ATO warns Australians against claiming private expenses like baby items on tax returns

The Australian Taxation Office (ATO) is issuing a stern warning to taxpayers to cease claiming private expenses on their tax returns, as many attempt to deduct personal items like baby expenses, gifts, and meal deliveries as work-related costs. With over 10 million Australians having claimed approximately $31 billion in work-related expenses for the 2024-25 tax year, the ATO is employing advanced data matching, analytics, and artificial intelligence to scrutinize taxpayer behavior and identify irregularities.

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We have seen a claim for $17,000 of baby expenses, for tiny winter clothes, or medical expenses, all very important but not something that goes into your tax return.

ATO assistant commissioner Anita Challen highlighted some of the more egregious claims, including a $17,000 deduction for baby expenses, such as clothing and medical costs, and a taxpayer attempting to claim a $20,000 gift to a family member. Even seemingly minor claims, like meal deliveries for virtual team morning teas or novelty T-shirts for Christmas parties, are being flagged as private expenses that do not qualify for tax deductions.

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We've also seen a taxpayer look to claim $20,000 that they gifted to a family member as a tax deduction, definitely a no-go zone in terms of putting that in your tax return.

Challen noted that common errors persist annually, such as incorrectly claiming work-related expenses, miscalculating working-from-home deductions, and under-declaring income. She emphasized that income isn't always monetary; it can include gifts and benefits in kind, all of which must be accurately reported. Taxpayers claiming work-from-home expenses must ensure they incurred additional costs specifically for work purposes, apportioning bills like internet, phone, and electricity to exclude private usage, such as family streaming or children's online activities.

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We've also seen [claims for] the Christmas shirt and novelty T-shirts and things like that for the Christmas party. They are all private expenses and not to be put in your tax return.

The ATO reminds individuals that two methods exist for claiming work-from-home deductions: the simpler 'fixed cost' method or the 'actual cost' method. Both require careful attention to detail to ensure compliance and avoid rejection of claims.

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Make sure that you incurred additional expenses as a result of working from home.