Three Golden Rules of ATO

What Are the Three Golden Rules of ATO?

It's time to explore the three golden rules set by the Australian Taxation Office (ATO) to make sure you're on the right side of your tax refund. Follow these rules to make sure that you claim only what you're entitled. Let’s break them down so you can get an easy understanding of them.

The Three Golden Rules

1. You Must Have Spent the Money Yourself and Not Been Reimbursed:

   • Any expense you claim as a tax deduction must be something you paid for out of your own pocket and not reimbursed by your employer.

2. The Expense Must Be Directly Related to Earning Your Income:

   • The expense must have a direct connection to your work or business activities. This means it should help you earn your income.

3. You Must Have a Record to Prove It:

   • You need to keep records, such as receipts or invoices, to prove the expense and substantiate your claim.

Traps to Avoid

1. Claiming Non-Work-Related Expenses:

   • Only claim expenses directly related to your work.
   • Example: John claimed his personal gym membership as a work-related expense. The ATO disallowed the claim because it was not directly related to his job.

2. Double Dipping:

   • Don’t claim an expense that has already been reimbursed by your employer.
   • Example: Sarah was reimbursed for her travel expenses by her employer but still claimed them on her tax return. The ATO disallowed the claim.

3. Insufficient Records:

   • Keep detailed records and receipts for all expenses you claim.
   • Example: Mike claimed a tax deduction for work-related tools but didn’t keep the receipts. The ATO disallowed his claim due to lack of evidence.

Examples of Non-Deductible Expenses

1. Personal Expenses:

   • Costs like personal clothing, groceries, and entertainment are not tax deductible.
   • Example: Emma tried to claim her daily lunch expenses as a tax deduction. The ATO disallowed it as it was a personal expense.

2. Home to Work Travel:

   • Commuting costs from home to work are generally not tax deductible.
   • Example: Tom claimed his daily train fare to work as a tax deduction. The ATO disallowed it as it was a personal commuting expense.

3. Initial Employment Costs:

   • Costs incurred to get a job, such as a resume preparation or job application fees, are not tax deductible.
   • Example: Jane claimed the cost of preparing her resume. The ATO disallowed it as it was an initial employment cost.

Gotax Piece of Tax Advice

Plan Ahead and Stay Organised: Understanding and adhering to the ATO’s three golden rules can save you from costly mistakes. Always ensure that your expenses are directly related to earning your income, keep thorough records, and never claim reimbursed expenses. Planning ahead and staying organised will help you maximise your tax benefits and avoid any pitfalls.

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