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Guide to Tax Deductions in Australia

Some of your expenses can be claimed as deductions to reduce your financial year's taxable income. You can take steps to identify which expenses can be legally classified as deductions. 

First, you will need to consider whether the expense was directly related to an income-generating activity or your work. Did you spend money for a work-related item but weren't reimbursed by your employer? Do you have a receipt or bank statement as proof of purchase? 

How do Tax Deductions Work in Australia?

During the year, you may have to pay some expenses for work purposes. When the end of the financial year comes, you’re entitled to claim these expenses as tax deductions. This will help you lower the total amount of taxable income and the amount of tax you have to pay.

In Australia, the Australian Taxation Office (ATO) determines which expenses are tax deductible and which ones are not. You can claim tax deductions for most business or work-related expenses, however, you need to make sure you consider:

  • Keeping accurate and complete records for your expenses
  • Using the correct methods for calculating and reconciling the amounts you claim
  • Reporting all income and deductions to the ATO at the right time

Whether you’re an individual or a business owner, it is important to always consult with your accountant or tax professional to make sure you are claiming your tax deductions correctly. 

Tax Write-offs and Tax Deductions 

When you file your tax return, there are many potential write-offs. A tax write-off is an expense you incur while operating your business. So, it can be claimed as a tax deduction in some circumstances. 

While you can't write off personal expenses, you can claim back the work-related portion. 

For example, if you purchase a new computer and it's 50% for personal use and 50% for work, you can usually deduct 50% of the total amount paid. 

The key to managing the deduction process properly is to maintain detailed records. You should keep every receipt associated with expenses you want to claim a deduction for. This is because if the ATO audits your tax return, you will be required to substantiate all your claims with supporting records. 

Write-offs can help you save a lot of money each year, but the process can be complicated. If you're unsure whether something should be classified as a write-off or not, please contact a certified accountant for advice. 

You can use our ‘Find a ProAdvisor’ directory to find an advisor near you to help you with your tax write-off and tax deductions.

Grow Your Business with QuickBooks

Small Business Tax Deductions

If you're a small business owner, there are several claims you may be able to make at the end of the financial year. Below you’ll find a list of some of the most common tax deductions.

Home Office 

If you have a home-based business, you can claim a portion of the following: 

  • Phone expenses
  • Internet expenses
  • Printers, printer ink and paper
  • Computers, furniture, phones, etc.

You can claim the full cost of the item if it costs less than $300 or, the depreciation in value for those items that cost over $300. 

You cannot claim rent, rates or mortgage interest. Nor can you claim general items, such as coffee and milk. But you may be able to claim some council rates. 

The ATO offered a working from home shortcut, which allowed you to claim 80 cents per hour for all of your additional operating expenses. This method stopped being used on 30 June 2022. There are other methods to calculate your expenses and these may be more appropriate for your working from home circumstances. 

Select the method which works best for you and ensure you meet the criteria for each deduction you plan to claim. Many deductions depend on your personal circumstances. 

In some situations, you may be eligible to claim for repairs and maintenance of your business, even if it is to a home office. But be sure to seek advice to ensure you are doing so legally.

Laundry, Clothing, & Dry-Cleaning

If an employer mandates compulsory uniforms but does not refund the cost of purchasing, then employees can claim these costs on their tax return. For example, bakers who are required to wear a clean uniform can claim a laundry tax deduction. If the employer handles the laundering of those whites, however, the employer can claim laundry expenses. So, it is important to keep written records of your costs to make a claim. 

Travel 

There are certain travel expenses you might be allowed to claim if you or your employee are travelling for business purposes. Expenses may include: air fares, public transport fares, taxi or hire car fares, accommodation and meals. It is important to keep well-documented notes of where and when you travelled for work in order to make claiming expenses hassle-free. We recommend checking the ATO’s travel expenses web page for more information. 

Vehicle expenses

As a business owner, you can claim a tax deduction for expenses for motor vehicles – cars and certain other vehicles – used in running your business. The type of motor vehicle you drive can affect how you calculate your claim. A motor vehicle is either a car or an ‘other vehicle’. Common expenses may include fuel and oil, vehicle depreciation, repairs and servicing, insurance and registration. 

There are different ways vehicle expenses can be calculated which include the cents per kilometre method and the log book method. Regardless of the method you use, you will need to keep loan or lease documents, details on how you calculated your claim, tax invoices and registration papers. Head to the ATO’s vehicle expenses web page for more information on claiming vehicle expenses.

Education

There are education tax deductions if you enrol in an eligible work-related course. You may be able to claim a deduction for specific expenses related to your self-education or study if the education has a sufficient connection to earning your employment income.

Industry-specific deductions

You can claim expenses specific to your occupation. A photographer could classify a camera as a legitimate business expense, but a writer could not. Conversely, a writer could classify premium grammar and plagiarism software as an expense, but a photographer could not. 

Donations

You can claim charitable donations of over $2 if you donated to a deductible gift recipient. 

Investments

If you received interest from your savings or dividends from shares, you might be able to claim a deduction

Property

If you own rental or investment property you can claim land tax and rental property tax deductions. But you cannot claim a mortgage tax deduction for an investment property. 

Prepaid expenses

If you incurred a business expense this income year, for something which won't be completed until a later year, you might be eligible for a deduction.

Other tax deductions you could claim

Depending on your industry, you may be able to claim subscriptions, protective equipment, union fees, and overtime meals. You can even claim some legal expenses.

Income Protection Insurance Tax Deduction

If you pay for loss of income insurance, you can claim a deduction against the premiums you pay. Only the premiums you pay to protect your income are deductible. This is to protect the cover of a continuing salary if you experience illness or injury. 

Risks of illness are a serious consideration for sole traders and small business owners, so you need to know when you can and can't claim a deduction. You cannot claim if your policy pays out a capital sum as compensation for an injury, or if the policy you take is through your super fund and the premium comes from your super contributions. You cannot make a claim for critical care, trauma or life insurance premiums. 

Example: Margot pays $250 each month for income protection and a personal injury policy. It is a joint policy, and $150 is paid toward income protection and $100 for injury cover. Margot can claim the $150 against the income protection insurance, but the personal injury cover is not deductible. 

Know which deductions apply to you with QuickBooks Tax

QuickBooks Tax Software can help you manage your income tax return and your deductions as well. You can use our Find a ProAdvisor directory to find an advisor near you to help you with your tax write-off and tax deductions. 

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