When tax time rolls around, there’s one question clients always ask.
“Who are the ATO cracking down on this year?”
This year, it’s not so much a case of who, but what. The ATO is targeting a deduction claimed nationwide every year — work-related laundry expenses.
What’s changed for work-related laundry expenses?
Many taxpayers are used to just claiming $150 for laundry expenses because the ATO allows laundry deductions of $150 or less without written evidence/receipts.
However, the way taxpayers see things is often not how the ATO does!
In their annual analysis, the ATO has decided that too many people are claiming laundry expenses outside the rules. As they point out, no taxpayer can automatically claim a deduction — there must be a basis for the claim.
So what does this mean for you?
What should I know about work-related laundry expenses?
Below, we’ve outlined the most critical points to remember.
What clothing qualifies as “work-related”?
To claim laundry expenses and clothing costs, clothing should only be worn in the workplace.
This generally applies to:
- a compulsory uniform that is distinctive to your particular organisation
- protective clothing
- an occupation-specific uniform that you cannot wear elsewhere (e.g. a nurse’s uniform)
The rules aren’t always clear — a worker at JeansWest required to wear branded t-shirts may claim laundry expenses, but the ATO says this is conventional clothing and not deductible.
What does the ATO say about claiming laundry expenses in my tax return?
Due to too many workers claiming the maximum deduction, the ATO now requires you to show how you calculated the claim.
How do I prove my laundry expenses adequately?
The ATO requires written evidence for workers claiming more than $150 in laundry-related expenses such as diary entries and receipts.
For claims of $150 or less, the ATO does not require receipts/written evidence — however, you must show how you came up with your claim.
This means calculating yearly laundry costs.
The ATO states that they consider a “reasonable basis for working out your laundry claim” to be:
- $1 per load if it only contains clothing you wear at work
- 50c per load if you mix personal items of clothing with work clothing.
Here’s an example: John wears a hi-vis jacket, pants and protective gloves for work. He washes these separately three times weekly ($1 per load) and takes approx. 4 weeks of holiday. This equals $144 in laundry-related expenses.
Use this as a template to demonstrate laundry expense calculations.
What isn’t classed as work-related clothing?
In the past, accountants considered many things to be protective clothing — for example, non-slip shoes or the pair of jeans a welder wears to protect against sparks. However, there may now be greater ATO scrutiny.
Some taxpayers have also argued that a workplace agreement that compels employees to wear specific colours is compulsory. However, the ATO would disagree unless the uniform contains a logo.
How is the ATO catching taxpayers out?
You might think that a $150 deduction wouldn’t be enough to raise suspicion — however, this isn’t the case.
The ATO will use data matching systems and algorithms to identify more and more taxpayers claiming types of expenses or a volume of costs that do not meet the profile for that occupation.
Claims will be scrutinised a lot more closely, and there will be even more audits. Be careful!
Keep your taxes in top shape with the experts at MKG Partners
Did you know that if the ATO picks you up for an incorrect claim on your taxes once, you might be subject to yearly audits and increased scrutiny?
There’s no point taking the risk — instead, get help from a qualified chartered accountant and make sure your taxes are compliant. We’ll find you extra deductions without breaking the rules!
If you’re not sure what you can claim for this year or want to maximise deductions without stepping outside the law, get in touch with our team online or call (08) 9354 6500.