ATO Warns Taxpayers: Beware of AI and Social Media Tax Advice

"Intentionally overclaiming deductions can lead to penalties."
— ATO Assistant Commissioner Anita Challen

The Australian Taxation Office has issued urgent warnings ahead of the end of the financial year, cautioning taxpayers against misleading online advice — particularly from artificial intelligence tools and social media influencers.

Key Warnings from the ATO

ATO Assistant Commissioner Anita Challen stated that taxpayers should be wary of tax advice that appears inaccurate or misleading. AI-generated advice is a growing risk, as it may be based on outdated information or tax systems not applicable to Australia.

Taxpayers are ultimately responsible for the accuracy of information in their tax returns, regardless of where the advice came from. Overclaiming deductions intentionally can result in penalties.

Work-Related Expenses Under Scrutiny

For the 2024-25 year, over 10 million Australians claimed approximately $31 billion in work-related expenses, with the average claim reported at $3,100. The ATO is using data matching, analytics, and artificial intelligence to identify irregularities.

Work from Home Deductions

Two methods are available:

• Fixed rate method: Claims 70 cents per hour worked, covering electricity, gas, phone, internet, and stationery. Requires records of hours worked and at least one bill for each expense type.
• Actual cost method: Claims the work-related portion of all expenses, including depreciation and cleaning. Requires detailed records of hours, receipts, and calculation methodology.

Private use must be excluded. Streaming or children's internet usage cannot be claimed.

Other Common Deductions

• Car expenses: $11.9 billion claimed by 3.9 million individuals. Ordinary travel from home to work is not deductible.
• Travel, clothing, self-education: $7 billion claimed. Ordinary clothing is not deductible — a direct connection to income must be demonstrated.
• Rental properties: 2 million investors claimed an average net rental loss of $1,290. Common mistakes include claiming private loans as investment loans and confusing repairs with improvements.

Unusual claims identified by the ATO include:

• $17,000 in baby expenses
• $20,000 gifted to a family member
• Personal items like Christmas shirts or novelty T-shirts

Rental Property Deductions

The ATO will closely examine rental income and deductions, including short-stay and informal arrangements. New guidance from accounting firm BDO warns that property owners may not claim holding costs (such as interest, council rates, and insurance) if the property is deemed primarily for private or holiday use rather than generating rental income.

Expenses must be apportioned based on genuine income-producing use versus private use.

Valid Deductions

The ATO allows various occupation-specific deductions, including:

• Sunscreen, hats, and sunglasses for outdoor workers
• Specific footwear for flight attendants
• Guard dog expenses for security workers
• Professional-grade scissors for hairdressers
• Work bags for some employees

Understanding Tax Deductions and EOFY Sales

Tax deductions do not result in dollar-for-dollar refunds.

Elizabeth Morton, a senior lecturer at Curtin University and chartered accountant, explained that if a taxpayer spends $1,000 and is taxed at 30%, the tax saving is $300, not $1,000.

Tax Rates for Australian Residents (2025-26 Financial Year)

Note: Medicare levy of 2% is not included in the above rates.

Private usage reduces the deductible amount. If an item costing $1,000 is used 20% for work, only $200 is deductible, leading to a $60 tax saving at the 30% tax rate. Not all work-related purchases are deductible, and depreciation rules apply to capital items like laptops. Employees generally cannot claim the full cost upfront like small businesses.

Cryptocurrency

Hundreds of thousands of Australians buy and sell cryptocurrencies. They must declare capital gains or losses and keep records of the time, date, and amount of each transaction.

Superannuation

The ATO reminded workers to update their superannuation details, as changes including "payday super" take effect from July 1.

Compliance and Data Matching

The ATO uses data from banks, government agencies, online platforms, and crypto exchanges to pre-fill returns and identify fraud. In 2023-24, over 555,000 returns were adjusted before assessment. AI provides real-time alerts, with human oversight for adverse outcomes.

Timing for Lodging Returns

Tax returns for 2025-26 can be filed from July 1. The ATO recommends waiting until late July for pre-filled data to appear. Anita Challen noted that by late July, most pre-fill information is available.

Substantiation

Taxpayers must substantiate claims with receipts. If total work-related expenses exceed $300, written evidence is required.

This information is for educational purposes only and does not constitute tax advice. Taxpayers should consult a registered tax agent or qualified professional.