Tax season in Australia generally runs from July 1st to October 31st. However, if you engage a registered tax agent prior to October 31st, you can take advantage of the extended deadline they’re afforded. Extensions can run as late as May 15th of the following calendar year, meaning it’s always tax time for someone in Australia. This being the case, it’s worth looking into the strategies you can deploy to maximise your tax refund. Below, you’ll find a step-by-step guide covering everything you need to know.
When tax time rolls around, there are receipts to rifle through, expenses to calculate, deductions to claim, and one goal overriding everything – claim back as much as you can to reduce your tax obligations and ensure you keep as much money as possible in your pocket. It really is that simple…
…and that complicated.
Over the 50+ years ITP has been helping Australians with their taxes, one thing has remained the same: the average Australian isn’t aware of just how many deductions they’re eligible to claim. This means that if you lodge your tax return without the help of an accountant, you’re likely parting ways with more of your hard-earned money than you need to. That money could be going to work for you in an index fund, term deposit, or high-yield savings account. So, it’s worth taking the time to ensure you’re taking full advantage of every deduction you’re entitled to claim. Your financial future could be a lot brighter for it.
Your Tax Time Goal: Claim Every Deduction You Can
The ATO is well-equipped to flag and pursue underpaid tax and dubious tax deductions, but they won’t do a thing if you’ve forgotten deductions for work-related expenses, investment costs, or other eligible items. Only you and your accountant care if you overpay your taxes.
Doing your tax is a chore, and that’s not about to change. However, it’s crucial to avoid charging in, determined to get it over with as quickly as possible. Instead, you must take a methodical approach to ensure you reap the benefits of a fatter tax refund. Tax deductions are the simplest way to reduce the tax you have to pay, and if you know every single one of them, the difference could mean hundreds of dollars returned to your bank account.
What Tax Deductions Can I Claim?
Your tax accountant will lead you through key questions, and you will likely have some industry-specific deductions to consider. However, in general, the following categories cover the most common tax deductions:
- Uniform or protective clothing, laundry and dry cleaning
- Vehicle expenses – petrol, parking, tools, repairs and maintenance
- Mobile phone and internet expenses
- Overtime meals and accommodation
- Self-education
- Fees, subscriptions and licenses
- Other expenses that are directly related to earning your income
Prepaid expenses
Whether you’re filing as an individual or small business owner, you can include prepaid expenses and claim an immediate deduction. The payment must relate to eligible goods or services that span for 12 months or less and extend into the next income year.
Prepaid expenses are tax deductible over the “eligible service period,” which cannot exceed 10 years. This period begins on the day the good or service agreement begins or on the day that the expenditure occurred, whichever is later. Just be aware that some goods and services are excluded from the prepayment rules, so talk to your tax accountant if you’re not 100% sure whether you can legally claim an expense.
Claiming donations on your tax return
If you haven’t yet made a donation to your favourite charity, the time to do it is before June 30. Better yet, if you want to claim a tax deduction for donations, consider making monthly donations throughout the year. You probably won’t notice the incremental payments, but when added together, they can deliver a significant tax deduction. Generally speaking, you can claim donations of $2 and upwards. You should collect and store receipts where possible. However, you can claim up to $10 without a receipt.
Pro tax tip: Not all charities are the same in the eyes of the ATO. Your charity must be registered as a Deductible Gift Recipient (DGR) for your donation to be eligible as a tax deduction, and you must have a receipt to back up your act of goodwill.
Claiming superannuation contributions as a tax deduction
This is perhaps the most valuable deduction on the list, as it gives you a win in more ways than one. Not only will you add to your superannuation, which builds your wealth over time, but you’ll also be able to contribute to your fund at a reduced tax rate. You or your employer can make these extra payments up to the yearly cap of $25,000.
Note that the tax you pay on your superannuation contributions will depend on whether they were made before or after tax. Before-tax super contributions (also known as concessional contributions) are taxed at 15%. These include:
- Salary sacrificing
- Employer contributions
- Contributions you are allowed as an income tax deduction
- Notional taxed contributions if you are a member of a defined benefit fund
- Unfunded defined benefit contributions
- Concessional contributions to constitutionally protected funds
Non-concessional contributions (also known as after-tax contributions) are not subject to tax. They can include:
- Contributions made by your employer from your after-tax income
- Contributions your spouse makes to your super fund
- Personal contributions you don’t claim as an income tax deduction
If you pay too much into your super, you may have to pay extra tax. Your tax accountant will advise the optimal amount to reduce your income tax.
Another point worth noting for those earning below $37,000 per year is that you may be entitled to the low-income superannuation tax offset (LISTO). Depending on your income, this can run up to $500 per year. Low to middle-income earners may also be entitled to a government co-contribution to their super funds. For both the LISTO and government co-contribution, the ATO should work this out on your behalf. However, if you want to ensure you’re making the most of these benefits, talk to your tax agent.
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Claiming investments that make a loss
If you have investments or shares that are underperforming, it can sometimes be worthwhile to sell them. In addition to ensuring you aren’t paying taxes on underperforming investments, this also allows you to adjust the capital loss against a capital gain made in the same year. Note that donations, gifts, and personal super contributions can’t be claimed as a loss.
Pro tax tip: Don’t be tempted to sell shares at a loss, claim the tax deduction, and then purchase them back at a profit. The ATO will flag this, and you’ll likely receive a penalty.
Private health insurance tax offset
If you have private health insurance, you’ll be able to receive a rebate if your income is more than a certain amount. Your private health insurance rebate is calculated when you lodge your tax return. You can usually claim your rebate as a premium reduction, which will lower your insurer’s policy price, or as a refundable tax offset through your tax return.
Pro tax tip: Tax filing season is the perfect time to review your private health insurance and make sure you’re not paying for items you don’t need. Make this your time to assess the market and see if it’s worth changing insurers.
Tax deduction for insuring your income
Insuring your income gives you peace of mind that you and your dependents will be okay if something untoward happens. However, it delivers more benefits than one, as you can also claim the amount on your tax return. If you want additional insurance – such as life or disability insurance – you could be able to fund it with your tax return. Don’t forget to keep your invoices.
Tax deductions for improving or renovating your home or investment property
Home renovations can reap huge rewards. Not only do you get to live in better surroundings, but the improvements made will also add dollar value to your home. Improvements to your rental or investment property can result in tax deductions while increasing the value of the property and the amount you can charge in rent.
There are several expenses you can claim for your rental property, including:
- Advertising
- Body corporate fees and charges
- Council rates
- Water charges
- Land tax
- Cleaning and repairs
- Gardening and lawn mowing
- Pest control
- Building, content, and public liability insurance
- Bank interest
- Pre-paid expenses
- Property agent fees and commission
- Income protection insurance
- Repairs and maintenance
- Some legal expenses
Self-education tax deductions
It might be time to upgrade your skills and improve your career prospects. If so, self-eduction can deliver more than just knowledge and experience. Studying a course that directly relates to earning your income can also be a great tax deduction. You’ll be able to claim educational costs such as course fees, phone and internet, computer, stationery and office consumables, and travel and vehicle expenses. Best of all, you’re investing in yourself and increasing your earning potential.
How to Ensure You’re Claiming the Right Tax Deductions
In addition to these general tax deductions, there are industry-specific deductions you might be eligible to claim. However, these are best discussed with your tax agent, as there are far too many industries and deductions to cover in one article.
There are many ways to reduce your tax bill. And everyone is different, depending on their circumstances, jobs, income and investments. An ITP Tax Accountant can advise you on how you can reduce your tax bill and claim back all the money you’ve spent on tax and work-related costs throughout the year. ITP has helped Australian businesses and individuals reduce their tax bills for 50+ years and counting. Our expert consultants can save you hundreds – if not thousands – of dollars. Even better, our fees are 100% tax deductible! So, if you want 100% certainty that you’re claiming every deduction you’re entitled to and maximising your tax refund, find your closest ITP branch today.