Tax is not a topic that usually makes a lot of people smile. However, there is one upside to sorting out your income taxes, and that is seeing where you can claim refunds.
The Australian Taxation Office (ATO) has a number of specific guidelines on what can be claimed as a tax deduction. However, most people are not aware of all of them. Here, we unpack 10 hidden areas in which you could claim back tax you have paid. Keep in mind that everyone’s situation is different, and if you want individual advice you should speak with a tax professional.
How do Tax Refunds work?
The idea behind an income tax refund is that some expenses should be deducted from your income. So, if the government taxes you according to your pay without, for example, taking your work expenses into consideration, they are taxing you for more than you actually earn (or more than you actually get to spend).
Tax is usually taken directly out of our paycheck. However, when we put in our tax return each year, we can tell the ATO that we have had to pay certain expenses that should be deducted from our income. So, the ATO takes your original income, deducts the expenses from it, and then recalculates how much tax you should have to pay. If they calculate that you have paid too much tax, you will get a refund for the amount that you overpaid.
Another way to think about tax refunds is to imagine that you are a business - for example, a cafe. Well, the cafe might make $100,000 selling coffee each year. But you don’t actually make $100,000 because you have to pay for the coffee beans, the paper cups, the rent for your cafe, and all your other expenses. So, the government shouldn’t tax you as though you earned $100,000 since you might have really only earned $50,000 (when your expenses are taken into consideration).
It’s the same with your personal tax. Doing your work may mean that you have to spend some money. It’s only fair that necessary expenses should be deducted from the amount of income that the government calculates your tax from.
1. Working from home expenses
If you work from home then you will have to spend money on things that directly contribute to your work. This might include things such as computers, printers, stationery, furniture, a work phone, books, software, filing cabinets, and other items. It may seem odd to claim things in your own home as tax-deductible, but you have every reason to if you spend some or all of your time working from home. This, of course, doesn’t mean that you can claim anything in your home as a tax deduction.
Tax-deductible expenses need to be directly related to your work. However, there will be some overlap on some expenses. For example, you may use heating or air-conditioning in your home, or you might employ a cleaner. You can’t claim your whole energy bill or your whole cleaning fee as a tax deduction, but you can claim energy consumption and other intangible costs directly related to your work. | Greater Bank
To work out the proportion of your energy bill that you can claim as tax-deductible, for example, it’s a good idea to keep a logbook of when you are working and when your home is consuming energy. Crosscheck the overlap of those periods and work out the proportion of your energy bill that accrued from your working hours. If you have any uncertainty it is a good idea to talk to a tax advisor. You don’t want to lose out on tax benefits, but you also don’t want to be stung by an audit that finds you’ve been overestimating your work-related energy consumption.
2. Work-related education
You can claim a tax deduction for an educational course that directly relates to your work. The ATO regards an education course as tax-deductible if it results in a formal qualification and is necessary to improve or maintain the skills you need to carry out your work. An educational course is also eligible if it will result in you receiving a higher level of income. For example, you may want to receive an accreditation that will allow you to charge more for your services, or for which your employer has offered you a salary increase.
What you can claim on your taxes for education is not limited to the cost of the course itself. You are also entitled to claim tax refunds for most of the expenses related to undertaking your course. This could include things such as textbooks, transport, stationery, computers, printers, student union fees, internet charges (excluding connection costs), and parking fees. Also, if you study from home, you can claim the expenses related to working from home (i.e. heating, air-conditioning, and cleaning).
3. Work travel costs
You are entitled to claim for expenses relating to your use of transport for work. In general, travel between home and work is considered by the ATO to be private travel and is therefore not claimable on your tax. The ATO offers quite specific guidelines on what can and cannot be claimed as work travel costs for the purposes of tax. We will break the main points down for you.
What you can claim for:
- Direct travel between two workplaces
- Direct travel between your normal workplace and an alternative workplace (such as a client’s workplace or home)
- Travel to work that requires you to bring large items required for your work (the ATO gives the examples of an extension ladder and a cello)
What you can’t claim for:
- Minor work-related tasks, like picking the office mail up on the way to work
- Driving between home and work more than once a day
- Travel expenses relating to being called into work on short notice
- You also can’t claim travel expenses on the grounds that there is no public transport near your workplace
4. Expenses related to preparing your taxes
This is a useful tax deduction to keep in mind, particularly because it may be worth your while paying someone to help you prepare your taxes. If you engage a tax accountant or advisor, the expense you incur can be factored into the tax return (though usually it is applied to the tax return for the following year).
You can also deduct some other costs associated with preparing your taxes, such as transport costs to and from the place where you receive tax advice. Other costs include buying tax preparation materials, paying for a tax preparation course, and purchasing software or using a paid online service to help you lodge your tax.
5. Interest charged by the ATO
The ATO allows you to claim a tax deduction for interest it charges on items related to your taxes. These costs include:
- Late payment of taxes and penalties
- An increase in your tax liability that occurs as a result of an amendment to your tax assessment
- Any increase in your other tax liabilities, such as GST or PAYG
- Any underestimation of your tax liability in the case that you vary an instalment for GST or PAYG
The ATO allows tax deductions across three types of interest that it charges: general interest charge, shortfall interest charge, and late payment interest. Remember, you can only claim the interest on ATO charges as a tax deduction, rather than the charge itself.
6. Tools, equipment, and other assets
There is a large range of work-related assets that the ATO allows you to claim on your tax return, ranging from very expensive items, right down to stationary. Personal assets such as these also do not need to be exclusively for work in order to be tax-deductible. So, for example, you may claim a work computer as tax-deductible even if you use it for personal activities. However, in order for tools and equipment to be eligible for a tax rebate, their primary use must be for work.
Some examples of eligible tools, equipment, and other assets include:
- Trade tools
- Electronics such as computers, printers, scanners etc.
- Protective equipment such as goggles, gloves, hats, and shoes
- Cosmetics with sun protection attributes
- Books and other professional reading materials
7. Clothing, laundry and dry-cleaning
You can claim a number of clothing-related costs on your tax return. This includes both buying clothing and also cleaning or caring for them. The cost of the clothing you buy for work can be used to offset your tax if it falls into one of two categories: uniforms and protective wear.
Uniforms can be either compulsory or non-compulsory. However, they must be distinct to the organisation for which you work (i.e. not simply a white shirt). There is a broad range of protective clothing that is covered by ATO regulations on tax reductions. These include:
- Fire-resistant clothing
- Sun protection clothing
- Heavy-duty shirts and trousers
- Protective footwear
- Safety-coloured vests
- Non-slip nurse’s shoes
- Rubber boots for concreters
- Overalls, smocks, and aprons
You can also claim the cost of cleaning and taking care of your working clothes. This includes dry-cleaning, ironing, and washing your clothes. You should keep receipts or a diary to record your cleaning expenses as the ATO may ask you to provide evidence in some circumstances.
8. Union fees and subscriptions to associations
You can claim tax deductions for the money you spend on union fees as well as subscriptions to trade, business, or professional associations. The ATO may require you to provide fee statements for these memberships and subscriptions.
It is also possible to claim a tax deduction for payment of a bargaining agent’s fee to a union when negotiating a new enterprise agreement award. You can also claim payments on a strike fund levy, but only if the fund is used solely to maintain or improve your pay.
9. Overtime meals
The ATO allows you to claim a tax deduction on meals that you buy while doing overtime work. You don’t need written evidence of these expenses if you satisfy three criteria:
- You get paid an overtime meal allowance as part of an industrial instrument (i.e. an award)
- You buy food and drink during overtime work hours
- You only claim a ‘reasonable’ amount
The ATO doesn’t currently stipulate exactly what a ‘reasonable’ amount is, so it’s a good idea to keep track of your overtime meal expenses. If the ATO determines the amount you are claiming is greater than the reasonable threshold, you will be required to show evidence for all of the overtime meal expenses you have paid, not just the amount in excess of the threshold.
10. Gifts and donations
You can claim a tax deduction on payments you make to ‘deductible gift recipients’ (DGRs). These are organisations that have been certified by the government for tax purposes. If you are unsure whether an organisation is a DGR, you can ask them or check the government’s ABN Look Up service. A gift or donation is only tax deductible if it is given with no expectation of a benefit being received in return.
11. (Bonus) further tax deductions
Here are some extras you might not be aware of:
- Cash shortages or client bad debts
- The cost of a smartphone you require to access a myGovID you need in order to carry out your work duties
- The cost of completing a working with children check
- Personal super contributions
- Income protection insurance
- Un-deducted purchase price of a foreign pension or annuity
- Books, periodicals, and digital information
- Election expenses (council, state and federal elections)
Tax - not so unpleasant
Hopefully, you’ve now found some hidden tax rebates you didn’t know you had access to. Make sure you keep a good record of your finances so that you can make the most of tax refunds. Also, check out Greater Bank’s Tax Calculator, to keep track of your gross VS net pay expectations.