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, many individuals and small businesses manage it themselves. Before you begin putting your tax return together for the financial year, get to know the tax deductions you may be able to claim.
What is a Tax Deduction?
You can claim a tax deduction for some expenses you incur while working. The expense subtracts (deducts) from your assessable income to lower your taxable income and the amount of tax you pay. Tax deductions are often work-related expenses, but may also include other expenses like accountant fees or donations of $2 or more to eligible charities.
As outlined by the ATO, if you’re an employee claiming a deduction for work-related expenses you need records of the expenses to show:
- the purchase itself (usually a receipt; a bank statement on its own is usually not sufficient evidence to claim a deduction)
- you spent the money yourself and were not reimbursed
- the expense directly relates to earning your income.
If the expense doesn’t only relate directly to earning your income, you need a diary or similar record that shows how you worked out your private and work-related portion of the expense. Using this record, you can calculate the amount you can claim as a deduction.
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 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, Principal of 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.” In other words, you need to make sure you are eligible to claim it.
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 [acquiring or renewing] your driver’s licence cannot be claimed, or relocation expenses if you move for [an existing or] 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. Claiming Working-From-Home Expenses
So that fancy new sit-stand desk, ergonomic mouse and keyboard combo or second monitor that has changed your working-from-home life is potentially claimable.
But what actually makes you eligible to claim a working from home deduction? According to the ATO, you need to be carrying out your work as if you were in the office, not just checking your emails every now and then, as well as have a record of additional expenses incurred due to working from home.
There are two methods to 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 rate method
The fixed rate method allows you to claim a set rate for every hour you work from home, and covers your additional running expenses that are often difficult to apportion. This includes:
- phone and internet usage
- electricity and gas (energy expenses)
- stationery and computer consumables, such as paper and printer ink
You can’t claim an additional deduction for any of these expenses if you choose this method. But the set rate-per-hour does not include the decline in value of work-related equipment such as computers or office furniture, so the work-related use of these items can be calculated and claimed separately.
Note: To claim a deduction using this method, you will need a record (kept at the time they occurred) of the total hours spent working from home for the entire income year. You also need evidence for the expenses covered by the rate that you incurred. For example, if you incurred phone and electricity expenses, keep one bill for each expense as well as records for items you claim as a separate deduction.
The actual cost method
Using the actual cost method, you claim the cost of each expense or the decline in value of items used to work from home. To do this you must have detailed records that show the amount:
- you spend on expenses
- you spend on depreciating assets you buy and use while working from home
- of the work-related use for your depreciating assets and expenses
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 buy a laptop for $2000 on 30 June this year and use it 100 per cent 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 your working-from-home expenses calculation, or if you lodge yourself, use one of the ATO calculators available on their website.
2. Claiming Mobile Phone Calls
If you’re using your personal phone for work purposes, you can generally claim the work-related portion of the usage charges 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 set rate, you cannot claim these expenses as they are already included in the rate.
Remember: you need to have spent the money yourself and not have been reimbursed to claim a deduction.
3. Claiming a Work Bag
If you use a bag wholly for work purposes, such as carrying a laptop, tablet, 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.”
4. 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.
5. 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.
6. 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 up to 5000km. Make sure you check if you’re eligible to claim car expenses.
7. 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. You’ll need to keep records to show that you were away overnight, you spent the money, and the travel was directly related to earning your employment income. Note: you can’t claim a deduction if the travel is paid for or reimbursed by your employer or another person.
8. Claiming Study Costs
You may be able to claim your self-education and study expenses if it relates to your work. The study must have sufficient connection to your current work and not be used to get a new job. If you are eligible, you may be able to claim your course fees, stationery and textbooks.
SEE ALSO: Small Business Tax Breaks to Consider in 2024
Tax Deduction Tips for Business Owners
Small businesses may also be able to claim 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 Mark. “It also excludes policies paid for out of your superannuation contributions.” 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, Training and 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. Your small business might also be eligible for an additional 20 per cent tax deduction for things like staff training or education courses carried out by registered providers. This extra claim, known as the ‘small business skills and training boost’ is applicable from 29 March 2022 until 30 June 2024.
And while things like stationery and employee training may be things you think to deduct, remember other items like milk for the work kitchen are also possible deductions. However, employees working from home can’t claim their food, coffee, tea, milk and other general household items.
SEE ALSO: Useful Online Tools From the ATO
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, you can get a copy of your receipt emailed to you – just ask one of the 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.
For more information, check out the ATO website for what individuals and businesses can claim.
This is general information only. Seek professional financial and/or legal advice to determine the right outcomes for your business or individual needs.
This article was originally published in 2021 and has been updated.
