10 tax deductions you may be able to claim at tax time
Want more money in your pocket at tax time? It’s time to maximise your tax deductions.
From work-related expenses to investment property deductions, understanding the various tax breaks available can significantly impact your financial bottom line.
We’re going to explore the top ten valuable tax deductions that you may be eligible to claim at tax time in Australia. Whether you’re a diligent employee, a savvy investor, or a self-employed entrepreneur, uncovering these tax deductions could provide you with a welcome boost in savings.
We’ll help you find more tax deductions so you can make the most of your financial opportunities this tax season.
How do tax deductions work?
Deductions can help reduce your taxable income, which boosts your tax refund at tax time.
Let’s consider an example to demonstrate how using tax deductions can reduce your income and the tax you pay on it.
Suppose you are a self-employed individual with a total income of $70,000 for the tax year. However, you have $10,000 in eligible deductions related to your business expenses, such as office rent, equipment purchases, and professional memberships.
By deducting these expenses from your income, your taxable income is reduced from $70,000 to $60,000 ($70,000 – $10,000). Now, let’s assume that the applicable tax rate for your income bracket is 30%.
Without any tax deductions, you would owe $21,000 in taxes ($70,000 income @ 30%). However, with the deductions reducing your taxable income to $60,000, your tax liability is reduced to $18,000 ($60,000 30%).
In this scenario, by utilising tax deductions, you were able to decrease your taxable income and save $3,000 in taxes!
It’s so worth taking the time to look into the power of leveraging deductions to optimize your tax position and retain more of your hard-earned income.
What can you claim on your tax return?
Whether you are running a business or completing your personal tax return, you can be able to claim various deductions on your tax return to reduce your taxable income.
But before we go into any specifics of what tax deductions you can claim, there are several factors you need to consider that determine the deductibility of an expense –
Ask yourself these questions –
Is the expense ordinary and necessary?
“Ordinary” means that it is common and accepted in your work, industry or trade. “Necessary” means that it is helpful and appropriate for your work or business.
Is the expense directly related to my work or business?
It should have a clear connection to the production of income, the operation of your business, or the maintenance of business property.
Can I substantiate the expense with proper documentation?
This includes receipts, invoices, bank statements, or other records that support the expense claimed. It’s important to keep accurate and organised records to validate your tax deductions.
Is the expense reasonable in relation to the business purpose it serves?
It should not be excessive or extravagant. The ATO may examine expenses that appear to be disproportionately large or unrelated to your work or business activities.
Is it a personal expense unrelated to my work or business?
Similarly, capital expenses, such as the purchase of assets with a useful life beyond one year, are not immediately deducted but may be depreciated or amortised over time.
Does the expense comply with applicable tax laws and regulations?
It’s important to stay updated on tax laws and consult with a tax professional to ensure your tax deductions are in line with current regulations.
Does the expense have specific rules or limitations?
The Ten Frequently Claimed Tax Deductible Expenses
Work-related clothing and laundry expenses
You can claim tax deductions for work-related clothing and laundry expenses if the clothing is specific to your occupation, such as uniforms or protective clothing, and not suitable for everyday wear. It should have a logo or be distinctive to your employer.
The expenses incurred for purchasing, repairing, or cleaning these work-related clothing items can also be claimed. You will need to keep records, such as diary entries or receipts, to demonstrate the number of times the clothing was laundered.
If the total claim for work-related expenses exceeds $300, you will need to provide evidence, such as receipts or invoices, for the expenses.
Vehicle and travel expenses
To claim vehicle expenses, you must keep accurate records of your business-related travel, including the purpose of each trip, the distance travelled, and the dates.
You can choose between two methods for calculating tax deductions:
The cents-per-kilometre method – The cents-per-kilometre method allows you to claim a set rate for each business kilometre travelled, up to a specified limit.
The logbook method – The logbook method requires maintaining a logbook to record your business and personal use of the vehicle over 12 weeks, and then applying the business-use percentage to claim deductions for fuel, repairs, insurance, and other work-related vehicle expenses.
Similarly, you can claim travel expenses incurred for business purposes, such as airfare, accommodation, meals, and transportation.
Working from home tax deductions you can claim
Do you work from home for income-earning purposes? You may be eligible to claim working-from-home office expenses as per specific criteria set by the Australian Taxation Office (ATO).
Generally, you can claim a tax deduction for running expenses, which include the costs of lighting, heating, cooling, cleaning, and depreciation of home office equipment, as well as a portion of your internet and phone expenses.
You may also be able to claim a deduction for the additional running costs incurred due to working from home, such as increased electricity or internet usage.
There are two different rules and ways to calculate the working-from-home deduction –
The fixed-rate method (currently 52 cents per hour for the 2022-2023 financial year).
The actual expenses method requires keeping records and calculating the proportion of expenses related to your home office.
You will need to keep a record of hours worked with a diary, roster or timesheet, invoices and logbook for work-related telephone calls
Individuals in certain industries may be eligible to claim deductions for industry-related expenses incurred in the course of their work.
These expenses are specific to the nature of their profession or occupation and are directly work-related purpose to earning income and your work activities and not of a personal or private nature.
Examples of industry-related expenses include tools and equipment, professional association fees, trade publications, work-related subscriptions, and specialised work clothing or uniforms.
Always keep receipts and invoices, to substantiate the amounts you have claimed.
Other work-related expenses
So, what are various other work-related expenses incurred in the course of your employment or business activities?
These expenses may include the cost of purchasing and maintaining tools and equipment necessary for work, professional development and training courses directly related to the individual’s job, expenses for work-related conferences or seminars, union or professional association fees, work-related subscriptions and publications, donations to a deductible gift recipient and expenses for home office setup or maintenance, among others.
Education and learning expenses
You claim a tax deduction for education and learning expenses that are directly related to your current employment or business activities.
These expenses may include the cost of self-education courses, seminars, workshops, conferences, and relevant educational materials.
Check that the education and learning maintain or improves your specific skills or knowledge required in your current role or business.
Remember, you can’t claim any education that is designed to help you get a new job or start a new business. Here at Sleek, we get asked this a lot!
Deductions on dividends and investments
Do you have investments and receive dividends?
One common deduction is for interest expenses on money borrowed to purchase investments that generate assessable income, such as shares or rental properties. This deduction is subject to specific rules, including the requirement that the borrowed funds are used to produce assessable income.
Other tax-deductible expenses related to managing investments include interest income expenses, fees paid to a financial advisor or accountant, and expenses incurred for investment research or publications.
Additionally, certain tax offsets or concessions may be available for certain types of investments in individual circumstances, such as the capital gains tax (CGT) discount for individuals holding investments for at least 12 months.
This can get complicated so it’s important to understand the specific rules and consult with a tax professional or accountant to ensure compliance with the Australian Taxation Office (ATO) guidelines.
Tools and equipment
Do you use tools and equipment in your work? The purchase of these can be claimed including the cost of purchasing, repairing, or maintaining tools and equipment necessary for the individual’s profession or trade.
To be tax deductible, the tools and equipment must be used solely for work purposes or have a clear connection to the individual’s income-earning activities.
Keeping receipts and invoices can easily substantiate the expenses you have claimed.
For larger capital expenses, such as expensive machinery or equipment, the cost may need to be claimed over some time through depreciation or capital allowances.
But again, check with the guidelines provided by the Australian Taxation Office (ATO) and or consult with your tax professional or accountant who can guide eligible deductions.
Income protection insurance
Premiums paid for income protection insurance policies may be tax deductible as they are considered to be protecting your ability to earn an income.
It is important to note that the deduction is only applicable if the policy is solely to protect your ability to earn an income.
If the policy includes other components, such as life insurance or trauma cover, those portions may not be deductible.
Tax break on investment property
If you own investment properties you may be eligible for tax breaks that can help reduce your taxable income.
One significant tax break is the ability to claim deductions from your investment income for expenses related to the investment property. These tax-deductible expenses may include interest on the loan used to purchase the property, property management fees, repairs and maintenance costs, insurance premiums, council rates, and depreciation of assets within the property.
Another tax benefit is the ability to claim capital works deductions for eligible construction or renovation costs incurred on the rental property. Additionally, individuals may be eligible for negative gearing, where rental expenses exceed rental income, resulting in a loss that can be offset against other taxable income.
It’s crucial to understand the specific tax law rules and regulations related to investment property taxation, as they can be complex and subject to change. We recommend you seek advice from a qualified tax professional or accountant with expertise in investment properties to ensure compliance and maximise tax benefits.
Don’t forget accountant and tax agent fees paid to professionals for preparing your tax return or providing tax advice can be claimed as a tax deduction only in the following year. This includes Sleek fees!
Don’t overlook the potential tax benefits that await you.
Together we can explore and identify the deductions that apply to your situation and keep more money in your pocket! Call our expert accounting team on +61 2 9100 0480 to work through your situation or use our chatbox to ask a quick question.
You might be interested in reading about: