What Can You Claim on Tax? (2020 Update)
When lodging your tax return, there are expenses you can claim including costs relating to work, tax management and donations. Find out more here.
Australians pay thousands of dollars of their income in tax each year, and we always look forward to the time when we receive our tax refunds. The Australian Tax Office (ATO) however, allows for deductions to be made on certain things relating to work, charity, and superannuation. In this article, we’ll outline what you can and can’t claim on tax.
What are deductions?
Tax deductions are the chief way you can increase your tax refund. Although you will have tax automatically deducted from your wages each pay cycle, you can recover some of this by claiming deductions. However, you should always be careful with what you deduct. This is because the ATO may conduct an audit if your deductions appear disingenuous and penalties may apply for those making illegitimate deductions.
Claiming your deductions
Although the process can be arduous, you can save yourself a fair amount of money by making the most of your deductions. The first step is to understand exactly what it is that you can deduct.
Tax deductions are a legitimate way of lowering your taxable income. This can be the case so long as you are permitted to do so under your relevant profession. It is important to check the specific guidelines for your relevant profession. Generally, some expenses incurred whilst at work may be tax deductible.
Unsure about how to lodge your tax effectively? Read more about how to lodge an individual tax return.
You can claim expenses relating to your employment. To properly claim work expenses you must:
- Have personally incurred the expense without being reimbursed
- The expense must be related to your line of work or education for your professional development
- Be able to provide documentary evidence e.g. receipts
It is common for some people to have expenses that overlap between their private and work lives. However, you can only deduct expenses which are directly related to your employment.
A common List of Work Expenses are:
- Education courses provided by professionals
- Conferences/educational workshops
- Transport costs outside of your ordinary commute e.g. if you need to catch a taxi to a conference from your office
- Tools and equipment – including protective wear
- Union fees
- Overtime meals
- Uniforms. However, you cannot claim for clothes purchased for work purposes that are not uniforms i.e. a suit or white blouse.
Is it Relevant to your Work?
Before jumping to conclusions and assuming claimable items, there must be a direct and obvious relation to your line of work. To make sure loopholes aren’t taken advantage of, the Taxation Office is certainly serious in examining claimable items. For instance, if you’re trying to claim a novelty book instead of a required theoretical book this will be discounted unless it is aligned with your field of work.
Bill works at an accounting firm and is undertaking a course to increase his qualifications. In addition to being able to claim the cost of the course, he can also claim the $350 he has spent on textbooks relating to the course.
Gifts and donations
If you make donations to a charity or organisation that is a Deductible Gift Recipient (DGR), then you can claim a deduction. However, your donation has to be a gift and you cannot receive anything in return for it. It’s important to note that not all charities are DGRs. Charitable organisations which are will normally advertise that donations are tax deductible, or at least have this information on their website.
Sarah sponsors a child through World Vision and donates $50 per month. Sarah can claim this amount for the entire financial year, meaning she can deduct $600 from her taxable income. She will have to provide receipts for each month which validate the $50 she donates each month to World Vision.
Expenses for managing your tax affairs
If you engage the services of a taxation lawyer or other tax professional to help manage your affairs, you may be able to claim a deduction. This includes hiring someone to prepare your tax return. You can even claim travel expenses if you travel to see a tax professional. If you purchase software or educational resources to assist you in lodging your own tax return, you can also claim these costs.
Jill runs her own business as a sole trader and has hired a tax agent to help her sort out her affairs. She has also spent $20 on public transport to attend her agent’s offices in the city. Jill can claim both the fees for hiring the tax agent and her transport costs.
Voluntary contributions to your superannuation
You can claim a deduction for any personal superannuation payments you made throughout the financial year. This does not include the super contributions made by your employer and must be made after-tax. You will need to notify your superfund of your intention to claim a deduction. Further, a non-concessional after-tax cap applies of $100,000. This means that in order to deduct this from your tax, you cannot make voluntary payments that amount to $100,000 or more in the financial year. You also won’t be able to claim a deduction if your super balance is in excess of $1.6 million.
What you can’t claim
There’s a number of things you can’t claim as deductions on your income.
- Fines and penalties
- Social activities
Claimable items enable the taxpayer to claim back legitimate purchases in which they were out of pocket for. It can work as a fair system for workers whilst not being too lenient. Tax claims work if done right. It is important for taxpayers to legitimately evidence and support their claims to ensure eligibility.
The easiest and fastest way tax claims can be made is online via the Australian Taxation Office (ATO). However, if your income streams are mixed or you think you may have significant deductions to claim, it is wise to contact a registered tax professional for advice. When it comes to tax, you should be ready to back up any claims you make, but also make the most of the deductions that are available.
Zac is a consultant at Lawpath, Australia’s largest and fastest growing online legal platform. Since joining Lawpath, Zac has assisted 1000s of startups and small business’s with their legal needs.