Freelancers' Guide: Essential Tax Deductions to Claim for Maximum Savings

Come with us to unlock the door to savings, fuel your business growth, and embark on a journey towards financial prosperity. It’s time to delve into eligible tax deductions for freelancers in Australia.

Imagine being able to reduce your tax bill while growing your freelance business. Sounds like a dream, right?

Well, it’s not just wishful thinking—it’s a reality for freelancers in Australia who understand the power of tax deductions.

By uncovering the deductions you’re entitled to, you can unlock hidden savings and keep more of your hard-earned money in your pocket.

From the moment you started your freelance venture, you became eligible for a range of deductions designed to level the playing field and support your entrepreneurial spirit.

These deductions, if properly utilised, can provide a competitive advantage, allowing you to reinvest in your business and fuel your dreams.

There’s a huge array of deductions you may not have even considered, from the slick technology that powers your creativity to the educational resources that keep you ahead of the curve – so let’s check them all out!

Who is considered a freelancer in Australia?

First things first, are you classified as a freelancer?  

In Australia, a freelancer is considered to be an individual who is self-employed and provides services to clients on a contract basis.

Freelancers are not employees of the clients they work for, and they are responsible for their income tax, superannuation, and other expenses.

Freelancers often work in various fields such as graphic design, web development, digital marketing, software programming, consulting, photography, translation, coaching and many others.

A freelancer must meet the following criteria:

•   You must be self-employed.
•   You must provide services to clients on a contract basis.
•   You must not be an employee of the clients you work for.
•   You must be responsible for your income tax, superannuation, and other expenses.

How do you claim tax deductions?

Freelancers are required to report their income, claim tax deductions for expenses that are incurred in the course of running their business and pay taxes to the Australian Taxation Office.

To claim tax deductions as a freelancer, you must keep accurate records of all of your expenses. These records should include the date of the expense, the amount of the expense, and a description of the expense. You can then claim these expenses on your tax return.

It is important to note that not all expenses are deductible. For example, personal expenses, such as entertainment expenses, are not deductible.  If you are unsure whether an expense is deductible, you should consult with a tax professional (or use our chatbox to double-check an expense).

Let’s look at some of the common tax deductions a freelancer can claim –

Office and work supplies

As a freelancer, you can claim deductions for home office expenses and work supplies that are directly related to your business activities. These deductions can help offset the running expenses of essential items you use for your work.

They include business expenses such as –

Stationery and office supplies

Expenses related to stationery, pens, paper, notebooks, staplers, folders, envelopes, and other office supplies are generally deductible. These items are essential for administrative tasks, record-keeping, and communication.

Computer equipment and software

If you use a computer, laptop, tablet, or other electronic devices for your freelance work, you can claim deductions for the cost of purchasing or leasing these items. Additionally, software and apps that are necessary for your work, such as accounting software or design tools, can also be claimed as deductions.

Printer and office equipment

Expenses related to printers, scanners, photocopiers, fax machines, and other office equipment can be claimed as deductions. Remember to include the cost of ink cartridges, toners, and maintenance fees as well.

Work-related subscriptions and memberships

If you subscribe to professional magazines, journals, or online publications directly related to your freelance work, the subscription fees can be claimed as deductions. Similarly, memberships to professional associations or industry-specific organisations that are necessary for your work can also be claimed.

Protective clothing and work gear

If your freelance work requires specific safety or protective clothing, uniforms, or work gear, such as safety boots, hard hats, or specialised attire, you can claim deductions for the cost of purchasing or maintaining them.

Internet and phone bills deduction

As a freelancer, you can claim deductions for a portion of your internet and phone bills as business expenses.

They include expenses such as:

Internet

If you work from home and use the internet for your freelance work, you can claim a portion of your internet expenses as a deduction. The deductible amount is calculated based on the proportion of your home office’s dedicated space compared to the total area of your residence.

For example, if you use your internet 50% of the time for business purposes, you can claim a deduction for 50% of your internet bill.

Mobile phone

If you use your mobile phone for business purposes, you can claim a portion of your phone expenses. To determine the tax-deductible amount, you need to assess the percentage of business-related use compared to personal use. Keep records of your business-related calls, messages, and data usage to support your deduction claim.

Landline and VoIP expenses

If you have a dedicated landline or use Voice over Internet Protocol (VoIP) services for your business, the expenses associated with these services can be claimed as deductions. The same principles of proportionality and substantiation apply, and you should maintain records to support your claims.

Equipment expenses

If you purchase or lease equipment specifically for internet or phone-related business activities, such as routers, modems, or business smartphones, the associated costs can also be claimed as deductions.

Health insurance premiums deduction

Freelancers can claim health insurance premiums as a tax deduction. This means that the amount you pay for health insurance can be deducted from your taxable income, which can lower your tax bill.

To be eligible to claim health insurance premiums as a tax deduction, you must meet the following criteria:

You must be self-employed or a contractor.

You must have a valid Australian business number (ABN).

You must have purchased health insurance that meets the Australian Government’s minimum standards.

The amount of health insurance premiums that you can claim as a deduction will depend on your taxable income. The higher your taxable income, the more you can claim.

General business operating expenses

As a freelancer, you can claim deductions for various general business operating expenses, directly related to the operation of your business.

Here are some common examples:

Rent and utilities

If you have a dedicated office or workspace for your freelance business, you can claim deductions for a portion of your rent or mortgage interest, as well as utilities such as electricity, water, and gas. The deductible amount is calculated based on the proportion of space used for business purposes.

Website and domain expenses

All costs associated with website development, domain registration fees, hosting fees, and website maintenance can be claimed as deductions.

Advertising and marketing costs

Expenses for marketing and advertising your freelance services, including website advertising, online ads, printed materials, and promotional campaigns, newspapers, magazines, online, or on social media. It also includes the cost of marketing materials, such as brochures, business cards, and flyers are generally deductible.

Legal expenses

This includes the cost of legal advice and representation, such as the cost of drafting contracts, reviewing agreements, and defending lawsuits.

Accounting and tax lodgement fees

This includes the cost of hiring an accountant to prepare your tax return, as well as the cost of any fees associated with lodging your tax return.

Bank fees

This includes the cost of business bank account fees, such as account-keeping fees, ATM fees, and credit card fees.

Education and Professional Development

Expenses for courses, workshops, conferences, and training programs that enhance your professional skills and directly relate to your freelance business can be claimed as deductions.

Professional Services

Fees paid to professionals such as bookkeepers, lawyers, and consultants who provide services related to your freelance business can be claimed as deductions.

Insurance premiums

This includes the cost of insurance premiums for your business, such as insurance for your home office, your equipment, vehicle insurance and your professional indemnity and liability.

Interest on business loans

This includes the cost of interest on any loans you have taken out to finance your business.

Vehicle expenses

if you use your car for business purposes, you may be able to claim the cost of fuel, repairs, and depreciation.

In addition to these general business operating expenses, there are also several other expenses that you may be able to claim, depending on your specific business.

Repair and maintenance expenses

Don’t forget about repairs and maintenance expenses that you may be able can claim:

Repairs

Deductions can be claimed for the costs associated with repairing assets used for your freelance business. This includes expenses incurred to fix equipment, machinery, vehicles, computers, printers, tools, furniture, and other business-related items that have become damaged or broken.

Maintenance

Deductions can be claimed for ongoing maintenance costs to ensure the proper functioning and upkeep of business assets. This includes regular servicing, cleaning, and general maintenance expenses to prevent deterioration or damage. For example, maintenance costs for office equipment, machinery, and vehicles can be claimed.

It also includes the cost of maintaining your business premises, such as the cost of cleaning, gardening, and pest control.

Home office repairs and maintenance

If you have a dedicated home office space, you can claim deductions for repairs and maintenance related to that portion of your home. This includes expenses such as painting, repairs to walls or floors, fixing electrical issues, or repairing office furniture.

Goods and Services Tax

Do you earn more than $75,000 per year?  If yes, you are required to register for GST.

Not sure what GST is?  Refresh your GST knowledge here.

Once you are registered for GST, you must charge GST on all of your sales. You can also claim GST credits for the GST that you pay on business expenses.

To claim GST credits, you must keep records of all of your GST-related transactions. This includes invoices, receipts, and bank statements. You can claim GST credits on your tax return.

Here are some things to keep in mind about claiming GST for freelancers in Australia:

•   You can only claim GST credits for expenses that are incurred in gaining or producing your income.
•   You cannot claim GST credits for expenses that are capital in nature, such as the purchase of a car or computer.
•   You may need to apportion your expenses between your GST-related expenses and other expenses if you have both.

Tax deductions on personal services income (PSI)

If your freelancing income is classified as PSI, some specific rules and limitations apply to claiming deductions and offsetting losses against other income.

However, if the income is not classified as PSI, the freelancer may have more flexibility in claiming deductions and managing their tax affairs.

PSI refers to income earned primarily from your skills, efforts, or expertise as a freelancer, subject to specific rules outlined by the ATO.

PSI rules aim to prevent individuals from avoiding their tax obligations by incorporating themselves or structuring their freelance work through certain entities.

You can check with your accountant if the ATO has determined your income falls under PSI, as special rules apply to determine what expenses can be claimed as deductions.

What deductions are allowed as a freelancer earning PSI?

You can generally claim deductions for expenses that are directly related to earning that income. This includes expenses such as advertising and marketing costs, office expenses, professional development, uniform expenses, travel expenses (when directly related to your work), insurance premiums, and business-related subscriptions and memberships.

If you receive PSI, the payer (e.g., your client) may be required to withhold tax from your payments under the PAYG withholding system. This means that your tax obligations may be different from those of other freelancers who do not receive PSI.

Are you considered a personal services business?

It’s also worth noting that if you meet certain criteria, you may be considered a personal services business (PSB) rather than earning PSI.

If you are classified as a PSB, different tax rules apply, and you may have more flexibility in claiming deductions. The PSB test takes into account factors such as unrelated clients, employment of workers, and the manner of conducting your freelance work. Seek professional advice or refer to the ATO guidelines to determine if you meet the PSB criteria.

By proactively understanding and strategically leveraging tax deductions as a freelancer, you can not only lower how much tax you pay but also give you more funds to invest in your business growth and financial well-being. Sleek can help your claim all your deductions appropriately and responsibly to not only reduce your taxes but also about maintaining transparency and compliance in your freelance business.