2004 work-related expense and rental audit programs
Printable version
In late June and early July, letters were sent to selected
work-related expense (WRE) and rental deduction claimants.
These letters advise taxpayers that there will be an
increased focus on WRE and rental claims in 2004 year
returns. The letters also list some of the common mistakes
to avoid and let taxpayers know where they can get extra
help. For most taxpayers, there is no need to do anything
other than to note the need to take care.
Some of the letters ask taxpayers to complete a WRE schedule
when they fill out their 2004 tax return. This schedule,
which seeks more detail on the claims made, will be reviewed
by our compliance officers when it is returned to us.
We have taken care in our case selections to see that
completion of schedules will not impose unreasonable added
work on tax practitioners. The letters issued to both
self preparers and tax practitioner clients and covered
a selection of occupations. Case selection included some
2003 tax returns, large claims and large increases in
claims between years.
Why focus on WRE and rent?
Over six million taxpayers claim work-related expenses
worth almost $10 billion and the numbers are increasing.
Not all expenses are deductible and errors are being made,
both by self preparers and tax practitioners.
Taxpayer involvement in rental properties is also increasing
with over 1.3 million taxpayers showing income or deductions
at rental labels in their tax returns. Again some common
errors are being made.
The common errors
There are some common errors that can be avoided:
Work-related expenses
Motor vehicle claims made using the ‘log book’
method where there is no valid log book.
Clothing being claimed where qualifying conditions are
not met.
Self education claims made where there is no work connection
at the time the expense is incurred.
Students receiving AUSTUDY or ABSTUDY payments incorrectly
claiming self education expenses against those payments.
Taxpayers incorrectly calculating decline in value deductions
as well as not apportioning deduction claims between business
and private use. This applied particularly to home computer,
internet usage and mobile phone claims.
Claims made for home office expenses based on occupancy
costs where the home is not considered to be a place of
business.
Claims made for meal expenses where no overtime meal allowance
has been declared.
Claims where there is no connection to current employment
income, and
Ongoing FID claims. FID was abolished with effect from
1 July 2001.
Rental deductions
Claiming the cost of carrying out initial repairs –
such as rectifying damage, defects or deterioration that
existed at the time of purchasing the property –
as immediate deductions. These costs are capital expenditure.
Claiming renovation costs as deductions for repairs –
again, these are expenses of a capital nature and may
be claimed as capital works deductions. The Tax Office
is investigating claims for repairs which are really capital
improvements, such as remodelling bathrooms and kitchens
and adding a deck or pergola.
Claiming deductions for a property that is not genuinely
available for rent or is rented for only part of the year.
Including the cost of the land in capital works deductions
(i.e. as part of the construction cost of the rental property).
Claiming construction costs as decline in value deductions
(previously known as depreciation).
Overstating interest deductions by including amounts related
to private borrowings – interest on a loan taken
out for both income-producing and private purposes, such
as the purchase of a rental property and a private motor
vehicle, needs to be apportioned into deductible and non-deductible
parts, according to the amounts borrowed for the rental
property and for the private purpose.
Not apportioning travel expenses where the visit to the
rental property is combined with another purpose, such
as a holiday.
Claiming deductions for items incorrectly classified as
depreciating assets. The Tax Office has produced a comprehensive
list of over 230 items found in residential rental properties
and identified them as either depreciating assets and
eligible for a decline in value deduction, or as assets
eligible for a capital works deduction. The list is included
in Rental properties 2003-04.
This information should be shared with the staff in your
practice that assist with the preparation of the individual
return forms.
