The AAT has upheld the Commissioner’s decision to disallow a range of work related expenses, claimed by a public servant and upheld a decision to impost a 50% administrative penalty for being reckless.

The taxpayer, an employee with the Department of Finance, claimed various work-related travel expenses, clothing expenses and self-education expenses in her tax returns for the 2013 and 2014 years. She also claimed deductions for certain expenses in relation to 2 investment properties.

Following an audit, the Commissioner disallowed the deductions and imposed an administrative penalty of 50% of the tax shortfall for recklessness in preparing and lodging the tax returns.

This case hit the financial press because the taxpayer claimed the cost of expensive cloths because her required her to wear “formal clothes of high class” when meeting with Ministers and attending to Parliamentary duties. Her evidence was that she did not wear such clothes outside her work duties and would not otherwise wear them. The AAT, however, disallowed the claim on the basis that her clothing was not distinctive or unique to her employment in a way that took it out of being private in a way that marked it as incurred to earn her assessable employment income.The taxpayer’s claim for clothing and laundry expenses were also denied.

The AAT disallowed the Taxpayer’s claim for travel expenses. She did travel and was re-imbursed the cost. But she tried to claim the difference between the reimbursed amount and the Commissioner’s reasonable travel rates (which were higher). However, she had not incurred the difference and was denied the deduction. This is a trap. The reasonable rates are only for the purposes of relaxing the substantiation rules and not an invitation to claim amounts not incurred.

She claimed some french lessons, which she needed for her duties, which would have been deductible, except that she didn’t keep substantiation records.

(Re Watts and FCT [2017] AATA 2030, AAT, File Nos: 2016/0621 & 2016/0622, Nicoletti SM, 31 October 2017.)

[FJM; LTN 213, 7/11/17; Tax Month Nov 2017]

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