Compliance
Compliance Spotlight: Avoid These Work-Related Deduction Traps at Tax Time 2025
ATO’s 2025 compliance priorities are shining a light on work-related expenses, multiple income streams, and working-from-home deductions—don’t risk denial or penalties by overlooking key requirements.
By NomadicTax Research Team • 5-8 min read • February 18, 2026
## What the ATO Is Watching Closely
In May 2025, the ATO issued warnings about improper or **’wild’ tax deduction attempts**, especially around work-related expenses, multiple income sources, and working from home claims. Common misclaims include personal items, entertainment, or household expenses that lack a clear connection to income earning. ([ato.gov.au](https://www.ato.gov.au/media-centre/ato-unveils-wild-tax-deduction-attempts-and-priorities-for-2025?utm_source=openai))
Key error-prone areas:
- Claiming everyday personal devices or household items unless used strictly for work.
- Claiming travel from home to work (ordinary commute).
- Double claiming expenses between methods (fixed rate vs actual costs for work-from-home).
- Declaring income only from primary job while omitting side hustles or digital services.
## What You Need to Show for Valid Deductions
**1. Connection to income activity:** It must be directly involved in generating assessable income.
**2. Substantiation:** Keep invoices, receipts, logbooks. Document hours, use. Use tools such as **myDeductions** on the ATO app for real-time recording. ([ato.gov.au](https://www.ato.gov.au/media-centre/ato-unveils-wild-tax-deduction-attempts-and-priorities-for-2025?utm_source=openai))
**3. Method consistency:** If using fixed rate work-from-home, cannot separately claim electricity, internet, etc, that are already covered. It’s one or the other.
## Multiple Income Streams
If you have a side hustle or multiple sources—like gig work, freelancing, etc.—:
- **Declare every source of income**. Non-disclosure could trigger audits or penalties.
- Match deductions only to relevant income types (e.g., driving for ride-sharing vs consulting work have different allowable claims).
## Example Scenarios
**Scenario A: Retail Worker & Online Reseller**
Jane works in retail and sells craft online. She uses her home space for packaging and dispatch: she can claim a **percentage** of electricity, internet, and stationery using actual costs, but must avoid claiming for non work-related personal use. Inventory costs apply only to the reseller income.
**Scenario B: Remote Contractor Using Fixed Rate Method**
Ken works from home 30 hours per week. He opts for the fixed rate method. He claims 70 cents per hour for running costs. He **cannot also** claim separate bills for internet or power in other deduction lines.
## Practical Tips for a Smooth Compliance Experience
- Use the **myDeductions tool** in the ATO app for keeping receipts, logging work hours, photographing supporting documents.
- Maintain separate records for each income stream. Make supplementary notes: “percentage used for work”, “hours spent working evenings/weekends”, etc.
- Seek professional guidance if unsure—some deduction decisions can lead to disputes if they’re close calls.
## Summary
Tax time errors often come down to assuming ‘everything is deductible’. But as the ATO reminds us, **connection, documentation, and method** make or break valid claims. Falling short in any one of these areas can result in denied deductions—and even penalties. Stay precise, stay compliant.