With the 2025 tax season fast approaching, the Australian Taxation Office (ATO) is reminding taxpayers to exercise caution when claiming work-related expenses. Recent ATO reviews have identified a number of questionable claims that failed to meet the necessary criteria for deductibility, often lacking a direct connection to income-earning activities or proper substantiation. A few notable examples of denied claims include:

• A mechanic attempting to claim household appliances such as an air fryer, microwave, two vacuum cleaners, a television, a gaming console, and gaming accessories as work-related expenses.

   

• A truck driver seeking to deduct swimwear purchased during transit, citing hot weather conditions.

   

• A fashion industry manager attempting to claim over $10,000 worth of luxury branded clothing and accessories allegedly used for work-related events.

These claims were considered personal in nature, failing the “pub test” — a common colloquialism meaning the expense was not reasonably connected to earning income. The ATO advises taxpayers to be prudent: if unsure whether an expense is deductible, it is better to leave it out or seek professional advice. Claiming non-deductible expenses risks triggering audits, penalties, or unexpected tax liabilities.

2025 Priorities for the ATO

The ATO has identified several key areas where errors and non-compliance are frequently observed. They are focusing on:

Work-Related Expenses: Claims must be substantiated with evidence such as receipts and invoices and demonstrate a clear nexus to income-earning activities. 

Even if an expense relates partially to work, if it is primarily private in nature, it will typically be disallowed. Common examples include commuting costs, clothing, and personal devices unless specifically required and substantiated as work-related.

Working From Home Deductions: With hybrid and remote work increasingly common, the ATO is scrutinising claims for home office expenses. Taxpayers must prove that additional expenses were incurred due to working from home and can choose between two methods to calculate their deductions:

• Fixed Rate Method: Allows a deduction of 70 cents per hour worked from home to cover electricity, heating, cooling, and depreciation of office equipment.
• Actual Cost Method: Requires detailed records of all costs related to running a home office, apportioned based on work-related use.

Taxpayers must select the method that yields the higher deduction and retain adequate records to support claims.

If you have any questions related to tax deductions, please contact the Bates Cosgrave team at any time.