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Top Ten Commonly Overlooked Tax Deductions in Australia

No matter how much you wish to, you can’t ignore your tax obligations. Paying taxes isn’t the most exciting thing to do in the world, but what is worse is overpaying your taxes. Although you may argue that nobody pays extra taxes, you will be surprised to know that it happens to millions of Australians.

People don’t claim the tax deductions they are entitled to for many reasons. For some, the calculation seems quite difficult, and some end up forgetting about the expenses. However, if you wish to save up some money on your taxes, you must not forget to claim a deduction. You’d be surprised in the end to see how much you saved through deductions.

tax deduction

So here we have gathered some of Australia’s commonly overlooked tax deductions. But before moving on to these tax deductions, let’s see how these work.

How do tax deductions work?

Australia’s taxation system lets taxpayers reduce their taxable income by taking out the expenses incurred for generating the income. Tax deductions must be included in your tax return for the financial year. Keep in mind that the expenses must be incurred during that financial year. You can’t claim a deduction for the cost incurred in the previous financial year.

So simply put, a tax deduction decreases the amount of the income that is subject to taxes. As a result, the tax liability of the person also reduces. To claim a deduction, you must have spent the money yourself, and it should not be reimbursed. Along with this, the expense has to be directly related to the generation of your income.

Overlooked tax deductions you can claim

Now that you know how deductions work, now it’s time to move on to the tax deductions you can claim but are easily overlooked.

Home office expenses

You may already know that people who are working full-time from home can claim the costs incurred for income generation. But did you know that even if you work at home from time to time, you are still able to claim some deductions?

The people working from home get to claim a deduction on the cost of occupancy of their home office. Expenses made on items you need to use while working in your home office are claimable. Costs related to computer hardware and software, lighting, heating or cooling, and information and communications technology are examples of claimable expenses.

Home office expenses

The noteworthy point is that whether you work as a home-based employee for a company or are self-employed, these tax deductions are applicable.

The people who work from home from time to time can claim the cost of using their personal phone, computer and internet for work.

Self-education expenses

One of the tax deductions that come out as a surprise to a lot of people is the deduction for self-education expenses.

The courses you take that are directly related to your work or help you improve or maintain your job skills can be claimed. However, if you have taken a course that can help you get a better job, you will not be entitled to claim a deduction.

Self-eduction that doesn’t support you moving to a new job (even in the same industry) and, thus, is rejected if a claim is made. For example, a carer studying to become a nurse will not be able to claim a deduction. Some of the eligible self-education expenses that can be claimed are:

  • Textbooks
  • Online course
  • Journals related to your work
  • Student services fees
  • Stationery
  • Other eligible expenses incurred during your self-education journey.

There are a couple of expenses directly related to this, which are claimable but in certain circumstances. For instance, you might be able to claim tax deductions for the costs of accommodation and meals only if the course requires you to be away for one or more nights.

However, not everybody will be eligible for this, which is why you should reach out to a registered tax agent.

Union fees

Are you a part of a union or paying membership fees? If yes, then make sure to claim a deduction for the same. You are good to go as long as the membership body is related to your job. Who would have thought that being a part of a union could help you reduce your taxes?

If you are sure you are eligible to claim this deduction, include it under D5 on your tax return (the “Other Work-Related Expenses” category).

Donations

In case you felt charitable and made some donations be glad because you may be able to claim a deduction for the same in your tax return. However, it is not as simple as it may sound. There are some conditions that must be met.

First of all, the donations must be made to an organisation with the status of a Deductible gift recipient (DGR). Any donation made to organisations that are not deductible gift recipients (DGR) can’t be claimed as tax deductions on your tax return.

Other than this, it needs to be a genuine gift or donation and not a sale or a loan. In simpler terms, it should be a voluntary transfer of money or property with no expectation of receiving any material benefit or advantage. Material benefit can be something with a monetary value.

claiming a deduction for donation on your tax return

The gift can only be property or money. Financial assets like shares are also acceptable. The donation must comply with the relevant gift conditions, as for some deductible gift recipients, the income tax law adds conditions that affect the types of deductible gifts that can be received.

The donation has to be worth at least $2. If you are gifting a property, it must have been purchased at least a year ago before the donation was made. You would also need the receipts of the contribution or donation. Also, the eligible organisations should provide you with a signed letter as a confirmation that it was you who made the donation.

The Australian Taxation Office does not consider an experience to be a tax-deductible gift. Thus, gifts like opera or sporting tickets aren’t considered a gift and aren’t tax deductible. Similarly, mugs, chocolates, toys and other items with an advertised price are not eligible.

To learn more about donations and tax deductions, you can use the ATO’s website.

Mobile phone or internet expenses

When it comes to mobile phones and internet expenses, things can be quite confusing. People aren’t aware of the expenses that can or cannot be claimed. So here is a breakdown of those things to help you understand them better.

When the mobile phone is being used for work, you are eligible to claim a deduction. The activities can be calling or receiving calls from your clients or co-workers.

If you connect to your home internet, you shall be able to claim a portion of the expenses. However, it should only be for activities related to work.

Work-related mobile and internet expenses

In simpler terms, when your phone or computer is being used for work-related activities, you get to claim the cost of usage. You will have to work out how much of the expense is dedicated to your occupation.

If your claim is more than $50, you will have to provide records. Records accepted by the ATO are diary entries, electronic documents and bills.

Work-related clothing

Before you start ordering clothes from your favourite store to claim a deduction, stop right now. You can only claim the cost of work-related clothing, which should fall under one of the following categories:

Compulsory uniform

If your workplace agreement explicitly requires you to wear the uniform, you can claim a deduction for the cost of that uniform.

Protective clothing

You can claim a deduction for the expenses you incurred for clothing or footwear you have to wear at work to prevent yourself from injury or illness. Along with this, the clothing must have functions or features to distinguish it from regular clothing.

Occupation-specific clothing

You can also claim a tax deduction for occupation-specific clothing, i.e., clothing associated with a specific profession or occupation.

Rental property expenses

As a rental property owner, you may already know that claiming a deduction for the interest element of the mortgage. However, you can claim a couple more tax deductions on the rental property, which are often forgotten or remain unknown.

tax deductions on rental property expenses

If you have paid any of the following costs this year, do not forget to claim a deduction:

  • Pest control
  • Repairs
  • Land tax
  • Bookkeeping or secretarial fees
  • End-of-lease cleaning costs
  • Hiring a debt collector to collect rent dues
  • Servicing times such as smoke alarms, hot water heaters, garage door mechanisms and air-conditioning systems

There are other costs that you are able to claim, depending on your circumstances. You can ask a registered tax agent to help you with these.

Tax Affairs

A lot of people prepare and lodge their tax returns on their own, as it seems like a way to save some money. However, you would be surprised to know that you could benefit more if you choose to hire a registered tax agent. Why? Because you can claim a deduction for the same.

You can add last year’s tax agent fees to this year’s tax return in the “D-10 Cost of managing tax affairs” section. More than one-third of taxpayers in Australia reach out to tax agents for tax advice, but less than half of these people are aware of these tax deductions.

Here are the tax deductions you can claim when it comes to your tax affairs:

  • buying tax reference material
  • attending preparation courses that are related to your tax return
  • purchasing software for the completion of your tax return
  • travel expenses you incurred for visiting a tax agent for advice or some other matters

Car expenses

The cost of work-related vehicle usage is also claimable. The ATO defines claimable car expenses as the kilometres an individual travels while earning income. As a result, the cost of driving to and from your workplace isn’t claimable. Other travels related to your work, on the other hand, are claimable.

car expenses and tax deductions

In order to claim tax deductions, you will need to keep the appropriate records and receipts to back up your claim.

Income protection insurance

Other than these, the individuals who pay for income protection insurance may claim a tax deduction for these amounts since these are tax deductible. But the same cannot be said for life insurance, trauma insurance or critical care insurance.

Keeping the receipts – is it necessary?

Along with this, you will be required to provide records to prove the expense, for instance, a receipt. The Australian taxation office (ATO) has a free app that allows tax-deductible expenses to be lodged easily by uploading a picture of the receipt.

Disclaimer: The information on this website is for general purposes only and should not be relied upon for making legal or other decisions. The advice provided in this article is general in nature and is not subject to the personal financial situation and needs of any individual. Clear Tax tries to keep the information accurate and up-to-date; however, you should bear in mind with changing circumstances, the accuracy and reliability of the information will not necessarily remain the same. The information is by no means a substitute for financial advice.