If you are an Australian citizen, here are some quick tax tips to help you file your taxes. This article will cover the basics of what to do when filing your taxes. First, you need to fill out a Tax Return form if you earned income during the year.
The key thing is that deductions and credits are available for everyone, no matter how much they earn or spend during the year. It’s always good to talk with someone who specialises in taxation law before deciding which deductions and credits apply best for your situation because it can be quite confusing! If possible, try not to use more than one deduction at once as this might lead to over-claiming on certain expenses.
As tax season is coming up, it’s important to know your rights and responsibilities in order to avoid penalties. This article will discuss the most common errors that people make when filing taxes in Australia.
This article has tips on how to file taxes correctly, so you don’t get penalized. It also provides information for what happens if you owe any money back after filing your taxes. If you are unsure of how much money is required for payment, or if there is a mistake on your return, this article will help answer those questions as well!
A Simple Guide To Tax Deductions In Australia
A tax deduction is a something you paid for, out of your own 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 work from home, and that means many people can claim some home office expenses as tax deductions.
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 confusing, you are right. Australian taxes are very complicated. Here is a quick example to explain how tax deductions work.
If you earn $65,000 a year you 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.
Important Note: The amount of additional tax refund your deductions get you is not a fixed amount. It changes as your income increases or decreases. E.g. for someone earning $35,000, their $3,500 of tax deductions increases their refund by $735.
On the other hand, for someone earning $110,000, their $3,500 of tax deductions increases their refund by $1,470.
Quick Tax Tips
With the end of the financial year fast approaching, here are some quick tips to help you save time and get more cash into your bank account.
Working from home – If you work from home, make sure you keep a diary of your internet usage and the hours you spend working.
Donations to a charity – Any donation over $2 is tax-deductible. Make sure you keep any receipts and have them made out to the highest income earner.
Organise insurance – Income protection is a great way to be insured if you injure yourself away from work, and it can also be used as a tax deduction. Private Health Insurance will also help you save on tax in the 2014 year if you are approaching 30 or the Medicare levy surcharge limits and join before 30 June 2013.
Deductions and income – The best way to claim the maximum in this area is to make sure deductions are claimed by the highest earner and claim any income by the lowest earner. For example, if you have a bank account that is earning a substantial amount of interest, you could consider putting these earnings in the lowest income earners name.
Logbooks – If you keep a logbook to record the travel in your car, make sure it is less than 5 years old. Logbooks need to be kept up to date.
Claim everything you are entitled to – Do you know what you can and can’t claim? For example, did you know you can claim sunscreen if you work out on the road? So if you have some lip balm, foundation or moisturiser that has an SPF rating, you may be able to claim it.
Use an EFTPOS or credit card for any tax-deductible expenses – Individuals can now use bank statements as proof of claim. If you are not the best at keeping records of your purchases, be sure to use an EFTPOS or credit card and just keep records of all your bank statements.
Rental Property – Do you have a rental property and a mortgage on your home? If you pay interest only on the rental property, that is a way to maximise your deduction. You can also claim depreciation and the building and fixtures if the property is less than 40 years old.
Capital Gains – If you sold shares or property and made a capital gain this financial year, you can consider selling some poor-performing shares before June 30, the capital loss can help offset some or all of the capital gain.
Ways To Get A Bigger Tax Return This Year
Claim As Many Work-related Expenses As You Can
Many expenses that you incur in order to do your job can be claimed in your tax return. However, many cannot, and incorrectly claiming these may result in a penalty from the ATO. In addition, some are more obvious than others, like an apprentice’s tools or travel expenses.
However, did you know that journalists may be eligible to claim their pay-TV costs? So long as these are incurred in performing their work (for example, a sports journalist who needs to have access to the sport channels), they can be claimed as deductions. There are thousands of things you may be eligible to claim as work-related expenses.
Here’s a few examples that you might be eligible for:
- Tools and work-specific clothing. The item is needed to perform your job, e.g. tools that tradesmen use, equipment that hairdressers use, special shoes such as steel cap boots.
- Safety items. Item’s needed for self-protection or safety when doing your job, e.g. sunscreen and sunglasses if you are required to work outside
- Laptops and mobile phones. If these are used for work purposes, you’re able to claim it on tax (if you have a laptop that you use for work and personal use, you’re only entitled to claim the portion that you use for work).
- Courses and conferences. Self-education expenses, such as courses and certificates, need to be directly related to your profession and will help you get a promotion or a pay rise.
Claim Tax Deductions For Working At Home
If you work from home full time, part-time or only on the odd occasion, you’re eligible to claim this as a tax deduction. For example, if you’re running a business from home (full-time or part-time) that requires you to use computers, phones and other electronic devices, you could be eligible to claim deductions on certain costs. This even included the cost of your home internet and electricity bills!
Working from home tax deductions can include the following:
- Cleaning costs. The expenses incurred from cleaning office space at home.
- Office furniture. Purchase and repair costs for office furniture and fittings required to do your job.
- Your phone bill. Landline and mobile phone calls related to work matters (you should get an itemised phone bill and highlight the work-related calls)
- Your home internet bill. You can claim a portion of your monthly internet bill, in line with how often you use it for work purposes.
- Electricity bills. You can also claim a portion of your home electricity bills, in line with how often you work from home.
- Amazingly, you can also claim a portion of your occupancy expenses, like rent, mortgage, and home insurance, so long as you operate your business solely from your home and have a dedicated space for business activities. You must claim working from home expenses correctly to avoid a penalty from the ATO. You’ll need to show evidence and your calculations to justify how much you’re claiming. A tax agent can do this for you to ensure you’re claiming correctly.
The ATO has introduced a special ‘working from home’ tax deduction for the 2020-21 financial year due to a lot of people working at home. It allows you to claim 80 cents per hour for each hour you worked at home. Read our detailed guide on how this works when claiming your home office expenses to make sure you claim this correctly.
Use A Tax Agent (They’ll Help Maximise Your Return, And Their Fee Is Tax-deductible!)
For many people, using a tax agent to lodge your tax return is the easiest way to ensure you’re claiming everything that you’re eligible for. Here’s how tax agents can help you this tax time:
- Claim the tax agent fee as a tax deduction. You might be surprised to learn that the cost of using a tax agent is completely tax-deductible.
- Claim more deductions. Tax agents know the ins and outs of the tax system, so they’ll be able to help you claim everything you’re entitled to, even things you might not be aware that you’re entitled to claim.
- Claim correctly. If you don’t claim your deductions correctly, you could be hit with a fine from the ATO. Tax agents will help make sure you’ve claimed everything correctly so you can have peace of mind after you lodge your return.
- Help with calculations. Claiming things like home office expenses and car use can be really tricky and time-consuming. You’ll often need to create a logbook or show your working for figuring out how much you can claim. Tax agents are professionals at this, so it can save you a lot of time and stress.
Car And Travel Expenses
Car and travel costs seem to be an expense most people are comfortable claiming on their tax return. However, guessing the amount of expenses incurred can land you in hot water, as can making an illegitimate claim like travel to and from work. That’s why it’s important to ensure what you’re claiming is considered a travel expense in the eyes of the ATO. Properly claiming these expenses can save you a lot of money come tax time, so it’s worth getting it right.
If you use your vehicle for work, claimable vehicle and travel expenses include:
- Depreciation of your vehicle
- Registration costs of your vehicle
- Insurance costs of your vehicle
- Costs of running your car such as fuel, oil and servicing
Vehicle and travel expenses that are not claimable include:
- The initial purchase cost of your car
- Parking tickets and other speeding fines
You may be able to claim vehicle and/or travel expenses if you fall into the following situations:
- The cost of travelling between two separate workplaces
- The cost of travelling from your workplace to other locations, e.g. client meetings, project work sites
- If you are required to carry big work-related items such as tools or a ladder and these can’t be left at work
You’re not eligible to claim travel or vehicle expenses for the following situations:
- Travel directly to and from work, as this is generally seen as a private travel
- If you don’t live near public transport and need to drive to work
How To Correctly Claim Your Car And Travel Expenses
There are two ways to claim your vehicle expenses as a tax deduction. Read through the below and select the option you feel is best for you. Again, a tax agent will be able to help you correctly claim these expenses, so you don’t need to stress about doing it wrong.
Cents per kilometre method. Using this method, you can claim 66 cents per kilometre driven for work-related reasons (as determined above) up to a maximum of 5,000 business kilometres per car. The amount you can claim per kilometre is reviewed annually and subject to change. For example, 66 cents per kilometre was the rate in both the 2015-16 and 2016-17 financial income years, and as yet, no updated advice has been published by the ATO. You need to be able to show how you worked out your business kilometres in case the ATO requests additional information or proof.
Logbook method. You can work out the expenses of the vehicle and what percentage of those were business expenses. To do this, you need to keep a detailed logbook for a period of 12 continuous weeks. You need to record the travel dates, times and odometer readings, the kilometres travelled and the reason for the journey.
Don’t Forget About Charity Donations
There are just a few things you need to check before claiming a gift or donation. This is one of the most common things people forget to claim or incorrectly claim as a tax deduction. If you’ve only dropped some spare change in a bucket at a convenience store counter, you’re probably not eligible to claim this as a tax deduction. However, if you are one of the many who make regular contributions to a charity every month, you may be eligible to claim something back at tax time.
If your contribution meets the below conditions, you’re most likely eligible to claim it as a tax deduction:
- For example, does the organisation have DGR (Deductible Gift Recipient) status?
- Is the gift truly a gift and not something you receive material benefit or advantage for?
- Do you have proof of these payments in the form of a receipt or bank statements?
- The donation must be in the form of money or a financial asset (i.e. you can’t gift items like clothes and claim the cost as a deduction)
- The gift must be $2 or more
Below are the contributions that the Australian Tax Office (ATO) does not classify as a gift or donation:
- Raffle or art union tickets
- Items such as chocolates and pens
- Cost of attending fundraisers
- Membership fees
- Payments to school building funds as an alternative to an increase in school fees
- Payments that may provide a material benefit for the donor including raffle tickets which may win a prize
Bonus Tip: Here’s How To Claim Work Clothing Correctly
Work clothing is something that many people claim incorrectly, and the ATO had a crackdown on this in recent years, so it’s important to get it right. It must be specific work clothing that is required for your job and compulsory to wear. Despite what many people think, not everyone is entitled to claim laundry expenses as a tax deduction. Make sure your clothing meets one or more of the following criteria before claiming it as a tax expense:
- It must have a logo or be registered with AusIndustry
- There must be a strictly enforced policy making that item compulsory to wear. For example, simply having to wear black is not specific enough to claim as a deduction
- It must be worn solely for work purposes and not worn outside of work or for personal use
- The clothing is required for your protection at work (e.g. safety glasses)
- The clothing is occupation-specific (e.g. black and white checked pants for chefs)
As with all other deductions, it’s best to check anything you want to claim with your tax agent to ensure you’re eligible and avoid a penalty with the ATO.