As the 2025 tax season approaches, the Australian Taxation Office (ATO) is sharpening its focus on individual taxpayers, particularly when it comes to deductions. With advanced data analytics and real-time reporting now central to the ATO’s compliance toolkit, the days of unchecked or poorly substantiated claims are numbered. Here’s a closer look at the red flags that could put your tax return under the microscope.
Work-related expenses (WRE) remain a top concern for the ATO. The biggest red flag here is the misuse of the $300 threshold. Some taxpayers claim this amount as a “standard deduction” without actually incurring the expenses. While receipts aren’t required for claims up to $300, you must still be able to show how the claim was calculated and that you genuinely incurred the expenses. The ATO is watching closely for those who treat this as an automatic entitlement.
The WFH landscape has changed. From 1 July 2024, the fixed-rate method increased to 70 cents per hour, covering electricity, gas, internet, phone, stationery, and computer consumables. The catch? You need detailed records of actual hours worked from home which can be in the form of timesheets, diaries, or employer rosters, not just rough estimates. The ATO is also on the lookout for “double dipping,” where taxpayers claim the fixed rate and then separately claim phone or internet costs. Occupancy expenses like rent or mortgage interest are only deductible if your home is your principal place of business, not just a remote work location. Incorrectly claiming these can even affect your Capital Gains Tax position when you sell your home.
The following table provides a comparison of the WFH expense claim methods for 2025:
| Method | What it Covers | Record-Keeping Requirements | Key ATO Scrutiny Points / Red Flags |
| Fixed Rate (70c/hr) | Energy (electricity/gas), internet, phone, stationery, computer consumables | Detailed log of ALL actual hours worked from home (e.g., timesheets, diary, roster); no estimates | Using estimates instead of actual hours; “double dipping” by claiming phone/internet separately |
| Actual Costs Method | Actual work-related portion of all running expenses (energy, phone, internet, stationery, depreciation of equipment etc.) | Detailed receipts/invoices for all expenses; calculations for apportioning private vs. work use; diary of WFH hours | Poor apportionment methodology; claiming 100% of shared household expenses; insufficient records for individual expenses |
| Occupancy Costs (Businesses Only) | Rent, mortgage interest, council rates, house insurance premiums | Home must be principal place of business; detailed records of expenses; apportionment based on dedicated business area | Employees incorrectly claiming these expenses; potential CGT implications on sale of home not considered |
For motor vehicle claims, the cents per kilometre method (88 cents per km for 2024-25) is often misused, with taxpayers claiming the maximum 5,000 km even if they haven’t travelled that far for work. If you use the logbook method, you must keep a valid logbook for 12 continuous weeks and maintain detailed records of all car expenses (including fuel, oil, maintenance, repairs, insurance, registration, and decline in value). The ATO is quick to challenge claims that lack proper records or appear inflated.
Not all work clothing is deductible. Only protective clothing, occupation-specific garments, or compulsory uniforms (often with a logo and strict employer policy) qualify. Laundry claims are capped at $1 per load for only work clothes, or 50 cents per load if mixed with private items. Claims above $300 require written evidence, but for laundry, receipts aren’t needed if the claim is $150 or less, though you must still document your calculation.
Self-education expenses must have a clear connection to your current employment. Courses that are only generally related to your role, or aimed at getting a new job or promotion, won’t pass the ATO’s nexus test. You need meticulous records for course fees, textbooks, stationery, and travel. Claims for self-education when you’re not employed are likely to be denied.
Across all deduction categories, the ATO is tightening its substantiation requirements. The message is clear: keep comprehensive, verifiable records. With enhanced data analytics, the ATO can easily spot patterns and outliers, and the burden of proof is firmly on the taxpayer. Claims without robust evidence are increasingly likely to be challenged.
The ATO’s message is clear: if you’re claiming a deduction, make sure you can back it up. With more sophisticated tools at their disposal and a focus on voluntary compliance, the ATO is better equipped than ever to spot errors and inconsistencies. For individual taxpayers, this means keeping thorough records and understanding the rules, especially as they become stricter and more complex. If you have any questions, please feel free to reach out and have a chat with us.
