With tax time on the horizon, there may not be a better time to hit the shops for a new handbag.
In recent weeks The Australian Tax Office has confirmed that handbags used for work are tax-deductible in certain situations, but as is the case for any item that may have mixed use, a logbook may be required to prove the bag wasn’t used only to carry lunch and makeup to the office.
Traditionally the Australian Tax Office has made it easier for men to claim a deduction for briefcases than it has for women to claim a deduction for handbags by holding the view that handbags are mainly a personal expense whereas a briefcase is mainly a business expense.
Assistant Tax Commissioner Graham Whyte has opened the door for a greater number of claims to be made on handbags through comments he made in recent interviews with news.com.au and Financy.
He said that a person “can claim a deduction for assets that are predominantly used for work purposes, such as bags and satchels used to carry work papers or electronic devices, to the extent that such items are used for work purposes.”
Further, he said that while handbags have the “hallmarks” of private expenditure … “it is the use of the item rather than its description that is relevant. For example, if a briefcase is primarily used to carry lunch and other personal items to work it is being used in a similar way to a handbag and no deduction for its cost would be available.”
Should someone wish to claim a deduction for a handbag or any item for that matter that has mixed business and personal use, it is essential to keep a record of the work component. This is often done by using a logbook for about 12 weeks. Such a record would be used in the case that the ATO decided to audit their tax return.
What type of handbags could be deductible?
What exactly constitutes work use? If the bag is used primarily to carry work-related items such as documents, ipads, laptops then it is difficult to argue that it is not being used for work-related purposes.
This development sounds like good news for handbag lovers and retail outlets alike, with a spokesperson from Myer telling news.com.au; “Speculatively speaking, we would expect to see an increase on larger totes, however, it would all be dependent on how the tax department defines a work bag as opposed to a general handbag,”
Does this mean that you can buy any handbag at any price and get an immediate deduction for it? Perhaps not.
The ATO will likely consider the cost and size of the bag as well as the person’s profession in deciding whether a claim is justified. Therefore bags that are larger, with plenty of compartments will be viewed more favourably than smaller clutch type handbags.
At this point, there has not yet been a “test case” involving the deductibility of a handbag. The general thinking has been that handbags are private in nature and therefore not deductible. If enough people make reasonable claims for handbags then the ATO may change its long-held view.
While the developments on handbags are good news, there is still no win in sight for the deductibility of makeup unless you are a flight attendant or working on the stage or screen.
For more information on how this may apply to you, I suggest you contact us to discuss your circumstances.