The ATO is targeting dodgy clothing tax deduction claims

  • The Australian Taxation Office (ATO) is cracking down on rising tax deduction claims for work-related clothing and laundry expenses.
  • The ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming.
  • “Some people think they can claim normal clothes because their boss told them to wear a certain colour.”

The Australian Taxation Office (ATO) is this year taking a close look at work-related clothing and laundry expense claims, using sophisticated analytics to red flag deductions.

Last year about six million people claimed work-related clothing and laundry expenses, with total claims adding up to nearly $1.8 billion, a 20% rise over the last five years.

“While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing,” says Assistant Commissioner Kath Anderson.

The ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming. A quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records.

Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.

“We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” says Anderson.

“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone.

“While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”

Claiming for work functions

The ATO also has conventional clothing in its sights.

“Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims,” she says.

“However, far too many are claiming for normal clothing, such as a suit or black pants. Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line. Others think they can claim normal clothes because they bought them just to wear to work.

“Unfortunately they are all wrong. You can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work.”

The ATO uses the example of an advertising manager who claimed $1,854 for clothing and laundry expenses, based on purchases at popular fashion retail stores.

She told the ATO she represented her company at work functions and awards nights and was required to dress a certain way.

The ATO explained that expenses for conventional clothing are not deductible, even if someone is required to wear them for work, and/or only wear them for work.

Red flags

The ATO’s technology and access to data, and analytics used to ferret out unusual claims, is improving each year.

“We now scrutinise every return and we have sophisticated analytics to identify unusual claims, including comparing taxpayers to others in similar occupations earning similar income,” says Anderson.

“If a red flag is raised, we will investigate. It might be as simple as checking with your employer to check if you were required to wear uniforms or protective clothing.”

The ATO is concerned that the results from its random audit program show lots of taxpayers over-claiming by a small amount.

“We know that some people think $150 is not a large amount and that nobody will notice if they over-claim,” she says.

“But while $150 might not be big individually, when you multiply it over millions of taxpayers, it adds up to a lot. And besides, no matter how small, other Australians shouldn’t be expected to wear your over-claiming.”

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