The Team has had quite a few queries from Taxpayers who work on the island about the Travel Allowances and Ferry Allowances they have been paid, so what say we talk about this issue.
Some local Tax Agents have been recklessly claiming deductions on behalf of their Clients against these allowances, so we thought we should give you two simple guidelines to establish whether or not you have a valid claim for a deduction.
1. First and foremost any claim for a deduction rests on whether an expense is actually incurred, i.e. are you out of pocket; and
2. If an expense was incurred, was the expenditure incurred in earning your income, or was it private or domestic in nature.
As a general rule, travel from home to work, and from work to home is private in nature, whereas travel between jobs is tax deductible.
Generally a claim for a deduction can be made against a Travel Allowance where your job requires you to carry bulky or dangerous tools which you need to use to earn your income.
In reality, the island workers we have spoken to do not actually incur any work-related travel expenses, nor are they allowed to transport their own bulky tools to and from the island – even if they wanted to. That being so, there is no reasonable basis for a claim against either of these allowances. Yet we have first-hand knowledge that some Tax Agents are making these claims, with refunds of $8,000+ being common place. These taxpayers should be aware that, under the self-assessment rules, the ATO will accept tax returns as being correct – that is until the ATO carries out an audit. Inevitably the ATO will deny these claims and issue amended assessments – plus penalties plus General Interest Charges. These amended assessments may not surface until a couple of years after the tax returns have been lodged, and will inevitably cause financial hardship, particularly if the amendments extend over a number of years.
If you know of anyone who may be affected, please suggest they see a reputable local CPA or CA firm for a second opinion. In the long run this will save them money, not to mention a lot of heartache.