The Australian Taxation Office is a difficult beast to understand. There are so many different types of tax deductions and exemptions; it can be very hard to know which ones you qualify for.
Tax time is fast approaching, and for many, it’s an anxious time. Of course, we’re all eager to get our taxes filed as soon as possible, but the process can be confusing.
It’s been a while since you last looked at your tax return. You’ve been busy with work and haven’t had time to organise it, but now that the deadline is approaching, you know it’s time to get organised.
Taxes are a necessary evil. We all have to pay them, but they can be difficult to get through without any help. The following guide will provide you with the knowledge of how to get the most out of your tax deductions in Australia!
This article provides a step-by-step guide that will take you through the process of filing your taxes in Australia. There are some great tax deductions available this year, so grab a cup of coffee and read on!
If you’re an Australian citizen, then it’s likely that you pay taxes. Taxes are what fund our country and society – but how much do Australians really know about their tax obligations? This blog post aims to answer all of your questions on tax deductions in Australia.
We’ll cover everything from taxation basics to some more advanced topics like company shares and capital gains. So get ready for a deep dive into the world of Australian taxes!
Did you know that the government actually rewards Australians for spending money on things like medical expenses, education and even clothes? This is done through tax deductions that are available to all taxpayers. However, not many people are aware of what these deductions entail or how they can use them to their advantage.
This blog post has been designed to help Australians file their tax return with ease by guiding them through each step of the process from start to finish.
It includes information about which documents you’ll need at every stage of the process, what kind of expenses qualify as deductible items, which ones don’t qualify as well as how much money you could potentially save.
Here’s your ultimate guide to understanding them!
What is a tax deduction?
A tax deduction is something you paid for out of your pocket that can be listed on your tax return. This can help reduce your taxable income, and that boosts your tax refund.
Tax deductions include work-related expenses like the costs of buying uniforms, tools and travel for work.
Since COVID arrived, now more people have worked from home, which means many people can claim some home office expenses as tax deductions.
Other types of deductible expenses include the interest paid on investments, rental property expenses, some insurance policies and charity donations.
How do tax deductions work?
First of all, you don’t have to be an expert on this. Some websites help you find the deductions you can claim, plus you can chat with an accountant who’s on your side, helping get deductions right.
That said, it’s good to know a little bit about deductions because it helps you remember what receipts to collect all year long.
The Australian Taxation Office (ATO) calculates your taxable income using this formula:
- Assessable income – tax deductions = taxable income
If you think this is confusing, you are right. Australian taxes are very complicated. Here is a quick example to explain how tax deductions work.
If you earned $65,000 a year and paid $14,000 of tax during the year, your tax refund would be $1,133.
However, if you spent $3,500 throughout the year on work-related expenses, your taxable income is reduced to $61,500.
That means you only have to pay tax on $61,500 of your income, and any extra tax you already paid during the year is added to your refund.
At the time of writing, this equals $1,260, which is added to your original tax refund of $1,133, meaning your tax refund increases to $2393.
In other words, your tax deductions get you an extra $1260 in your tax refund when you lodge your tax return.
Important Note: The amount of additional tax refund your deductions get you is not a fixed amount. It changes as your income increases or decreases. E.g. for someone earning $35,000, their $3,500 of tax deductions increases their refund by $735.
On the other hand, for someone earning $110,000, their $3,500 of tax deductions increases their refund by $1,470.
Do I get all the money back if I buy something that’s tax-deductible?
The simple answer is no! You don’t get ALL the money back that you spend on tax-deductible items or services, but you do get a percentage.
Your taxable income is reduced by the amount you spend. This means you pay tax on less of your overall income, and your refund goes up.
Expenses you can claim as a deduction
You can claim most expenses involved in running your business. Just make sure:
- they relate directly to earning your income
- the expense must have been for your business, not for private use
- if the expense is for a mix of business and private use, you can only claim the portion that is used for your business
- you have records to substantiate what you claim.
You may be able to claim deductions for the following types of business expenses:
- motor vehicle expenses
- home-based business
- business travel expenses
- workers’ salaries, wages and super contribution
- repairs, maintenance and replacement expenses
- other operating expenses
- depreciating assets and other capital expenses
- carbon sink forest expenses.
Go to the ATO’s Business tax deductions information for details about what, when and how you can claim your deductions.
If you’re a contractor or a consultant, your personal services income may affect the deductions you can claim.
Want advice for your particular circumstances? Contact your accountant, business adviser or the ATO.
Frequently Claimed Tax Deductible Expenses
Do you travel as part of your job, buy your tools, equipment or uniforms, use your car for deliveries, and fund these costs out of your pocket? If so, you need to make sure you’re completely up to speed on what you can claim back at tax time. It could be $1000s!
1. Home Office Expenses
Do you sometimes work from home? Have you had to work at home because of Covid in the past year?
Do you work entirely from a home office, or do you need to do overtime from home?
Many of us need to open our home laptops to check emails or use our own phones to make a few work calls from time to time. But if taking work home is a regular occurrence for you, it’s a good idea to set up a dedicated area to work in.
Not only does it help you stay focused, but there’s also another bonus; you can claim tax deductions for your home office expenses.
These valuable tax deductions generally cover the costs associated with working from home or running a business from home.
What are home office expenses?
In general, home office expenses are split into two broad types; home office running expenses and home office occupancy expenses:
Home Office Running Expenses
Home office running expenses are claimed when you sometimes work from home (including during COVID). However, if you permanently work from home, you’ll likely use the occupancy expenses method.
These are general home office running expenses and include:
- the cost of using a room (power costs for heating, cooling and lighting)
- business-related phone costs
- the decline in value of IT equipment (computer, printer, scanner etc.)
- the decline in value of furniture and furnishings (Tables, chairs, curtains/blinds, floor coverings, light fittings etc.)
- the cost of repairs to furniture and furnishing used for your work
- cleaning costs
It does not include work from home expenses like:
- Mobile phone
- Home Internet
- Home phone
- Personal Computer depreciation
- Office equipment
These items are all claimed separately on your tax return.
You can claim running expenses in two ways;
- At a rate of 52 cents per hour, or
- The amount of actual expense you incurred through an established pattern of use.
You can’t claim a deduction for running expenses if there is no additional cost incurred. For example, if you conduct your work in the living room of your home where other people watch the television. That’s why it’s important to have a dedicated office or room if you wish to claim home office expenses.
52 cents per hour
Use this rate to work out what you can claim as running expenses on your tax return. It is a nominal rate (currently 52c per hour) set by the ATO to cover all home office expenses rather than claiming them individually.
For example, if you work for 8 hours at home, you would calculate your claim by multiplying 52c by the number of weeks worked per year. Let’s say this is 48 weeks (52 weeks less 4 four weeks of annual leave):
52 cents x 8 hours x 48 weeks = $199.68
That’s an extra $199.68 that you can claim on your return!
Pattern of use
If you wish to claim the actual costs incurred from working at home, you need to keep a record showing your use pattern.
The ATO accepts a diary that notes the day and time that you used your home office for work. Your diary should be kept for at least four weeks in a financial year. You can then apportion all of your associated expenses to claim a portion of your power, heating, cooling, cleaning, furniture etc.
This method generally leads to a bigger claim than the cents per hour method but is more complicated. Again, chat with your tax agent to see which method is best for you.
Generally, occupancy expenses are relevant only to those using their home as a place of business.
In addition, if your employer does not provide you with a workspace and you can provide evidence that your home is your primary place of work, you can reduce occupancy expenses as well.
To work out how much you can claim, you need to determine what percentage of your entire home is taken up by your home office. So, if your home office takes up 15% of your home, you can claim 15% of your occupancy expenses.
These occupancy expenses can include:
- Mortgage interest
- House insurance
- Computer or Office Equipment
In order to claim occupancy expenses, you must be able to pass what the ATO refers to as the ‘interest deductibility test’.
Put simply, if you plan to claim a deduction on the interest you pay on your mortgage, the area you declare as your home office/place of business must have the ‘character’ of a place of business. It should meet the criteria outlined by the ATO:
- clearly identifiable as a place of business; for example, you have a sign identifying your business at the front of your house
- not readily suitable or adaptable for private or domestic purposes
- used exclusively or almost exclusively for carrying on your business
- used regularly for visits by your clients.
Other working from home expenses
If you claim work from home expenses, then there is a good chance you will also be eligible to claim further deductions that may apply to you.
Common other work from home deductions are:
- Computers, laptops and software – if not supplied by your company
- Mobile phone costs
- Home internet costs
- Furniture or furnishings in the area you use for work (this is a tricky one, it’s best to talk to a tax agent to claim this deduction!)
- Stationery and other computer consumables such as notebooks, paper, printer ink
2. Car Expenses
If you use your car for work-related journeys, other than your trip to and from work, you can likely claim your car expenses.
Work-related car deductions are a very common type of deduction and are not too complicated to claim correctly.
The ATO states that you can claim car expenses if you:
- make work-related journeys during the day/night.
- drive to work-related conferences or meetings that aren’t held at your usual place of work.
- travel between two places of employment if neither of them is your home.
- drive from a normal workplace to a different workplace, then back to where you would usually work.
- drive from home to a workplace that isn’t your usual place of work and then drive to your usual workplace – or directly home.
- regularly work at more than one site each day, so you drive between them before driving home.
- You have to carry bulky or heavy tools or equipment to and from work, and you cannot store them at work.
When you can’t claim a tax deduction for car expenses:
- You can’t claim car expenses for travel between home and work or vice versa, even if you live a long way from your work.
- You can’t claim car expenses on your tax return if you were reimbursed for the same costs by your employer. Only claim it if you paid for it yourself.
Car deduction methods
There are two methods to calculate car expense claims on your tax return:
- Cents per kilometre method, or
- Car Logbook method
Claiming car expenses: Cents Per Kilometre method
How does it work?
- Claim up to 5000km per year using this method
- No logbook required
- ATO can ask you to explain how you calculated your claim and how the use of your car was work-related
- The rate you can claim depends on the tax year you are claiming your car usage for; check the table below for the rates.
Example: Julie is an administration officer for a small business. In the 2020/21 tax year, each day, she makes four trips in her car to collect/drop off the post and do the banking. She drives approximately 14km per day on work-related travel.
Therefore Julie can claim:
- 14km X 5 days = 70km p/week
- 70km per week X 48 weeks (Julie has four weeks leave each year) = 3360km
- 3360km X $0.72 = $2419.20
This means at the Car Expenses item on her tax return, Julie can claim a car expenses deduction about of $2419.20
NOTE: This method includes all expenses, including insurance, registration, annual repairs, maintenance and fuel costs. So remember, you can’t add these expenses on top of the cents per kilometre rate when working out your deduction.
Claiming car expenses: Logbook method
How it works:
- Keep a logbook for 12 continuous weeks
- You must own the car
- You only need to complete the logbook process one time every five years (or less)
- Record all business trips AND all personal trips in your car logbook
- Keep receipts for all expenses related to your car, including Petrol, Registration, Insurance, Servicing, Interest on loan costs, Depreciation, Other running costs.
Once you complete your logbook, it is possible to calculate your business-use percentage. (That is the ratio, or percentage split, between work and personal driving.) Then, you claim the business percentage of all expenses related to your car.
Example: Jeff is a sales manager, and he kept a logbook for 12 weeks recording both work and personal trips. After that 12 weeks, Jeff added up the total kilometres travelled on work-related trips. Then he added up the total mileage. Next, he divided work km by total km, and that is his work-related percentage.
Jeff travelled 1000 km in total during the 12-week logbook period.
He travelled 850 km on work-related trips.
- 850km divided by 1000km = 85%
Jeff adds up the receipts for all of his car expenses for the year, which total $8,350. Then he multiplies that by 85%, his work-related percentage.
- $8350 x 85% = $7097.50
Jeff can claim $7097.50 worth of deductions at the car expenses section of his tax return.
What if I use a motorbike or a van for work-related travel?
There are different rules for vehicles such as:
- Utes, trucks or vans with a carrying capacity of a tonne or above
- or a minivan capable of carrying nine or more passengers
You need to keep a record and claim for actual work-related travel expenses, such as petrol or diesel costs. However, rather than claiming these expenses as car expenses, include them in the travel expenses section of your tax return.
It’s recommended that you keep a logbook and record each expense to verify your claims at tax time.
3. Work Uniform Expenses
You can save big just by claiming your work uniform expenses on your tax return!
There are many types of jobs that require you to wear a uniform and protective clothing.
Unfortunately, many organisations don’t provide these, or at best, offer them at a discounted price to their employees.
But for you, the costs of these items, especially when they are specialised, can hurt your bank balance.
And who wants to spend all their hard-earned money on work gear in any case? Not us! And we doubt you do either.
But what can you do about it? Well, there is good news! You can get a good proportion of that cash back at tax time. But you need to know what work uniform expenses you can and can’t claim on your tax return.
Do your circumstances fit with the following categories?
Is your uniform compulsory?
If you have a compulsory uniform strictly enforced at your workplace, you can claim for the cost of purchasing it. It must have a company logo and identify you with your place of work.
You can’t make a claim for normal business wear (such as plain black pants) that does not have a logo, regardless of whether your employer requires you to wear it to work.
Do you have single items of compulsory clothing?
You can also claim for a single item of compulsory clothing, such as a shirt or a tie. However, it must also be distinctive to your employer. For example, a business shirt with the company logo permanently attached to it and not available to the general public can be claimed.
If your employer encourages you to wear a corporate wardrobe but does not enforce it, you can only claim if the uniform is registered with AusIndustry.
For example, you cannot claim for stockings, socks or shoes because these cannot be part of a registered uniform. Unsure? Ask your employer if your uniform is registered or not.
Occupation Specific Clothing
This type of clothing is a uniform that identifies you to your employer or profession. For example, the checkered pants of a chef are occupation-specific, whereas a black and white waiter’s uniform does not identify you to a specific employer or profession.
Anything you may wear while working to protect yourself from injury or risk of injury can be classified as protective clothing. Examples include aprons, steel-capped boots, safety vests and wet weather gear.
As a performing artist, you can claim the cost of purchasing costumes you buy or hire for a role. You must, however, already have the role in making a claim – you can’t claim if you are just auditioning.
Records you need to keep for deductions
If you claim business tax deductions, you’ll need to keep records to substantiate what you claim. Under tax law, your records must explain all transactions and be:
- in writing, either on paper or electronically
- in English, or in a form that we can readily access and convert into English
- kept for five years (although some records need to be kept longer).
For more information, refer to the ATO’s information on:
- records you need to keep
- records for business travel expense
- records for motor vehicle expense.
Can I claim expenses without a receipt?
Do you claim tax deductions when you don’t have a receipt? Claiming expenses with no receipts is risky as the ATO is getting much better at data matching individual tax return deductions than previous years. Still, in some cases, it is okay! Let’s dig into this and try to avoid ATO troubles.
Tax deductions are the main way you can improve your tax refund. Deductions add fairness to the tax system; if you have to spend extra money connected with how you earn a living, you get something back for that by having a lower tax bill.
The ATO generally says that if you have no receipts but did buy work-related items, you can claim them up to a maximum value of $300.
You will still need to show how you worked this out. But, chances are, you are eligible to claim more than $300. This could boost your tax refund considerably. However, with no receipts, it’s your word against theirs – guess the winner!
Additionally, can I claim food expenses and without receipts? You cannot deduct your regular living expenses under any circumstances.
However, when your work situation requires you to eat in a company cafe or when you cannot get home to eat, you may deduct food expenses with receipts. In almost all circumstances, deducting food/accommodation expenses relies on having a bonafide allowance on your STP summary.
The ATO prefers that you keep a receipt for every expense that you purchase and want to claim on your tax return. But what happens if you don’t have a receipt? What if you lost it, or it’s so faded that you can’t read it? A good way around this is to take a picture and keep it in your online cloud.
As tax time approaches, Australians are thinking about collecting receipts and other records to help them get a handy refund soon.
Receipts are the easiest way to satisfy the Australian Taxation Office that your deduction is real, but there are some deductions where receipts are unnecessary or impossible to get.
The ATO understands this but is warning that you need to prove how you calculated all your deductions, usually with some form of written evidence or secondary record such as bank statements.
Home office usage, work-related car expenses and uniform costs are among the deductions that don’t always require receipts. Instead, they require a diary of time used for internet/mobile/home office.
A News Limited study found that on average Australian taxpayers miss out on $436 worth of deductions or a potential $131 extra in their refund and simply by not claiming all the deductions they’re entitled to.
Work-related expenses include car expenses, travel, clothing, phone calls, union fees, training, conferences and books.
So really anything you spend for work can be claimed back, up to $300 without having to show any receipts. Easy right? This will be used as a deduction to reduce your taxable income. Therefore, you will pay slightly less tax and get more money back. Always a bonus!
So what exactly can you claim back?
Travel is moving from one place of work to another. A common misconception is that you can claim from home to work and back; this is not the case.
So no need to start adding up how many times you took an Uber to work in the last year because you missed the bus! If you had to head to another part of town or another office location to do a course, then that travel can be counted.
Uniform can be claimed for if it’s specific to the work you do. For example, you can claim if the T-shirt you have to wear has a company logo on it or its regulation and you had to buy it.
You can also claim to dry-clean those t-shirts. So add up how much you spent on washing them over the last year, and you can include that in your $300.
If you do courses such as Barista training or RSA, then you can claim back the amount you’ve spent. Just let us know which course you did and how much it was, and we can put in the claim.
Suppose you work in a more skilled labouring job you can claim for tools and equipment. For example, if you had to buy your paint brushes if you are a painter.
Phone and internet also count as work-related expenses. For example, maybe you had to call or email a few customers from your personal phone or laptop. If so, you can claim a proportion of your bill back to include that.
If you lodged a tax return last tax year and had to pay fees, they can also be claimed back, so add them to your $300 claim without receipts.
You might still be able to claim those items, even without a receipt
There are cases where you can claim a tax deduction without a receipt, but there are serious restrictions.
Firstly, the expense must be “allowable”. This means you should be able to answer yes to these questions.
- Is it directly related to and needed for your occupation?
- Did you pay for it yourself?
- Were you not reimbursed or paid back by your employer (or anyone else)?
If you can say yes to all that and have a credit card statement or bank statement showing transactions for the item(s) you purchased, then if push comes to shove with the ATO, they will sometimes accept that deduction.
But you should not let yourself get into that situation! Because if they disallow your deduction, you may soon be paying the money back to the ATO that you’ve already received and spent! Nobody likes that.
If your purchase contains both personal and business items, you’re allowed to claim the business portion only. You need some sort of way to distinguish between the work expenses and the personal or un-claimable items.