The Ultimate Guide to Tax Deductions You Can Claim in Australia
Whether you’re a small business owner or you’re an employee, it’s worth knowing which tax deductions you can claim in Australia. There are many different types of tax deductions and different exemptions. So, it can be difficult to know and understand which ones you will qualify for.
While paying taxes can be an overwhelming process, everyone has to pay them. As an Australian citizen, taxes are what help fund society and the country. But do you know which tax obligations you have?
Below you will find the ultimate guide to tax deductions that you can claim in Australia.
Here’s What We’ll Cover:
How Do Tax Deductions Work?
Basically, a tax deduction is going to be something that you paid for that was work-related. You can include this amount on your tax return to help reduce your taxable income. And, at the end of the day, it helps boost the tax refund you will receive.
A tax deduction will include anything that’s a work-related expense. And since more and more people have been working from home since COVID started, some are able to claim additional expenses.
The Australian Tax Office (ATO) is able to calculate your taxable income using a simple formula. It would look like this:
Assessable income - tax deductions = taxable income
It can be a bit of a challenge to try and figure out which tax deductions you’re able to claim in Australia. But the good news is everything you need to know is outlined here for you.
Let’s take a look at a quick example.
If you earned $75,000 in income and spent $5,000 on work-related expenses throughout the year, then your taxable income would get lowered to $70,000. When this happens, it means that you only have to pay tax on your taxable income amount. Any additional tax that you have already paid would get added to your tax refund.
Which Expenses Can Get Claimed as Tax Deductions?
It’s worth noting before getting too far ahead that you will only receive a certain percentage of the amount you spent on tax-deductible items. That said, there are a few criteria to make sure you meet to ensure that you can claim an expense.
To be able to claim an expense as tax-deductible, you must:
- Make sure they directly relate to earning your income
- Make sure it’s for your business and not for private use
- Have records and documentation to substantiate and prove what you’re claiming
For a full breakdown of business tax deductions, you can head to the ATO website which will have additional information. It will also outline what, when and how you can claim the deductions you have incurred.
Here are some of the most common business expenses you might be able to deduct.
- Home-based business expenses
- Business travel expenses
- Motor vehicle expenses
- Salaries, wages and superannuation contributions
- Repairs, replacement and maintenance expenses
- Operating expenses
- Capital expenses and depreciating assets
- Carbon sink forest expenses
Several expenses are more common if you travel as part of your work, purchase your own tools, uniforms or equipment. Or, if you use your personal vehicle for business purposes.
Home Office Expenses
Do you primarily work from home? Or have you had to work from home because of COVID? Home office expenses will generally cover any costs associated with working from home. And they are split into two different types: home office running expenses and home office occupancy expenses.
Home Office Running Expenses
These expenses get claimed if you have to sometimes work from home. These can commonly include:
- The cost of using a space, such as costs for heating, lighting and cooling
- Business-related phone costs
- Depreciation of equipment, such as a computer, scanner or printer
- Depreciation of furniture and furnishings, such as tables, chairs or light fittings
- The cost to repair certain furniture or furnishings
- Certain cleaning costs
Home office expenses will not include:
- A mobile phone
- Home internet
- Home phone
- Personal computer depreciation
You are able to claim home office running expenses at a rate of 52 cents per hour. Or, you can claim running expenses based on the amount of actual expense that you incur. If there are no additional costs incurred then you can’t claim a deduction for running expenses.
Home Office Occupancy Expenses
Home office occupancy expenses are usually only going to be possible if you operate your business out of your home. They can also be possible if your employer doesn’t provide a workspace, and you can prove that your home is the primary place of work. This will also allow you to reduce occupancy expenses.
The most common home office occupancy expenses include:
- Mortgage interest rates
- House insurance
- Computer or office equipment
To find out how much you can claim, you can figure out the percentage of your home that’s used by your office. Essentially, if your home office takes up around 10% of your home space, you can claim 10% of your occupancy expenses.
That said, in order to claim home office expenses you need to pass the interest deductibility test with the ATO. The criteria that are outlined by the ATO are as follows:
- It’s clearly identifiable as a place of business
- It’s not readily suitable or adaptable for private or domestic purposes
- It’s used exclusively for conducting your business
- It’s used for client meetings
If you need to use your personal vehicle for work-related purposes, then you can claim some certain car expenses. Just make sure that you aren’t trying to claim for your trips to and from work, as that does not count as an expense. You can claim a vehicle expense if:
- You drive to work-related conferences or meetings outside the usual place of work
- You travel between two different places of employment, and neither of them is your home
- You regularly work at more than one site and drive between them before driving home
- You have to transport heavy or bulky tools and equipment to and from work, and you can’t store them at work
There are two primary methods for you to calculate car expenses. You can either do it by the cents per kilometre method or by the car logbook method.
Cents Per Kilometre Method
Using this method, you can claim up to 5,000km per year and you aren’t required to use a logbook. The ATO might ask you for an explanation as to how you calculated the claim and why using your own car was work-related.
Car Logbook Method
With this method, you would keep a logbook for a 12-week period and you must own your car. It’s important to make sure that you record all business trips and personal trips in your car logbook so there’s no confusion. Also, make sure that you keep any relevant receipts and documentation to prove your expenses.
These can include receipts for petrol, registration, insurance or servicing. They can also include interest on loan costs, depreciation or other running costs you incur.
What Records or Documentation Should You Keep?
Keeping records of your expenses is one of the most important things that you can do. Under Australian tax law, you must keep these records to be able to explain all your transactions. They also need to be:
- In writing, either electronically or on paper
- In English, or in a way that can easily get translated into English
- Kept safe for five years, or longer depending on the expense
You might be able to expense some other things depending on the type of business that you operate or the work that you do. Professional associations, magazine subscriptions and trade union fees can also get claimed. Certain gifts and donations are also tax-deductible as long as the recipient has the status of deductible gift recipient (DGR).
Take a look at the ATO website for more information and a full breakdown of tax deductions you can claim in Australia. You can make sure you have all the right information and you submit your expense claims the right way.
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