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Claiming Expenses - The Common Errors

Over six million taxpayers claim work-related expenses worth almost $10 billion and the numbers are increasing. Not all expenses are deductible and errors are being made.

Taxpayer involvement in rental properties is also increasing with over 1.3 million taxpayers showing income or deductions at rental labels in their tax returns. Again some common errors are being made.

The Common Errors

There are some common errors that can be avoided:

Work-related expenses

  • Motor vehicle claims made using the 'log book' method where there is no valid log book.
  • Clothing being claimed where qualifying conditions are not met.
  • Self education claims made where there is no work connection at the time the expense is incurred.
  • Students receiving AUSTUDY or ABSTUDY payments incorrectly claiming self education expenses against those payments.
  • Taxpayers incorrectly calculating decline in value deductions as well as not apportioning deduction claims between business and private use. This applied particularly to home computer, internet usage and mobile phone claims.
  • Claims made for home office expenses based on occupancy costs where the home is not considered to be a place of business.
  • Claims made for meal expenses where no overtime meal allowance has been declared.
  • Claims where there is no connection to current employment income, and
  • Ongoing FID claims. FID was abolished with effect from 1 July 2001.

Rental deductions

  • Claiming the cost of carrying out initial repairs - such as rectifying damage, defects or deterioration that existed at the time of purchasing the property - as immediate deductions. These costs are capital expenditure.
  • Claiming renovation costs as deductions for repairs - again, these are expenses of a capital nature and may be claimed as capital works deductions. The Tax Office is investigating claims for repairs which are really capital improvements, such as remodelling bathrooms and kitchens and adding a deck or pergola.
  • Claiming deductions for a property that is not genuinely available for rent or is rented for only part of the year.
  • Including the cost of the land in capital works deductions (i.e. as part of the construction cost of the rental property).
  • Claiming construction costs as decline in value deductions (previously known as depreciation).
  • Overstating interest deductions by including amounts related to private borrowings - interest on a loan taken out for both income-producing and private purposes, such as the purchase of a rental property and a private motor vehicle, needs to be apportioned into deductible and non-deductible parts, according to the amounts borrowed for the rental property and for the private purpose.
  • Not apportioning travel expenses where the visit to the rental property is combined with another purpose, such as a holiday.
  • Claiming deductions for items incorrectly classified as depreciating assets.

To avoid making these errors, please ensure you provide your client manager with the most accurate information.

Copyright ATO, 14 September 2004

This article is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this article. All information is subject to change without notice. We and each party providing material displayed in this article disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of the information or material in this article. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

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