Rules for claiming work-related expenses

A deduction is allowable if you can show that an expense:

• was actually incurred
• meets the deductibility tests
• satisfies the substantiation rules

Actually incurred

You must have incurred the expense in the relevant income year (for example, to claim a deduction in your 2016 income tax return, you must have incurred the expense between 1 July 2015 and 30 June 2016).

 

Deductibility test

You must, in the first instance, be able to show that work-related expenses were incurred in the course of gaining or producing assessable income, and are not losses or outgoings that are of a capital, private or domestic nature.

For an expense to be allowable as a deduction, you must be able to show:

• the essential character of the expense is income-producing
• there is a nexus between the outgoing and the assessable income in that the nature of the outgoing is incidental and relevant to the gaining of assessable income, and
• there is a necessary connection between the particular outgoing and the operations or activities by which you directly gains or produces assessable income

 

Substantiation

You must have written evidence to prove your claims if the total claims exceed $300. The records must prove the total amount, not just the amount over $300.

The $300 limit does not apply to claims for car expenses, meal allowance, award transport payments allowance, or travel allowance expenses. There are specific requirement rules in the form of written evidence for substantiating these types of expenses.

• What is written evidence?
• Claim of $300 or less
• Exclusions from record-keeping requirements
• How long do you need to keep records?

What is written evidence?

The documentation must be in English unless the expense was incurred outside Australia.

The following constitute written evidence:

a document from the supplier of the goods or services that shows the:

• name of the supplier
• amount of the expense
• nature of the goods or services – if not shown, you may write this on the document before you lodge your tax return
• date the expense was incurred
• date of the document

Another document or combination of documents containing the information listed above; examples include:

• bank and other financial institution statements
• credit card statements
• BPAY reference numbers (may be receipt numbers or transaction numbers)
• email receipts
• PAYG payment summary (may show union fees)
• electronic copies of documents – must be true and clear reproductions of the originals

evidence recorded by you:

• for expenses of $10 each or less, providing the total of these expenses is not more than $200
• if you have been unable to obtain written evidence, for example, for toll or parking fees where a receipt cannot be obtained

Each of these items of evidence must show the same details as a document from a supplier as described at the top of this list

Find out more

• Practice Statement PS LA 2005/7 Substantiation of deductions claimed by individual taxpayers for work and car expenses incurred in the course of earning non-business and non-investment income
• Taxation Ruling TR 97/24 – Income tax: relief from the effects of failing to substantiate

Claims of $300 or less

You do not need written evidence but the ATO may request information as to how the claim was evaluated.  They may also request an explanation as to why you believe the claim is reasonable, based on the parameters of your occupation. You can make reasonable estimates.

 

Exclusions from record-keeping requirements

Specific exclusions from record-keeping or substantiation requirements are available for certain work expenses. These include:

• total work-related expense claims of $300 or less
• laundry ($150 or less)
• travel expenses that are covered by a travel allowance and are within the reasonable allowance amounts published by the ATO. However, you may still be required to show the basis for determining the amount of your claim, that the expense was actually incurred, and that it was for work-related purposes (refer to Taxation Ruling TR 2004/6)
• award transport payments where the claim is limited to the amount payable under an award as at 29 October 1986. If you have a claim for any additional kilometres not covered by the award transport payment, car expenses can be claimed but only by using either the logbook method (you will need written evidence) or the cents per kilometre method
• small expenses ($10 each or less and not more than $200 in total).

How long to keep records

You need to keep written evidence for five years from the due date for lodgment of the tax return in which the deduction is claimed. If the return is lodged after the due date, the five years start from this later date. If you are involved in a dispute with the ATO in relation to a deduction claimed in your tax return after the five years has ended, the relevant records must be kept until the dispute is resolved.

If you have claimed a deduction for decline in value, written evidence must be kept for five years from the date of your last claim for decline in value. This period is extended if, after the end of the five year period, you are involved in a dispute with the ATO that relates to a depreciating asset.