As the end of the financial year approaches, you may be asking yourself, “how much tax do I pay?” and wondering “how much can you claim for working from home?”, especially if this is your first tax return. Our friends at the Davidson Institute, Westpac’s financial education specialists, have provided helpful tax time tips for you to consider, so you understand what you can claim and navigate this time with confidence.
5 tips to making the most out of Tax Time
1. Claim the tax-free threshold
Australian residents can claim the tax-free threshold to reduce the amount of tax that is withheld from their pay during the year.
What is the tax-free threshold?
If your taxable income for the year ending 30 June 2020 is below the tax-free threshold of $18,200, you may not need to lodge an income tax return. This $18,200 tax-free threshold is equivalent to $700 a fortnight or $1,517 a month.
However, if you have had tax withheld from your income during the year and are under the tax-free threshold you must lodge a tax return to have these withholding amounts refunded to you.
Typical examples of situations where tax may be withheld are pay as you go (PAYG) withholding amounts from your salary or withholding from bank interest income where you have not provided your tax file number (TFN) to your bank.
2. Identify all your sources of assessable income
To assist in lodging your tax return, identify all sources of income derived during the year that are assessable for income tax purposes.
These amounts may include:
- Income from your work as an employee or a contractor, including any tips received.
- Investment income, such as any bank interest or dividends on shares received.
- Certain government payments received such as Youth Allowance, ABSTUDY living allowance and Austudy.
- Some non-government scholarships, grants, and awards.
- Distributions from a trust.
Keen to understand more about Taxable Income? Check out this 2 minute film below from our jargon buster film series.
3. Understand what work-related expenses you can claim
You may consider claiming deductions for certain expenses that are directly related to the income you have received. For example, you can claim work-related deductions if:
- You incurred the expense yourself,
- The expense directly related to earning your income,
- It has not already been reimbursed by your employer, and
- You have kept the relevant records to prove it.
Most tax deductions for work-related expenses can include:
- Vehicle and travel expenses: If you use your car for work purposes, you’re entitled to claim the costs related to this – but only if you personally own the car you are using for this work. If your car is owned by your employer or is part of your salary package, then you are unable to claim anything. Travelling to and from work daily cannot be claimed as this is considered as private travel. However, you can claim the cost of travelling directly between two separate workplaces. Visit the ATO website to find out more about vehicle and travel expense deductions.
- Work related clothing expenses: This includes clothing that easily identifies your employment like a chef’s apron and hat; distinctive work uniforms; protective clothing and shoes and even protection like sunglasses. It's also possible to claim the costs of washing, drying, ironing, and dry-cleaning eligible work clothes. Visit the ATO website to find out more about clothing, laundry and dry-cleaning expense deductions.
- Home office expenses: If you work from home, part-time or full-time during the tax year, then some portion of the home office expenses may be claimed as a tax deduction. However, if you set up your home office in a room that is shared or has a dual purpose (such as a living room), you can only claim the expenses for the hours you had exclusive use of the area. The home office expenses, you might be able to claim include:
- Heating, cooling, and lighting.
- Home office equipment, including computers, printers and telephones.
- Work-related phone calls (including mobiles) and phone rental. You can claim a portion reflecting the share of work-related use of the line.
- Depreciation of home office furniture and fittings. If you fit out your home office with furniture such as desks, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity.
- Depreciation of office equipment and computers. If you purchase technology for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. The technology items could include computers, laptops, tablets, mobile phone, and printers.
- Other items including printer ink, stationery internet costs, cleaning costs and costs of repair to your home office furniture and fittings.
- Visit the ATO website to find out more about home office expense deductions.
- Read more here about how to claim for working from home.
- Self-education expenses: If the course you undertake leads to a formal qualification and meets the following conditions:
- The course must have a sufficient connection to your current employment; and
- Maintain or improve the specific skills or knowledge you require in your current employment, or
- Result in, or is likely to result in, an increase in your income from your current employment
- Visit the ATO website to find out more about self-education expense deductions.
- Tools, equipment, and other assets:
- If you are a tradie, you may use a number of tools every day and the rule is that if you have paid for them to use as part of your job you can claim them as a deduction. You can also claim the cost of a vehicle, such as a van or a ute, which you use in your business or for your job, provided you paid for the vehicle.
- Other examples of tools, equipment and other assets include calculators, computers, software, desks, home-office chairs, desk lamps, cabinets and bookshelves and books relevant for your profession.
- Visit the ATO website to find out more about deductions for tools, equipment or other assets.
- Professional associations, magazine subscriptions and trade union fees:
- If you are a member of an association as part of your profession, the good news is that you may be able to claim your subscription fees. If you’re a trade union member, your fees are also deductible.You can learn more about the work-related expense deductions you can claim at the ATO website.
4. Understand what other deductions you can claim
Here’s a list of some of the other tax deductions for you to consider when you fill out your tax return.
- Costs of managing tax affairs: If you paid for a professional tax agent to complete your last year’s tax return, you can claim a deduction for the cost in this year’s return. If you’ve paid for any tax advice during the tax year, that too is deductible. Also, you can claim a deduction for any travel costs you incurred in getting to and from your agent.
- Income protection insurance: If you pay for insurance premiums against loss of income, those amounts are tax deductible. It’s worth noting that this does not include life insurance, critical care insurance or trauma insurance. It also excludes policies paid for out of your superannuation contributions.
- Gifts and donations: These can only be claimed if the organisation you donated to has the status of deductible gift recipients (DGRs). Many but not all Australian charities are DGRs. For gifts of money, you can claim a deduction where the amount of the gift is $2 or more.
- Interest and investments: Deductions can be claimed for expenses you incurred to earn interest, dividends, or other types of investment income. For interest income expenses, you can claim account keeping fees for investment purposes. Do bear in mind, that if you and your partner have a joint account, you can only claim your share of the fees. For shares and dividends, you can claim a deduction for interest charged on money borrowed to purchase shares.
- Visit the ATO website to find out more about other deductions.
5. You may be eligible for a tax offset
Tax offsets may be available to reduce the amount of tax you pay on your taxable income.
You are not required to do anything to claim these tax offsets, the ATO will work it out for you when you lodge your tax return.
If your taxable income is:
- Less than $37,000, your offset entitlement will be $255
- More than $37,000 but less than $48,000, your offset entitlement will be $255 plus 7.5% of the excess above $37,000
- More than $48,000 but less than $90,000 your offset entitlement will be $1,080
- More than $90,000 but less than $126,000, your offset entitlement will be $1,080, less 3% of the excess above $90,000.
If you are eligible for an offset, it will either increase the size of your refund or reduce the size of your tax liability.
Visit the ATO website to find out more about understanding tax offsets.
Getting further help
This article is a general summary only. The Australian income year ends on 30 June. You have from 1 July to 31 October to lodge your tax return for the previous year. If you use a registered tax agent for help to fill out and lodge your tax return, you may be able to lodge later than 31 October. As tax law is subject to change, for more information, speak to a registered tax agent or visit the ATO website: www.ato.gov.au
Written by Westpac's financial education specialists, the Davidson Institute.