What Tax Deduction Can I Claim

Wondering if you can claim the laptop you bought as a Tax Deductible expense??

This quick to read and easy to follow guide will help you find out which expenses you can claim as income tax deduction. We will also do a quick run through on how to work out the amounts that you can claim.

Call it lack of knowledge or ignorance of your Accountants. Each financial year Australians miss out on huge potential savings by not fully understanding what they can claim.
We wanted to make it easy for you to make this decision and work out the amounts that you are legally entitled to claim as Tax Deductible Expense.

Before we start, let’s hit the basics.

Tax deductions are expenses you incurred during the financial year that are allowable to be taken out of your Taxable Income.

Tax Deduction = Any or all expenses if not incurred would have resulted in loss of income

These include work related expenses such as cost of setting up a home office, utility bills, accessories, tools, and car/travel expenses. 

The rule of thumb is that the incurred expense should directly be related to your income generation activity. ATO defines this as “Work-related Expenses” and disallows all personal or private expenses that you might deem relevant however did not directly result in any income generation activity. Except for donations!

Yes, you read it right, donations are tax deductible expenses. And you can claim any money you might have paid for donations to registered Community Organizations also known as Deductible Gift Recipients (DGR). You can check whether donation was made to an endorsed Organization on the Australian Business Register website.

ATO provides different rulings for tax deductible expenses for individuals, businesses and investors. 

In this article we will primarily be focusing on Individual work-related expenses. I will touch base on business expenses but would not be diving too much into the depths of the topic.

image source

Lets see details of what each category allows for deduction

1- Car Transport & Travel

This category provides comprehensive details of what travel and vehicle expenses you are allowed to claim.

Table below provides different types of travel expenses and methods to work out the claims.

Expense	Method
Car Expenses Deductions	Allowed using either 1- Cents per Kilometre method 2- Logbook method
Home to Work Travel Expense	Not allowed to be claimed
Public Transport Expenses from Home to Work	Not allowed to be claimed
Travel between workplaces	Allowed, receipts to be kept
Taxi, Uber, Didi between workplaces	Allowed, receipts need to be kept
Removal/Relocation Costs	Not Allowed
Overnight travel expenses	Allowed, only work related non reimbursed expenses – no personal expenses

Cents Per Kilometer Method

ATO permits taxpayers to claim their work-related car expenses that might include registration, decline in value, insurance, repairs and fuel costs.

Please be mindful you cannot claim full amounts and can only claim using these rates as specified for each income year:

Logbook Method

You need to keep logbook records of at least 12 continuous weeks to be eligible to claim your expenses using this method.

Secondly, you need to specify your work-related use percentage based on the logbook records.

2- Home Office Tools & Other Items

As per latest data, roughly 37%* Australians work from home regularly. ATO allows claims of up to 67 cents for each hour worked from home. 

This would mean 2 things, you need to keep a log of the number of hours worked from home, and 

Secondly, you need to know what 67c is composed of. As per the latest ATO update on Fixed rate Method the 67c per hour includes home and mobile internet and phone, electricity and gas, and stationary and computer consumable such as paper, pens and printer ink.

For any fixed assets such as laptops, printers, or home office furniture you can claim the costs using the actual cost method. You would need to depreciate the fixed asset for decline in value over its useful life.

Please be mindful of the different record keeping requirements that you’d need to follow depending on which method you choose.

3- Clothing & laundry Work-Related Deductions

ATO distinguishes between occupation-specific and conventional clothes.

Occupation-specific Clothing for Tax Purposes:

You can only claim your costs if you buy, or clean clothes that represent your profession. An example of this would be a construction worker purchasing a high Vis jacket for his work use. Likewise, a Chef purchasing clothes and accessories that are related to his occupation.

Conventional Clothing for Tax Purposes: 

Daily wear clothes that any reasonable person would need to cover themselves. This includes shirts, pants or jackets. As these clothes are needed by anyone and everyone you cannot claim these as work related expenses even if you use them for work related purposes.

4- Self-Education Expenses:

If the education directly relates to your current job, it can be claimed. ATO allows taxpayers to claim deduction for any expenses that might lead to potential increase in their income. 

There are only two caveats to this:

1- Education is to be directly related to person’s career

2- Education must result in future income increase.

5- Deduction for Individual Investors

Individual investors in real estate and shares can claim investment related expenses, if those investments directly contribute to income for that financial year.

For rental properties taxpayers can claim the following:

For investment in shares and other investments management fees and interest on investment loans can be claimed as possible tax deductible expenses. 

6- Donations to Charities

ATO allows taxpayers to get tax benefits for their charity donations.

However, you need to know that these donations must be $2 and above. And should be made to registered DGRs.

Not all donations qualify under this category, and you must look up your Charity Organization prior to making the claim.

Additionally, please refrain from falsifying any claims if not records have been kept. It is advisable to only claim donations for whom you have kept receipts as records.

7- List of other Allowed Tax Deductions

1- Cost of Managing Tax Affairs

2- Income Protection Insurance

3- Contribution to Super Fund

Previously we dived in extensive details of all different types of allowable tax deductions.

Any expense private in nature cannot be claimed as a tax deductible expense for income tax return purposes.

That would mean you cannot claim any of your private food, accommodation, clothing, meals, education or other expenses that were not a result of income generation activity.

Here is a list of all expenses that are deemed non deductible:

• Private Expenses: Anything that is not related to earning income. This may include your day to day lifestyle expenses.
• Fines and Penalties: Any penalties or traffic fines are personal expenses and cannot be deducted.
• Entertainment Expenses: Generally, expenses related to entertainment or going out are non-deductible unless specific conditions apply i.e expenses were incurred as a result of income generation activities.

The best strategy is to take control of your income tax deductions from the start of the financial year.

You should review your expenses from prior years to know your common expenses and always keep receipts of your regularly incurring expenses.

Review your expenses as you incur them. Make sure you keep your personal expenses separate from work related expenses and keep separable receipts for them.

Staying informed with the latest changes to tax laws and regulations is also a great way to optimize your tax deductions. For example, for the past few years ATO has revised the fixed rate for Work from home expenses almost every financial year. Keeping an eye on what’s changing and saving your receipts accordingly is the best way to maximize your tax returns.

Each financial year hundreds of Aussies get into trouble for claiming incorrect tax deductions. Here are a few mistakes I suggest you should avoid when doing your tax returns:

1- Claiming Personal Expenses

2- Overestimating Expenses

3- Not Keeping Records

4- Claiming expenses at incorrect places when filing tax returns

5- Not getting professional advice

1- Keep them receipts 

Save receipts for all the expenses that you believe are related to your work. Not sure about if you can claim that, save this trouble for the year end. For now just make sure you save all the invoices that belong to your work related expenses.

2- Educate Yourself

Take control of your finances by learning and educating yourself on how ATO and Tax regulations in Australia work. Believing blindly and leaving everything on your Tax Accountant may not serve in your best interest.

This is what we aim to do. Here at My tax daily we are on a mission to equip you with tax knowledge and teach you everything free of cost. We have nothing to sell you. If you are struggling with understanding any tax concept feel free to delve on our site and you may be able to find resources that can help you. From calculators to jargon free articles explaining complicated concepts in simple words. Following us can be a good starting point.

3- Seek Good Professional Advice

Find a reputable good accountant, who is not there just to do your tax returns and see you off until the next year. In Fact find someone who teaches you how to take control of your finances.

It might be hard, but let me give you a quick tip. Stop looking for the cheapest Accountant in the block, and you might be able to find a trustable advisor who may help you save a couple of hundies on your tax return every year.

Struggling with looking for one? Ping us, we may have a few recommendations.