As an accountant I am a strong advocate of planning your tax return at the start of the financial year, rather than a last minute dash in the last week of June.
Doing so means that you can be a lot more strategic with how you use your money – for example it is a false economy to spend money at the last minute on something you don’t really need, just so you can access a tax deduction. This is because the amount you spend on a claimable item does not equate to the same amount in tax savings. For example, claiming $500 for car expenses or accountant’s fees would reduce your tax bill by around $173 for someone on a salary of $80,000. In other words, the tax saving is directly proportionate to your tax bracket – in this case someone paying roughly 34% in tax on their income, will save roughly 34% in tax from any item they claim on their tax return.
What this means is that by spending money on items you don’t need, just so you can claim a tax deduction, you are left roughly 70% out of pocket!
The better way to go about it is to consider what expenses you regularly incur when carrying out your job, and make sure that you are maximising the tax deductions available to you.
How do you do that? By:
1. Getting informed about your options (a great starting point are the ATO’s Occupation and Industry Specific Guides) and
2. Keeping accurate records – many people miss out on tax deductions simply because they forgot that they incurred an expense. The myDeductions app is the ATO’s free app that is great for helping you stay organised and ready for tax time.
To help you along here are some common expenses that my clients often forget that they can claim along with common myths about things you can’t.
This is a great time of year to consider whether there is any study you wish to do this year, that could help you get a pay rise.
If you undertake a course that is directly related to your current job and is likely to lead to an increase in employment income, you are then eligible to claim the expenses related to this study, on your tax return. Items such as travel to and from the location of the course, meals and accommodation (if travelling interstate and overnight), home office expenses, depreciation expenses for your computer, home internet expenses, home office expenses (to compensate you for costs of electricity, heating, etc), stationary, books, etc.
It is important to note that in some cases the total amount you can claim for self education expenses may need to be reduced by $250. However, because let’s face it, nothing the ATO ever does is simple, you may be able to offset this $250 figure down to zero if you have incurred expenses related your study that you can’t use as a deduction (such as the last stage of your travel if traveling from home to your place of education and then to work).
For more information check out the ATO’s Guide on Self Education expenses.
Home office expenses
If you work or conduct work related study from home, you can claim a deduction for the additional running expenses of an office or a study at home using a rate of 52 cents per hour worked at home during the 2018/2019 year. You need to have diary records during a representative four-week period to substantiate your claim. The ATO’s Home office expenses calculator helps calculate the amount you can claim as a deduction for home office expenses.
If you need to use your car to travel for meetings with clients or to travel from one job to another, you may be able to claim your car expenses as a tax deduction, but you must keep records of your car use.
If you drive a car you can choose between the cents per kilometre method or the logbook method to calculate your deduction. If you use the logbook method, you need to keep a logbook to help you determine the percentage of work-related use of your car. If you use the cents per kilometre method, you need to provide a calculation of your work-related kilometres.
You must be able to show that the kilometres travelled were work-related. It is also important to note that you cannot claim car expenses on a salary packaged vehicle. Check out the ATO’s Guide on Claiming Work Related Car expenses for more information.
If you are required to work outdoors and are exposed to the risk of eye damage from sunlight. This includes prescription sunglasses and anti-glare glasses. (note however that you cannot claim ordinary prescription glasses or contact lenses).
Income protection insurance
You can claim the cost of premiums you pay for insurance against the loss of your income. It is important to also note that if you go on an income protection claim, you must include any payment you receive under such a policy on your tax return.
Things you may think you can claim, but you can’t
Here are some common myths and items my clients have mistakenly thought that they could claim:
- Parking at your usual place of work – while you can claim parking expenses in some circumstances you cannot claim the cost of parking at your usual place of work .
- Travel to and from work – with the exception of trades people required to carry bulky tools, you cannot use taking your laptop to work as an excuse to claim travel between home and your usual place of work.
- Work clothing – suits and generic clothing items (Eg black pants for hairdressers or waitstaff), cannot be claimed, nor can the cost of laundering these items. Unless your clothes are a specific uniform or have your employers logo, you cannot claim the cost of purchasing or cleaning them.
- Childcare – while I dream of a time we can claim childcare expenses, at the moment this is not allowed.
- Self education expenses – that relate to a course designed to help you get a new job.
- Overtime meal expenses – unless you receive a specific overtime meal allowance that is separate to your salary, you cannot claim the cost of a meal you buy and eat when you work overtime
- Meals and snacks at work – You can’t claim a deduction for the cost of food, drink or snacks you consume in the course of a normal working day, even if you receive a meal allowance. These are private expenses.
- Work lunches – I repeat, you cannot claim the cost of meals, even if you went out with your work colleagues to discuss work matters.
- Makeup – You can’t claim a deduction for grooming products. For example – hairdressing, cosmetics, nail polish or hair and skin products. Even if there is an expectation that you are well groomed or you receive an allowance grooming, these products are private expenses.
- Anything your employer pays for – you cannot claim any expenses incurred for work, which your employer has reimbursed you for.
- Premiums for life insurance, total and permanent disability insurance or trauma/critical illness insurance – you can only claim premiums for income protection insurance that you pay for.
- Premiums for income protection insurance that are paid through your super – your super fund will instead claim these expenses.
- Home expenses such as rent, mortgage interest, rates, home insurance (unless your home is a place of business, in which case different rules and potential capital gains tax implications apply but your accountant can help!).
- Depreciation on items you have salary sacrificed – such as your laptop or mobile phone (while there was a time when this was allowed, this is no longer the case).
This of course is not an exhaustive list of everything you can and can’t claim, so be sure to speak with your accountant or check out the ATO website for further information.
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