One of the most common questions we get asked is what you can claim as tax deductions. These are going to be unique to each occupation, but here are some broad guidelines for claiming deductions on your tax return.
Expenses must be actually incurred
This means that you actually paid for the expense yourself, and you are not reimbursed by someone else. If your employer reimburses these expenses then you have not spent the money yourself so you cannot claim a tax deduction. TAX TIP: if your employer offers to reimburse an expense for you then this is actually a better result as you will get a full refund – a tax deduction only provides a partial refund of the amount spent.
Expenses must be related to your income earning activities
The expenses must directly relate to the paid work that you are doing. Items that are related to getting a new job, such as travel to a job interview or resume preparation services, are in relation to a new job and not your current job, and unfortunately cannot be claimed. Expenses related to volunteer work cannot be claimed. Some items will have a shared use – for example a computer used for work and for personal reasons – and in this case we split the deduction and claim the work related percentage.
Expenses cannot be private in nature
Some things, whilst being directly related to your work, are considered to be private in nature and therefore cannot be claimed. Examples of this would be travel to and from work, meals during the work day, parking at work, and work related clothing that does not meet the ATO’s strict requirements (even if it is a clothing standard imposed by your employer). Of course there are always exceptions to these rules, as long as we can meet the ATO requirements!
You must have proof of the expenses
In most cases you must have receipts to show what was purchased, the date of purchase, and the cost. Remember that receipts will deteriorate particularly if they are exposed to heat or stored in plastic, and highlighters can remove the printing on thermal receipts. The ATO will accept paper and electronic copies of documents so it’s ok to photocopy or scan your receipts to ensure that they are readable in the future. TAX TIP: In most cases deductibility is determined by the date of purchase, not the payment date. The last few days of the financial year are the perfect time to stock up on tools, stationery and other items that you will use quickly in the new year and get a tax deduction straight away, even if you don’t pay for them straight away.
You must keep the receipts
When we prepare your tax return we need to know that the information that goes in there is correct – your word is no longer enough for the ATO, we actually need to know that you have kept the proper records. The period of time that you need to keep you receipts all depends on the type of expense. For many items the receipt needs to be kept for 5 years, and some taxpayers can reduce this if they meet the ATO requirements. Remember that for items claimed over a number of years such as depreciating assets, the receipts need to be kept for 5 years from the time the last claim was made.
Organisation is the key
The biggest tip we can give you is to be organised with your record keeping. Make sure that your receipts are filed properly so that they are readable and can actually be found when it comes to tax time. There are many different ways to keep your receipts so it’s important to find the best one for you. Some clients use an electronic filing system, some use apps, and some use a filing credenza. Just find something that works for you, and use it often. And remember – we are always available to answer any questions you may have!