Whether you’re a tax-time veteran or approaching the EOFY as a newly-minted employee, you’ll want to get as much out of your tax return as possible. Knowing all the work-related expenses you can claim tax deductions on will help you in that mission.
To help untangle the tax web, we spoke to Shayne Sommer, a certified financial planner and private client adviser at Shadforth Financial Group, for some general advice around deductions at tax time.
Here are five claimable expenses you might not have considered.
1. Things that’ll help boost your career
If you’ve purchased a book or subscription to research something for work, you can whack it on the claimable list. Similarly, if you want to become part of a union or professional association which supports your occupation, those costs are also claimable.
Then there’s the option to claim things like self-education, seminars and other training courses. While this is a great way to up-skill for work, Sommer explains it doesn’t give you licence to take up personal interest courses and expect a tax deduction.
“The rule of thumb comes back to the course being related to your current occupation and whether it is likely to help you increase your income in that occupation,” she says.
“If you’re employed as a painter, and you undertake a course to become a yoga instructor, that yoga course won’t be deductible until you are earning money in a vocation related to yoga.”
2. Income protection insurance
If you’ve paid for income protection insurance – a policy with a private insurer outside of a super fund – be sure to include it in your tax return.
“Income protection premiums that have been paid personally can be claimed in any financial year they have been paid or incurred. It doesn’t matter if you have been working or not, you can claim the sum of the premiums paid as a tax deduction,” says Sommer.
But remember, if you're unable to work due to illness or injury and do make a claim through your income protection policy at any point in the financial year, that benefit amount is counted as taxable income. So make sure it’s included as such in your return.
“Wherever the payments are coming from, it’s always worth asking them whether they’re taking tax out for you or not,” says Sommer. “If you’re on claim through a policy, be aware that those benefits are not tax free.”
3. Car-related costs when traveling for work
While you can’t write-off your commute to and from your workplace, there are a few ways to recoup some of the dosh you’ve spent on your wheels if you use them for work in any other capacity.
If part of your job involves driving to various locations during the work day, perhaps as a sales person or for client meetings, you should consider how far you drive in a year, and decide to use either the logbook or cents-per-kilometer method to calculate your claim.
“The logbook method is generally more appropriate when you are travelling more than 5,000km per year for your job, as the cents-per-kilometre method caps out at claiming 5,000km of travel,” says Sommer.
“You can also claim depreciation using the logbook method, which you can’t do via the cents-per-kilometre method.”
4. Clothing, laundry and dry-cleaning expenses
Now, don’t go on a shopping spree. You can’t claim all clothing you might consider office-appropriate. Deductions for buying and cleaning work clothes are for industry-specific items. While you could argue you only bought a pair of shoes for work purposes, it’d be difficult to prove they weren’t also for general use.
“The way to look at this is to consider if a chef is likely to wear their chef pants in any other situation than their occupation, which it’s likely not,” says Sommer. “Standard black pants and closed shoes may be worn for work, however they can also be worn outside of work as well – their purpose isn’t specifically work related.”
This is a major consideration for 2020. There are two methods for calculating what’s deductible when working from home: the fixed rate method or the actual cost method. The former is calculated at a flat rate of 52 cents per hour, while the latter involves keeping a comprehensive diary of all costs you incur working from home, which would otherwise have been covered by your employer. This includes utilities, internet, technology depreciation and other equipment costs.
During the pandemic-induced lockdown, the ‘COVID-hourly rate’ or ’shortcut method’ has been introduced, bringing the fixed rate method up to 80-cents-per-hour. Sommer says this will be appropriate for workers who haven’t seen big set-up costs and whose employers have provided the necessary equipment and tech to conduct work. But the best way to tell what’s most cost-effective is to keep a cost diary and compare notes at tax time.
“You can tally up your hours and calculate the amount you can claim via the shortcut method, then compare that with any expenses you have incurred as a result of working from home. This will determine which method will provide you with the more effective deduction.”
Your new financial year tax resolution...
While getting a little cashback on work-related purchases is great, you should definitely only spend the money if you actually need the item to carry out your role or progress in your career.
Sommer’s golden rule is: “Just because you get a deduction for it doesn’t mean it’s a good idea to buy it. You’re still spending money for a deduction and you don’t get it for free.”
Not sure what to do with your EOFY savings? Think about stashing it in one of these high interest savings accounts.