If you are self employed, or a wage or salary earner in Australia – you will end up paying tax. You can significantly reduce your tax bill, however, by being aware of what you can deduct in the way of related expenses, and save yourself potentially hundreds of dollars in the tax that you need to pay – which means more money in your pocket, and not into the Australian Taxation Office’s coffers. It is also quite legitimate.
The ATO themselves also comment that through claiming work related expenses you “not pay more tax than you need to.”
Generally, anything that you incur that directly relates to your employment, that you incurred the cost for is a work related expense. To claim that work related expense – you cannot have been reimbursed for it by your employer. There are also some exceptions to what you can claim as a work related expense also – such as day to day clothing that is not considered occupation specific, travel to and from work, and study for a course not directly related to your employment.
Record Keeping and Substantiation Requirements
You will need to keep of your expenses. These records include documents such as receipts, logbooks, and expense diaries. Documents for expenses need to include details such as the nature of the goods or services supplied, the name of the supplier, the cost of the goods/services supplied and the currency in which it was paid, and the date of the provision, and also the date that the document was issued. Logbooks are ideal for keeping records of car related expenses, and expense diaries assist in recording home office expenses such as electricity and gas, and in certain circumstances occupancy related costs.
The ATO accepts a number of types of documents, including such things as warranties, BPAY receipt numbers, PAYG summaries, invoices and statements.
You will need to keep these records for at five years after the date that you lodge your tax return, so that if you are called for a audit, you can substantiate these expenses via all the documents that you have kept. If you are called upon for an audit you have certain rights under the Charter, such as being given a reasonable amount of time to gather your documentary evidence, and have an appointment for a desk audit at a mutually agreeable time, and to also have your tax agent or accountant present.
Various Work Related Expenses and Available Expenses Calculators
Various work related expenses cover: work related study, vehicle expenses, purchasing of publications, uniform and occupation specific clothing purchase and laundering expenses, overtime meals, home office expenses, giving gifts and donations to eligible donation recipients, and investment related expenses, such as rental property expenses and capital allowances.
The ATO provides a number of calculators for the individual in assisting to work out various expenses. They also indicate whether or not you are able to claim for a specific type of expense when making these calculations. There is a related expenses calculator, a related car expenses calculator, and also a office running expenses calculator. There is also a and occupation specific clothing expenses calculator.
Seeking Further Clarification or Explanation
Many Australians who are individual wage earners, salary earners or self employed find that lodging an tax return is convenient and there is also a fast turn around. Being aware of deductions is important so that you don’t need to pay more tax than you need to.
Compliance with taxation law is a personal responsibility in Australia (for both individuals and businesses), and the ATO does do random desk audits to ensure compliance with taxation laws. Whilst there are provisions if you do make a mistake and seek to rectify your mistake – prevention is better than having to fix up a mistake.
The ATO therefore encourages individuals to either contact them directly, or to seek advice about taxation from a qualified professional to advice.
Either way, submitting a tax return that you have done yourself, and where you have been able to make legitimate claims for work related expenses – you may be potentially able to reduce your tax liability for hundreds of dollars that you may have otherwise been aware of. Awareness of legitimate work related deductions, and claiming them against your tax liability will equal more money in your pocket.
Bowers, H. Vinton, R. Vidler, R., 2009, Office Tax Procedures: Process Business Tax Requirements, Frenchs Forest, NSW, Australia: Pearson.
Commonwealth of Australia, Essentials (Individuals)”, Australian Taxation Office, sourced 22nd October 2010.