In a recent decision, the AAT rejected in full a taxpayer’s claims for “several classes or categories of deductions.”
Facts
For the relevant period of 1 July 2021 to 30 June 2022, the taxpayer was (according to his employer) a ‘technical architect’. However, the taxpayer also claimed that he worked from home 6am to 11pm seven days a week, 365 days of the year, as he was ‘always on call’.
The taxpayer’s income tax return for the financial year ended 30 June 2022 claimed a range of deductions totaling approximately $40,000. There were several classes or categories of deductions claimed, comprising occupancy expenses, running expenses, plant and equipment expenses, consumable expenses, mobile phone expenses and spouse expenses.
In September 2022, the ATO commenced an audit of the taxpayer’s income tax return for the financial year ending 30 June 2022, as the ATO considered that deductions claimed by the taxpayer in that return were greater than those claimed by taxpayers of comparable employment.
Following completion of the audit, the ATO disallowed certain claims for deductions made by the taxpayer. The taxpayer objected to the ATO’s findings. The ATO allowed the taxpayer’s objection (but only in part), and the taxpayer then appealed to the AAT.
Decision
The AAT considered each category of deductions claimed by the taxpayer separately, and rejected each of them in turn.
In relation to Home office occupancy expenses, the taxpayer claimed that the ‘home office’ rooms comprised floorspace occupying 31% of the dwelling’s total floor area. The claims were for a proportion of various expenses, including home insurance, council rates, 50% of waste disposal, 25% of water rates, and 100% of repairs.
The AAT held that these claims did not satisfy S.8-1(1) of the ITAA 1997. More particularly, the AAT did not consider that “the claim for Occupancy Expenses were incidental or relevant to the earning of assessable income. The rooms concerned and the floor space they occupy were rooms in the (taxpayer’s) split-level residential dwelling on the lower floor. They were not physically separate from the remainder of the dwelling in any way and did not bear any distinctive physical characteristics. Such rooms were readily capable of other use for family purposes.”
The Home office running expenses (including gas, power and internet) were disallowed by the AAT “on the grounds that either the (taxpayer) has not properly established an entitlement to such deductions or otherwise appropriately apportioned them between private or work-related activities.” The AAT found his 100% claim for the internet, on the basis that the other members of the household did not use the internet connection, “very difficult to accept“. The AAT also noted that the taxpayer’s workspace was on the ground floor of a split-level residential dwelling which he shared with four other members of his family.
In relation to the Plant and Equipment expenses (which the ATO had previously allowed in part), the AAT noted that “the evidence in support . . . is largely non-existent . . . What documentary material there was related to relatively small amounts of expenditure save for a mobile phone . . . and screen cover.”
In relation to Consumable expenses (for which the taxpayer had previously provided ‘a significant bundle of receipts’ to the ATO), the AAT noted that “what emerges from an examination of such receipts is that on their face they are for goods or services of a private or domestic nature. For instance, there was a music book, toilet paper, medications, private personal health insurance, milk, tea, coffee, bottled mineral water, sugar and insect spray.”
The AAT also rejected the taxpayer’s claim for Motor vehicle expenses (with a business use percentage of 97.5%), noting that “Overall, when one considers the evidence . . . with respect to this category or class of expenditure . . . they are outgoings of a private or domestic nature.”
The claims for Mobile phone expenses were disallowed because the taxpayer refused to furnish evidence of data usage and call usage on the grounds that it was a breach of privacy, and also because he was reimbursed for these expenses by his employer.
The taxpayer had also claimed Spouse expenses, being for “payments made to his spouse for tax management, office cleaning and document management/storage”, in relation to which the spouse had rendered invoices to the taxpayer. However, the AAT also rejected this claim, noting that the services provided were generally of a private or domestic nature, and that the rendering of invoices by the spouse “has a degree of artificiality to it.”
Ref: Shugai v FCT [2024] AATA 3619
