ATO crackdown on laundry expense overclaims.
The ATO is airing the ‘dirty laundry’ on work-related clothing and laundry expenses warning that it is closely reviewing claims.
“Last year around 6 million people claimed work-related clothing and laundry expenses, with total claims adding up to nearly $1.8 billion. While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing,” Assistant Commissioner Kath Anderson said.
Clothing claims are up nearly 20% over the last five years and the ATO believes taxpayers are making common mistakes and errors like claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated. In some cases, the ATO will ask employers if they require their employees to wear a uniform to check the validity of claims made.
In one case highlighted, a car detailer claimed work related laundry expenses of over $20,000 per year over two years. It seems that the taxpayer worked out how many hours he spent doing his laundry then multiplied that by what he thought was a reasonable hourly rate ($227 per hour because his personal time was valuable). Needless to say, the taxpayer’s claim was reduced to $0.
It’s not just large claims that the ATO is reviewing but claims up to the $150 substantiation threshold. Claims over $150 have to be substantiated with receipts for expenses. Below this level taxpayers are not required to keep normal records. The ATO believes that a lot of taxpayers are simply ticking the box thinking that the claim is a ‘standard deduction’ but it’s not an automatic entitlement.
“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim,” Ms Anderson said.
When and how to claim for laundry expenses
A laundry expense is an expense related to the washing, drying or ironing (but not drycleaning) of deductible work-related clothing (e.g., protective clothing and compulsory uniforms).
Where written evidence is not required for laundry expenses, the ATO will allow claims to be made on a reasonable basis. In TR98/5 the ATO will allow claims on the following basis, which is designed to cover washing, drying and ironing):
- $1.00 per load - where only work clothing is being washed. You cannot have any of your private clothing or your family's clothing included in this wash.
- $0.50 per load - where both work and private clothing is being washed.
What proof or documentary evidence will I need in an audit?
Where the Commissioner's estimate of $1 or 50 cents per load is used to claim laundry expenses, an individual should keep details of the following:
- The number of washes done during the year; and
- The types of clothes included in each wash (and whether they comprised only work-related clothing, private clothing or both).
Please note that dry cleaning costs are not included in the $150 substantiation exemption. For this reason you may be required to substantiate all of your dry-cleaning expenses even though the claim is below $150. This means you will need to keep receipts. The common excuse of "my drycleaner doesn't provide receipts" will not be accepted by the ATO in an audit situation.
As experienced Accountants in Melton, we can help you with the preparation of your tax return. For further information or to book your tax return appointment, please contact our team of accountants on (03) 9746 6479.