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What is a Tax Deduction?

Tax deductions reduce the taxable income employees pay, leaving more money in their pockets for the things they enjoy in life. After obtaining a tax file number, employees can claim a range of expenses that relate to their job, although not every expense is tax deductible.

Tax deductions are a powerful tool for reducing the amount of income tax that individuals and businesses owe to the government. These deductions are available for a wide range of expenses that are directly related to earning income, such as work-related expenses, rental property expenses, charitable donations, and business expenses for self-employed individuals.

By claiming these deductions, taxpayers can reduce their tax bill and increase their tax refund. It’s important to note that not all expenses are tax-deductible and certain deductions may have limits or caps, so you can contact your One Click Life online tax agent when you do tax online.

Example of a tax deduction: John is a self-employed carpenter completing his online tax return. John incurred $3,000 in expenses for tools and equipment that he uses for his work. He can claim these expenses as a tax deduction which will lower his taxable income and decrease the amount of taxes, he owes by $3,000.

Tax file number

A tax file number (TFN) is a unique number issued by the Australian Taxation Office (ATO) that is used to identify individuals and organizations for tax purposes. It is required for individuals and businesses to complete their tax returns and pay taxes.

Obtaining a TFN is a simple process that can be completed online by filling out an application form and providing the necessary identification documents. You can apply online for a tax file number by visiting the ATO’s website and submitting the online tax declaration form.

It is important to note that if you are an employee, your employer will need your TFN to process your income tax, and if you are self-employed, you will need a TFN to register for goods and services tax (GST) and claim GST credits.

Work-related expenses

Work-related expenses are some of the most claimed tax deductions. These include things like uniforms, tools and equipment, travel expenses, and self-education costs. For example, if you are required to wear a uniform for your job, the cost of purchasing and maintaining that uniform is tax-deductible.

Similarly, if you need to purchase tools or equipment to perform your job, those expenses can also be deducted. Travel expenses, such as lodging, transportation, and meals, are also tax-deductible if they are incurred while away from home for work-related reasons. Additionally, if you are pursuing additional education or training to improve your job skills, the cost of that education is tax-deductible.

You can use the One Click Life online tax calculator to estimate the potential savings from your work-related tax deductions:

Rental property expenses

Rental property expenses are another common tax deduction. Landlords can claim deductions for expenses related to owning and maintaining rental properties, such as interest on loans, repairs and maintenance, and property management fees. This can include things like the cost of painting a rental unit, repairs to appliances, and even the cost of a pest control service.

Charitable donations

Charitable donations are also tax-deductible. When you donate to a qualified charitable organization, you can deduct that donation from your taxable income. However, it is important to note that the organization must be a qualified charitable organization, also known as a deductible gift recipient (DGR) organization, for the donation to be tax-deductible. Additionally, it is important to keep a record of the donation, such as a receipt, to claim the deduction.

Tax deductions for self-employed individuals

Self-employed individuals may claim deductions for business-related expenses, such as office expenses, marketing and advertising expenses, and motor vehicle expenses. This can include things like the cost of a home office, the cost of business cards, and even the cost of gas if you are using your personal vehicle for business purposes.

What is a common tax deduction?

There are a number of common tax deductions that we see every year in tax returns. We’ve collated a list of the most common tax deductions we see each year.

Working from home expenses.

Setting up a home office and working from home has become the norm for a lot of people following COVID. You can claim home office expenses using a fixed rate of 67c per hour or you can claim the actual costs associated with running a home office. You can check out our blog for more information on home office tax deductions.

Mobile Phone Expenses

If you use your personal phone for work, you can claim mobile phone tax deductions in your tax return. However, you can only claim the proportion of the phone use related to work. For example, if you used your phone 70% of the time for work, you could only claim 70% of your mobile phone expenses as a tax deduction in your tax returns. If you want to know more about on mobile phone tax deductions click on the blog.

Internet Expenses

Your home internet can be claimed as a tax deduction if you use it for work related purposes. You can only claim the proportion of your internet expenses that is work-related use. Internet expense tax deductions cannot be claimed if you claim the 67 cents fixed rate working from home expense.

Laptop Tax Deductions

If you have purchased a laptop and use it for work purposes, you can claim a tax deduction in your tax return. You can only claim the portion that you use your laptop for work related purposes in your tax return.

Union Fees Tax Deduction

Union fees tax deductions are one of the most overlooked tax return tax deductions! So, if you’re a member of a union, remember to tally up the fees for each year and add them into your tax return.

Work/Industry Related Expenses

All expenses you incurred throughout the financial year for work are tax deductible in your tax return. Some work-related expenses you may want to review to add into your tax return are:

· Laundry tax deductions

· Uniforms

· Equipment used for work

· Supplies used for work

· Travel and accommodation for work

· Magazine and other subscription services

· Sun cream, hat, sunglasses

· RAT tests and masks

To see your industry-specific deductions, check out our occupation tax deduction checklists.

Car Expenses

You can claim work related car travel as a cents per kilometre rate. You cannot claim car km expenses for your commute to and from work. You can claim car expenses for work-related travel like travelling to a customer or suppliers premises or carrying heavy equipment that is essential to your work.

Car expenses can be claimed using the cents per kilometre method or the logbook method. The cents per kilometre method allows you to claim 78 cents per kilometre travelled for work. The logbook method involves tracking the proportion of work-related use for your car and claiming the costs associated.

For a deeper look into what car expenses, you can and can’t claim, read our “Claiming vehicle expenses” article.

Tax Agent Expenses

Tax agent and accountants fees are tax deductible. When you lodge your tax return, the fees you pay are tax deductible and increase your tax refund!

What expenses are not tax deductible?

It’s important to note that not all expenses are tax-deductible. Some expenses that are generally not tax deductible include:

  1. Personal expenses: Expenses that do not have a direct connection to generating income such as clothing, grooming, or vacations.
  2. Fines or penalties: Fines or penalties that you incur are not tax deductible such as a traffic offense.
  3. Borrowing costs: The cost of borrowing for personal loans such as a home mortgage or a car loan.
  4. Gifts and entertainment expenses: Expenses incurred for gifts or entertainment such as the cost of dinner with friends or tickets to a sporting event.

Additionally, certain deductions may have limits or caps, so it’s important to consult with your online tax agent:

We can help you with your tax!

The more deductions you make, the less tax you pay and the more money you can spend on yourself. Working with a tax agent is the sure-fire approach to accomplish that. You can also claim your tax agent/tax return fee back on tax, so why wouldn’t you use one to minimise your tax and maximise your money?

One Click Life is an easy-to-use platform run by a local tax agent that offers online tax returns right at your fingertips.

Taxes, Health insurance, and Wills. Our app allows you to be able to do this fuss-free, giving you a simple way to organise, track and manage all of your life admin in one place. Let One Click Life take care of your health insurance, will, and tax return, so you can spend more time doing the things you love.