11 Tax Deductions You Could Be Claiming
Business| By Nina Hendy | May 18, 2020
Tax time doesn’t have to be stressful. Consider claiming these tax deductions in this financial year’s tax return to put more cash in your back pocket.
It doesn’t matter whether you work from a home office or are an employee of a large organisation, most Australians hope to get some money back from the Australian Taxation Office (ATO) when they prepare and lodge their annual tax return.
While bigger companies are likely to have a team of accountants working on their tax reporting, individuals, sole traders and SMEs often have to manage it themselves. Before you begin putting your tax return together for the financial year, get to know the tax deductions you could claim.
What is a Tax Deduction?
The ATO points out that to claim a deduction:
- The expense must have been for your business, not for private use
- If the expense is for a mix of business and private use, you can only claim the portion that is used for your business
- You must have records to prove it
You’re entitled to claim deductions for expenses that relate directly to earning your income, says Joanne McCauley, managing partner at Jigsaw Tax & Advisory, a CPA firm that provides business tax and advisory services to small businesses. Be aware that whether you can claim will depend on your circumstances, so she recommends seeking professional advice from your accountant or registered tax agent first.
“I have certainly seen some imaginative linkages between business income and expenses over the years. If audited, you need to convince the ATO that the claim is legitimate, so if the claim is a little unusual, you need a good argument.”
Given that the definition of what can be deducted is so broad, sometimes it’s better to consider what you can’t claim, she adds. “Costs for items like your driver’s license and passport cannot be claimed as there’s no way to proportion the private use.”
To help, we’ve compiled a list of tax deductions you could claim on your taxable income – but don’t forget to check in with your accountant before you prepare and lodge your tax return.
1. Claiming Home Office Expenses
Given that COVID-19 (coronavirus) has driven so many of us to remote working, it’s likely you’ve invested in some new home office equipment, whether that’s furniture, tech or stationery. So that fancy new sit-stand desk, ergonomic mouse/keyboard combo or second monitor that has changed your working-from-home life – all claimable. The ATO has separate guidelines for working from home, running your business from home and small businesses. For more guidance, read what you can claim on home office expenses and how to calculate tax deductions.
2. Claiming Mobile Phone Calls
If you’re making calls that relate to your work, you can generally claim these as a tax deduction. To do so, make sure you keep the phone bills as a record. Other possible claimable expenses include internet connection costs for your home office, too. But beware: if your company reimburses you for mobile calls or your internet, you can’t claim it.
Remember: you need to have spent the money yourself (or through your business) and haven’t already been reimbursed to claim a deduction.
3. Claiming Office Supplies & Equipment
For small business owners, specialist equipment can be a legitimate expense. For example, if you're in hospitality or retail and invest in new POS (point-of-sale) equipment, it could be deducted. And while stationery and workspace supplies are things you probably think to deduct, remember other items like milk for the work kitchen are also possible deductions. Why not get organised and schedule regular deliveries of milk and fruit for the next 12 months, which could also be claimed against your tax.
4. Claiming Business Travel Expenses
If you’ve had to travel for work, you could claim the costs – flights, accommodation, meals, taxis and so on – but again, only if you haven’t been reimbursed through your business or by your employer. Also know this: if you tacked a few days onto your business trip for a bit of mini-break, that section of the trip can’t be deducted.
5. Claiming a Handbag
If you use a bag for work purposes, such as carrying iPads, phones, calculators or anything else you need to run a business or do your job, you could claim a tax deduction for the cost of the bag, says H&R Block’s director of Tax Communications, Mark Chapman. Be careful though: you’d struggle to claim that new Gucci clutch, he warns. “The handbag needs to be fit for work purposes, like carrying a laptop, and actually be used for work purposes.”
6. Claiming Insurance
If you pay for insurance premiums against loss of income, those amounts are also potentially tax deductible. Bear in mind that doesn’t include life insurance, critical-care insurance or trauma insurance, says Chapman. “It also excludes policies paid for out of your superannuation contributions,” he says. Businesses could claim the costs of insuring their property and if you run a business from home, you may be able to deduct a portion of your home insurance premium.
7. Claiming Gym Memberships
The ATO takes a hard line around tax deductions relating to personal health and fitness but some people may be entitled to claim gym memberships, particularly if you require a level of fitness above the norm. “Examples might include professional sportspeople and defence force personnel who perform duties designed to keep them in tip-top shape, such as members of the special forces,” says Chapman.
8. Claiming Accounting Costs
Individuals and businesses can potentially claim accounting costs. If you went to see an accountant to prepare and lodge your tax return last year, you could claim it. Make sure you keep the receipt for this year to claim it next year, too.
9. Claiming Membership Fees
If you’re part of a professional organisation, such as a union or industry body that relates to your profession and you pay fees, you could claim these fees as a tax deduction.
10. Claiming Car Expenses
If you’re required to use your own car for work reasons, you can usually claim fuel and maintenance costs as a tax deduction. There are two ways to calculate this deduction – you either use a logbook for at least 12 weeks, or you can claim cents per kilometre. Be careful – the ATO put a brake on dodgy claims last year and car-related expenses were under the spotlight. Also, bear in mind you can’t claim the trip to and from work.
11. Claiming Rental Property Expenses
Most people who own a rental property know they can claim deductions but some of these are overlooked, Chapman says. Tax deductions you could claim annually are things like bank fees, insurance, pest control, maintenance and repairs, letting fees, marketing costs, security fees, gardening and lawn mowing costs and bookkeeping fees. There are also other expenses you could claim over several years, such as depreciation.
It Pays to Keep Tax Receipts Organised
Receipts for a whole year’s worth of expenditure can seem pretty overwhelming, regardless of whether they’re digital or paper. But simple document box files and expanding files can make a huge difference to prepping your return. Start a new box file or folder for each month, so when tax time comes around, everything is already filed in the one place. Remember, too, that you’re expected to keep files for five years from the time you lodge your tax return, so if you do have lots of paper records, archive boxes are just the ticket.
Another clever way to keep track of receipts is by digitising. You can photograph or scan the receipts to file on your computer. If space is an issue, use a separate hard drive or cloud software to manage the snaps. Or consider a Receipt Management system, which takes on the hard work for you, and even uploads the information into your online accounting software. Read more tips for keeping your receipts and invoices organised for tax time.
Don’t Forget! There Are Benefits to Claiming Tax Deductions
If you’re wondering whether it's worth the effort of claiming, the answer is yes. Some of the claims might seem small but they add up pretty quickly. Last year, the ATO experienced a dramatic surge in people lodging their tax returns early. Just three weeks after the end of the 2018/19 financial year, it had returned a total of $3.1 billion to taxpayers. On average, each person received a refund of $2381 – which is a lot of spare cash to splash on new office supplies and work-related items to set you up for the year ahead.
SMEs Take Note: with the effects of COVID-19 (coronavirus), there are additional tax deductions available for small businesses in 2020. In particular the instant asset write-off has been increased from $30,000 to $150,000 and expanded to include businesses with an aggregated annual turnover of less than $500 million. You could upgrade your tools and equipment and get an immediate tax deduction equal to the purchase price (up to $150,000). Learn more about tax and financial support for SMEs here.
For more information, check out the ATO website.
* This is general information only and does not constitute taxation or legal advice. Other requirements under the tax law apply. Seek professional tax and/or legal advice to determine whether you are eligible to claim a deduction for any purchases.