Here are our five top tips for using tax deductions to your advantage and boosting this year’s tax return.
One of the easiest ways to boost your tax return is by taking advantage of the deductions you're able to claim. Claiming tax deductions reduces your taxable income, meaning you'll pay less tax and hopefully get a bigger tax return. In this guide, we've listed our top five tips for easily claiming tax deductions.
There are many, more complex deductions you can claim to reduce your taxable income. One way to ensure you're claiming all the deductions you can is by getting a professional to do it for you. A tax agent will know the ins and outs of the tax system, and will help you maximise your tax return.
Choosing a tax agent
1. Charity donations
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. There are just a few things you need to check before claiming a gift or donation.
If your contribution meets the below conditions, you're most likely eligible to claim it as a tax deduction:
- 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
2. Car and travel expenses
Car and travel costs seem to be an expense most people are comfortable claiming on their tax return. However, taking a guess at 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 work places
- 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 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 deductions. 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.
- 1. Cents per kilometre method. Using this method, you can claim 66 cents per kilometer for the 2016-17 financial income year. You can claim 66 cents per kilometer driven for work related reasons (as determined above) up to a maximum of 5,000 business kilometres per car. You need to be able to show how you worked out your business kilometres, in case the ATO requests additional information or proof.
- 2. Logbook method. You can work out the vehicles expenses 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 reason for the journey.
3. Work related expenses
Many expenses that you accumulate through your chosen career path can be claimed in your tax return. However, many cannot, and incorrectly claiming these may result in a penalty from the ATO. Some are more obvious than others, like an apprentice’s tools or travel expenses (as explained above). However, did you know that journalists may be eligible to claim their pay tv costs? So long as these are incurred in the course of performing their work (for example, a sports journalist that 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. Make sure the expense meets the following criteria:
- The item is needed to perform your job e.g. tools or special shoes such as steel cap boots
- The item is needed for self-protection or safety when doing your job e.g. sunscreen and sunglasses if you are required to work outside
- Is used solely for work purposes (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)
- 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
There are too many possible claims to list in this article, but if you head over to the ATO’s website you’ll find over 40 guides to ‘deductions for specific industries and occupations’.
4. Working from home? Don’t count yourself out
There are many, many ways you can claim work related expenses, fortunately, this also includes working from home. 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. You should keep receipts for all work-related purchases you wish to claim, in case the ATO requires further proof. These deductions can include the following:
- Expenses incurred from cleaning office space
- Purchase and repair costs for office furniture and fittings required to do your job
- Landline and mobile phone calls related to work matters (you should get an itemised phone bill and highlight the work-related calls)
- A portion of your monthly internet bill
- Air conditioning costs
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. Check the table below for a quick guide to see if you can claim working from home expenses.
|You work solely from home and have a dedicated office space||You don’t work solely from home but have a dedicated office space||You work solely from home but don’t have a dedicated office space|
|Rent, mortgage, home insurance etc.|
|Work related phone and internet costs|
|Depreciation of office equipment|
|Maintenance costs (Office fittings etc.)|
|Gas and electricity costs|
5. Work clothing
Work clothing is something that many people claim incorrectly, and the ATO has said it will be cracking down on this so it's important to get it right. 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 be specific work clothing that is required for your job and compulsory to wear
- 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.
Speak to an accountant/tax specialist. If you’re a stickler for the finer details, this might not be necessary for you. But, if you simply don’t have the time to sort through wave after wave of receipts, then why not let an accountant do all the work for you? Not only is using an experienced accountant the best way to avoid making an illegitimate claim, it’s also the easiest way to maximise your tax return. Sure, there will be a fee to pay, but unless you’re a tax whiz, you’re likely to earn enough back to cover the consultations costs – even better still, most tax specialists will accept payment directly from your tax return, so you won’t have to worry about payment until you’re reeling in that bountiful return. And to top it off, you can claim the cost of the accountant in next years tax return! If you're looking for more information on tax deductions, check out our additional guide.
DISCLAIMER: 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.