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 some of the various things you can 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. Therefore, the first step is to understand exactly what it is that you can deduct.
Unsure about how to lodge your tax effectively? Read more about how to lodge an individual tax return.
Work Related Expenses
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.
Working From Home – COVID-19
Because of COVID-19, many businesses have had to make adjustments to continue operating. A common adjustment many businesses have implemented is allowing employees to work from home. However, this means many employees have incurred costs they normally avoid by working in an office. Consequently, tax deductions related to working from home can be made during the 2019-2020 and 2020-2021 tax return periods.
What You Can Claim
When working from home, what you can claim as tax deductions includes:
- Internet expenses directly related to work
- Stationary, printer ink and other consumables
- Full cost of Home Office Equipment such as printers, computers etc. up to $300. If the equipment costs above $300, you can claim the decline in value.
What You Can’t Claim
You cannot claim the following costs incurred while working at home:
- Costs of normal household items that may have been available at work
- Items that your employer reimbursed you for already
- Equipment bought for children and their education from home
- Time spent at home not working e.g. lunch breaks or home schooling
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 will normally advertise that the 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.
Voluntary contributions to your superannuation
You can claim a deduction for any personal superannuation payments you made throughout the financial year. Further, there is no limit on how much you can claim as a deduction. Although, you may have to pay extra tax if you personally contribute a high amount to your super. Currently, the cap on concessional contributions is $25,000 and non-concessional contributions have a cap of $100,000 before they face higher tax rates. However, the rate for both is increasing in July 2021. In addition, other factors such as your age and total super balance can affect the contribution caps.
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.