Here are our tips:
1. Claim all work-related deductions
At first blush, the task of compiling all your work-related deductions may appear daunting especially given the need to collate all the required receipts for any significant claims. However, taking the time to understand what ‘work-related expenses’ are potentially deductible can save you considerable cost. Moreover, you may wish to consider billing all your expenses to a single credit card or debit card so you can more readily locate the relevant costs and any associated receipts.
Where you don’t have the necessary receipts on hand you can still claim up to $300 of work-related expenses provided the claims relate to outgoings you necessarily incurred in your job or business and the basis for determining the amount of the claim is reasonable.
Typical work-related expenses which are allowable include, among others, uniforms, business and mobile telephone costs, subscriptions and union fees.
Laundry and self-education expenses are also deductible in certain circumstances.
A deduction for laundry costs is allowable where the relevant clothing is protective clothing, a compulsory uniform, a non-compulsory uniform or certain occupation-specific clothing. Moreover, laundry claims of up to $150 do not have to be substantiated even if your total income tax deductions exceed $300.
Self-education expenses can be claimed provided the study is directly related to either maintaining or improving your current occupational skills or it is likely to increase your income from your current employment. By contrast, if the study is designed to enable you to obtain new qualifications in a different field they will not be allowable.
One key trick in calculating such costs is to disallow $250 of self-education expenses as being non-allowable. You may wish to attribute such costs to amounts which are not ordinarily deductible, such as child care costs.
Typical self-education expenses which may be available include, among others; course fees, textbooks, stationary, student union fees and the depreciation of assets such as computers and printers used as part of your study. However, it should be noted that Higher Education Contributions Scheme (HECS) or Higher Education Loan Program (HELP) repayments are not deductible.
2. Identify eligible home office expenses
When part of your home has been set aside primarily or exclusively for the purpose of doing work from home, costs such as heating, cooling, lighting and depreciating your office equipment or professional library may be allowable. To claim the deduction you must have kept a diary for at least four weeks of the hours you worked at home. This amount is then used to work out your total hours worked for the year and a deduction claimed at a rate of $0.26 cents per hour.
However, no deduction is available for occupancy expenses such as mortgage interest, rent, and insurance and rates unless you conduct a business from your home.
3. Maximise motor vehicle deductions
Where you have you used your motor vehicle for work-related travel, and your claim for kilometres travelled for the year does not exceed 5000 kilometres, you can claim a deduction for your car expenses on a cents per kilometre basis to the extent you have used your car for work. The allowable rate for such claims changes annually so you may need to obtain this year’s rate from the Australian Taxation Office website. Any such work-related travel claims must be based on reasonable estimates.
Alternatively, if you have used your motor vehicle for a significant amount of work-related travel you may be able to claim a deduction for your total car running expenses to the extent you have used it for work. However, such claims are only available where you have the required log book, odometer readings and receipts.
On the other hand, where business travel exceeds 5000 km, it may be possible to claim one-third of actual car expenses or 12 per cent of the original value of the vehicle without a log book.
You may wish to compare which of the above four methods gives you the maximum deduction.
Work-related travel includes travel between two places of work or employment, or travel to shifting places of employment. It may also be available where you have to carry bulky tools or equipment with you to work. It does not, however, include direct travel between a person’s home and a place of work.
Penalties and fines are not allowable deductions.
4. Deduct any eligible depreciation or investment allowance deductions
Where specific tools or equipment are used for work by an employee, but the cost of these assets is not reimbursed by the employer, then they may be depreciable under the capital allowances regime.
Some items can be claimed in full if they cost $300 or less, or will last less than three years, and are mainly used to gain assessable income other than business income.
These items can include tools, calculators, briefcases, computer equipment and technical books purchased by an employee. Any deduction claimed should be reduced to the extent it is used for private purposes, but it doesn’t need to be pro rated if it was acquired part way through the year and was wholly used in deriving salary and wages income.
Self-employed taxpayers should also note that the Government has announced a temporary investment allowance break for an additional tax deduction of 50 per cent of the cost of certain depreciating assets acquired by a small business from 13 December 2008 through to 31 December 2009. To obtain this additional 50 per cent deduction, the small business must purchase an eligible asset of $1000 or more and have it installed before 31 December 2010.
5. List all rental property deductions
Care should be taken if you own a rental property in preparing your 2008-2009 income tax return as the ATO is concerned that rental income is being under-reported and rental deductions over-claimed. Irrespective of whether the property is positively or negatively geared, rental property owners can, however, generally claim deductions for advertising, bank charges, body corporate fees, cleaning, council rates, electricity and gas, gardening, insurance, interest on loans, land tax, lease preparation expenses, legal costs, pest control, postage and stationary, property agent fees and commissions, repairs, secretarial and bookkeeping fees, security patrol fees, telephone calls and water rates. You may also be able to write off the cost of certain buildings, depreciating assets and borrowing costs over time.
6. Claim all non-work-related deductions
The fees you pay a registered tax agent to prepare your return or to manage your tax affairs are allowable in the year the fee is paid. Ongoing management fees paid to a financial planner are also deductible where the advice relates to income producing assets. Bank charges and any interest payments on funds to finance the purchase of shares and other income-producing investments are generally allowable.
7. Optimise your tax offsets
Tax offsets directly reduce your tax payable and can add up to a sizeable amount, so it pays to know all the offsets you are entitled to. Eligibility for offsets will generally depend on your income level, family circumstances and satisfying specific conditions for each rebate.
Longstanding examples of tax offsets include the dependant spouse rebate, low-income rebate, mature-aged worker rebate, the senior Australian tax offset, the medical expenses offset, the private health insurance offset and the offset for superannuation contributions made on behalf of a low income spouse.
Additionally, there is a 25 per cent entrepreneur’s tax offset if a sole trader has elected to enter the small business entity system and your business income for the year does not exceed $50,000. The rebate reduces for every dollar on business income in excess of $50,000 and phases out completely where income exceeds $75,000. This offset is not means tested for the 2008-09 tax year.
An education tax offset is available for families who receive Family Tax Benefit A for 50 per cent of the cost of items such as educational software, home computers and associated costs, home internet connections, laptop computers, printers, school texts, stationary and trade tools used in school. The maximum amount of the rebate is $375 for each child in primary school and $750 for each child in secondary school.
8. Consider tax-effective superannuation contributions
A self-employed taxpayer will be able to claim their contributions to a complying superannuation fund as fully tax deductible up to the age of 75. However, they will not be deductible if 10 per cent or more of a person’s assessable income or reportable fringe benefits is attributable to their employment as an employee. Employers can also claim deductions for employee superannuation contributions provided the employee is under 75. Any excess contributions made by the self-employed or by an employer in respect of an employee will be taxed at a rate of 46.5 per cent rather than 15 per cent if the contributions made during the 2008-09 tax year exceed $50,000 or $100,000 for those aged 50 or more as at 30 June 2009.
9. Utilising capital losses
In the current economic downturn, many investors may have incurred capital losses from the disposal of investments. But, there is a way to turn bad news into better news. Any such loss can be offset against any current capital gains you may have made, or be carried forward indefinitely to be applied against any future capital gains. Furthermore, a capital loss on an investment can be applied against any other capital gain other than for special rules relating to gains on collectables such as artworks and antiques and certain personal use assets. However, it’s nice to know that even in these tough times, a loss is still worth something.