Car Expense & Home Office Claims

The ATO has announced a rise in the cents per kilometre deduction rate for motor vehicle expenses for the 2020/21 financial year. The last rate change was to 68 cents in 2018 but effective from July 1, 2020 it will be 72 cents per kilometre.

Under the cents per kilometre method, taxpayers can claim up to a maximum of 5,000 business kilometres per car, per year, without documentary evidence. Having said that, work-related car expenses have been on the ATO’s radar in recent years, with 3.6 million taxpayers claiming more than $7.2 billion in 2017/18.

According to the ATO, one in five claims are exactly at the 5,000-kilometre limit, with their analytics picking up irregular claims by comparing taxpayer claims with others earning similar amounts in similar occupations. Because of COVID-19 and travel restrictions in the last quarter of the 2019/20 financial year, they expect to see a drop in the level of work-related car expenses claims. The same should apply to protective clothing and items like laundry of uniforms.

Karen Foat, ATO Assistant Commissioner, has urged taxpayers to reduce claims for work-related expenses in the last quarter of the 2019/20 year that would have been impacted by government-mandated restrictions imposed as a result of COVID-19. She said, “With more people working from home, working reduced hours or unfortunately not working at all, we expect to see claims for laundry expenses or travel expenses to decline this year.” Ms Foat said, “If you aren’t travelling for work, you can’t claim travel expenses. If you aren’t wearing your work uniform, you can’t claim laundry expenses. It’s still important to meet the three golden rules: you must have spent the money and not have been reimbursed, it must relate directly to earning your income, and you must have a record to prove it.”

Counterbalancing the drop in travel and laundry claims, home office expense claims should rise with so many taxpayers forced to work from home. In response to COVID-19, the ATO has also introduced a shortcut method for taxpayers to calculate home office expenses. For the period between March 1, 2020 and June 30, 2020 you can claim home office expenses at a rate of 80 cents per hour. Importantly, you don’t have to have a separate or dedicated area of your home set aside to work from. Karen Foat, ATO Assistant Commissioner said, “If you use the shortcut method, all you need to do is keep a record of the hours you worked from home as evidence of your claim. But it is all inclusive, meaning you can’t claim for any other working from home expenses.”

The new ‘shortcut’ method is in addition to the existing fixed-rate method and actual cost method, with taxpayers able to choose the appropriate method for their circumstances. Home office claims before March 1, 2020 must be under the two standard approaches.

As always, please don't hesitate to contact us if you have any queries in relation to claiming work-related expense claims.

This article forms part of our Business Accelerator Magazine. Download the latest edition HERE or browse other articles from this edition below:

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