30 May 2019

Dora the Explorer, Tiny Teddies and Wagon Wheels – deduction claims landing a tax agent in hot water

As the end of the financial year draws near, we thought it appropriate to share this article.

When completing your tax return, you’re entitled to claim deductions for some expenses, most of which are directly related to earning your income.

Unfortunately for one Woolongong tax agent, his run of ‘interesting’ deduction claims on behalf of clients raised a red flag with the ATO and resulted in the cancellation of his registration with the Tax Practitioners Board.

In a long and entertaining series of cases in the Administrative Appeals Tribunal, that tax practitioner was hauled over the coals as he tried to substantiate a number of ‘interesting’ deduction claims.

To save you some reading, here are the Cliff notes – the following are NOT appropriate tax deductions:

  1. $5400 worth of “secretarial” payments to your seven-year-old son who sometimes ‘ran upstairs to the study when the phone was ringing, answered the phone, and then handed the phone to his father’;
  2. A Dora the Explorer pencil case, heart and star shaped stickers, crayons and art brushes as “office supplies” (I mean c’mon, he was an IBM computer salesman!);
  3. Family pets as “guard dogs”;
  4. Depreciation on your home fridge as a plumber;
  5. A $383 deduction for RM Williams rubber soled shoes to ‘protect against continual shocks from static electricity’ when working as an IT salesman;
  6. $2,250.00 worth of Bega Stringer Cheese along with Tiny Teddies, mini Wagon Wheels and 468 Monte Carlo biscuits as “client refreshments”; and
  7. Personal training sessions for a sales agent.

Legitimate “other work-related expenses” can include home office, mobile phone and internet, overtime meals and tools and equipment, but they are only deductible if they meet the “three golden rules:

  1. You must have paid for the cost and not have been reimbursed;
  2. it must be directly related to earning your income and not a private expense; and
  3. you must have a record to prove it.

Andrew Bower began his legal career as a law clerk in 2008, whilst studying a Bachelor of Laws and a Bachelor of Commerce majoring in finance at Murdoch University.