What Are Tax Deductions?
When you submit a tax return, you are entitled to claim deductions for any expenses you have incurred while earning your income. These are referred to as work-related deductions. To be able to claim work-related deductions successfully, would will require the following:
- you must have a record to prove it
- you must have used your own money during the transaction
- you must not have been reimbursed by an employer for the transaction
- the purchase must be related to your job
In cases where the expense is for a mix of work and private purposes, you can only claim the percentage of the cost for the amount of use related to work. For example, you pay $80 a month for your phone, which you use 75% for work, therefore you can claim a work-related deduction of $60.
Types of Deductions
Assuming you use your car for work, you are entitled to claim the work-related travel expenses that relate to you doing your job. To make these claims, you must be the owner of the car. Most importantly, you need to keep records of your travel. Travelling from home-to-work and from work-to-home cannot be deducted, as this is considered private travel.
Only clothing that is specific to your occupation can be claimed, for example, chef’s pants. Any other clothing that is not specific to your occupation cannot be claimed. Types of clothing you can claim include clothing and footwear required to protect yourself from injury or illness. Furthermore, if you are required to purchase clothing that has your company’s logo attached or if it sits inside your employer’s uniform policy, these can also be deducted.
If you carry out employment activities at home, then you are able to claim a portion of the home office expenses. In an ideal world, you should have a room set aside as a home office. As with all tax related deductions, keeping a record for your home office use is critical.
If you do work from home, you may be able to claim expenses such as computers, phones or any other electronic devices you need for work. You are also able to deduct running costs for any electricals.
You are able to claim a deduction for use of your own mobile phone for work purposes. You will require reords to support your claims. If you use your phone for both work and private purposes, you will need to work out the percentage that relates to your work use.
To work out what you can claim, you will need to select and normal 4-week period from some point in the tax year. If you are on a phone plan, you need to determine your percentage of work use over that period. You can then apply them for that full year.
You may be a member of an association, as a part of your profession – you can claim your subscriptions. If you’re part of a trade union, your fees are also tax deductible.
Magazines can make a dent in your return, as can subscriptions to magazines that are associated with your line of work. If you’re an investor, financial publications and research services are claimable.
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 must truly be a gift
- It must be money or property
- The gift must comply with any relevant conditions
The amount that can be claimed depends on the type of gift. For 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 make a donation over $2, your web receipt or credit card statement can 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.
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. Something to be mindful of though is if you have a joint account, you can only claim your share of the fees.
For shares and dividends you can claim a deduction for interest charged on money borrowed to purchase shares. If the money borrowed was used for both private and income producing purposes you must portion it between each purpose.
Insurance premiums that you take out against 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 deduction. Policies paid for out of your superannuation contributions are also not alllowed.
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 does not have a connection to your current employment.
You can claim the following expenses in relation to your self-education:
- accommodation and meals (if away from home overnight)
- computer consumables
- course or tuition fees
- decline in value for depreciating assets (cost exceeds $300)
- purchase of equipment or technical instruments costing $300 or less
- equipment repairs
- home office running costs
- internet usage (excluding connection fees)
- parking fees (only for work-related claims)
- phone calls
- student union fees
- student services and amenities fees
- trade, professional, or academic journals
- travel to-and-from place of education
If an expense is partly for your self-education and partly for other purposes, you can only claim the amount that relates to your self-education as a deduction.
You can claim a deduction for some or all of the cost for tools and equipment if you require it for work purposes. If the work is used for both work and private expenses you need to 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 then $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.
Last year, if you were smart enough to enlist a tax professional to complete your return, you can claim for that this year. You can also declare your travel costs in getting to and from these consultations.