How do tax deductions work?
When submitting a tax return, you are entitled to claim deductions for expenses incurred while working – known as work-related deductions. To be able to claim work-related deductions, you must meet the following criteria:
- you must have a record to prove it
- you must have spent the money yourself
- you must not have been reimbursed for the cost
- the expense must be related to your job.
If the expense you are claiming is for both work and private purposes, you can only claim the cost’s work portion.
What are the different types of deductions you can claim?
Vehicle and travel expenses
The most important thing to remember when it comes to working related vehicle and travel expenses is keeping records. This will make life a lot easier for you come tax time.
If you use your car for work, you are entitled to claim the work-related travel expenses related to the business costs of using your vehicle to do your job. There are several methods you can use to claim the car expenses. Read more about these methods. You must own the car to claim under any of these methods, and the record-keeping requirement is detailed for each technique.
Travelling to and from work daily cannot be claimed as this is considered private travel.
You cannot claim the cost of regular trips between home and work because that travel is private even if:
- You do minor tasks on the way to work, such as picking up the mail
- You travel back to work for a security call out or parent-teacher interviews
- You work overtime, and no public transport is available to use to get you home
Work-related clothing and laundry expenses
Do you need to wear a suit to work? Or perhaps you need to wear a uniform decorated with your company’s logo? Maybe you work in a clothes shop and have to come to work wearing clothes bought in that store?
Whatever the case, you have to conform to your employers dress policy, so there might be an expectation that you’ll be treated the same way by the taxman when it comes to claiming tax deductions for your work clothing.
What clothing can be claimed?
Clothing can only be claimed if it is specific to your occupation—for example, chef’s pants. You cannot claim the cost of purchasing or laundry for clothes that are not specific to your work. These include black pants and white collar shirts.
You can, however, claim clothing and footwear you wear to protect yourself from injury or illness. For example, sun protection can be claimed if you work outdoors.
Uniform specific clothing can be claimed if it has your company’s logo attached or if it sits inside your employer’s uniform policy.
You can and can’t claim for a list of clothing and read our Work-related expenses – tax deductions for work clothing.
Working from home deductions
If you carry out all or part of your employment activities from home, then some portion of the home office expenses can be claimed as a tax deduction. Ideally, you should have a room set aside as a home office. Whilst you do not need to have a room set aside for your home office claim, if you are using a room with a dual purpose (e.g. dining room) or a room shared with others (e.g. lounge room), you can only claim the expenses for hours you had exclusive use of the area.
As with anything tax-related, you are keeping records for your home office is critical. If you work from home, you may be entitled to expenses such as computers, phone or any other electronic devices you need for work. You can also deduct running costs for any electricals.
As a general rule, you can claim home office equipment such as computers up to $300 or a decline in value for items costing $300 or more. You can also claim your phone bill if it is used in part for work-related expenses.
Mobile phone use
If you use your phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that your employer has reimbursed.
To work out your deduction, you need to choose a typical four-week period from some point in the tax year.
If you have a phone plan where you receive an itemised bill, you need to determine your work use percentage over those four weeks. You can then apply that to the entire year.
You need to calculate the percentage using a reasonable basis. For more information, read our mobile phone deduction tax tips.
Professional associations, magazine subscriptions and trade union fees
As a part of your profession, you may be a member of an association – the good news is, you can claim your subscriptions. If you’re part of a trade union, your fees are also deductible.
Magazines can make a dent in your return, as can subscriptions to mags associated with your line of work. If you’re an investor, financial publications and research services are claimable. Think ahead and prepay next year’s fees before June 30 and claim your deduction now.
Gifts and Donations
Gifts or donations can only be claimed if the organisation you donated to has the status of deductible gift recipients (DGRs). There are four critical criteria to claim a tax deduction for a gift:
- The gift must be made to a DGRs
- Whatever you are gifting, it must indeed be a gift
- It must be money or property and includes financial assets
- The contribution must comply with any relevant conditions. Some DGRs have different needs, so it is always best to check
The amount that can be claimed depends on the type of gift. For the 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 gift amount is $2 or more. For donations of property, there are different rules, depending on the type of property and its value.
You can claim the tax return deduction 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 donate $2, your web receipt or credit card statement could be used to substantiate the deduction. If you donated through third parties, such as banks and retail outlets, the ticket they gave you is also sufficient. If you contributed through ‘workplace giving your payment summary shows the amount you donated. Read more about claiming gifts and donations.
Interest and investments
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 costs.
You can claim a deduction for interest charged on money borrowed to purchase shares for shares and dividends. If the money borrowed was used for private and income-producing purposes, you must portion it between each drive.
Income protection insurance
Insurance premiums that you take out against the 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 the conclusion.
Policies paid for out of your superannuation contributions are also not allowed.
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 system 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 do not have a significant enough connection to your current employment.
You can claim the following costs about your self-education:
- accommodation and meals (if away from home overnight)
- computer consumables
- course or tuition fees
- The 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 (only for work-related claims)
If an expense is partly for your self-education and partly for other purposes, you can only claim the amount related to your self-education as a deduction.
Tools and equipment
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
- You can claim a deduction for their decline in value for items that cost over $300 or form part of a set. You can also claim the cost of repairing and insuring tools and equipment if need be.
Tax preparation fees and travel to see your accountant
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.
Always remember to prove your purchase.
It is important to remember that anything you spend money on to earn the income can usually claim it, either as an immediate deduction or over time. That said, it has to be a legitimate claim. You must prove the purchase, use the item at work, and the expense is not private or domestic.
5 Jobs That Claim Most Tax Deductions in Australia
Tax Time is here, and that can only mean one thing; it’s time to lodge your tax return. Now is a great time to take stock of all the money you’ve spent on work-related items during the year.
The question is, are you claiming everything you’re entitled to? The general rule is that if you incur an expense as part of your job and aren’t reimbursed by your employer, you can make a claim. Depending on what you do for a living, that can give rise to some unexpected deductions! Here are some of the things you may not know you can claim (plus a few things you can’t claim) for five top professions.
Healthcare and social care
- If you’re required to wear a uniform as part of your role, the cost is deductible.
- You can also claim a deduction for the cost of clothing that you use at work to protect your ordinary clothes from soiling or damage, for example, laboratory coats and aprons.
- If you need protective clothing, such as non-slip shoes, they are deductible.
- Claim for conference expenses. The cost of the conference itself can also include travel, meals, and accommodation costs – even where the meeting is overseas. However, you might need to apportion the expenses (and disallow the private bit) if you spent some downtime on the beach afterwards!
- Claim for professional subscriptions, whether to a professional body like the AMA or a trade union.
- If you’re required to work overtime, you can claim the cost of buying meals provided your employer has paid you an allowance.
- Agency costs: if you get your work through an agency, the price is claimable.
- Many health care workers will need to use their car as part of their job. That can include transporting patients, travelling between patients’ homes, or travelling from one medical facility to another; all such journeys are potentially claimable.
- If you’re required to wear a uniform at work, the cost is deductible. If you wear conventional clothing, the price isn’t tax-deductible. Some retail workers in fashion stores must wear clothing from the particular store or brand they are employed by. However, those garments are still classed as conventional clothing, so no deduction is available.
- If you spend time working from home – for instance, preparing staff rosters at the weekend for the week ahead – you can claim a proportion of home running costs, either based on actual costs (in which case you’ll need receipts) or at a standard rate of 52 cents per hour.
- Claim a tax deduction for the cost of any work-related courses. That could include health and safety or first aid courses, management training or job-related courses such as a Cert III in retail.
- If you travel between stores, you can claim the travel cost from one work location to another. That could include any time you spend temporarily working from a different store to your regular workplace (perhaps providing holiday cover) as well as trips between stores delivering stock.
Professional and admin workers
- A handbag or briefcase cost is tax claimable if you need it for work purposes, such as carrying paperwork or a laptop. Be careful, though; the ATO may query whether a Gucci handbag is required as part of your job!
- You can’t claim the cost of “conventional” clothing worn at work. That rules out suits and other business wear, unfortunately. Attire specific to the legal profession, such as the robes and wigs are worn in court by barristers, are deductible.
- Annual practising certificates for professionals such as lawyers can be claimed.
- If you work from home (at weekends or in the evenings, for instance), you can claim a deduction for home office expenses. Either claim 52 cents per hour or claim a proportion of your actual costs, based on a diary of work use.
- If you travel as part of your work, you can claim the costs of your work-related journeys, such as the cost of visiting clients or suppliers. If you use your car, either claim 68 cents per kilometre up to a maximum of 5,000 km or keep a logbook and claim your actual expenses. You can also claim for parking, tolls and public transport if you don’t use your car.
- The cost of entertaining clients isn’t tax-deductible.
- Sadly, you can’t claim the cost of club fees (such as the local golf or tennis club) even if you use your membership as a means of networking and meeting clients.
- Your professional indemnity insurance costs are claimable
Education and training workers
- Annual teacher registration fees are tax-deductible.
- Claim the costs of references books or a professional library for the subject you teach
- Prizes that you purchase to reward the achievements of your students and encourage future performance are claimable.
- Stationary, art materials, stopwatches and computer consumables, including pens and toner cartridges, are all deductible.
- Depreciation on technology costing more than $300, like computers, laptops, tablets, mobile phones and printers (items less than $300 may be written off immediately)
- Teacher aids
- Conferences and courses linked to your teaching can be claimed, including associated costs such as travel and textbooks.
- Suppose you mark homework or prepare lessons whilst at home. In that case, you can claim home office expenses such as a proportion of internet costs and the associated costs of any technology you use, such as computers and printers and a portion of utility bills.
- If you pay for school excursions, such as sporting or camping trips, out of your pocket and aren’t reimbursed, the costs are claimable. This can include meals, transport and accommodation expenses.
Construction & Manufacturing workers
- You can claim the cost of any tools or other work-related equipment that you’re required to buy for your job. You can claim an immediate deduction for any means costing up to $300. Anything more expensive than that needs to be depreciated over the life of the tool.
- You can also claim a tax deduction for the cost of insuring tools and interest charged on finance taken out to buy tools and equipment.
- You may be able to deduct your expenses for buying and maintaining your uniform if you’re required to wear one, and it has the businesses logo on it. “Ordinary” clothing items like a plain khaki shirt that you could wear at another job or outside work would not qualify. A khaki shirt emblazoned with your employer’s name would be eligible. The cost or protective items such as helmets, ear muffs, safety goggles, sunglasses, sun hats and sunscreen can also be claimed
- Trade union fees can be deducted.
- The cost of renewing any professional licences, registrations or subscriptions are claimable.
- The cost of self-education courses run by a University or TAFE (such as an apprenticeship course at a technical college), provided the system relates to your current job.
- You can claim overtime meal expenses up to the amount spent where you have received a genuine overtime meal allowance under an industrial law, award or agreement.
Keep records! It doesn’t matter what you’ve spent; if you can’t prove that you paid it, you can’t claim it. So, gather together all those receipts and invoices. If you’ve lost a ticket, try to get a copy from the retailer. If that fails, a bank or credit card statement might do if you can identify the item. Don’t try to claim if you don’t have the paperwork; you’re leaving yourself open to an ATO audit.