When completing tax return, taxpayers are entitled to claim deductions for some expenses, most of which are directly related to earning their income. A taxpayer subtracts these allowable deductions from their total income to get their adjusted total taxable income. Taxpayers pay tax on adjusted taxable income. The expense occurred must not be private, domestic or capital expense.
To claim a work-related deduction:
• Taxpayer must have spent the money yourself and weren’t reimbursed
• it must be related to Taxpayer’s job
• Taxpayer must have a record to prove it (there are some limited exceptions)
If the expense was for both work and private purposes, taxpayer can only claim a deduction for the work-related portion.
Normal Basic Deductions that can be claim are such as:
- Vehicle and travel expenses: A taxpayer can claim vehicle and other travel expenses directly connected with taxpayers work, but taxpayer cannot claim for normal trips between home and work- this is considered as private travel expense.
- Clothing, laundry and dry cleaning expenses: A taxpayer can claim a deduction for the cost of buying and cleaning of specific clothing as instructed in the taxpayer’s occupation.
- Gifts and donation: A taxpayer can only make tax deductible gifts or donation to organization that have the status of deductible gift recipients (DGRS).
- Home office expense: A taxpayer may be entitled to claim deductions for home office expense including a computer, phone or other electronic device taxpayers are required to use for their work purposes. Taxpayers must keep records for all these expenses. Maintenance cost (running cost) may be deductible but capital cost (occupancy cost) may be not deductible for an employee.
- Self-education expense: A taxpayer may be able to claim a deduction in the favor of self-education expenses if taxpayers study is work related or if taxpayers receive taxable bounded scholarships. There are certain scenarios where taxpayers have to reduce the amount of their claim by $250.
- Tools, equipment’s and other assets: If taxpayers buy tools ,equipment or other assets to increase tax payers income ,in such case taxpayer can claim deduction in respect for such cost.
- Interest, dividend and other investment income deductions: Taxpayer can claim a deduction for expenses incurred in earning interest, dividend or other investment income. Taxpayer cannot claim a deduction for receiving an exempt dividend or other exempt income.
Taxpayers may be able to claim other deductions not previously mentioned. As a rule of thumb, if they need to spend money to earn income, they can usually claim it – either as an immediate deduction or over time. To be a legitimate expense claim, taxpayers have to be able to show:
- Taxpayers need to incur the expense to earn the income; and
- The expense is not private or domestic in nature.
ATO produces a number of occupation- specific guides for claiming deductions:
- Books, periodicals and digital information.
- Cost of managing tax affairs.
- Election expenses.
- Income protection insurance.
- Interest charge by ATO.
- Overtime meals.
- Personal superannuation contribution.
- Project tool deduction.
- Seminar, conferences and education workshops.
- UPP of a foreign pension or annuity.
- Union fees and subscriptions to associations.
The income tax law allows deductions against your assessable income for losses and outgoings incurred in carrying on a business. Generally, deductions will be allowed if there is a sufficient link between the loss or outgoing and the business income where the amount is not of a private or capital nature.
However, if taxpayer’s business activities are illegal – that is, they have been guilty of an indictment offence in respect of them – they can’t claim a deduction for a loss or outgoing to the extent it was incurred in the furtherance of, or directly in relation to those activities.
Similarly, such losses and outgoings do not form part of the cost base or reduced cost base of a capital gains tax asset. Tax payers will not be able to claim a capital loss or reduced capital gain as a result of such expenditure.