All your general tax deduction questions answered.
When you are completing your tax returns, you may be able to claim a number of expenses that are directly related to earning your income. Deductions are amounts that you can deduct from your total income, that help you calculated your taxable income. Your taxable income is the income that your tax is calculated on.
What are general work related deductions?
Work related deductions are meant for expenses that you incur as a result of your occupation. If you spend money in order to earn your income, that expense may be deducted from your yearly earnings.
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What are work expenses?
Depending on your circumstances, you may be able to claim the following as a deduction on your Australian tax return:
- Formal education courses related to your field and provided by a professional association
- The attendance of a work related seminar
- The purchase of journals, magazines and/or books relevant to your field
- The attendance of work related conferences or education workshops
- Tools and equipment necessary to perform your job with success
- Union fees
- Meals purchased while working overtime
- The purchase of protective products needed for the course of your work, such as sunglasses
- Computers and software used in the course of your employment
- Home office expenses
- The premiums for income protection insurance
Is it relevant?
Before you claim any deduction for a work related expense, you must make sure that the expense is directly relatable to your employment. The Australian Tax Office is very specific in its definition of work related deductions and will check to ensure that they are legitimate.
What’s not claimable?
There are some expenses that you incur during the year that may seem work related, but are not an allowable deduction. These include, but are not limited to the following:
- The cost of obtaining a driver’s licence, even if a necessary condition for employment. If the job requires a special driver’s licence, the difference in cost between that and a standard licence may be allowed.
- Vaccinations against diseases that may be contracted through the course of employment.
- Child care expenses are not deductible although you might be eligible for a child care rebate or child care benefit.
- The cost of commuting to and from work.
- Grooming expenses such as hairdressing and makeup application.
- Relocation expenses.
- The cost of a police clearance certificate or police record check.
What are the rules to working out if I can claim a deduction?
There are some guidelines set out by the Australian Tax Office that can help you determine if a work related expense qualifies as a deduction:
- The purchase or expense must have been made in the tax year for which you are claiming the deduction.
- The expense has to be related to your employment.
- You may not claim a deduction for an expense that your employer has reimbursed you for.
- Even if provided an allowance by your employer, you are not automatically entitled to a deduction.
- If deductions equal more than $300 you must provide written evidence, such as a detailed receipts, to support them.
Deductions by professions
Your expenses as an employee will be unique depending on your chosen occupation, and there are certain allowances made for different fields. For example, certain performing artists may be allowed to claim hairdressing and makeup as a deduction, while a real estate agent may not, even though appearance is also an important component of that occupation. You can access deductible items by occupation.
In certain circumstances you may be able to claim clothing expenses if they are directly related to your job, such as a work uniform or protective gear required to keep you safe. Maintaining those clothing items might also be a deductible expense and could include washing, drying and ironing.
Is it important that I can back up my claim?
The Australian Tax Office can ask for supporting evidence of deductions made on a tax form. If you are unable to provide receipts or purchase order,s the claim could be denied. If your total claim is equal to or more than $300 you must have evidence to support it all, not only for the amount in excess of $300. Those records should be kept for a minimum of five years after the tax form has been lodged.
It is not easy to navigate through all of the applicable deductions, yet you don’t want to miss any as this will affect the amount of taxes you owe or your refund. If you want to ensure that you have included all of the items you have purchased that are tax deductible, you may want to speak to a tax agent or an accountant.
They can provide you with a comprehensive list of all of the expenses you may have incurred through your job over the year and whether or not you may include it as a deduction.
Basic rules for claiming deductions
Australian taxpayers are entitled to claim a deduction for certain expenses that are related directly to the way in which their income is earned. These expenses may not be a capital expense, nor can they be related to a private or domestic purchase. If it is both work related and private you are only permitted to claim the portion that is relevant to your occupation.
Vehicle and travel expenses
Travel to and from work is not a deductible expense, but you may be entitled to claim travel and vehicle expenses that are related to your daily tasks as a part of your occupation if you are using your own vehicle. For example, a realtor may not claim the gas used to get to the office, but they may claim the expense of travelling to and from any homes they are showing. If you use a company car, or are reimbursed for your gas mileage, then you may not claim vehicle and travel expenses.
Clothing, laundry and dry-cleaning expenses
You can only claim expenses related to the purchase and maintenance of clothing if they are a required part of your employment, such as a nurse or police officer uniform.
Gifts and donations
If you wish to claim a donation or gift as a tax deduction, you must first ensure that the receiving organisation has the status of being a deductible gift recipient (DGR). You also can't receive anything material in return for the donation.
Home office expenses
If a part of your employment entails working from home, you are entitled to claim expenses related to any electronic equipment that is necessary to carry out your job responsibilities. This includes computers, printers, work related phone calls, lighting, heating and cooling and cleaning expenses. It is very important that you keep detailed records of all of these expenses including a diary that works out how much you used the space and equipment for work over a representative four week period.
Interest, dividend and other investment income deductions
If a part of your earnings include interest, dividend or other investment income, certain expenses related to those may be deducted. For example, if you’ve paid fees for an account or management of your investment, you may deduct those costs from your earned income.
If you take a course in order to obtain a formal qualification relevant to your occupation you can deduct a portion of the tuition fees plus certain other expenses related to the class. In some instances the amount of your claim may have to be reduced by $250.
Tools, equipment and other assets
The cost of tools and equipment is deductible if they are necessary for the scope of your employment. The cost of the equipment dictates the type of deduction you can claim. For example, if an item is not a part of a set and costs less than $300 or is a part of a set that costs less than $300 you can claim the cost. If they cost more than $300 you can claim a deduction for their decline in value. You can find a list of common deductible equipment.
You may be eligible to claim tax-deductions on your income of certain types of life insurance.
The ATO allows any life insurance that is bought through paid for with your super contributions to be deducted in your tax return.
If you have an income protection policy, then you may be eligible to claim tax-deduction on it’s premiums if the benefit comes in the form of income replacement.
With income protection insurance:
- Outside of super. You can claim deductions for 100% of income protection insurance premiums paid,
- Taken out through your superannuation. You cannot claim deductions for a policy.
In the case of TPD insurance, you can make deductions if the fund is held inside of super.
When held and paid for through superannuation, premiums from:
- TPD “any occupation” cover is 100% tax deductible
- TPD “own occupation” cover is 80% tax deductible when bundled with life insurance policy
- TPD “own occupation” cover is 67% tax deductible when held as a standalone policy.
There may be other expenses that you can claim as well, such as books or periodicals that relate to your occupation. Consider if the expense was necessary to earn your income and not private. If so, and it does not fall under the ‘what’s not claimable’ category mentioned above, there is a chance that you can claim it.
If you are unsure if you will be able to deduct an expense, it is best that you retain the receipt and either contact the Australian Tax Office or consult with a qualified tax expert when it comes time to complete your tax forms. Attempting to reduce your income with non-eligible expenses could result in a rejection of your claim and further scrutiny by the Australian Tax Office.
DISCLAIMER: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information applicability to their own particular circumstances.