The unprecedented nature of the Covid-19 pandemic created more tax questions for many Australians. Numerous sources of information can be difficult to grasp or, in some cases, contradictory.
Information from a reliable tax expert is vital if you want to stay on the good side of the Australian Tax Office (ATO) while lodging a return that is fair and accurate.
A topic that concerns many Australians is which of the various expenses incurred during the Covid-19 pandemic can be deducted from income tax. This guide looks at which expenses are deductible and which circumstances lead to tax-deductible costs.
1. Are Food and Lodging Private Expenses?
Under normal circumstances, you would not be able to deduct expenses for work travel like hotel costs and the cost of food. However, the pandemic and quarantine restrictions threw many Australian workers and businesses into uncharted territory.
As a result, you can deduct these expenses if your travel is for work.
For example, Randy travelled to Sydney to help open a new branch office of his company. Randy had to spend two weeks in quarantine when he returned to Hobart. Because Randy was in Sydney for work, his quarantine expenses such as hotel accommodations, meals, and incidentals are deductible.
2. Can I Deduct Food and Lodging if I Quarantined After a Personal Trip but Still Worked from My Laptop?
Expenses related to quarantine after travelling for a personal trip are not deductible. This is true even if you are working whilst quarantining.
For example, Nick was out of town for his brother’s wedding in Melbourne. When he returned home, Nick had to spend two weeks in a hotel as part of the pandemic restrictions.
Even though Nick worked on his laptop every day during those two weeks, he could not deduct his quarantine expenses. This is because he travelled for personal reasons (his brother’s wedding) and not for work purposes.
3. Can I Deduct the Cost of a Covid Test I Must Take When I Travel for Work?
According to the ATO, if the area you are travelling to requires a negative Covid test before entry, you can deduct the amount you paid to get your test kit. This is because the test is an incidental expense. Although the test is minor, you must perform work-related duties.
For example, Hope purchased two Covid test kits before leaving on a business trip to Seoul. She would have to present a negative test to enter Korea and show a negative test to reenter Australia. Because the trip was for her job and she could not fulfil her responsibilities without a test showing she was Covid negative, Hope can deduct the cost of the Covid test kits.
4. Can I Deduct Travel Expenses If My Employer Reimbursed Me?
The ATO is clear about this topic. If your employer reimburses you for any Covid- related expenses that you incurred whilst you are travelling. The cost of incidentals, food, or accommodations is no longer seen as an out-of-pocket expense.
For example, Sam bought two Covid test kits before a business trip. He casually mentioned this to his boss, and later Sam received reimbursement for the tests. Technically, Sam no longer paid for the tests and cannot claim the purchase on his taxes. Trying to deduct the amount would be considered fraud.
5. Do I Need to Keep a Record of My Expenses While I Am Quarantined for Work-Related Reasons?
The ATO always suggests that taxpayers maintain precise records of any expenses they plan to use as a tax deduction. This includes your transport and travel expenses. The ATO said they are scrutinizing deductions this year, so you can do yourself a favour by keeping your Covid related work expenses.
For example, Benny tends to be careless with his record-keeping. He often misplaces receipts and guesses at the amounts he claims on his yearly taxes. This could eventually cost Benny because the ATO can look at Benny’s taxes for an audit as far as two to four years ago.
Preparing your taxes can be stressful. However, Covid, quarantining, and related expenses add a new challenge to lodging your taxes. If you are struggling with how Covid related costs impact your personal or business deductions, feel free to reach out to Tax Return.com. Our experienced staff can work with you to make sure your taxes are completed correctly and that you will get every deduction that you deserve.