In 2021 Tax Tips

For all Australians, tax time is always a stressful time. It can be hard to keep track of what you are entitled to when it comes to claiming deductions on your income and whether or not those deductions will help reduce the amount of tax you owe. 

But this article should make things easier for you!  This guide offers some helpful tips and tricks that will ensure you get as much back as possible from the Australian Taxation Office (ATO) at tax time.

When completing your tax return, you’re able to claim deductions for some expenses. Most are costs you incur to earn your employment income. This information is available in other languages to help people from non-English speaking backgrounds. Select your language, then Individuals from the menu to access this information in your language.

OK, so 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 deductible expenses include the interest paid on investments, rental property expenses, some insurance policies and charity donations.

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.

How do tax deductions work?

First of all, you don’t have to be an expert on this. 

If you use Etax, the website helps 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.

If you think this is not very clear, 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.

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).

Work-related expenses

To claim a deduction for a work-related expense:

  • you must have spent the money yourself and weren’t reimbursed
  • the expenses must directly relate to earning your income
  • you must have a record to prove it (usually a receipt).

If the expense was for both work and private purposes, you only claim a deduction for the work-related part. Work expenses your employer reimburses you for are not deductible.

If we think your employer may reimburse you for your expenses, we may ask them.

You may be able to claim a deduction for expenses you incur that relate to your work, including:

Employees (including casuals) can claim work-related expenses in the income year you incur them. 

If you start employment in June, you can claim deductions for work-related expenses you incur in June. 

Vehicle and travel expenses

The most important thing to remember when it comes to work-related vehicle and travel expenses is keeping 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. 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 private travel.

You cannot claim the cost of regular trips between home and work because that travel is private even if:

  • You do minor tasks on the way to work, such as picking up the mail
  • You travel back to work for a security call out or parent-teacher interviews
  • You work overtime, and no public transport is available to use to get you home

Even if you don’t receive your employment income until the next income year.

If you employ someone to assist you in your employment, generally, you can’t claim a deduction for employing that person.

Mobile phone use

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If you use your 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 your employer has reimbursed.

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 to receive an itemised bill, you need to determine your percentage of work use over those four weeks. You can then apply that to the full year.

It would help if you calculated the percentage using a reasonable basis. 

Professional associations, magazine subscriptions and trade union fees

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. So think ahead and prepay next year’s fees before June 30 and claim your deduction now.

Gifts and Donations

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 gift must be made to a DGRs
  • Whatever you are gifting, it must truly be a gift
  • It must be money or property and includes financial assets
  • The gift must comply with any relevant conditions. Some DGRs have different conditions, so it is always best to check

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.  

How much to claim

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 donate $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. 

Interest and investments

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. However, something to be mindful of is if you have a joint account, you can only claim your share of the fees.

You can claim a deduction for interest charged on money borrowed to purchase shares for shares and dividends. However, if the money borrowed was used for both private and income-producing purposes, you must portion it between each purpose.

Income protection insurance

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 the deduction. In addition, policies paid for out of your superannuation contributions are also not allowed.

Self-education expenses

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:

  • the course must maintain/improve skills and knowledge required in your current job
  • result in or is likely to, an increase in your income

You cannot claim self-education expenses that do not have a significant enough connection to your current employment.

You can claim the following expenses about your self-education:

  • accommodation and meals (if away from home overnight)
  • computer consumables
  • course or tuition fees
  • the decline in value for depreciating assets (cost exceeds $300)
  • purchase of equipment or technical instruments costing $300 or less
  • equipment repairs
  • fares
  • home office running costs
  • interest
  • internet usage (excluding connection fees)
  • parking fees (only for work-related claims)
  • phone calls
  • postage
  • stationery
  • student union fees
  • student services and amenities fees
  • textbooks
  • trade, professional, or academic journals
  • travel to-and-from place of education (only for work-related claims)

If an expense is partly for your self-education and partly for other purposes, you can only claim the amount related to your self-education as a deduction.

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Tools and equipment

You can claim a deduction for some or all of the cost for tools and equipment you require for work purposes. 

If the tools are used for work and private expenses, you must divide what you can claim. The cost of the asset will affect the type of deduction you can claim:

  • items that cost $300 or less and don’t form part of a set, you can claim an immediate deduction
  • items that cost over $300 or form part of a set, you can claim a deduction for their decline in value.
  • You can also claim the cost of repairing and insuring tools and equipment if need be.

Investment income

You may be able to claim investment income tax deductions if you’ve received:

  • Interest payments on your savings
  • Dividends from your investments in shares
  • Rental payments from an investment property
  • Another type of investment income

If you’ve received any of these, you could be entitled to claim for costs related to this income, such as interest charged on money borrowed to buy stocks or rental properties.

You may also be able to claim money you paid for investment advice.

You can find out more about income-generating deductions you can claim at the ATO website.

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