Would you claim the Lego you bought for your kids throughout the year as a tax deduction? One taxpayer did and it made the Australian Taxation Office’s 2018-19 list of most unusual claims. They’re bad for the economy, for the accounting industry and for our clients, so why are outrageous tax claims still so widespread? Read on for the weirdest tax deductions revealed!
The Lego was not the only claim for money spent on kids. Another taxpayer claimed their children’s sports equipment and sporting membership fees. Others claimed school uniforms, and before and after school care. And, others claimed, “the cost of raising twins,” the “cost of raising three children” and simply, “New born baby expensive.” Yes indeed, but the expenses, while often shocking to parents, are not deductible.
Cars were also a favourite. The ATO says that “many” taxpayers tried to claim the full purchase price of their new cars as a tax deduction. This included the taxpayer who claimed the cost of the new car he bought for his mother as a gift. Nice gesture but still not deductible.
Medical and dental expenses also featured heavily. The most striking was the couple that claimed the cost of their dental expenses, “believing a nice smile was essential to finding a job.” Medical and dental expenses in general are personal expenses and not deductible.
Also making the list was the couple who claimed the cost of their wedding reception as a tax deduction. Some do it innocently without understanding the regulations. A few try to make claims they know are dubious. The majority ask to make incorrect claims because their previous accountants have allowed them to do so. The ATO is certainly identifying plenty of trouble. Media stories about outrageous tax claims are never short on real-life content.
For instance, there is the notorious account of Gary Ogden, an IBM salesman whose more than A$100,000 in sham claims included meals taken on the way to family ski holidays, sunscreen and sunglasses (he didn’t work outside), payment of over A$5000 to his seven year-old son for secretarial services, and depreciation of an outdoor patio setting. Unsurprisingly, Ogden’s tax agent, David Warren McNeice – who also gave advice to other clients that they could claim school fees, personal training sessions and family pets (as guard dogs) – has been deregistered.
The ATO itself has flagged cases about dodgy deductions in media releases. They include a wine expert who claimed more than A$9000 for wine he bought while on holiday in Europe, intended for personal consumption; a doctor who had receipts for a conference in the US, but who had never left Australia; and a taxpayer who claimed car expenses and whose logbook recorded kilometres on days when he was out of the country.
No crooked claims story would be complete without a mention of Linda Taylor from South Australian home-styling business Signature Styling. Taylor deceitfully obtained almost A$140,000 in GST refunds by lodging 32 monthly BAS (business activity statements). She claimed expenses of over A$2 million, while overall sales, including GST, only added up to A$259,977 for the period. The refunds were spent on beauty services, restaurant meals, hotel stays and shoes.
While real-life tales of tax dodging are always exceedingly readable, they flag a larger problem. Dodgy claims exist at all levels in society and undoubtedly, they’re sometimes supported by tax agents. When accountants allow or encourage dodgy claims, their clients speak with friends and the problem becomes greater for the entire industry. The Tax Agent Services Act requires agents to take reasonable care in ascertaining their clients’ tax affairs. That doesn’t mean clients must be individually audited, but agents need to ask the right questions and have a level of professional cynicism if things don’t “smell right”.
The ATO is only going to get smarter and smarter with the use of big data and artificial intelligence. The use of ‘nudge’ technology to compare amounts claimed in real time against prior year returns and other taxpayers in the same occupation code is assisting to prompt taxpayers to consider the accuracy of their claims before tax returns are lodged.
The unusual claims mostly came from the ‘Other’ deductions section of the tax return. In order to claim an ‘other’ deduction, the expenses must be directly related to earning income and you need to have a receipt or record of the expense. If your expense relates to your employment, it should be claimed at the work-related expenses section of the return.
Strange claims, indeed
Sometimes truth is stranger than fiction. Here are some claims that can be legitimate in certain careers and industries.
For certain outdoor workers, and flight attendants.
If they are required for carrying work items and are fit for work purpose.
For your office and reception area, not your lounge room or home office.
For the office recreation area.
Only if they are bona fide guard dogs kept on a premises or essential in a line of work, such as breeding or dog training.
For models and some professional athletes, but only at the time of work/competition.
If you make a living as a knife swallower.
Only for hand/foot models.
The material and contents provided in this publication were sourced by Knowledge Shop and InTheBlack and are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone.
Check out our ATO occupation guides to help determine the work-related expenses you can claim at tax time!
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