Millions of Australians are missing out on legitimate tax deductions every year. To maximise your tax return you need to research exactly what you can and can’t claim for your specific income streams.
Getting savvy about what you can claim on your tax return means you’ll receive back the full amount you’re entitled to. It’s by no means an easy job, though.
“In Australia we’ve got one of the longest and most complex tax codes in the entire world, believe it or not,” Ben Andrews from Air Accounting says on this week’s episode of Your Money & Your Life. “Considering how young we are as a country, it’s a little bit impressive, but pretty ridiculous when you think about it.”
Watch the segment and then read on to learn more about how you can maximise your tax return:
Steps to maximise your tax return
“You simplify tax claims by being proactive,” says Andrews. “By thinking ahead for the next 12 months and getting advice on what you can claim.”
- Know what your sources of income are
- Know what you can claim
- Save all receipts
1. Know your sources of income
For many, this is a fairly straightforward calculation. Income equals a salary received from their employer.
For others, it’s not quite that simple. Sources of personal tax income might include:
- Employment income – including salary and wages, allowances, bonuses, tips, fringe benefits, lump sum payments and super contributions
- Government payments – including Centrelink payments like JobSeeker or Job Keeper; Newstart; the age or disability support pension; Austudy or Abstudy; or youth allowance.
- Investment income – including interest; dividends; rent; managed investment trusts; or capital gains
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- Business income – any income earned from carrying out a business as a sole trader or partnership.
Income that may not need to be included on your personal tax return includes small gifts or prizes, lottery prizes, child support payments and native title payments.
You may be able to claim deductions for one source of your income that won’t apply to other sources.
Plan ahead
Planning ahead is really important, because there is no way you’ll be able to maximise your tax return if you find you haven’t been paying enough tax throughout the financial year.
“It’s really important that you make sure that you’re accounting for all other sources of income,” says Shivani Gopal from The Remarkable Woman. “So, do you have a side hustle, and if you do, are you a sole trader?
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“All that income will be combined with your personal marginal tax rate and you’ll find that you’ll end up paying tax on that income without having the benefit of your employer withholding tax for you.
“If you don’t plan in advance, you’re going to find that you have a rather large tax bill that you haven’t saved any money for.”
2. Know what you can claim
This is where professional help can streamline the process to maximise your tax return. Your tax accountant will be the master of knowing every small thing that’s a legitimate tax deduction for your specific income streams.
If you choose to do your own tax return, you’ll need to do your research. A Google search for ‘your occupation + ATO deductions’ is a good place to start. Then you can ask colleagues and friends in the same industry as you what kinds of things they claim. It shouldn’t be an awkward question, so boldly go into the discussion. It may just be the most lucrative conversation you will ever have.
An easy way to keep track of your work-related expenses using the ATO app – find out how that works here. Some general expenses that most occupations can claim include:
Charity donations
Any donation over $2 to a registered deductible gift recipient (DGR) is tax deductible in Australia. You can check whether your recipient is a DGR here. Note that most crowdfunding campaigns are not DGRs. Nor are buying items at a charity auction; purchasing charity raffle or art union tickets; or the cost of attending a charity fundraiser or dinner. You also can’t claim your time or expenses for volunteering with a charity.
You must also ensure that you are not receiving, or expecting to receive, any material benefit or advantage in return. This would be any item or service that has monetary value.
Don’t forget to keep an electronic or paper receipt of any charity donation. Without one, you won’t be able to make a claim.
Working-from-home costs
This one will be new for many Australians this financial year. The pandemic unexpectedly moved many workplaces into the family home, and you may be able to claim deductions to compensate for your higher utility bills, internet usage and home office set-up.
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There are three methods you can use to calculate your work-from-home claim.
1. The shortcut method
The simplest method is known as the ‘short-cut method’, specifically introduced by the ATO last year in response to COVID-19. In a nutshell, you claim 80 cents for every hour you worked at home, regardless of the actual costs your incurred. To use this method, you need to be able to produce a timesheet, roster or diary that shows the number of hours you actually worked from home during the financial year.
2. The 52-cent method
Note that you will need to have a dedicated work space in your home to claim using this method. It needs to be a space that is exclusively used for work. So it’s a no-go if you work from your dining room table or on the couch in front of Netflix.
Using this method, you claim 52 cents for every hour you worked to cover the increased costs of running utilities like lighting; air-conditioning; electricity to your computer, monitor and printer, etc; cleaning costs and any decline in value of your office furnishings.
In addition, you add on deductions for the work- related portion of your internet and phone bills; your office consumables like ink cartridges and stationery; and the decline in value of your equipment and devices like computers, monitors, headphones and mobile phones. Equipment under $300 can be claimed in full in the financial year it was purchased.
Note also that you can only claim the work-related portion of using any equipment. So, for example, if your computer is also for personal use, you’ll need to work out exactly what percentage of time you use it for work. You might work out that you can only claim 20% of the decline in value of your computer.
3. The actual method
If you have a dedicated work space you might find using the actual method to calculate your deductions is the best way to maximise your tax return. Beware: this method requires very careful bookkeeping. You will need to calculate the exact usage costs for single thing from power and heating to equipment depreciation and phone usage. If you’re interested in using this method, it’s probably best to enlist the help of a tax accountant.
3. Car expenses
You might be able to claim a deduction for vehicle expenses, if you use your car or motorbike, for work. You can find out more about car expenses here.
1. The cents-per-kilometer method
You can use this method up to a maximum of 5,000 business kilometers per year. The rate is currently calculated at 72 cents per kilometer. It works much the same as the shortcut method outlined above for work-from-home expenses.
2. The logbook method
A second option is the logbook method. This is the more laborious (but potentially more lucrative) way to work out your car expenses. You log your actual expenses during each business trip, including all running costs and decline in value. You can’t claim the capital costs of your vehicle, like the purchase price of the car or the principal cost of any loan you took out to buy it.
Your logbook needs to record odometer readings for the entire financial year (or the period you owned the car during the year). Then you need to keep track of work-related trips for a minimum of 12 continuous weeks. You then calculate the percentage of work-related expenses by dividing the total number of kilometers travelled by the work-related trip kilometers times one hundred.
The amount you can claim is the work-related percentage of your total expenses.
4. Self-education expenses
The key to this one is making sure your study is a formal qualification that relates to your current employment activities. Unfortunately not your future activities. So, if you’re currently in retail, but studying to become a landscape gardener, you won’t be able to claim your study expenses. On the other hand, if you currently work as a landscaper’s labourer, but you are doing your horticulture certificate at TAFE, you will most likely be able to claim any costs related to your study. Some of these include:
- accommodation and meals if you are studying away from home
- travel expenses to get from your work place or home to where you study
- equipment and stationery
- some fees, including student union fees
- textbooks and professional journals
- internet, if studying online
The full list is here. Note that you generally can’t claim the first $250 of your self-education expenses, but there are many caveats. Check here for a full explanation.
5. Clothing
This is particularly for anyone that wears a uniform or occupation-specific clothing for work. So, mainly any compulsory uniforms or items like protective clothing – including sun-protection if you work outside.
You can claim the cost of the actual clothing, as well as what it costs you to maintain it. This includes your cleaning costs, including dry cleaning, or any repair costs. Obviously you can’t make a claim if your employer is the one that cleans and maintains your uniform or reimburses you to maintain it instead.
6. Income insurance
To maximise your tax return, you can also claim the cost of any premiums you pay to insure yourself against loss of income. Note that this is specifically income insurance. You can’t claim premiums for other insurances like life, trauma or critical care insurance.
You also can’t claim health insurance or any policy that compensates you for physical injury or on any policy that’s run through your superannuation where premiums are deducted from your super contributions.
7. Personal super contributions
Personal super contributions need to be from your after-tax income. Not made by your employer directly to your super fund from your before-tax income. Non-claimable contributions therefore include any compulsory superannuation, any amounts you salary sacrifice or any additional reportable employer superannuation contributions shown on your annual payment summary.
Eligible super contributions must have been notified to your superannuation fund via a specific ATO form which you can access here. You need to also have received an acknowledgement of the form from your provider.
There is also a long list of eligibility requirements that you need to meet in order to be able to claim your personal super contributions. These include age-related conditions and specifications for the super fund you are using. You can find the full list here.
Professional support
With such a complex system to navigate, it’s no wonder that many of us enlist the help of a tax accountant or financial adviser to help us fill out our return. The key here is to find one that specialises in your field. That way they will have the knowledge and experience needed to fully maximise your tax return in your specific occupation. To find the right registered tax accountant for you:
- Ask other people who work in your area for a referral
- Enquire about recommendations from your own professional industry body
- Through a professional accounting industry body – there are three in Australia: CPA Australia; Institute of Public Accountants; and Chartered Accountants Australia and NZ
Remember to confirm that the accountant you want to go with has an Australian financial services (AFS) license here.
The money you pay your tax accountant to do your return is tax deductible. As are any travel or stationery expenses you incur in the process.
“No one really enjoys preparing a tax return,” says Andrews. “But if you don’t get involved, if you’re not proactive and you don’t get the right advice, it will ultimately be you that potentially losing thousands of dollars.”
This article contains general information only. It should not be relied on as finance or tax advice. You should obtain specific, independent professional advice from a registered tax agent or financial adviser in relation to your particular circumstances and issues.
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