The Australian Taxation Office (ATO) has unveiled some of the most outrageous tax claims made by Australians, highlighting a range of bizarre attempts to deduct personal expenses as work-related. As the ATO prepares its "hit list" for 2025, it aims to crack down on exaggerated claims, emphasizing the need for taxpayers to adhere to strict criteria when filing their returns.
In a recent survey conducted by Chartered Accountants ANZ (CA ANZ), 180 tax experts revealed just how far some individuals are willing to stretch the truth in pursuit of tax breaks. Susan Franks, CA ANZ Tax Leader, noted that some claims were so far-fetched they could hardly be taken seriously. For instance, one respondent reported that a client tried to deduct monthly hair salon visits, arguing that hair growth during business hours justified the expense.
Franks also mentioned other questionable claims related to health and wellness, including a gym membership for someone who needed to be fit to renovate a rental property and a Pilates reformer machine purchased for an office worker with back pain. Perhaps most astonishing was a claim for a luxury yacht, which was justified on the grounds that the owner might have business to conduct on the islands.
The ATO is particularly focused on work-related expenses, work-from-home (WFH) deductions, and claims related to multiple income sources, such as side hustles. In 2024, over 10 million Australians claimed some form of work-related deduction, and the ATO is now scrutinizing these claims more closely. ATO Assistant Commissioner Rob Thomson has warned that outrageous deductions will not be tolerated, stating, "While some people have tried their luck with unusual work-related deduction claims, most people realize to be able to claim an expense, it needs to meet strict criteria."
Among the most notable examples of rejected claims was a mechanic who attempted to deduct an air fryer, microwave, two vacuum cleaners, a television, a gaming console, and gaming accessories as work-related expenses. The ATO rejected these claims on the basis that they were personal in nature.
In another case, a truck driver sought to claim swimwear as a work expense, arguing that the heat during his journey warranted a dip in the pool. This claim was also denied, with the ATO making it clear that swimwear for a truck driver does not pass the "pub test" of legitimacy.
Thomson emphasized the importance of understanding what constitutes a legitimate work-related expense. He stated, "Work-related expenses must have a close connection to your income-earning activities, and you should be prepared to back it up with records like a receipt or invoice." He also noted that travel to and from work and childcare costs cannot be claimed.
Last year, a manager in the fashion industry tried to claim over $10,000 worth of designer clothing, asserting that the expenses were necessary for maintaining a professional appearance at work and at business events. However, the ATO deemed these items conventional clothing and therefore ineligible for deduction.
In an even more extreme example, a laundromat employee attempted to claim approximately $30,000 for an overseas safari trip as a work-related expense. This claim was unsurprisingly rejected, as it was clearly a personal expense.
The ATO has identified exaggerated or mistaken claims as a significant contributor to the tax gap—the difference between the expected tax revenue and the actual amount collected. In the 2021-22 fiscal year, this gap amounted to a staggering shortfall of $948 million. Thomson pointed out that many of these mistakes could be avoided with a little time and effort in understanding the rules.
For taxpayers unsure about their claims, the ATO encourages them to seek guidance from their registered tax agents or consult the ATO website for more information. This year, the ATO will continue to focus on areas where errors frequently occur, such as work-related expenses and WFH deductions.
As the ATO gears up for the upcoming tax season, it remains clear that taxpayers must exercise caution and ensure their claims are legitimate. The message is simple: if a deduction doesn't pass the "pub test," it's unlikely to meet the ATO's stringent criteria.
