Many may think that tax time is not necessarily a creative endeavour, but some people will test the limits whatever the occasion. Nothing will stop them flexing their creative muscles, and that includes when it comes time to lodge their tax return.

What are the rules?

Come tax time, there are three golden rules set from the Australian Taxation Office (ATO)

  • The expense must directly relate to earning your income
  • You must have already incurred the expense
  • You must have the records to prove it

No matter how clear, people try to bend these rules. Many dubious claims are made in the ‘other’ expenses column, including non-allowable items such as wedding reception costs, dental, childcare, gambling losses, alcohol, and even cigarettes.

What are legitimate expenses?

Who would have thought that Lego could be claimed as a legitimate business expense? Not the ATO who sent a ‘please explain’ letter to one Australian who claimed Lego as a gift for his children as a tax expense. Personal gifts, no matter how large or small are only a nice gesture – not tax-deductible.

Another taxpayer tried to claim his overseas wedding reception of $58,000 as a work-related overseas ‘conference’. The taxpayer claimed $33,087 on his return, and also $25,259 on his new wife’s tax return. The ATO prosecuted his wife.

Nice white smiles are attractive and may help you with your line of work, but the ATO considers dental work to be a personal expense. Claiming ‘having a nice smile’ as ‘essential to finding a job’ is not a valid claim. At best, the ATO will reject your claim, at worse, you might receive an audit.

The cost of raising children, although expensive, is not an income-related expense. Children may be costly, but it has nothing to do with the ATO.

Similarly, claiming the cost of a personal new car that is not used for business purposes cannot be claimed against the $30,000 instant asset write off threshold. The ATO maintains that although many taxpayers have tried to claim the full purchase price of their personal car as a tax deduction, it is not a valid income-related claim.

If, like some people who have tried to claim cigarettes to help reduce stress, or sunscreen and an umbrella for being forced to walk to a sunlit park for their smoko, your tax agent will most probably advise you not to lodge that claim.

Another dubious claim is gym memberships and physical training. It only seems fair if you need to have a certain amount of physical fitness for your job, right? Not in the eyes of the ATO. You may only claim the cost of attending a gym if you can demonstrate that strenuous physical activity well above and beyond a professional level that needs to be constantly maintained is absolutely necessary for your job. So, the nightclub bouncer who tried to claim ‘martial arts training’ will only be seen as a personal hobby, not as a valid tax claim.

What can you do?

There’s no doubt that there are some creative claims made under the ‘other’ section of tax returns, however beware. Lodging false claims is an illegal offense and you will be tagged by the ATO who has the power to penalise and prosecute.

While this article is informational, it’s always best to work with a tax agent who knows and understands exactly what you’ll be able to claim. The best thing? The cost is 100% tax deductible. Not only will you maximize your tax return, your charge is a legitimate expense everyone can claim.

ITP The Income Tax Professionals help over 300,000 Australians with their tax each year. If you’re a customer, you can also contact your Professional throughout the year for great tax advice. A simple conversation from someone who knows can help you legally maximise your claims and reduce your income tax. Bonus!