Disclaimer:The content provided is not intended to be tax advice. It does not take into account your objectives, financial situation or needs. Origin recommends you seek your own independent tax advice prior to lodging your tax return.
What can be considered as a tax deduction?
Simply put, tax deductions are permissible reductions in your taxable income, that are recognised by Australian tax law. Tax-paying individuals and businesses can claim certain expenses or contributions related to their work. These deductions reduce the amount of income you’ll be taxed on — effectively decreasing the overall tax liability, providing financial relief and greater tax savings.
There are many deductions you can claim against work-related expenses that people often forget about when completing their tax return. Certain travel expenses, home office expenses, education and even internet and mobile phone expenses may be tax deductible. Remember, it’s worth speaking with a tax professional to confirm which apply to you (this will help ensure you’re compliant and the cost of tax advice is deductible, too!).
Financial expenses
Accounting fees
Did you use a tax agent to prepare and lodge your tax return last year? If you did, then you can claim the amount you paid last year – on this year’s return. On your tax return, simply put the amount you paid in 2023 into section D10 – “Cost of Managing Tax Affairs”. The fees you pay for tax return help are always tax deductible.
Donations
If you’ve been generous over the past financial year, it’s an added perk that your donation may extend beyond a good cause to a tax break. Donations of $2 or more to organisations that have the status of a deductible gift recipient are tax deductible if you have a receipt.
Income protection insurance
You’re entitled to claim tax deductions for insurance premiums paid against the loss of income. Remember though, this doesn’t include life insurance, trauma insurance or critical care insurance.
Investment losses and bad debts
Many people think they are a share trader rather than an investor, make sure you know the difference to ensure you lodge your tax correctly this year.
It’s important for investors to include any capital losses not used to offset current year capital gains on their tax return in the year they occur. By including capital losses on a tax return, they’re available to use in future years and can prevent you being contacted by the ATO when the loss is used in future years. Remember, investors can’t use capital losses to offset income like wages. Business owners also need to prove they have made a genuine attempt to recover any bad debts that may have arisen. Your financial advisor can explain how to document the debt as evidence the amounts were written off before the end of the financial year.
Prepaid expenses
With tax deductions, every little bit counts. Prepaying your expenses (such as with PAYGI) can attract a tax deduction that is commonly overlooked.
Small business owners and rental property owners can prepay expenses such as subscriptions, business travel expenses, training events, leases, rent, phone, internet, insurance and business asset repairs (note these can’t exceed more than one year and the expenditure must be over $1000).
Rental property expenses
One of the most common mistakes when owning a rental property is not understanding what can be claimed and when, in particular repairs and capital expenses. Repairs can generally be claimed immediately, but any improvements and capital expenses must be claimed over time.
Any work done before earning any income from the property is considered to be part of the acquisition cost and can’t be claimed unless it’s capital works or a depreciating asset, which gets claimed over a number of years. Acquisition costs can be used to reduce any capital gains when the property is sold.
If you’re not sure download the Investors toolkit and check with your registered tax agent.
Union fees
If you pay to be a part of your workplace’s or industry’s union each year, you’re entitled to a tax deduction under D5-Other work related expenses.
Assets and inventory
Review your asset acquisition
Running a small business? Did you purchase new or second-hand assets for your business recently? If you have depreciating assets, it’s worth finding out whether you’re eligible for small business concessions, such as simplified depreciation rules, the small business income tax offset or immediate deductions for prepaid expenses. Take advantage of these concessions and/or instant asset write-offs to see if they can help reduce your tax bill (some may also save you time).
Take stock of your inventory
If your business produces or purchases stock for sale, you’ll likely need to do at least one stocktake at the end of the financial year for tax purposes. It’s important to identify any damaged or obsolete stock and write it down or write it off. This exercise will impact the value of the trading stock and your profit margins.
You’ll also need to consider how to value your trading stock every financial year, as you may be entitled to claim a tax deduction when the opening stock exceeds the closing stock.
Work related and operational expenses
Home office expenses
With many of us working from home, we’ve put together a quick guide to deductions for home office expenses.
The way you claim (and the amount you claim) for your home office expenses will depend on the method you use to calculate a working-from-home deduction. If you’re eligible to claim a working-from-home deduction, there are two ways you can do this: the fixed rate method or the actual cost method.
Fixed rate method
The fixed rate method allows you to claim 67 cents for every hour you work from home and covers additional running expenses that are often difficult to apportion, such as your phone and internet usage, electricity and gas, stationery, and computer consumables (like printer ink). You can’t claim these items separately if you use the fixed rate method, but your deduction can include working-from-home expenses, which the rate doesn’t cover, such as decline in value of depreciating assets used for working from home.
Actual cost method
Using the actual cost method, you work out your deduction by calculating the actual additional expenses you incur when working from home, such as your phone, data and internet expenses. Where you incur running expenses for both private and work purposes, you need to apportion your deduction. You can only claim the work-related portion as a deduction. Whichever method you use, you’ll need to make sure you have the right records, or your deduction may be disallowed.
Sole traders and partnerships
If you’re a sole trader or in a partnership, you may be able to claim the business-use portion of running expenses (the additional costs of using your home for your business activities) and occupancy expenses (what you pay to own or rent your home). If you operate your business from your home and have a dedicated area set aside as a ‘place of business’, you may be able to claim occupancy and running expenses. These can include mortgage interest or rent, electricity and phone use. Find out more at: www.ato.gov.au/homebasedbusiness However, you may not get the full main residence exemption if your home is your principal place of business — for more information visit the ATO website.
If you’re an Origin customer, you can download your energy bills using Origin’s MyAccount. Check out our tax time help and support page to learn how.
Mobile phone expenses
As a business owner or an employee, you can claim the cost of your work-related calls (not your entire phone bill). It’s a good idea to keep a logbook of when you use your personal phone, to determine the average percentage of your calls that are work-related. If you have claimed working from home expenses, you cannot claim the same phone expenses twice.
Education and training expenses
You can claim self-education expenses if there’s a direct connection between the course and your role in your business, or your duties as an employee. You could be entitled to a tax deduction for expenses including the following:
- Textbooks, professional and trade journals
- Stationery
- Photocopying
- Computer expenses
- Student union fees
- Student services and amenities fees
- Accommodation and meals, only when participating in your course requires you be away from home for one or more nights.
- Running expenses if you have a room set aside for self-education purposes – such as the cost of heating, cooling and lighting that room while you are studying in it.
Also, if you’re a small business with an aggregated turnover of less than $50 million, you may be eligible for the small business skills and training boost. The boost would give you an additional 20% bonus tax deduction for eligible expenditure incurred on training new and existing employees.
If eligible, you can claim a deduction on expenditure for external training courses delivered to your employees, either in person in Australia or online. The training must be provided by an external training provider registered in Australia. The boost is available until 30 June 2024.
You can’t claim expenditure for training you undertake yourself as a business owner, such as where you are a sole trader, partner in a partnership or independent contractor.
Work-related car expenses
Business owners who use their personal car for work-related reasons, apart from driving to and from work, can usually claim running costs as a tax deduction where a valid logbook has been kept for a representative period of three months. Or you can use the cents per kilometre method for up to 5,000 kilometres. To be eligible, you must be the owner of the car and your travel must be part of your working day. For example: driving between offices, special trips to the post office, bank or moving from one job site to another are considered work-related expenses.
Employees can also claim car expenses in similar circumstances.
Consult the ATO website
Our tips are not tax advice and are intended to be general in nature. We recommend you keep a record of all your receipts and working hours as evidence, and that you seek expert advice from a registered tax professional before you lodge your return.
For more information on what you can and can’t claim check the ATO website and for businesses check out ATO website for business.
Get started
Build your tax and super skills this tax time with Essentials to strengthen your small business. A flexible and free online learning platform with courses for small businesses to learn how to get their tax and super basics right. To help you this tax time, and throughout the year. Not too sure where to start? you can always talk to the experts and get the help you need by speaking to the ATO, or your registered tax agent, to help get you on your way.
This article has been created in collaboration with the Australian Taxation Office. For more helpful tax info visit the ATO Community or the ATO website.
