.
Take a look at some of what you can’t claim on tax.
In the past there have been offsets that allowed for medical expense claims but they no longer apply.
As of the end of financial year 2019, there are absolutely no tax deductions on medical expenses so speak with a tax accountant before you include medical expenses in your tax return.
If you are staying at a hotel for a two day conference, you can’t claim the cost of a week-long stay as part of your tax return.
If you do attempt to exclaim every expense involved with a trip that mixed business with leisure and this gets found out by the ATO, it may be considered “intentional disregard”, an act that can have a penalty of 75% of the shortfall from your benefit. This means that on top of paying for your five days at the hotel you will have to pay 75% again to the government.
Home office expenses
With so many people working from home in recent days, what you can claim for the home office can be a little confusing. In simple terms, you can’t try to claim all of your household expenses simply because you work from home.
It is not reasonable to claim your entire electricity bill when you use electricity outside of office hours. The same goes for the internet. You may need it for work but the whole family is also using it for streaming, homework and whatever else so it’s not reasonable to claim the entire cost as a work expense.
Work with your tax accountant to figure out how much of these bills can be claimed on tax.
Just because you wear it to work doesn’t mean the ATO considers it deductible. Unless it’s special protective gear like steel capped boots, is specific to your occupation, say chef pants, or is a uniform as defined by the ATO, you’re not getting any money back on your tax return.
This includes all clothing, no matter how much you pay for it.
If you pay for a client’s coffee or take them to dinner as a way of building your relationship, this is probably not tax deductible. It can be a grey area and it depends if the meal is defined as ‘entertainment’ so speak to your tax accountant about the circumstances in which wining and dining clients can be a tax deduction.
If your emploees spend money entertaining or having lunch with a client, then it is up to you as the business owner to pay back this amount as it can’t be claimed by them as a tax deduction. Talk to your staff about the budget involved with entertaining clients and have a system which allows them to claim the expense through you, not the tax department.
Hard to define items
“I’m a builder so those expensive tools I bought to use in the shed on the weekends are for ‘research’ and ‘skills development’”. While you can use your work tools at home if you want to, you might be questioned if you attempt to claim your personal tools for work.
Technically, anything related to your work could be a tax write-off but you need to be able to prove it. Again, your tax accountant is a good point of contact if you are unsure.
Costs above thresholds
The list of what you can’t claim on tax can be pretty lengthy. Some items or services are tax deductible but only up to a point. You can claim dry cleaning, for instance, up to $150 per year but after that you need to provide evidence like receipts or diary entries to justify the expense.
The amount you use your car may be capped, as may the cost of meals if you are travelling for work so keep all receipts in case you have to back up your claims with evidence.
The list of what you can’t claim on tax can be pretty lengthy.
Along with the above, generally speaking you can’t claim the cost of reading glasses, hair cuts, gifts for employees over a certain amount, child care, your driver’s licence, or your expenses for travel to and from work. You can learn more about what you can and can’t claim on the ATO website or you can do it the easy way and find a tax accountant who is across all the rules and can ensure you’re maximising your tax return without pushing the envelope too far.
Ready to do your 2021 tax return but not sure what you can and what you can’t claim on tax? Contact Mobbs & Co.