It doesn’t matter who you are, most Australians hope to get some money back from the Australian Taxation Office (ATO) when they lodge their annual tax return.
While bigger companies are likely to have a team of accountants working on their tax reporting, individuals and small businesses often 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?
A tax deduction is an item you paid for that you may be eligible to add to your tax return. The cost of the item subtracts (deducts) from your taxable income to lower the amount of tax you pay. Tax deductions are often work-related expenses you pay for, but may also include other items like accountant fees or donations of $2 or more to eligible charities.
The ATO points out that to claim a deduction for a work-related expense as an employee:
- you must have spent the money yourself and weren’t reimbursed
- the expense must directly relate to earning your income
- you must have a record to prove it (usually a receipt)
To claim a work-related deduction as a small business:
- 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
Regardless of whether you’re an employee or a small business, 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 what you can claim will depend on your circumstances, so she recommends seeking professional advice from your registered tax professional first.
“I have certainly seen some imaginative linkages between business income and expenses over the years,” she says. “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 cannot be claimed, or relocation expenses if you move for a new job.”
To help, we’ve compiled a list of some of the tax deductions you may be able to claim – but don’t forget to talk to a registered tax professional if you’re unsure. You can also check the:
- ATO occupation guides for job-specific work-related expenses you can claim at tax time, or
- ATO small business tax time toolkit if you’re a small business
Tax Deduction Tips for Employees
1. COVID-related deductions
Most of us have experienced changes to our work environment due to COVID. This means the deductions you can claim may change as well. For example, you may be able to claim a deduction for the cost of buying a face mask to wear at work if:
- your employment duties require you and other employees to be at your place of work
- a face mask is not provided to you by your employer, and
- you need to wear a mask (this is likely to be the case where your duties bring you in close contact with other people, including clients, customers, or work colleagues)
To claim personal protective equipment, such as gloves, sanitiser or anti-bacterial spray, your work duties must either:
- bring you in close contact with clients or customers
- involve you cleaning a premise
2. Claiming Working From Home Expenses
So that fancy new sit-stand desk, ergonomic mouse/keyboard combo or second monitor that has changed your working-from-home life is potentially claimable, depending on the method you use to calculate your working from home deduction.
For this tax time, there are three methods you can choose from to calculate your working from home expenses. Take the time, or consult a registered tax professional, to work out which method applies to your circumstances and then determine the one that gives you the best outcome.
The 80 cents an hour shortcut method: This temporary measure, available until 30 June 2022, is an hourly rate for each hour worked from home during the financial year. It includes ALL deductible running expenses. This means you can’t claim any other expenses on top of the rate.
The 52 cents an hour fixed rate method, plus separate calculations for some additional expenses: If you use the fixed rate method, you need a dedicated work area, such as a home office, and a diary of a four-week period that represents your pattern of home-office use over the income year (showing the hours you worked from home during this period). This rate covers your heating, cooling, lighting, cleaning and the decline in value of home office furniture. You can separately calculate and claim the work-related portion of phone and internet usage, computer consumables, stationery and computer decline in value expenses.
The actual cost method: You claim the cost or decline in value of each expense – to do this you must have detailed records.
The ATO has not yet announced what deduction methods will be available in 2022-23 but they have advised that from 1 July 2022 you need to keep:
- records of all hours you work at home
- receipts for all depreciating assets or equipment you buy and use when you work at home
- records of your personal and work-related use of assets.
And don’t forget, if you purchase equipment or tools for work that cost more than $300, you won’t be able to claim the full amount immediately. For these items, you claim the deduction over a number of years which takes into account the life of the asset and the number of days during the year that you owned and used it for work purposes. For example, if you bought a laptop for $2,000 on 30 June this year and used it 100% for work purposes, you get a deduction of about $3 because you didn’t own the asset for many days during that financial year. However, in this situation your deduction for the next financial year would be higher as you owned the asset for longer during that year.
Your registered tax professional can help you with you working from home expenses calculation, or if you lodge yourself, use one of the ATO calculators available on their website.
3. Claiming Mobile Phone Calls
If you’re using your personal phone for work purposes, you can generally claim the work-related portion as a tax deduction. To do so, make sure you keep the phone bills as well as track your work-related calls and private calls to work out your percentage of work-related use. Other possible claimable expenses include internet usage. But beware: if your boss reimburses you for mobile calls or your internet, you can’t claim it. And if you are working from home and use the 80 cents an hour shortcut method, you cannot claim these expenses as it they are already included in the rate.
Remember: you need to have spent the money yourself and haven’t already been reimbursed to claim a deduction.
4. Claiming a Work Bag
If you use a bag for work purposes, such as carrying a laptop, iPad, phone, calculator or anything else you need to do your job, you may be able to 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.”
5. Claiming Accounting Costs
You can claim accounting costs. If you went to see a registered tax professional to lodge your tax return last year, you can claim the expenses. Make sure you keep the receipt.
6. 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 can claim these fees as a tax deduction.
7. Claiming Car Expenses
If you’re required to use your own car for work reasons, you may be able to claim the expenses as a tax deduction. But remember, you generally can't claim the cost of travel between your home and your regular place of work. The ATO has two options to calculate car expenses – you either use a logbook (kept for a continuous period of at least 12 weeks), or you can claim cents per kilometre. Make sure you check if you’re eligible to claim car expenses.
8. Claiming Travel Expenses
If you travel away from your home overnight in the course of performing your employment duties, you can claim travel expenses, such as meals, accommodation, fares and incidental expenses. Note: you can’t claim a deduction if the travel is paid for or reimbursed by your employer or another person. Receiving a travel allowance from your employer doesn’t automatically mean you can claim a deduction. You still need to show that you were away overnight, you spent the money, and the travel was directly related to earning your employment income.
Tax Deduction Tips for Business Owners
Small businesses can also claim COVID-related deductions, home-based business expenses, accounting costs, motor vehicle expenses and travel expenses. You can claim a tax deduction for most expenses for carrying on your business, as long as they are directly related to earning your assessable income.
9. 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.
10. 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. You can get organised and schedule regular deliveries of milk and fruit for the next 12 months, which could also be claimed against your tax. However, employees working from home can’t claim their food, coffee, tea, milk and other general household items.
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. If you keep paper records, 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 date you lodge your tax return, whether you’re an employee or a business, 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 using online accounting software. Don’t forget, we can email you a copy of your receipt too, just ask one of our friendly staff at your local Officeworks.
There are many ways to keep your receipts and invoices organised for tax time, from physical filing systems to the free myDeductions tool in the ATO app, which is easy to use for employees and sole traders alike.
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.
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.