Ultimate Guide To Tax Deductions

You’ve worked hard all year – and have racked up a lot of work expenses. Now that it’s tax time, it’s your chance to claim back some costs. Unfortunately, this is the time that many Australians put lodging their tax return into the ‘too-hard basket’, or even worse, the ‘I can’t be bothered’ basket. But being lethargic just might cost you hundreds, if not thousands of dollars.

Think of tax time as your way to collect your work expenses that you’ve been out of pocket for the whole year. This is a golden opportunity. A little bit of knowledge can take you a long way. Let’s see how we can claim your money back from the Australian taxation Office (ATO). It’s your money, after all.

What Is A Tax Deduction?

Tax deductions are work-expenses you can claim that lower your taxable income and therefore lowers your tax liability. The lower your taxable income, the less tax you will be obligated to pay.

What Is A Tax Credit?

A tax credit or tax offset is a dollar for dollar reduction on your tax bill. A tax credit or offset, can make a huge difference to lower your overall tax liability.

How To Claim Tax Deductions

You claim your tax deductions when you lodge your tax return. You’ll need to itemise your expenses and then calculate the total off your taxable income. This is then subtracted against the tax you’ve already paid and a refund worked out. Knowing your legitimate work claims and understand your tax offsets can make a huge difference maximising your tax refund. The trick is knowing what you can claim and not overlooking your entitlements.

What Are The Main Tax Deductions?

There are many work-related tax deductions – some you may not even be aware of! You’ll only be able to claim your work-related expenses. Some expenses you have may be a mix of personal and business. You’re entitled to work out the work-related portion as legitimate claims.

Vehicle and Travel Expenses

If you use your own car for work-purposes – track those costs and kilometres travelled! In most instance you won’t be able to claim your travel between your home and a work place, but if you had to do deliveries, or meet with a client – claim those trips.

Other claimable deductions include:

  • If you’ve been asked to carry bulky and heavy equipment that your employer requires you to carry for your job
  • If you’ve had to attend work-related conferences or seminars, or had to deliver items or collect supplies
  • Travel between two separate places of employment is a tax deductible expense
  • Fuels, oil, repairs, road tolls and parking all add up over the year.

There are two ways to claim vehicle expenses: the ‘Cents Per Kilometre’ method or ‘Actual Cost’ method.

Pro Tax Tip: You’ll need to also keep a log book or a travel diary to back your claims.


Clothing, Laundry and Dry-Cleaning Expenses

If you’ve had to outlay for a clearly defined uniform you need to wear (not just generic black pants), or had to pay out for cleaning or repairing your work clothing, keep your receipts because they can be claimed.

Other work-related clothing that are eligible to be claimed are items such as high-vis vests, occupational-specific clothing, compulsory uniforms, safety gear and protective clothing. Protective clothing includes fire-resistance clothing, sin-protection, non-slip shoes, protective boots, gloves and wet-weather gear, boiler suits, overalls, smocks or aprons.

Pro Tax Tip: You won’t be able to claim any clothing that is generic in nature, even if your job requires you to wear it. This includes jeans, drill shirts, white shirts, shorts, trousers, socks or anything that can be defined as normal everyday wear.

Home Office Expenses

There are two main ways to claim your home office expenses. The ‘Fixed Rate Method’ will allow you to claim 52 cents per business hour, and the ‘Actual Cost’ method.

Pro Tax Tip: If you’ve worked from home due to Covid-19, you’ll be able to claim a flat rate of 80 cents per business hour, which includes all of your expenses together. This is known as the ‘short-cut method’ which was introduced for a temporary period. Claims can be made using this method between 1 March 2020 to June 2021.

Using the fixed rate method you can claim 52 cents per business hour you’ve worked from home. This rate includes the decline in value of your home office furniture, the cost of repairing or fixing your office furniture, running costs of electricity and gas for heating, cooling and lighting and your phone and internet expenses, computer consumables and equipment.

If using the actual cost method, you’ll need to keep track of your actual costs. This includes electricity and gas, decline in value of furniture, cleaning and repairs, phone and internet expenses, cleaning and stationery.

Pro Tax Tip: if using either method, you’ll need your receipts to prove your expenses and you’ll also need to keep a four-week representative work diary which can be averaged out over the year.

Self-Education Expenses

Any time is the perfect time to expand your skill set. If you study for your job, you’ll be able to claim your educational expenses, such as fees, stationery, computers, phone, internet, stationery, travel to and from your classes and even food and accommodation. The course you study should have a sufficient connection to your current employment allowing you to maintain or improve skills or knowledge, or result in an increase in income from your current job activities.

Pro Tax Tip: Repayments of Higher Education Loan Program (HELP) loans, Student Financial Supplement Scheme (SFSS) repayments, VET Student Loan (VSL) repayments, Student Start-up Loan (SSL) repayments and Trade Support Loan Program (TSL) repayments are not eligible claims.

Tools, Equipment and Other Assets

If you buy tools, equipment or other assets to help earn your income, you’re eligible top claim tax deductions. Tools are not just tools of trade – such as spanners, hammers and saws. In the eyes of the ATO, tools also include items such as calculators, computers and software, desks, chairs and lamps, filing cabinets and bookshelves, hand tools, protective items, professional libraries, safety equipment and technical instruments. Hand bags, briefcases and satchels may also be claimable, dependent on use.

Pro Tax Tip: Costs for cleaning, repairing and insuring your tools, as well as any interest on money you borrowed to pay for those items are claimable.

Other Work-Related Deductions

Did you know that the cost of managing your tax affairs is a legitimate tax deduction? Doing your tax through a tax agent or tax accountant should not cost you in the long run. Not only will they know all of your expenses, because that’s their job, their costs are 100% claimable!

Don’t forget you can also claim:

  • ATO interest paid on outstanding tax debt
  • Any gifts and donations you’ve made throughout the year
  • Fees on investment Interest accounts and loan interest on the purchase of shares
  • Personal super contributions
  • Undeducted purchase price of a foreign pension annuity

To find out more, click here for ITP’s range of industry related allowances and deductions for specific work-related expenses for your industry or occupation. It’s always best to seek the advice of a professional before making any financial decisions. This blog is intended for educational purposes only. ITP Accounting Professionals have helped Australian individuals and businesses with all aspects of their tax, businesses finances and business growth for 50 years. Phone 1800 367 487 and chat with a friendly tax accountant today about your personal circumstances.