With tax time now upon us, it is time to start thinking about your tax-deductible expenses related to the 2019-20 financial year.
In order to claim a deduction for work-related expenses, the cost must be directly related to the earning of your income. The ATO has identified work-related expenses as a target area for audit given their belief there has been significant over claiming in previous years.
Here are some of the most common tax deductions you can claim in your tax return.
1. Home office expenses
Where you work from home you can claim the costs of:
- Stationery, ink, printer paper, phone and Internet expenses
- Home office equipment such as computers, phones, printers, furniture and furnishings – If the cost is less than $300, you can claim the full amount, if over $300 you can claim the decline in value.
Due to COVID-19, the ATO has introduced a temporary ‘shortcut method’ to simplify the calculations for home office expenses with minimal record-keeping at 80 cents per hour. This method applies for the period 1 March 2020 until 30 June 2020 and is further extended to next year.
The shortcut method covers all your work from home expenses, such as:
- Phone & Internet expenses
- The decline in value of equipment
- Electricity & gas for cooling, heating & lighting
If you use the shortcut method, you can’t claim any other expenses for working from home.
Alternatively, you can claim the above expenses PLUS the per hourly rate but reduced to 52 cents.
Where you use an hourly calculation, you must keep a record of the number of hours via a timesheet, roster, a diary or other means of reasonable record.
Note there are some surprising exclusions of expenses you cannot claim and yet would seemingly be incurred under the above logic:
- Home expenses, like mortgage interest, rent and rates
- Costs of general household items, like coffee, tea and milk.
2. Vehicle and travel expenses.
Everyone has a car and uses it to get to work and yet the driving to and from work is not a deductible expense. This is an anomaly but enshrined in tax case law.
The following circumstances DO result in tax-deductible expenses.
- Travelling between two workplaces – for example, when you have a second job.
- When your work requires you to attend multiple workplaces or locations – for example, to attend meetings at clients’ premises
- Car expenses for transporting bulky items between home and work, such as tools and equipment, can only be claimed when there are no other options for transporting or securely storing them
- Car expenses where you need your car to perform work duties
- Expenses you incurred for meal, accommodation and incidental expenses when you’re required to travel for work. Generally, you can’t claim for meals if your travel did not involve an overnight stay.
For documenting the travel claim the record-keeping gains in complexity the higher the amount of travel and therefore the amount of the claim. There is a 3 tiered approach to making a claim starting with a simple estimated number of weekly kilometres and ending with a logbook (to determine apportionment) and specific record of all car expenses.
In order to see how you should claim motor vehicle expenses exceeding $3,000, please click here.
3. Clothing, laundry and dry-cleaning
You can claim cost incurred on the purchase of occupation-specific clothing, protective clothing or work uniforms specifically related to your job, along with related cleaning costs, as work-related expenses.
–NOTE These days employers usually provide uniforms free of charge and it is the upkeep that becomes a deductible expense.
As above you must have receipts to claim it as tax deductions.
If you receive an allowance from your employees for the costs mentioned above, then you can only claim a deduction for the amount you actually spent.
Please refer here for a detailed explanation for claiming clothing & laundry expenses.
You can claim a deduction on course fees if you are enrolled in a course which will improve specific skills in your current employment or is likely to result in an increase in your income from your employment.
Please click here to learn more about self-education expenses you can claim.
5. Other work-related expenses
A tax deduction can be claimed on other work-related expenses, depending on your work and individual circumstances. Expenses to consider include:
- Books, periodicals and digital information subscriptions
- Safety goggles and protective sunglasses
- Income protection insurance
- Seminars, conferences and education workshops
- Overtime meals
- Union fees, subscriptions to associations and bargaining agents fees
6. Gifts and donations
You can only claim donations you have made above $2 and only if it was to a ‘Deductible Gift Recipient’. So it is important to check the DGR status of organisations you wish to make a donation or gift to claim a tax deduction.
Please click here for a detailed guide on what you can claim as a tax deduction.
7. Investment income
The other obvious ones are interest and bank fees on borrowings to make the investments. Make sure you don’t taint the deductibility of the borrowings by using the money for any other purpose. Sounds hard to do but the oft used to come and go facilities or offset loan accounts can make a previously 100% deductible expenses private if not carefully managed.
8. Professional Fees
You can claim expenses that relate to managing your taxes, including the tax agent fees you pay for lodging your tax return. You may also be able to claim back tax reference books, if applicable.
9. Industry-related deductions
You can check the list of occupations and industries on the ATO website to see what industry-related tax deductions you can claim.
Important points to note
- These notes are for your initial run through and then collation of what you think is eligible. If in doubt bring the query to us and we can help you identify eligible tax deductions based on the industry you work in and your circumstances. It’s important to remember that tax laws are complex, and you should ensure that you’ve confirmed you can claim an expense before including it in your tax return.
- If your employer has started using Single Touch Payroll (STP), your payment summary information is now called an ‘income statement’ in myGov. Your income statement will show your year-to-date salary and wages, the tax that has been withheld and the reported amounts of your employer super. The income statements will be ready to use in your tax return when your employer marks it as ‘Tax ready’
- Once you’ve lodged your tax return, make sure you keep all your records of expenses. The ATO may ask you to provide evidence to support any claims you make for up to 5 years.
- You have until 31st October to lodge your tax return if you do so personally. Alternatively, if you appoint a registered tax agent to prepare and lodge your tax return, they should be able to lodge your return by May 2021. (Unless you were late lodging previously)
Contact Connolly & Associates accountants today to assist in the preparation & lodgement of your 2020 Tax return. Along with reviewing & providing advice on planning your finances for the new financial year.