ATO clamping down on clothing deductions
By Thomson Reuters Tax & Accounting on 19 July 2019
Planning to claim some clothing or laundry expenses this tax time? These deductions are on the ATO’s watch list again this year, and there are many traps for the unwary.
For example, did you know that non-branded work uniforms are not deductible? Find out what categories are allowed and what records you need to keep.
Taxpayers who claim deductions for work-related clothing and laundry expenses may find themselves under the ATO’s microscope this tax time. Even if your claim is relatively small, penalties can apply for making incorrect claims.
What clothing is eligible?
If your work-related clothing falls into one of the following three categories, you can claim the purchase cost and the costs of laundering that clothing:
- Uniforms. To qualify, your uniform must be both unique (designed only for your employer) and distinctive (with your employer’s logo attached, and it must not be available to the public). This means you can’t make claims for generic, non-branded uniforms. And if your uniform is compulsory, you may also be able to claim shoes, socks and stockings provided they’re an essential part of the uniform and their characteristics (such the required colour, style and type) are outlined in your employer’s uniform policy. Non-compulsory uniforms have much tighter rules, so check with your adviser before claiming.
- Occupation-specific clothing. This is clothing that is unique to your occupation, is not “everyday” in nature and allows the public to identify your occupation. Examples include a chef’s checked trousers or a barrister’s robes. In contrast, a bartender’s black trousers or a swimming instructor’s swimwear wouldn’t be allowable.
- Protective clothing. To be eligible, the clothing must offer a sufficient level of protection against injury or illness in your work setting. Typical examples include high-visibility clothing, steel-capped boots, non-slip shoes, smocks/aprons and fire-resistant clothing.
The ATO is particularly concerned that many taxpayers incorrectly claim for ordinary clothing, like suits or black work trousers. It says the following are not valid reasons for deducting clothing:
- Your employer requires you to wear a certain colour (eg trousers must be black).
- You bought formal clothes to wear to work functions such as awards nights where you represented your employer.
- You bought clothes just to wear to work.
For total clothing and laundry claims of up to $150, you aren’t required to keep detailed records. However, the ATO stresses that taxpayers aren’t “automatically” entitled to a $150 deduction – you must have actually incurred the expenses you claim. The ATO can still ask you to substantiate your claim, and can contact your employer to verify its clothing requirements.
If your total claim is under $150, you can calculate your laundry claim using a simple rate of $1 per load where all the clothing is work-related, and 50 cents per load where other clothes are part of the load.
If your total claim for clothing and laundry exceeds $150 (and your total claim for work-related expenses exceeds $300), you’ll need to keep receipts.
To prove your laundry costs, you’ll need to keep a diary for a representative one-month period. Your adviser can help you ensure you have the correct records in place.
Reimbursements and allowances
To claim a deduction, you must have incurred the expense yourself. So, if your employer reimburses you for an expense, you can’t deduct that amount.
On the other hand, if you receive a clothing allowance you must declare that allowance in your tax return. You can then deduct your costs for eligible clothing, but only the amount you actually spent.
Take the stress out of tax time
Talk to us for expert assistance with all of your work-related expense claims. We’ll help you claim everything you’re entitled to, while keeping the ATO happy, call us on (07) 4723 1223.