Car, clothing and other work-related deductions largely disallowed

Marsh and FCT [2026] ARTA 1129

More than half of a taxpayer's deductions for car and other work-related expenses have been disallowed by the ART: Marsh and FCT [2026] ARTA 1129 (ART, Bruce GM, 22 June 2026).

Background

The taxpayer was employed as a real estate agent and derived employment income of approximately $300,000 in the 2022-23 income year. She claimed total deductions of approximately $144,000 across multiple categories, most of which were disallowed during an audit. The ATO's position was largely unchanged at the objection stage. The categories of deductions claimed by the taxpayer were:

• car expenses - the taxpayer claimed approximately $18,750 using the logbook method under Div 28 of the ITAA 1997. The ATO allowed only $3,900 under the cents per kilometre method;

• clothing and footwear - the taxpayer's claim was revised to just under $3,940 for apparel said to have been purchased from ordinary retailers and subsequently embroidered with her employer's logo. The ATO allowed the taxpayer laundering expenses of $144 (she had claimed $150);

• wages purportedly paid to various parties for delivery of flyers and ad hoc administrative work - the ATO allowed the taxpayer a deduction of $17,532, leaving just over $5,120 in dispute;

• home furnishings, décor, linen, and household appliances said to have been purchased for the purpose of presenting properties for market - the taxpayer claimed $21,628 but the ATO disallowed the whole amount;

• advertising - the taxpayer claimed $12,276, of which the ATO eventually allowed just over $7,420;

• promotions (eg flowers, alcohol and gift cards) - the taxpayer originally claimed just over $44,300, but revised the amount down to $34,975. The ATO allowed just under $3,450;

• travel - the taxpayer originally claimed $8,168 of which the ATO eventually allowed $2,760 for travel to 2 conferences. Before the ART, the taxpayer only claimed deductions totalling $2,023.15 for 3 trips to Queensland to meet a property developer client and to appraise a property;

• office furnishing and consumables - the taxpayer claimed $2,685, but the ATO only allowed $299 for stationery, envelopes and other office consumables that were substantiated;

• tools - the taxpayer claimed just over $350, of which $329 was for a cordless mower;

• running expenses (electricity, phone and internet) - the taxpayer's claimed just under $3,900 but the ATO allowed only $50 for phone and internet use. Before the ART, the taxpayer claimed just over $1,050 for electricity (representing a 31% apportionment for private or domestic expenditure), $544 for internet (representing a 25% apportionment for private or domestic expenditure) and $991 for phone expenses (representing a 20% apportionment for private or domestic expenditure); and

• occupancy expenses - the taxpayer, who worked primarily from home, claimed a deduction in relation to a home office. Her employer provided a hot desk work area at its office. The area dedicated as a home office within the taxpayer's residence was a room that was only accessible through the private living quarters of the home and was not open to members of the public.

The other issue for the ART was whether administrative penalties imposed by the ATO under s 284-75(1) of Sch 1 to the TAA at a base rate of 50% for recklessness (plus a 20% uplift due to a prior audit) should be set aside or remitted. Before the ART, the ATO agreed to remit the 20% uplift.

Decision

The ART concluded that the taxpayer had failed to substantiate many claimed deductions and that several expenses were private or domestic in nature.

Car expenses

The ART concluded that the taxpayer could not rely on the logbook method because her records were deficient and non-contemporaneous, particularly the odometer readings which were estimated after the relevant period and inconsistent with other evidence. As a result, she failed to meet the substantiation requirements in ss 28-100 and 900-70 of the ITAA 1997.

Clothing expenses

The ART rejected the taxpayer's claims for clothing, footwear and grooming costs as private or domestic in nature. Items purchased from ordinary retailers did not become deductible merely because they were worn for work or allegedly later branded. In any event, the ART was not satisfied that the taxpayer's clothing had been permanently embroidered with employer logos. In addition, even if worn for work, the expenses retained a private character.

Occupancy and running expenses

The ART allowed the taxpayer's claim for running expenses as there was evidence of extensive home-based work and the apportionment between private and work use was reasonable, though high.

The occupancy expenses were denied, however, as they were private or domestic in nature, consistent with established authority, including the recent decision in FCT v Hall [2026] FCAFC 43 (see 2026 WTB 15 [254]). The existence of an alternative workplace and the character of the home space meant the expenses did not lose their private nature.

Other work-related expenses

• Associate wages: the amount in dispute was disallowed under s 900-15 of the ITAA 1997 as it unsubstantiated.

• Tools and equipment: the ART allowed a deduction for the cost of minor tools, some of which were claimed under property preparation, and depreciation was allowed for the mower under Div 40 of the ITAA 1997. The total amount allowed was approximately $1,500.

• Property preparation: claims of approximately $22,000 for home furnishings, etc, were disallowed. The ART was not satisfied the items were used in income-producing activities rather than private use, particularly given the timing and delivery to the taxpayer's home.

• Advertising: additional amounts were allowed where evidence showed the taxpayer had incurred the expenses. The ART accepted that amounts deducted from commission payments were likely paid from post-tax income, making them deductible.

• Travel: the claims for travel to Queensland were disallowed because no reasonable apportionment between private and work-related components could be established.

• Promotions: the ART allowed expenses consistent with typical client gifts or business promotion, but disallowed others lacking substantiation or appearing to be private in nature. Of approximately $44,000 claimed, only about $7,900 was allowed.

Penalties

The ART determined that the base penalty of 50% for recklessness was appropriate. While the taxpayer did not intentionally misstate her position, her conduct fell significantly short of reasonable care, particularly given a prior audit where similar claims were disallowed.