Depending on your employment, there is a range of tax deductions that could be available.
The basic rule is that if you’ve incurred an expense as part of your job, you can claim it. For instance, if you’re a taxi driver, you can claim fuel for your car, while if you’re a tradie, you can likely claim a deduction for an array of essential tools.
Such examples are relatively straightforward and obvious, but with tax being a grey area for many, it is inevitable that some of the claims encountered aren’t always of the typical variety.
With this in mind, I’ve been speaking to our network of skilled tax consultants who pointed out some of the more outlandish claims taxpayers have tried to make over the years.
And bearing in mind that we deal with over 750,000 Australians a year, it’s fair to say we’ve seen our fair share of strange claims.
Suits you, sir
A high profile television personality set get store by his personal appearance.
Each time he graced our screens, he bought a new suit (forbidding being seen wearing the same suit more than once). Once he’d worn each suit, he gave it away to a charity shop.
Not only did he want to claim a tax deduction for the cost of each new suit, he also wanted to claim a further tax deduction for the donation to charity.
Sadly for him, the ATO doesn’t allow deductions for the cost of conventional clothing, a category that includes business suits, even those purchased by TV stars.
As for the donations – well, in theory a donation to a charity is tax deductible, but what is the value of a second hand suit? Our dapper star couldn’t say because he didn’t have receipts from the charity, and without a receipt, there is no possible deduction.
A tradie left Australia for a European trip. On his return, he tried to claim back expenses from his sojourn as ‘researching his craft’. Sure, he’d taken a few nice photos and brushed up his French but his craftsman skills weren’t noticeably advanced so the deduction wasn’t allowable.
Up in smoke
We all know smoking is bad for you but those who indulge have been known to argue that it reduces their stress levels. On that basis, one taxpayer argued for a tax deduction for his habit as a form of ‘stress relief’. We sent that one up in smoke.
Slip, slap, slop
It’s well established that you can claim sunscreen if you work outdoors and clothes to protect you from the elements can also be deductible where you work in a harsh climate.
But we drew the line with the client who wanted to claim sunscreen and an umbrella because his office forced him to go to the park across the road to have a smoke, where he was occasionally exposed to either sun or rain….
A fashion model had undertaken various cosmetic procedures to maintain her appearance.
She argued that the work done was to maintain her career past the point that it would otherwise have faded out if she hadn’t had the work done. As such, she argued there was a clear link between the cosmetic surgery and deriving her income.
It’s an argument that seems superficially compelling but it’s not one the ATO would agree with. Medical procedures are rarely if ever tax deductible, no matter what the reason.
Taxpayers in the adult entertainment industry can claim all manner of interesting deductions.
Taxpayers in the US – but not here – have even claimed that breast enhancements could be tax deductible as a “tool of the trade” (not an argument that would find favour here, following the same logic as the cosmetic surgery for the model, above).
So, it’s a controversial claim even for adult peformers but the lady – with no known connection to the adult industry – who tried to claim that her enhancements were necessary for work was facing even more of an uphill battle. We didn’t allow the claim.
Breast enhancements might be a tax no-no but adult performers can look at making claims for items as diverse as dance lessons, hair care, oils, lingerie, costumes and “toys”.
Tears of a clown?
Another profession that can generate some very strange tax deductions is circus performer.
Few people can make a claim for a clown costume, but a professional clown did. The whole costume was allowable, including the red nose, as a work-related clothing claim.
The professional sword swallower was able to claim the ceremonial swords used in his act.
Can you claim a tax deduction for your dog? In very limited circumstances, yes you can, both for the cost of acquiring the animal (the cost is depreciated over several years) and for the costs of keeping it (food, vet bills, etc).
The two most common scenarios where the cost of a dog is tax deductible are farming (where an animal might be used to round up sheep, for instance) and security (where the cost of a guard dog to patrol business premises might be allowable).
Other than that, forget it. So, for the client who “occasionally” took his dog to guard his tools and equipment and tried to claim for the dog’s food, the claim was politely declined. How he guarded tools and equipment on the days he didn’t take his dog to work, we never found out.
Do you own a rental property? In amongst the usual deductions, mortgage interest rates and repairs, did you know that you can claim for items that improve your property’s ‘street appeal’?
Whether you think garden gnomes do that or not is really a matter of personal taste but several clients have successfully claimed them in respect of their rental property.
Here’s a tip – make sure the gnomes are actually for your rental property; if they turn up in the garden of your family home, they are not deductible!
What will you spend your refund on?
Whether your deductions are slightly left field, like the above, or straight down the line, you probably want some ideas on what to do with your refund when you get you get it.
Paying off your mortgage
The sensible choice, paying a relatively small sum off your mortgage if you are young can lead to big savings down the line due to the compounding effect of the interest you have saved.
It probably isn’t worth it though if your mortgage only has a short time left to run.
Paying off other debt
Definitely worth considering if you are carrying a large credit card debt or other personal loans. With many credit cards charging an interest rate upwards of 20%, it can be a no-brainer to use the tax refund to reset your personal finances by reducing or clearing debt.
Paying it into super
Thinking ahead to retirement is always a smart strategy and, if you don’t have substantial debt, paying your tax refund into super is certainly worth considering.
Like reducing your mortgage, the strategy works best if you have many working years left because of the compounding nature of investment returns.
Talk to your super adviser about the best way to do it.
Paying your tax refund into a savings account is the responsible thing to do, right?
Savings rates are so low that you will get virtually nothing back by way of a return, and what you do get will be taxed so only really consider this if you don’t have any debts to pay down, the mortgage is cleared and you know you have enough super to retire comfortably.
Paying household bills
For those who live every month wondering how they are going to pay the utilities, the tax refund can be a god-send. It’s a chance to get the car fixed, repair a broken washing machine or possibly just pay those winter fuel bills.
Blowing it on a holiday
For the hedonists amongst us, the tax refund can be chance to fly away to the sun or the snow.
Alternatively, you could blow it on a trip to the shops to buy a new computer, clothes or jewellery. This way may not be smart but at least you’ll get some happy memories out of it.
Mark Chapman is the Director of Tax Communications at H&R Block. He is a commercially minded tax adviser, commentator and writer offering plain English solutions to complex problems for your clients.