The new financial year is just around the corner and that signals one thing — tax time.

As we move towards July 1, the Australian Taxation Office (ATO) has revealed the deduction claims it will be keeping a very close eye on this time and warned there are penalties for those who provide false information.

It also shared its “three golden rules” for claiming a legitimate work-related expense, while tax experts have encouraged Australians to do their research to get back everything they are entitled to.

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What will the ATO be cracking down on this year?

The tax office has already highlighted that work-related expenses, working from home (WFH) deductions and side hustles will be under the microscope this year, claiming these are areas that produce “frequent errors”.

“For WFH deductions, the revised fixed rate method allows you to claim 70 cents per hour covering electricity, internet, phone, and office consumables,” RMIT University finance professor Angel Zhong said.

“However, you must keep detailed records of your hours worked and ensure you’re not double-dipping by claiming additional expenses already included in the fixed rate.

“You can’t claim rent or mortgage interest unless you’re running a business from home and personal items such as coffee, tea, or snacks are not deductible.

“Similarly, you can’t claim your entire internet or phone bill, only the portion that directly relates to your work.”

More than 10 million people claimed work-related deductions in 2024, and many lodged expenses relating to working from home.

“Work-related expenses must have a close connection to your income earning activities and you should be prepared to back it up with records like a receipt or invoice,” ATO Assistant Commissioner Rob Thomson said.

“If your deductions don’t pass the ‘pub test’, it’s highly unlikely your claim would meet the ATO’s strict criteria.”

Experts say the ATO’s target areas can be “complicated and hard to understand”.

“That’s why it’s important to keep clear records and ask a tax agent or accountant if you’re unsure,” Two Sides Accounting director and Xero Partner Advisory Council member Natalie Lennon told www.20304050.best.

“Being honest and organised makes tax time easier and helps avoid problems.”

What can I claim?

Deductions must be related to purchases made before June 30 if you intend to claim them in this tax return.

What you can claim will depend on what you do for work. The ATO and accountants know the difference.

“It is important that taxpayers take reasonable care when lodging as penalties may apply where people have not taken reasonable care and increase when they are reckless or intentionally provide false information,” Thomson said.

More than $2.2 billion in penalties were dished out to taxpayers who failed to comply with their obligations in 2023-2024.

“Cost of living is front of mind for many taxpayers and it is tempting to increase tax deductions to generate a refund but there are risks with trying to push the envelope with the ATO,” Chartered Accountants ANZ’s tax lead Susan Franks told www.20304050.best.

“The ATO has sophisticated data-tracking through its data-matching programs which can verify disclosures in tax returns and can impose penalties and interest.”

Among the “most outrageous” work-related deduction attempts submitted last year was a taxpayer who tried to claim a luxury yacht as a work expense because “they might have some business to do” on some islands, and an unnamed fashion industry manager who wanted to be reimbursed more than $10,000 they spent on luxury clothing to attend dinners and other functions.

Three golden rules for deductions

While it is important not to exaggerate work-related claims, it is important not to shift into auto-pilot either.

“Take time to seriously consider what’s different about your expenses this year and think about what you could claim,” CPA Australia tax lead Jenny Wong said.

“Maybe you travelled more for work and were not reimbursed by your employer for meals or other travel essentials. Or maybe you started a new job where you had to buy tools, subscriptions, or pay for training and security clearances, for example.

“Check what type of expenses you could claim that are relevant to your type of work. We strongly advise against using AI advice when preparing your tax return.”

The ATO’s “three golden rules” for claiming a deduction for a work-related expense are:

• You must have spent the money yourself;
• The expense must directly relate to earning your income;
• You must have a record (usually a receipt) to prove it.

“We have 40 occupation and industry specific guides on our website which you can use to work out what you can or can’t claim as a work related deduction specific to your job,” Thomson said.

“The guides also explain the records you need to keep and income you need to include in your return.”

Surprising expenses that you can claim on

Handbags: “To carry items you carry and use for work, such as laptops, tablets, workpapers, protective equipment or diaries — there is no limit, so it can be designer. However, if it’s valued at over $300 it will need to be claimed over its useful life.” — Natalie Lennon

Sunscreen: “If you work outdoors (think tradies, landscapers, builders, even some hospitality staff), sunscreen is a legitimate protective equipment expense.” — Natalie Lennon

Smartwatches (eg Apple Watch): “If you require some of the smartwatch’s functions as an essential part of your employment activities, you can claim a deduction for the expenses related to your work-related use of the smartwatch. But beware, as the rules are strict on this one.” — Natalie Lennon

Your home office: “Your computer desk and chair are tax deductible as long as you paid for them yourself. If you travel to the office, you could even claim for the laptop bag you use.” — Jenny Wong

Identity checks: “If you need to pay out of your own pocket for certain identity checks and documents, such as a blue card for a childcare worker, this can be tax deductible.” — Jenny Wong

Keeping clean: “If you work in a job that requires interaction with lots of customers and surfaces, you can even claim the cost of items like gloves and hand sanitiser. This could be a retail job, or train station attendant, for example.” — Jenny Wong

What happens if I lodge a dodgy return?

Franks said the ATO would call on its sophisticated data analytics to determine if anything looks “outside the ordinary”.

For example, are your claims for expenses higher than others in the same line of work, and can you back up expenses with records?

Lennon said large or unusual deductions, inconsistent income reports, and claiming personal expenses as business costs are all red flags.

“The best way to avoid an audit is to keep clear records and only claim what you’re entitled to,” Lennon said.

The ATO says the odds of an individual being audited “depend on whether they have included all their income in their return, and the claims they make on their tax return”.

“When a return is lodged, we use sophisticated programs and technology to detect income that hasn’t been included or incorrect claims, which includes data matching against third party data,” Thomson said.

When is the cut-off to lodge my tax return?

October 31 is the deadline for Australians lodging their return themselves.

For those using the services of a registered tax agent, you have more time — until May the following year.

But make sure you have reached out to them and have the ball rolling before the start of November.

Will I be fined for missing the October 31 deadline?

If you fail to lodge in time, the ATO may impose penalties, starting with a $330 fine.

“The longer you leave it, the more you could owe,” Lennon said.

If you are liable, the ATO will notify you in writing.

“We will consider your circumstances when deciding what action to take,” Thomson said.

“It is important that taxpayers take reasonable care when lodging as penalties may apply where people have not taken reasonable care and increase when they are reckless or intentionally provide false information.

“Our preferred approach is to work with taxpayers to help them meet their tax obligations.”