It’s soon time to lodge your tax return, so you should start thinking about any work-related and income-generating expenses you paid over the financial year.
You may be able to claim some expenses as tax deductions to reduce your taxable income.
In general, to identify expenses that may be acceptable as tax deductions, you should consider:
If the expense was for both work and personal use (e.g. home internet), you need to determine the portion of the expense related to your work or income-generating activity.
When submitting a tax return, you are entitled to claim deductions for expenses incurred while working – known as work-related deductions. To be able to claim work-related deductions, you must meet the following criteria:
If the expense you are claiming is for both work and private purposes, you can only claim the work portion of the cost.
The most important thing to remember when it comes to work-related vehicle and travel expenses is that you must keep records. This will make life a lot easier for you come tax time.
If you use your car for work, you are entitled to claim the work-related travel expenses that relate to the business costs of using your car to do your job. There are several methods you can use to claim the car expenses. Read more about these methods. You must own the car to claim under any of these methods, and the record-keeping requirement is detailed for each method.
Travelling to and from work daily cannot be claimed as this is considered as private travel.
You cannot claim the cost of normal trips between home and work because that travel is private even if:
Whatever the case, you have to conform to your employers dress policy so there might be an expectation that you’ll be treated the same way by the taxman when it comes to claiming tax deductions for your work clothing.
Clothing can only be claimed if it is specific to your occupation—for example, a chef’s pants. You cannot claim the cost of purchasing or laundry for clothes that are not specific to your occupation. These include black pants and white collar shirts.
You can, however, claim clothing and footwear you wear to protect yourself from injury or illness. For example, sun protection can be claimed if you work outdoors.
Uniform specific clothing can be claimed if it has your company’s logo attached or if it sits inside your employer’s uniform policy.
If you carry out all or part of your employment activities from home, then some portion of the home office expenses can be claimed as a tax deduction. Ideally, you should have a room set aside as a home office. Whilst you do not need to have a room set aside for your home office claim, if you are using a room with a dual purpose (e.g. dining room), or a room shared with others (e.g. lounge room) you can only claim the expenses for hours you had exclusive use of the area.
As with anything tax-related, keeping records for your home office is critical. If you work from home, you may be entitled to expenses such as computers, phone or any other electronic devices you need for work. You can also deduct running costs for any electricals.
As a general rule, you can claim home office equipment such as computers up to $300 or a decline in value for items costing $300 or more. You can also claim your phone bill if it is used in part for work-related expenses.
If you use your own phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer.
To work out your deduction, you need to choose a typical four-week period from some point in the tax year.
If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over those 4 weeks. You can then apply that to the full year.
You need to calculate the percentage using a reasonable basis.
As a part of your profession, you may be a member of an association – the good news is, you can claim your subscriptions. If you’re part of a trade union, your fees are also deductible.
Magazines can make a dent in your return, as can subscriptions to mags associated with your line of work. If you’re an investor, financial publications and research services are claimable. Think ahead and prepay next year’s fees before June 30 and claim your deduction now.
Gifts or donations can only be claimed if the organisation you donated to has the status of deductible gift recipients (DGRs). There are four key criteria to claim a tax deduction for a gift:
The amount that can be claimed depends on the type of gift. For the money, it must be $2 or more. For property, the rules vary depending on the type and value.
For gifts of money, you can claim a deduction where the amount of the gift is $2 or more. For gifts of property, there are different rules, depending on the type of property and its value.
You can claim the deduction in the tax return for the income year in which the gift is made. Your receipt – which you will need to substantiate the deduction – should tell you whether or not you can claim a deduction.
If you used the internet or phone to make a donation over $2, your web receipt or credit card statement could be used to substantiate the deduction. If you donated through third parties, such as banks and retail outlets, the receipt they gave you is also sufficient. If you contributed through ‘workplace-giving’ your payment summary shows the amount you donated. Read more about claiming gifts and donations.
Deductions can be claimed for expenses incurred earning interest, dividends or other types of investment income. For interest income expenses, you can claim account keeping fees for investment purposes. Something to be mindful of though is if you have a joint account, you can only claim your share of the fees.
For shares and dividends, you can claim a deduction for interest charged on money borrowed to purchase shares. If the money borrowed was used for both private and income-producing purposes, you must portion it between each purpose.
Insurance premiums that you take out against the loss of income can be included in your deductions. But don’t make the mistake of incorporating life insurance, critical care insurance or trauma insurance because these are not eligible elements for a deduction. Policies paid for out of your superannuation contributions are also not allowed.
Self-education expenses can be claimed if your study is directly linked to your work. The course you undertake must lead to a formal qualification that meets the below criteria:
You cannot claim self-education expenses that do not have a significant enough connection to your current employment.
You can claim the following expenses in relation to your self-education:
If an expense is partly for your self-education and partly for other purposes, you can only claim the amount that relates to your self-education as a deduction.
You can claim a deduction for some or all of the cost for tools and equipment if you require it for work purposes. Suppose the work is used for both work and private expenses you need to divide what you can claim. The cost of the asset will affect the type of deduction you can claim:
Last year, if you were smart enough to enlist a tax professional to complete your return, you can claim for that this year. You can also declare your travel costs in getting to and from these consultations.
“So, if you’re using, let’s say, the actual expenses method and you’re wanting to claim deductions for an asset that costs more than $300, then it depends on the effective life of the asset. So something like laptops has an effective life of two years, so they’re normally written off over two years. Desks are quite a bit longer, so you may be able to claim a portion of a desk that you’d bought more than a couple of years ago. But you would need the receipt and, whether or not you’re using it for work purposes, it declines in value from the moment you purchase it. So you’ll have to work out how much it’s declined in value from when you bought it through to now and then this year how much has it declined in value and how much have you used it for work purposes.”
“That’s a very good question. You still need to be able to show enough to show a) that you spent the money b) what you spent it on. So, if you’ve got those combinations of things between your Gumtree and your bank statement you’re probably starting to get close to having enough information.”
“We try to be quite pragmatic … in an audit situation, and we will go back to those golden rules. So, if you’re using these things 100 per cent for work purposes – and that’s the only reason that you’ve got them – you’ve spent the money, and you’ve got a record to prove it, then you’re going to be able to claim your stationery. But if you’ve bought a fancy planner from a place like the one you’ve described and you’re using it partly for work but you’re also using it a fair bit for private – or even just a little bit for private – then you need to take into account that private use.
“I think you’d have a fairly hard time. Something of that value would be a depreciable asset anyway, being that much. But I think you’d find it hard to justify that you need a $700 pen to do your work. It’s really not actually that substantially different from a $2 pen. I’m sure it’s much nicer and smoother. Look, we try to be fair and reasonable with people, but at the same time, we’re trying to be quite generous with people in having an easy way to calculate from that 80 cents per hour method. But if people have genuine bigger expenses and they want to use one of the other methods, that’s fine. But we also can’t let people kind of take us for a ride. So, you know, a little bit of overclaiming by a lot of people adds up to billions of dollars every year. We want people to claim what they’re entitled to, but we also can’t turn a blind eye to overclaiming. So people need to have a reasonable position about what they’re going to claim.”
“So, if you had to buy a uniform and then it turns out that you didn’t get to use it much – or at all – but it was something that your employer required you to purchase, and you’ve got your receipt and everything like that, then you can still claim the cost of the uniform itself. But people also, of course, claim for the cost of laundry of said uniforms and lots of people claim the same amounts year after year. And if what you’re claiming for is the same as it is every year and you’ve got working from the home claim, we may ask some questions like: were you wearing your uniform while you were working from home? And were you required to? It’s pretty unlikely. So, look, people’s circumstances have changed this year. For some people, they’ve still been working on the front line and wearing uniforms, and their claim might well be the same. But then I wouldn’t expect to see a large working-from-home claim from those people either.
Most small business tax deductions are more complicated than this brief overview describes—we are talking about the tax code, after all—but now you have a good introduction to the basics. There are more deductions available than those listed here, but these are some of the biggest ones. Office supplies, credit card processing fees, tax preparation fees, and repairs and maintenance for business property and equipment are also deductible. Still, other business expenses can be depreciated or amortised, meaning you can deduct a small amount of the cost each year for several years.
Remember, any time you’re not sure whether a cost is a legitimate business expense, ask yourself, “Is this an ordinary and necessary expense in my line of work?” This is the same question the ATO will ask when examining your deductions if you are audited. If the answer is no, don’t take the deduction. And if you’re not sure, seek professional help with your business tax return from a certified public accountant.
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