Maximise Your Allowable Tax Deductions: Tax Savings 101

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Navigating the complex world of taxation can be daunting, but understanding allowable tax deductions is crucial for optimizing your financial situation. In this comprehensive guide, we'll explore various aspects of allowable tax deductions in Australia, shedding light on work-related deductible expenses, what distinguishes allowable and non-allowable deductions, the importance of maintaining receipts, and specific categories such as vehicle and travel expenses, clothing and laundry expenses, home office expenses, self-education expenses, and tools and equipment expenses.

Understanding Allowable Tax Deductions

Allowable tax deductions refer to expenses that you can subtract from your total assessable income, reducing the amount of income subject to taxation. By identifying and claiming these deductions, you can ultimately lower your taxable income, resulting in reduced tax liability.

In order to qualify for allowable tax deductions, it is essential to ensure that the expenses incurred are directly related to your work or business activities. This means that expenses must be necessary and directly connected to your income-generating activities. It is crucial to keep accurate records and receipts for all deductible expenses, as the Australian Taxation Office (ATO) may request evidence to support your claims. Additionally, it is important to note that not all expenses are eligible for tax deductions, and it is essential to understand the distinction between allowable and non-allowable deductions.

Declaring Your Income

The Australian Taxation Office (ATO) automatically receives information from your employers about salary and wages that you have been paid for the financial year. You need to declare all income from other sources on your tax return as well.

- Wages and salaries from employment
- Pensions, annuities or government payments such as JobKeeper
- Investment income includes interest earned and dividends paid
- Cryptocurrency gains or losses
- Business or hobby income
- Foreign income
- Crowdfunding income
- Sharing economy income such as Uber or AirBnb
- Any other income such as prize money, compensation or insurance payments

Even if you have only earned a small amount from one of these sources, it still needs to be declared on the tax return. Gather all your records for anything you have earned apart from salary and wage payments from employers.

You will need:

- bank statements that show interest income;
- proof of earnings from other sources such as crowdfunding or share economy platforms;
- records of business or hobby income;
- records of government payments received;
- record from cryptocurrency wallets showing transactions and the balance of each currency at 30 June;
- and records of any other payments received from overseas sources, prize winnings, insurance or investments.

Making the Most of Allowable Tax Deductions

Employees are entitled to claim work-related expenses as a tax deduction. To claim a tax deduction, you must have spent the money out of your own funds and not have been reimbursed by your employer. The expenses must relate to your earnings as an employee. Make sure you have invoices and receipts as proof of payment for any work-related expenses.

Work-related deductible expenses are costs incurred as a direct result of your employment. These may include:

- Tools and equipment necessary for your job
- Uniforms and protective clothing
- Work-related travel and accomodation expenses
- Union fees and professional association memberships
- Work-related education expenses

It's crucial to note that expenses must be directly related to your employment, and you cannot claim expenses reimbursed by your employer.

Expenses You May Be Able To Claim

Vehicle and Travel Expenses: Deductible vehicle and travel expenses include costs associated with using your car for work purposes, public transport expenses, and accommodation costs during work-related travel. Keeping a logbook to record your work-related car usage is crucial for accurately claiming these expenses.

Clothing, Laundry, and Dry-Cleaning Expenses: If your job requires a specific uniform or protective clothing, you may be eligible to claim related expenses. Additionally, the costs of laundering and dry-cleaning these work-related items can be deducted. Remember to keep receipts and records of these expenses to substantiate your claims.

Home Office Expenses: With the rise of remote work, home office expenses have become increasingly relevant. Eligible expenses may include a portion of your rent or mortgage, electricity, internet, and office supplies. The ATO provides two methods for calculating home office expenses: the fixed-rate method and the actual cost method. Choose the method that best suits your circumstances.

The shortcut calculation is still available this year for people who have worked from home due to COVID-19. This allows for a flat rate of 80 cents per hour for work time. You will need records of the hours you have worked from home to claim the ATO special rate. For people who usually work from home, check the ATO home office expenses calculator to maximise the allowable deduction.

Self-Education Expenses: If you're investing in your professional development through self-education, you may be eligible to claim related expenses. This includes course fees, textbooks, travel to and from educational institutions, and other study-related costs. Ensure that the education is directly related to your current employment to qualify for deductions.

Tools and Equipment Expenses: If your job requires specific tools or equipment, the costs incurred in purchasing, repairing, or insuring them may be deductible. Keep records of these expenses, including receipts and invoices, to support your claims.

Allowable and Non-Allowable Deductions

Understanding the distinction between allowable and non-allowable deductions is crucial. While some expenses related to your work are eligible for deduction, personal expenses or those unrelated to your job are generally non-deductible.

For instance, expenses such as private clothing, non-work-related travel, and entertainment expenses are typically non-allowable deductions.

How Much Tax Deductions Can I Claim Without Receipts?

While it's preferable to keep receipts for all deductible expenses, the Australian Taxation Office (ATO) allows for some flexibility. For expenses under $300, you may be able to claim without receipts, provided you can demonstrate the authenticity of the expense through alternative means, such as bank statements or credit card records.

How Much Deduction is Allowed in Income Tax?

The amount of deduction allowed in income tax varies based on the nature of the expense. Some deductions, such as work-related car expenses, may be calculated using the cents-per-kilometer method, while others require you to calculate the percentage of work-related use.

What Tax Deductions Can I Claim Without Receipts?

While certain expenses under $300 may not require receipts, it's important to understand that the ATO may request evidence to support your claims. Keeping detailed records and maintaining receipts wherever possible is still advisable to ensure compliance and prevent potential issues during audits.

What Percentage of An Expense Can I Claim Back on Tax?

The percentage of an expense you can claim back on tax depends on the nature of the deduction. For example, work-related car expenses may be claimed based on a cents-per-kilometer rate or actual expenses incurred. Keeping accurate records of the business use of your vehicle is essential to determine the correct percentage.

Occupation and Industry Specific Guidelines

The ATO recognises that some occupations and industries have specific requirements that employees need to pay for.

There are handy ATO fact sheets for many industries, including hairdressers, teachers, performing artists, hospitality workers, lawyers, medical professionals and more.

These guides are a great starting point if you are not sure what you can claim, but we can give you information tailored to your situation when you do your tax return.

Superannuation

If you have made personal superannuation contributions separate to your employer’s superannuation guarantee contributions, you may be able to claim this as a tax deduction. You will need to provide a notice of intent to claim form to your super fund and receive acknowledgement from the fund before doing your tax return.

Understanding and maximizing allowable tax deductions in Australia is a powerful way to optimize your financial position. By keeping accurate records, understanding the specific requirements for each deduction category, and staying informed about changes in tax legislation, you can confidently navigate the taxation landscape and make the most of the benefits available to you. Remember, consulting with a tax professional is always advisable to ensure compliance with current regulations and to maximize your eligible deductions.

Book time with us now to prepare for your tax return and we’ll make sure you maximise your allowable tax deductions this year.

Acro Accounting & Financial Planning (AAFP) offers a one stop solution right from accounting, taxation, financial planning to other business advisory services. As Certified Practicing Accountants (CPA’s) and professional tax advisors, we pride ourselves on being experts with the latest developments relating to business and taxation. We as professional public practice firm, provide high quality taxation and business advice to our clients through a personalised service at competitive rates.

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