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Claiming Tax Deductions in Australia

When you earn money from employment, investments, government payments, pensions and foreign income, you (usually) have to pay taxes. The amount you need to pay will depend upon how much you have earned.

Fortunately, Australia’s taxation system lets the taxpayer reduce their taxable income by expenses they incurred during the generation of their income.

In this blog, you will get to know what tax deductions are and how they can benefit you.

What are tax deductions?

A tax deduction refers to expenses you personally covered that are eligible to be itemised on your tax return. These deductions play a crucial role in lowering your taxable income, ultimately increasing the potential for a larger tax refund.

what is tax deductible - tax deduction

Examples of tax deductions encompass work-related costs such as expenditures on uniforms, tools, and business-related travel. By strategically utilising these deductions, you can optimise your financial benefits in the tax season.

How do tax deductions work?

A tax deduction works by reducing the taxable income, ultimately lowering your tax liability.

To qualify for a deduction on work-related expenses, you need to be the one who spent the money, with no reimbursement received. The expense should directly contribute to your income generation, and it’s crucial to maintain evidence, such as a receipt.

What can be claimed on your tax return?

Depending upon your occupation, what you can claim will vary. However, on a general note, the following expenses are recognised by the Australian Taxation Office.

Direct work-related expenses

In assessing whether an expense qualifies as directly work-related, it must be incurred while carrying out job duties and not pertain to domestic or private matters.

To illustrate, covering the cost of laundering a mandatory work uniform is a direct expense, whereas purchasing swimwear for a day at the beach is not.

Outlined below are some of the general expense categories directly linked to employment responsibilities.

deductions you are able to claim (tax-deductible expenses)

Travel Expenses

Travel expenses encompass costs accrued during overnight stays while performing work duties. This includes expenses for accommodation, meals, and beverages. Additionally, any incidental expenses related to overnight travel are eligible for tax deduction.

Vehicle and car expenses

If your job involves using your car, you have the opportunity to claim expenses related to running your vehicle and the cost of fuel. However, it’s crucial to note that this applies when you’re travelling between different work locations, like conducting multiple site visits in a day.

Contrary to common belief, you cannot claim the expenses of commuting from your home to your workplace each day. This is considered private travel, even if you worked late and had no access to public transport.

There are two methods to calculate deductions for car expenses:

  • Cents per Kilometre Method
  • Logbook Method

The ATO has a work-related car expenses calculator that can be used for both methods.

Education and learning expenses

You can qualify for deductions on self-education expenses if the course directly aligns with your job. The educational program should result in a formal qualification that either maintains or enhances your existing skills and knowledge relevant to your profession, ultimately contributing to a potential increase in income.

Legitimate education and learning expenses encompass various items such as student union fees, amenities fees, textbooks, and professional journals.

In instances where an expense serves both self-education and another purpose, you can only claim the portion directly related to your current role.

Work-related clothing and dry cleaning expenses

While many employers enforce dress codes, merely adhering to a dress policy itself is not eligible for tax deductions. For clothing expenses to be tax-deductible, they must be occupation-specific.

This includes items like high visibility safety wear for individuals working in roadside construction, attire that provides protection from harm, such as sunglasses and sunscreen for outdoor workers, or clothing featuring a company logo, like a branded t-shirt.

However, generic items like shirts and dress pants are not considered specific enough to qualify for professional tax deductions.

Other work-related expenses

The ATO allows a variety of other work-related expenses that are tax deductible.

Working from home expenses

As remote and hybrid work become standard for many employees, it’s crucial to be well-versed in the evolving rules governing tax deductions. Recent changes have altered the landscape, especially during the pandemic, allowing workers to use a simplified method, claiming 80 cents for each hour worked from home without the need for detailed evidence. However, the rules have since been refined.

Now, employees have two choices: the revised fixed rate method, enabling a claim of 67 cents per hour for home work, or the actual cost method, where one can claim the precise expenses incurred while working from home. The latter method demands meticulous record-keeping, and the distinctions between the two are outlined in the ATO’s guide to home office deductions for 2023.

deductions you can claim

Claiming a tax deduction for remote work doesn’t necessitate spending the entire workweek at home or having a designated home office. Deductible expenses encompass heating, cooling, and lighting bills, as well as home office equipment such as printers, computers, phones, and laptops. Phone calls, internet usage, and depreciation in the value of office furniture, like desks or swivel chairs, are also eligible for deduction.

Additionally, deductions can be made for laptops, internet connections, mobile phones, and other devices integral to your work. If you have a separate home office, you can even claim rent for the portion of the house it occupies.

Stay informed about these regulations to maximise your tax benefits in the evolving landscape of remote and hybrid work arrangements.

Mobile phone and tech write-offs

Your phone bill might be more than just a monthly expense – it could also be a potential work-related tax deduction. If you use your phone at any point during your workday, you have the chance to claim a portion of your phone bill as a tax-deductible expense.

For example, if half of your phone usage is dedicated to work calls, you could potentially claim 50% of your bill as a tax deduction. It’s a simple way to make the most of your work-related expenses and ensure you’re not missing out on potential tax savings.

Moreover, when it comes to home office equipment, a deduction of up to $300 can be claimed, along with the depreciation in value for items that exceed this threshold. This allows you to offset the costs associated with essential work-related tools and equipment, providing additional financial benefits.

Tools of your trade

You can potentially claim your phone bill as a work-related expense if it was used during any part of your workday. For instance, if half of your overall phone usage is attributed to work calls, you have the opportunity to claim 50% of the bill as a tax-deductible expense.

Moreover, when it comes to home office equipment, a deduction of up to $300 can be claimed, along with the depreciation in value for items that exceed this threshold. This allows you to offset the costs associated with essential work-related tools and equipment, providing additional financial benefits.

Subscription and event fees

If the expense aligns with your industry, you have the opportunity to claim items such as union fees and memberships to professional associations. Additionally, payments made to a union as a bargaining agent’s fee for negotiations regarding a new enterprise agreement award with your current employer are also eligible for tax deductions.

This provides a valuable avenue for professionals to offset relevant costs associated with industry engagement and negotiations.

Non-work-related expenses that can be claimed

You might have the chance to claim some expenses that are not directly linked to your work. These may include:

Tax break on Investment Property

You can potentially claim tax deductions on various fees associated with loans, including loan establishment fees, account management fees, mortgage insurance fees, mortgage registration fees, mortgage broker fees, and stamp duty on the actual loan.

expenses you can claim: investment property tax deductions

Tax Advice fees

You can potentially qualify for a deduction on expenses incurred while handling your own tax affairs, such as the fees for using a registered agent to file your taxes. Deductible costs cover a range of activities related to filing your tax return and activity statements.

This includes expenses for acquiring tax reference materials and the essential software needed for tax return preparation. Making use of these deductions ensures that you can offset some of the costs associated with managing your tax affairs, making tax time a bit more financially favourable for you. The ATO provides a detailed list of deductible expenses on its website for reference.

Deduction on dividends and investments

You can claim deductions for expenses associated with earning interest, dividends, or other forms of investment income. This includes the ability to claim account-keeping fees specifically for investment purposes against interest income expenses.

Furthermore, deductions can be claimed for the interest charged on funds borrowed to acquire shares and dividends. If the borrowed funds were utilised for both private and income-generating purposes, it’s essential to determine the applicable percentage for each purpose and allocate the deduction accordingly.

Gifts and donations

Tax deductions for gifts or donations are dependent on the recipient organisation holding the status of a Deductible Gift Recipient (DGR). It’s crucial that the contribution is genuinely a gift, not a loan or a sale, and must be either money (exceeding $2 in value) or property.

Notably, the ATO does not recognise experiences, such as opera or sporting tickets, as tax-deductible gifts. DGRs may have varied conditions, so it’s advisable to consult the ATO’s website to confirm the eligibility of a specific donation and ensure it aligns with other requirements regarding deductible gifts.

Income Protection Insurance

Premiums paid for income protection insurance, when directly purchased from an insurance company, are eligible for tax deductions. However, premiums for policies acquired through a superannuation fund are typically not considered tax-deductible.

Tax break on Concessional Super Contributions

Superannuation contributions made by your employer directly into your super fund, such as compulsory super guarantee, salary-sacrificed super amounts, and reportable employer super contributions, are not eligible for tax deductions as they are part of your before-tax income.

In contrast, voluntary contributions that you make directly from your bank account to your super fund are tax-deductible. This serves as an encouragement for individuals to proactively increase their superannuation savings for retirement, providing an added incentive to contribute beyond mandatory employer contributions.

Tax Receipts

In Australia, the tax system operates on a self-assessment basis; however, it’s essential to understand that a lack of evidence is not permissible. Should the Australian Taxation Office (ATO) initiate an audit of your tax affairs, it is crucial to have supporting evidence for all your tax-deductible claims.

The consequences for making fraudulent claims include fines and, in severe cases, imprisonment. The ATO is well-equipped with various tools, increasing the likelihood of detection.

In its efforts to identify suspicious claims, the ATO utilises industry averages as a key tool. Individuals who claim significantly more than their professional peers may attract scrutiny and become subjects of investigation.

income tax deductions

Tips you can use to max your tax return

While there are severe penalties for falsifying information on your tax return, there are legitimate ways to maximise your return by taking advantage of overlooked breaks, perks, and claims.

Leverage Your Side Hustle: Many Australians work multiple jobs, and the good news is that you can claim various expenses related to your side hustle, even if it’s not your primary source of income. For instance, if you drive for Uber on weekends, you can deduct vehicle expenses.

Explore Your Occupation’s Expenses: Every industry has its own set of expenses, and you might be missing out on potential claims. The Australian Taxation Office (ATO) provides guides for each sector, outlining eligible expenses and record-keeping requirements.

Organise Your Receipts: Spend some extra time gathering and reviewing receipts. Remember, you can only claim what you can prove you’ve spent. Over a 12-month period, these deductions can significantly increase your return.

Find a Reliable Tax Agent: A knowledgeable tax agent, like Clear Tax Accountants, can save you a considerable amount of money each year. Ask for referrals to agents specialising in your field or working with clients similar to you. Whether you’re self-employed or in a specific profession, seek an agent familiar with your situation.

Honesty is Key: Always be honest with your tax agent and ensure you can justify your expenses. The ATO has announced a focus on work-related expenses, rental property deductions, and capital gains tax claims. Transparency is crucial!

tax deduction on your taxable income - reach out to registered tax agent

If you are looking for professional tax advice to ensure that you are making the most out of the Tax deductions you are eligible for, reach out to Clear Tax Accountants today. We are a team of professional and experienced tax accountants who can help you with your tax matters quite easily. Thanks to our years of experience in the accounting industry, we can navigate through each and every situation you might be facing, regardless of its complexity.

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