Top Ten Expenses to Claim in Your Tax Return
Have you been working from home more recently? Are you wondering how your friend’s tax return always seems so much better than yours?
You may have additional deductions you could be claiming, especially work expense deductions, which could provide you with a higher refund on your next return…and even future returns.
Let’s talk about ten of the best deductions you can claim that most people overlook. But first, let’s look at some of the important eligibility requirements for claiming.
What are the rules to claiming?
There are, of course, rules guiding what is claimable. The most important rules to remember are:
- The money spent on the expense was outlaid by you and not reimbursed
- The item or expense relates directly to you earning income
- You have evidence of the expense (i.e., a receipt)
Many claimable costs may not be exclusively used for work. In this instance, you would claim the deduction based on what percentage of the item or service is used to generate income. For example, your home internet is regularly used for personal use but during your workday. That means a portion of your internet service costs can be claimed as a work expense, provided you are not already being reimbursed through your work for this service.
The other crucial tool in claiming work expenses, particularly those that are only partially claimable, is evidence of usage amounts. The best way to ensure accuracy in your claims is to keep a log or diary and all your receipts. This way, when it comes to claiming, you can confidently and accurately claim expenses to ensure the best possible tax return.
There are plenty of ways to keep your log yourself, or you can use the ATO App’s My Deductions tool to keep all your records in one place.
What are things I can claim on my tax return?
Home office expenses
If you’ve started working from home recently, you’ll definitely have some expenses claimable on your tax.
Generally, your workspace would be a separate room or office. However, if you work in a shared space or dual-purpose room (i.e., Lounge or dining room) you may still claim eligible expenses for the hours in which the space is used exclusively for work purposes.
Most people who have moved to exclusively working from home can claim what is considered “occupancy costs,” which includes a portion of your rent or mortgage and utilities like electricity, internet, and phone—both home and mobile. For mobile phone and internet especially, it is important to be able separate personal and work usage. To do this, you’ll need to keep a log of your work usage and calls over a four-week period. Your tax accountant will then be able to use this log apportion the correct percentage of the expense as a deduction on your tax return.
You can find great information about claiming mobile and other technology expenses in H&R Block’s article, Tax Deductions for Laptop, Phone & Work-Related Devices.
Tools and Equipment
You may also be able to claim purchase costs for work stationery, software, furniture, and equipment you require to work from home. This can include anything from pens and paper or office furniture, to mobile phone, computers, and professional tools.
For items costing less than $300 the full amount is claimable in the same tax year as long as:
- it is used predominantly for generating income
- it is an individual item and not part of a set that would cost more than $300
Assets and tools that don’t fit the above category would instead be claimable as a depreciated asset, meaning you would claim a percentage of the item’s expense based on its decline in value over its lifetime. This would be claimed over several years rather than fully in the same year of purchase.
Vehicle and travel expenses
If you use your car for work-related travel, you may be able to claim vehicle expenses as tax deductions. However, it is important to note that not all work-related travel is claimable. For example, you can’t claim car expenses:
- for daily travel to and from work, this is considered private travel
- for anything you pay under salary sacrificing or novated lease agreements
- you already receive reimbursement from through your company
You can claim for vehicle expenses related to:
- travelling from your workplace to meet a client
- attending conferences or other work-related meetings away from your workplace
- travelling between your usual place of work and an alternate place of work for the same company
- travel to or from your home to a place of work that is not your regular workplace (i.e., a secondary office or a client’s home)
To calculate your car expenses, you can use one of two methods: cents per kilometer or a logbook.
Cents Per Kilometre Method
With this method, you simply claim a deduction of 72c per km up to a maximum of 5000km. This rate of 72c is calculated to incorporate all costs associated with the vehicle including fuel, maintenance, depreciation, insurance, and repairs, meaning these costs cannot be then claimed on top of this amount.
If your vehicle is used by more than one person for work purposes, each person can claim 5000km, but it is important to be able to show evidence of the kilometres travelled and how you calculated the total deduction.
The logbook method allows a more accurate representation of your business usage for each related vehicle expense. Initially, this is the more time-consuming method, as it requires the recording of all business journeys for twelve weeks, as well as collating receipts for all vehicle expenses. However, once collated, this calculation is valid for five years.
As well as start and end dates, the logbook will need to state:
- an odometer reading from the start and end dates
- odometer readings for the whole period you own the vehicle within that tax year
- the total kilometres travelled for the twelve-week period
- the business percentage use for the logbook period
Each journey over the twelve weeks must record:
- date of journey
- odometer readings at both the start and end of the journey
- kilometres travelled
- reason for journey
These details will allow calculation of the percentage claimable for vehicle expenses, except for the depreciated value, which is calculated at 25% of the written down value of the vehicle.
While the logbook method results are valid for five years, if you change jobs or work circumstances in that period, a new logbook will need to be completed. The twelve-week logbook must also be completed over a continuous twelve-week period.
Clothing, laundry, and dry-cleaning
If you wear uniforms specific to your job, such as branded shirts or protective clothing, you may be able to claim these costs on your tax return. To be claimable your clothing must:
- have your company’s logo attached; or
- be listed as compulsory within your employer’s uniform policy and enforced; or
- be designed to protect you from injury or illness (i.e., Steel-capped boots); or
- be designed to prevent you from dirtying your actual clothing (i.e., Overalls or aprons); or
- be easily identifiable to your profession (i.e., Chef’s trousers)
You must also ensure you have proof of the purchase of the items and cannot claim any of the expenses from your employer.
If you meet the requirements to claim your clothing, you may also be able to claim laundry or dry-cleaning expenses. Reasonable laundry costs are calculated as:
- $1per load if the full load contains only clothing that would be considered part of the claimable items list above
- 50c for a mixed load containing both uniform clothing and personal wear
If your laundry and dry-cleaning costs amount to $150 or less, there is no need to provide proof of the costs. However, if your work-related cost including cleaning expenses come to over $300 you will be required to provide written evidence for the expenses.
The ATO’s Clothing, Laundry and Dry-Cleaning Expenses page has details on industry-specific clothing that can be claimed, as well as a link to their specific record templates for recording related details.
If you undertake further education that will lead to a formal qualification and will help you progress in your profession, you may be eligible to claim education expenses as part of your return. The course undertaken must increase your current income on completion and improve your current skills or knowledge.
You can generally claim all expenses related to any self-education from the course fees and stationery expenses to phone calls and student services fees. For a full list of what is claimable, visit the ATO’s Self-Education Expenses page.
In many industries, there are deductions specifically claimable by only workers within that field. While some of these may be obvious (i.e., Protective welding shields), there are many others that you may be surprised by, such as working dog or working horse expenses for agricultural workers.
For a full list of industry-specific deductions, visit the ATO’s Occupation and Industry Specific Guides.
Other work-related expenses
There may be other work expenses that don’t fit into the regular categories but can be claimed as a tax deduction. Many of these will be industry specific, but may include:
- licensing or registrations
- industry association memberships
- books, magazines, periodical subscriptions
- union fees
- travel costs for work trips
- industry conferences, seminars, or workshops
Gifts and donations
You can claim many of the donations you make on your tax return. To ensure your gift or donation is claimable, it must:
- be made to a Deductible Gift Recipient (DGR)
- be a true gift or donation (i.e., you must not be expecting or receiving any material benefit in return)
- be of money or property (this can include shares and other financial assets)
- comply with all relevant gift conditions
A DGR is an organisation that has been registered to allow them to receive tax deductible gifts. This is important as not all charities are DGRs. A charity’s status can be confirmed through the Australian Business Registrar’s Deductible Gift Recipients page, which lists all registered charities.
If you incur expenses from investments, you may be able to claim these as deductions. These might include expenses for:
- investment seminar attendance costs
- account keeping fees on investment accounts
- interest charged on money borrowed to buy shares and other investments
- management fees and financial advice costs
For more information on what you can and can’t claim for, visit the ATO’s Interest, Dividend And Other Investment Income Deductions page, or speak with your Willmot Accounting tax specialist.
Tax preparation cost
Costs incurred when managing your tax can also be deducted from your tax return. While most people are aware that your tax agent’s fee is claimable, other deductions eligible include:
- obtaining tax advice from a registered advisor
- completing courses related to tax return preparation
- software or documentation used to help complete your tax return
- travel costs to obtain tax advice
- litigation costs for court appeals relating to your tax
- credit or debit card fees paid for using a card to pay your tax obligations
What are the most common mistakes in claiming tax returns?
While most of us want to be honest and accurate in our tax return, it can be easy to make mistakes, or miscalculate information. These are some of the most common errors.
Guessing or estimating your income and tax paid
Your income and tax paid are already recorded with the ATO. By guessing or estimating, you are likely to record incorrect amounts and leave yourself open to suspicion by the ATO.
If you’re unsure of your income, seek advice from your tax agent who will be able to download your accurate income data directly from the ATO.
Guessing or estimating your tax deductions
Guessing or estimating your deductions can create two vastly different issues for you.
- you underestimate your deductions and lose valuable refund dollars. Not only can this result in a lower refund, it could be the difference between receiving a return at all and instead paying a tax bill
- you over-estimate your deductions and draw attention from the ATO. This can then lead to them investigating further and requesting you payback both the over claimed amount plus an additional interest amount as penalty
Failing to declare overseas income
If you are considered an Australian resident for all or part of the financial year, you need to ensure you’ve paid tax on all your income, including any overseas income made. Don’t forget to include:
- pensions and annuities
- business activities
- assets and investments
- capital gains of overseas assets
- employment income
Over-claiming expenses for a rental property or holiday rental property
It’s important to remember that you can only claim rental expenses for the period of the year the property was available as a true rental. Additionally, it’s important to capital works and renovations over the 40-year period at 2.5% per year.
Claiming above and beyond entitlements on rental properties can lead to audits and adjustments to your tax return.
No receipts for deductions, No proof of purchase
Remember, the most you can claim on work expenses without receipts is $300 in total. To claim above this amount, you must hold evidence of the expense and be able to confirm the portion related to earning income.
What I can claim on tax even without receipts?
There are some ways to still claim on your tax return without receipts, however there are clear restrictions and rules that must be followed. Not only must the expense be an allowable deduction, but it must also:
- be directly related to and needed for your work
- have been paid for by you
- not be reimbursable by your employer
You might then be able to use a bank statement showing the transaction, however this can be risky and is becoming less and less acceptable as a deduction option. The ATO will not accept attempts to claim deductions with the following “proof” of payment:
- claiming “I paid cash and didn’t get a receipt”
- simply presenting an item with a price tag attached
- providing a catalogue with the item’s price
None of the above will be considered valid evidence for a deduction. However, there are a small number of expenses you may still be able to claim even without receipts, such as:
- membership and union fees: these are often itemised on income statements and other statements
- fuel with a logbook: if you have completed a logbook, you are often able to work out the amount of fuel used for a year based on the kilometres travelled and size of your car, along with a nominal fuel cost per km
- technology and stationary purchases: a bank statement may be able to be used as evidence of purchase for items such as computers. Additionally, most retailers can track and reprint a receipt if you know the date you purchased the item
While it takes some level of organisation and the collection of information across the year, by knowing what you can claim in work-related expenses you can often use deductions in your tax return to help provide you with a much higher tax return.
Remember to keep your receipts for all purchases that might be used for work and ensure that the information you’re providing s accurate and not a guess or estimate to ensure the best possible return you can. For more information, seek advice from your Willmot Accounting tax professional. Don’t forget to keep your receipt – it’s tax deductible!