Numerous work-related expense claims disallowed

Numerous work-related expense claims disallowed

The AAT has denied a taxpayer’s deductions for work-related travel, clothing, self-education and rental property expenses, and upheld the ATO’s 50% administrative penalty on the tax shortfall for recklessness.

The taxpayer, who was previously employed by the Department of Finance, made deduction claims totalling $116,068 and $140,581 for the 2013 and 2014 income year respectively.
Following an audit, the ATO issued Notices of Amended Assessments, drastically reducing the deduction claims.
The taxpayer was largely unsuccessful in objecting to the amended assessments, and applied to the AAT for a review of the Commissioner’s decision to deny claims for the following deductions:

  • Work-related travel expenses – which included a claim that was worked out on the basis of the gap between travel expenses reimbursed by the taxpayer’s employer and the Commissioner’s Reasonable Rates.
  • Clothing expenses – the taxpayer asserted that, due to the nature of her work, she "was required to wear formal clothes of high class”.
  • Self-education expenses – the taxpayer’s work responsibilities required her to communicate and meet with foreign dignitaries, most of whom were French-speaking. Her tax agent claimed that "learning French did develop a skill essential to the work (she) did and also have provided a strong opportunity to progression to higher level” with a “much higher remuneration package".
  • Rental property expenses – body corporate fees and landlord insurance claims.

The Tribunal Member affirmed the Commissioner’s decision to deny all of the deductions still in dispute at the AAT. Specifically:

  • The “travel allowance gap” method used by the taxpayer to claim work-related travel expenses was clearly not permissible under any taxation law, and the taxpayer was not entitled to travel expenses claimed on the basis that the expenses were not incurred.
  • The taxpayer’s clothing was not distinctive or unique to her employment, and was rather conventional in nature, and so was not deductible.
  • Although the AAT accepted that French language studies could fall within the definition of maintaining or improving a skill required for work, the taxpayer could not substantiate her self-education expenses were actually incurred.
  • With respect to the taxpayer’s body corporate fees and landlord insurance claims, she was not able to identify which property they related to, how the deductions were determined or calculated, or provide any other documentation or evidence substantiating the expense.

The Tribunal Member also upheld the Commissioner’s decision to apply a 50% administrative penalties for recklessness, finding the penalties were well justified.
The taxpayer’s tax agent, who had been a tax agent for more than 15 years, was largely responsible for submitting deductions that were clearly not permissible under the law. The Tribunal Member noted the agent’s conduct in claiming the deductions, which he either knew or ought to have known were impermissible, was both “reckless and inexcusable”.
Ref: Watts v FCT [2017] AATA 2030