What are Tax Deductions?
Tax deductions are expenses which can be deducted from your total taxable income to reduce your tax bill. You can claim for a variety of expenses as long as they’re relevant to your job and your ability to complete your job. You’ll get a certain percentage of the tax you paid on these items back and you must declare them on your tax return and provide proof of purchase. Keep in mind that you can only make a claim for expenses that you did not receive a reimbursement for. Tax deductions allow businesses to make the purchases they need, like new equipment or internet access and receive a percentage of that back after they submit their tax return.
How much of your Tax Deductions do you get back in Australia?
You’ll receive a percentage of the money back that you spend on tax-deductible items and this percentage depends on a number of factors including your income. In the 2021-22 tax year the marginal tax rates that apply to individual taxpayers were as follows:
- If you earn $18,201 – $45,000 a year you could receive 19 cents for each dollar you earn over $18,200.
- If you earn $45,001 – $120,000 a year you could get $5,092 plus 32.5 cents for each dollar over $45,000.
- If you earn $120,001 – $180,000 a year you could get $29,467 plus 37 cents for each dollar over $120,000
- If you earn more than $180,000 you could get $51,667 plus 45 cents for each dollar over $180,000.
Eligibility for Tax Deductions
You’ll also need to meet a number of criteria to be eligible for tax deductions in Australia. The expenses must be for your business, not private use and they must relate directly to your ability to earn your income. If you earn less than $18,201 a year, you won’t pay any tax anyway, so you won’t benefit from tax deductions. To prove your spending is eligible for tax deductions you’ll need receipts or invoices to back up the claim. You also can’t have been compensated for the cost and it must be relevant to your work.
What Tax Deductions can be claimed?
There are many tax deductions that can be claimed in Australia, including less commonly known examples sunscreen and artwork. In general, tax deductions are grouped into four categories – motor vehicle and car expenses, travel expenses, self-education expenses and clothing expenses. Some of the tax deductions you claim include:
- Charitable donations
- Home office expenses
- Rental property fees
- Interest on investments
- Travel costs
- Higher education
- Work clothing
- Covid-19 testing expenses
- Tax management costs
- Vehicle expenses
- Equipment and tools
- Union memberships
- Laundry & dry cleaning costs
Working from Home Deductions
You may also be able to claim working from home expenses if you can prove you regularly work from home. You can only claim these for the hours you exclusively use in an area of your home during work hours, and they can include phones, computers, internet bills or operating costs of electrical. These can be claimed as 80c per hour, 52c per hour or using the actual method. You can usually claim up to $300 for home office equipment and there may be some industry-specific expenses too.
Can you claim for General Expenses?
To claim a tax deduction it must be relevant to your job. Some expenses can be claimed for both work and personal purposes, for example, a new vehicle, but you can only claim a tax deduction for the work portion of the cost of the car.
Some medical expenses are tax deductible but only if they relate to work-related conditions.
Mobile phones can be used for both professional and personal use, so you’ll need to work out the percentage that you use it for your work calls as just that is tax-deductible.
Industry-Specific Tax Deductions
There are also several industry-specific tax deductions outlined by the Australian Tax Office (ATO). These online occupation-specific guides include the relevant tax deductions you may be able to claim based on your industry. If you are a landlord, you may be able to make a tax deduction on your rental property and the ATO have specific criteria for what can and can’t be claimed.
How do you claim Tax Deductions?
You can claim tax deductions by including them in your tax return or business activity statement. To claim tax deductions, you’ll need to find out what date your tax return is due unless you are lodging it through a registered tax agent. Business owners will be sent a business activity statement (BAS) when it is time to lodge their taxes, and this will allow them to report and pay for taxes.
How do you File a Tax Return in Australia
There are different requirements for different types of businesses when it comes to tax returns so it’s important to know what applies to you. Most people choose to lodge their tax returns with a registered tax agent, but sole traders can also do it online through the ATO’s myTax portal. You can pay your tax bill online with BPAY or a credit or debit card. Your accountant can also lodge your tax return using standard business reporting enabled software or on paper.
Get in Touch
If you need assistance filling in your tax return in Australia, at Carbon Group, our experienced accountants are here to help. We have decades of experience helping businesses and individuals maximise their income and complete their tax return accurately and on time. Call us today on 1300 454 174 to find out more about our business accounting, tax and bookkeeping services.