The Australian Taxation Office is asking business owners and employees to “pull up their socks” when it comes to claiming tax deductions for uniform expenses, saying a 20% increase in laundry and clothing deduction claims over the past five years is giving the tax office reason to “pay attention”.
In a reminder to taxpayers released this week, ATO assistant commissioner Kath Anderson said too many taxpayers remain confused about the correct policy for claiming clothing required for work, and the increase in claims is being seen despite many being unaware that you can only claim deductions for occupation-specific clothing.
“We have seen claims for clothing and laundry expenses increase around 20 percent over the last five years. While this increase isn’t a sign that all of these taxpayers are doing the wrong thing, it is giving us a reason to pay extra attention,” Anderson said.
However, there are a clear set of guidelines for employees and the self-employed when making a claim for clothing, Anderson says: “You have to have spent the money yourself and can’t have been reimbursed, two — the claim must be directly related to earning your income, and three — you need a record to prove it.”
The question of acceptable limits for uniform deductions has been bubbling away over the past year, with a government discussion paper released in November 2016 raising the possibility that all non-compulsory work uniforms, including those worn by nurses and healthcare workers, could be removed from the list of acceptable tax claims altogether.
In a speech two weeks ago, ATO Commissioner Chris Jordan questioned whether the scale of workplace uniform deductions, which amounted to $1.6 billion in 2014-15, was reasonable, saying that figure would assume half the population of Australian taxpayers were in roles that required them to buy things like protective clothing or uniform items.
Director at Allied Business Accountants David McKellar tells SmartCompany that clients come forward “all the time” with misconceptions about what they can claim in this area.
“In reality, to claim a uniform expense, it has to be protective clothing. Otherwise, it has to be a registered uniform,” he says. Registered uniforms are those that have designs approved by the AusIndustry register.
The ATO has advised SmartCompany that for business owners who provide corporate wardrobes and occupation-specific clothing to workers in their business, this falls under “other operational expenses” for your business, and you can generally claim deductions for these in the income year you incur them.
For individuals and the self-employed, here are three key myths about workplace claims, that the tax office is keen to combat.
There’s one commonly misunderstood expense claim in the firing line for the most recent financial year: the $150 allowance for clothing and laundry.
There are more “relaxed” rules for record keeping for this category of deduction, but the ATO has raised concerns about the number of people who claim the full amount.
“Over 1.6 million taxpayers claim a deduction of exactly $150. We expect many of these claims to be legitimate but the results of our random audits show that people are making mistakes,”said ATO assistant commissioner Anderson.
McKellar says it’s obvious that individuals who make this claim this year can expect the tax office to come asking for evidence of why they needed to make it.
The ATO says if requested, you should be ready to show evidence of how your laundry expenses were calculated; an indication from your employer of why you need to wear specific clothing to work; and an explanation of how you came to your final claim figure for this category.
“You can’t claim a deduction for everyday clothing you bought to wear to work, even if your employer tells you to wear a certain colour or you have a dress code,” said Anderson.
McKellar says this is a common misconception, but when making a claim, individuals should think about what other circumstances the clothes could be worn in.
“Think about whether this is clothing that you can wear anywhere,” he advises, noting that in retail it is particularly common for individuals to try and claim items like white business shirts even though they are not required to wear items stitched with specific company logos or messaging.
Individuals cannot make claims for everyday clothing even if it’s a cultural expectation they appear a certain way at work. This means suits, business attire and formal wear do not count as specific claims, according to the tax office.
It’s also not possible to claim casual clothing that is worn to work, or make a claim if a business requires workers to wear items from within their product lines or brands.
“This happens a lot with fashion retailers. Staff assume because they have to wear [the brand’s] clothes, they can make a claim,” McKellar says.
Finally, if the business you work for, or your own company, provides a clothing or laundry allowance, or has already paid for clothes as a business expense, those claims are out too.
If you received an allowance for part of the clothing or cleaning from an employer, “you need to show the amount of the allowance on your tax return”, the ATO advises.
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