What expenses are related to work?

You can claim a deduction for all losses and outgoings “to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.” That is, there must be a nexus between the expenses you are claiming and how you earn your income.

Three examples

It all sounds simple enough until you start applying this rule.

Take the example of an actor. To land an acting job, she needs to attend auditions. She wants to claim the cost of having her hair and make-up done for the audition. But because she is not generating income at the stage of the audition, she cannot claim her expenses. The expense must be related to how you are currently earning your income, not future potential income.

The same issue applies to upskilling. If you attend investment seminars with the intention of building your investment portfolio, the seminar is not deductible as a self-education expense unless it relates to managing your existing investment portfolio - not a future one.

Or, a nurse’s aide who attendees university to qualify as a nurse. The university degree and the expenses associated with this are not deductible as the nursing degree is not required to fulfil the role of a nurse’s aide.

"Conventional" versus occupational-specific items

The second area of confusion is over what can be claimed for work. If the item is “conventional” it’s unlikely to be deductible.

For example, you can't claim conventional clothing (including footwear) as a work-related expense, even if your employer requires you to wear it and you only wear the items of clothing at work. To be deductible clothing must be protective, occupation specific such as a chef’s chequered pants, a compulsory uniform, or a registered non-compulsory uniform.

Work-related or private?

Another area of confusion is where expenses are incurred for work purposes but used privately. Internet access or mobile phone services are typical.

Many people take the view that the expense had to be incurred for work so what does it matter if it’s used for private purposes? But if you use the service on more than an ad-hoc basis for any purpose other than work, then the expense needs to be apportioned and only the work-related percentage claimed as a deduction. And yes, the ATO does check usage in an audit.

Claims for COVID-19 tests will be a test of this rule. COVID-19 tests are deductible from 1 July 2021 if the purpose was to determine whether you may attend or remain at work. The tax deduction does not apply if you worked from home and didn’t intend to attend your workplace, or the test was used for private purposes (for example, to tests the kids before school).

We're here to help

If you have any questions about expenses relating to your tax return, please contact your Goodwin Chivas & Co. representative, email us or phone our friendly team on (02) 9899 3044.