Art of deduction

Many happy returns ... receipts are required for expenses incurred when earning income and the ATO is vigilant. Photo: Gabriele Charotte

The strategy: To get a tax break on my work-related expenses.
How do I do that? With June 30 just gone, it's time to start thinking about filling out your annual tax return. And whether you go it alone or use a tax agent, you'll need to have records handy to substantiate any expenses you claim.
The Tax Office has again listed work-related expenses as one of its target areas for compliance work in 2011-12 - not surprising when you consider these expenses have grown by about 16 per cent since 2007 and are one of the largest categories of claims made in tax returns.

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That shouldn't put you off claiming. But you do need to be aware of the rules and steer clear of claims that could land you in hot water.
What can I claim? You can claim any expenses that were incurred earning your income. That varies between occupations but common expenses include membership of professional associations and unions, subscriptions to professional journals, reference books, tools and equipment, special clothing or uniforms, travel and self-education. If an item cost more than $300 it must be depreciated over its working life rather than claimed as an immediate tax deduction.
Where you are claiming costs for expenses that were only partly business related - such as your car, travel, home office, computer or internet connection - you can only claim the proportion related to your work. With some expenses, such as cars and home offices, there are formulas that you can use to calculate your entitlement. But if your employer has paid you an allowance, or paid the cost of an expense, you can't double dip by claiming it yourself.
What records do I need to have? If your work-related expenses total less than $300, you don't need to keep written evidence, though you may be asked to show how you worked out your claim.
You're allowed to keep your own evidence for expenses of less than $10 (provided the total of these expenses is not more than $200) and where you can't obtain a receipt. Otherwise you'll need receipts for the expenses you claim.
Special rules apply to some expenses, such as cars, travel, clothing and home office outlays, which may include keeping a record such as a logbook to determine your business usage.
Where there is a mix of personal and business use, you can only claim for the business usage.
Didn't I read that the government was bringing in a standard tax deduction so I won't have to bother with all that? Yes but it is not due to come in until July next year, which means you're stuck with the old rules for the year just finished and the new financial year.
The deduction will also be limited to $500 in the first year and $1000 after that so, if your expenses are higher than this and you want to claim them, you'll still have to follow the existing rules.
Are there any areas where I'm likely to run into problems? The Tax Office's compliance guide always offers a handy insight into potential pitfalls. It says the most common mistakes for many occupations include having insufficient documentation to support motor vehicle and travel expenses and incorrectly claiming home office, mobile phone and internet costs.
If you're a real estate industry employee, a carpenter or joiner, an earthmoving plant operator or flight attendant, you'll need to take special care this year.
These occupations have been targeted for a closer look due to the relatively high amount of work-related expenses claimed in previous years compared with similar occupations. Flight attendants, for example, often receive an amount for travel expenses as part of their salary but these payments are not a bona fide travel allowance so any deductions need to be fully substantiated.


Read more: http://www.theage.com.au/money/tax/art-of-deduction-20110712-1hb4d.html#ixzz1S3j4HvOJ