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One of the most common queries we receive here at Freshwater is: “What Can I Claim in order to maximise my tax return?”

While what you’re allowed to claim as a tax deduction may vary (depending on if your situation / if you’re an employee or a business owner etc) the following principles remain true regardless…

The basic principles of tax deductibility

• The expense must directly relate to earning your income. This means it should be necessary and relevant to your work or business activities.
• You cannot claim deductions for personal, domestic, or capital expenses. For example, daily commuting costs and personal meals are not deductible. If an expense is both work-related and private, you can only claim the work-related portion.
• You must have spent the money yourself and not been reimbursed. If someone else paid for the expense or you were reimbursed, you cannot claim it.
• You must keep records to substantiate your claims. (Receipts, invoices, and other documentation that proves you incurred the expense).
• You can claim a deduction in the income year you incur (pay) the expense.
• If your expense includes GST, the GST is part of the total expense and is included in your deduction claim (if you are non-GST registered; otherwise the net amount is claimable & you’ll claim the GST back in your BAS).
• Different types of expenses have specific deductibility rules. For example, car expenses can be claimed using the logbook method or cents per kilometre method, and depreciating assets can be claimed based on their decline in value.
• If you prepay for a service costing $1,000 or more and it extends beyond 12 months or the end of the income year, you can only claim the portion that relates to the current income year.

Claiming a deduction for expenses covered by allowances

An allowance is a separate amount your employer pays you in addition to your salary and wages. It is typically an estimate of costs you might incur for expenses or compensation for certain conditions of your employment. Unlike reimbursements, which cover the exact amount of expenses incurred, allowances are often based on estimates and may not match the actual expenses you incur. Examples include car allowances, meal allowances, and remote area allowances. If you receive an allowance, you may be able to claim a deduction for expenses covered by the allowance, provided you meet the following basic rules:

• The expenses must be directly related to earning your employment income and covered by the allowance.
• You must have actually incurred the expenses. This means you either paid for the expenses or are liable to pay for them.
• You cannot claim a deduction if your employer has reimbursed you for the expenses.
• You must keep records to substantiate your claims, such as receipts, invoices, or other documentation.
• If the allowance is shown on your tax return (in your payment summary details), you must include the allowance as income in your tax return.
• If your deduction for travel allowance expenses is within the reasonable amounts specified by the ATO, you do not need to keep detailed records. However, if you claim more than the reasonable amount, you must keep detailed records.

Occupation-Specific Deductions

Some occupations have specific guidelines for allowable deductions. Occupation-specific deductions are tailored to the unique expenses that individuals in certain professions may incur as part of their work. The ATO provides detailed guides for various occupations to help taxpayers understand what they can and cannot claim. Here’s an overview of some common occupation-specific deductions:

1. Adult Industry Workers
Clothing and Footwear: Costumes, lingerie, and specific footwear required for performances.
Makeup and Hairdressing: Expenses for makeup, hairdressing, and other grooming costs directly related to performances.
Training and Fitness: Costs for fitness training, dance classes, and other performance-related training.
2. Agricultural Workers
Protective Clothing: Items like boots, gloves, and hats that protect against the elements and hazards.
Tools and Equipment: Costs for tools and equipment used in farming activities.
Vehicle Expenses: Costs for using a vehicle for work-related travel, such as transporting produce or livestock.
3. Apprentices and Trainees
Course Fees: Fees for courses directly related to the apprenticeship or traineeship.
Tools and Equipment: Costs for tools and equipment required for the trade.
Travel Expenses: Costs for travel between work sites or to training locations.
4. Australian Defence Force Members
Uniforms and Protective Gear: Costs for uniforms, boots, and other protective gear.
Mess Fees: Costs for mess subscriptions and other work-related social functions.
Travel Expenses: Costs for travel to different bases or training locations.
5. Building and Construction Employees
Protective Clothing: Items like hard hats, steel-capped boots, and high-visibility vests.
Tools and Equipment: Costs for tools and equipment used on construction sites.
Vehicle Expenses: Costs for using a vehicle to transport tools and materials.
6. Bus Drivers
Uniforms: Costs for uniforms required by the employer.
Licensing and Medicals: Costs for renewing licenses and medical examinations required for the job.
Travel Expenses: Costs for travel between depots or to training locations.
7. Call Centre Operators
Work-Related Phone and Internet: Costs for phone and internet used for work purposes.
Training Courses: Fees for courses that improve skills directly related to the job.
Stationery and Office Supplies: Costs for items used in the course of work.
8. Cleaners
Protective Clothing: Items like gloves, masks, and aprons.
Cleaning Supplies: Costs for cleaning products and equipment.
Travel Expenses: Costs for travel between different cleaning sites.
9. Community Support Workers and Direct Carers
Uniforms: Costs for uniforms required by the employer.
Training Courses: Fees for courses that improve skills directly related to the job.
Travel Expenses: Costs for travel between clients or to training locations.
10. Doctors, Specialists, and Other Medical Professionals
Professional Memberships: Fees for memberships in professional associations.
Medical Equipment: Costs for medical tools and equipment used in practice.
Continuing Education: Fees for courses and seminars that maintain or improve professional skills.

Refer to the ATO’s occupation and industry-specific guides for more details.

Employee Deductions

As an employee, you can claim deductions for expenses directly related to earning your income. Here are some key points to consider:

1. Work-Related Expenses:
   • Protective Clothing and Items: You can claim a deduction for protective clothing and items that protect you from specific risks of injury or illness at work. This includes hi-vis vests, steel-capped boots, safety glasses, helmets, earmuffs, sunscreen, sun hats, and sunglasses if you work outdoors.
   • Tools and Equipment: If you purchase tools or equipment for work, you can claim a deduction. If the item costs more than $300, you can claim the depreciation over several years. If it costs $300 or less, you can claim an immediate deduction.
   • Car Expenses: You can claim the cost of trips between home and work if you carry bulky tools or equipment essential for your job, and there is no secure storage at your workplace. You can use either the logbook method or the cents per kilometre method (up to 5,000 km) to calculate your deduction.
2. Self-Education Expenses: If you undertake courses or training directly related to your current job, you can claim these expenses. In order to claim a self-education expenses deduction, your study must maintain or improve the specific skill required for your current employment, it must me likely to (or has) resulted in increased income and there must be a clear and direct connection between the study and your employment. Trying to claim your marketing course as a tax deduction when you are working as a bank teller? – forget it! Important note: you cannot claim voluntary HECS / HELP repayments.
3. Phone and Internet: You can claim a deduction for the work-related portion of your phone and internet expenses.
4. Working from home: Refer our working from home blog post.
5. Record Keeping: Keep receipts and records for all your claims.

Business Owner Deductions

As a business owner, you can claim a wide range of business expenses, provided they are directly related to earning your assessable income. Here’s what you need to know:

1. Operating Expenses:
   • General Expenses: You can directly claim (non-asset) expenses such as: stationery, misc / computer consumables, parts, repairs & maintenance,  and basically anything you incurred as a business expenses provided the above deductibility principles are met.
   • Insurance: Public liability insurance, professional indemnity insurance, and personal accident and illness insurance are deductible.
2. Protective Clothing and Items: Similar to employees, you can claim deductions for protective clothing and safety equipment.
3. Depreciating Assets: Depreciating assets are assets that have a limited effective life and can reasonably be expected to decline in value over the time they are used. They includes tools, machinery, cars, computers, furniture, mobile phones, and improvements to existing assets. Generally speaking, if these assets costs are greater than $300, they should be depreciated over time using a choice of 2 methods (prime cost or diminishing value); and a deduction taken up annually for the depreciation over what is called the asset’s “useful life”.
4. Instant Asset Write-Off: On 14 May 2024, as part of the 2024–25 Budget, the government announced it will continue to improve cash flow and reduce compliance costs for small businesses by extending the $20,000 instant asset write-off by a further 12 months until 30 June 2025. This measure was previously announced as part of the 2023–24 Budget in relation to the 2023–24 income year. What does this mean!? You are allowed to completely expense eligible assets costing $20K or less rather than depreciating them as above. This measure can provide significant (and much needed) tax savings to small business owners.
5. Motor Vehicle Expenses: You can claim motor vehicle expenses to the extent the vehicle is used for business purposes. Depending on your business structure and the type of vehicle, you can use different methods to calculate your deductions.
6. Working from home. Refer our working from home blog post.
7. Salaries and Wages: If you operate as a company or trust, you can claim a deduction for salaries and wages paid to employees, including yourself. However, sole traders and partners cannot claim a salary or wage for themselves.
8. Super Contributions: You can claim a deduction for super contributions made on time to a complying super fund for your employees and certain contractors.
9. Record Keeping: Maintain records that substantiate your business income and expenses. These records must be kept for at least five years.

Key Differences (deductions for employees V business owners)

• Scope of Deductions: Business owners have a broader scope of deductible expenses compared to employees. This includes operating expenses, insurance, and a wider range of depreciating assets.
• Super Contributions: Business owners can claim super contributions for employees and certain contractors, while employees can only claim personal super contributions in their personal tax return.
• Salaries and Wages: Business owners operating as a company or trust can claim salaries and wages, whereas sole traders and partners cannot.

Conclusion

Understanding what you can claim to maximise your tax return involves adhering to fundamental principles regardless of your occupation or employment status. Expenses must directly relate to earning income, excluding personal or capital expenses. Documentation is crucial to substantiate claims, and timing matters—the expense must be incurred in the income year claimed.

For those receiving allowances, expenses covered must align with employment-related activities, with records to support claims. Occupation-specific deductions offer tailored benefits for various professions, ensuring fairness and accuracy in tax deductions.

Employees can claim expenses like protective gear, tools, and self-education costs, while business owners can usually claim a broader range of deductible expenses, including operating costs, insurance, and super contributions. The extension of the instant asset write-off provides additional relief for small business owners.

Whether an employee or business owner, understanding these principles and guidelines ensures you maximise your tax return while remaining compliant with tax regulations. Keeping accurate records and staying informed about tax law changes are key practices for optimising tax deductions and financial management. For more information on what you can and can’t claim in your tax return, don’t hesitate to get in touch with our team.