Tax Planning For Individuals

Note: The information in the articles below is of a general nature only and may not be relevant to your specific individual circumstances.  You may need to engage to provide you with specific advice to suit your specific circumstances.

Tax Planning for Individuals, – here are our recommendations on the use of tax deductions that can help reduce taxable income legally.

Maximise Tax Deductions

How can I get the most out of my tax return?

An individual can reduce their taxable income legally through the use of tax deductions, allowing them to take advantage of lower tax rates. Tax Deductions are out-of-pocket expenses that directly relate to an individual’s employment and income activities.

You can legally minimise your tax by claiming deductions. It is essential that the expense meets the requirements set out by the Australian Taxation Office (ATO).

For your deduction to be classified as legitimate, the ATO requires a work-related expense to meet the following criteria:

1.    You must spend the money yourself during the specified financial year and not reimbursed yourself

2.    It must relate to your job

3.    You must have a record to prove it – the record must provide a description, cost and date of purchase

Sometimes we can incur costs which relate to both work and private use.

Proof of Purchase

In this case, a tax deduction is allowable but only for the portion related to work use. A receipt or proof of purchase must accompany the tax deduction. Keeping these receipts or proofs of purchase is vital to maximising your return.

When we complete our tax return, it easy easy to forget work-related deductions.

Individuals often aren’t sure what they can claim and so they leave them out altogether.

The information below lists the common work-related deductions you can include in your Australian Online Tax Return.

Vehicle and Travel Expenses, including travel between work and home

When you use your personal vehicle to travel for work-related purposes, you can make some deductions.No matter the distance, trips between home and the workplace are private travel and therefore are not deductible. What is deductible are direct trips between two separate workplaces – this includes a second job.

If you travel from your normal workplace to an alternate workplace, this is also deductible, along with the trip back to the normal workplace or directly home. This also includes visiting clients and, travelling to meeting and conferences.

When you do your tax online and you would like to claim a motor vehicle tax deduction you do not need written evidence as proof.However, you must be able to show how you worked out your business travel.

One handy tax planning strategy for ensuring you get the best motor vehicle deduction is to keep a log book or diary of all travel that meets the criteria for a deduction. This will also ensure you have a simple tax return to complete!

Clothing, Laundry and Dry-Cleaning Expenses

The costs of purchasing and maintaining occupation specific clothing and protective clothing can also be tax deductibles.

If you need to purchase and wear uniforms with distinctive business logos on them, this is occupation-specific clothing.

Occupation-specific clothing is also clothing that is not ordinary in nature and is simply identifiable to a certain occupation. A good example of this is a chef’s uniform, including the hat and checked pants.

Protective clothing is clothing and footwear that minimises the chance of injury or illness caused by an individual’s occupation. Protective clothing examples include safety-coloured vests, fire-resistant and sun-protection clothing, steel-capped boots, non-slip nurse’s shoes and overalls.

The costs of those described above are tax deductible.

You can also claim the costs of dry cleaning, washing, drying and ironing eligible work uniform that meets the requirements of the clothing outlined above.

These small expenses are easy to overlook, but they certainly add up, so always be sure to hold onto your receipts, especially if the cost of your claim exceeds $150 or if your total work-related expenses exceed $300.

Gifts and Donations

Gifts or donations of $2 or greater, are eligible for tax deductions.The person who pays the donation or for the gift, also known as the donor, can only claim the deduction.

The deduction is only applicable if the donor does not receive any material benefit or advantage in return (for example, a raffle ticket does not qualify as a donation or gift).

One piece of tax planning advice we recommend is to ensure the gift or donation recipient is a deductible gift recipient (DGR), and you have a receipt as proof.

Home Office Expenses

If you are an employee, the running costs of a home office are not generally claimable. However, if part of your employment involves working from home significantly, a portion of the running costs may be claimable.

These include rent, mortgage interest, council rates and house insurance premiums. Alternatively, if you work from home regularly but not for the majority of your work hours, you can claim a deduction. The calculation is the number of hours per week you work from home. The deduction is calculated as a set rate of the total hours worked from home for the year.

Self-Education Expenses

Self-education expenses can be considered a taxable deduction. You must ensure the following requirements are met for self-education to claim a deduction. The course you are undertaking must have a sufficient connection to your current employment.

It must allow you to advance and or expand your particular skills or knowledge required in your employment. Or, the education results in a high likelihood that your employment income will increase due to your studies.

Tools, Equipment or Other Assets

Some occupations require their employees to purchase their own tools and equipment. The costs of tools and equipment purchased directly for your employment can be added as a deduction. If the asset is for both personal and work use, only the work portion should be included as a deduction, for example, 50% of the cost.

If the cost of equipment is more than $300, the asset should be depreciated over several years rather than the total cost claimed in the year of purchase. Repairs and maintenance on these items are also tax deductible. When considering year-end tax planning always remember to keep receipts and only claim the work-use portion.

Other Deductions

You may have out-of-pocket costs directly related to your income but do not fall under any of these categories. An expense can still be claimed in your Australian online tax return as a tax deduction even if it doesn’t fall into the above categories.

Everyone’s employment is different, and some expenses are incurred less often. These can sometimes qualify under “all other expenses”. Some examples of these expenses include union or professional membership fees, income protection insurance, cost of managing the previous year’s tax affairs, and personal mobile phone use for work purposes.

When claiming an expense under this category always ensure you can show how it relates to your income. Have a source document to prove it. It is also handy to describe the expense to ensure it is evident to the ATO what you are claiming. Otherwise they may question it, delaying the completion of your return.

Accelerating Tax Deductions

A common strategy in tax planning is to accelerate spending in the same financial year. This results in higher tax deductions. The financial year runs from the 1st July to the 30th June the following year.

As the end of financial year approaches, some people increase their spending by paying for certain expenses before this date to take advantage of the tax deductions and reduce the amount of tax they pay in their tax return for that year.

An example of this tax planning strategy could be a membership cost. The cost is due in July however the individual chooses to pay the fee before the 30th of June. When the time comes to claim their tax back online, the individual can include this fee in their current tax return rather than claim it the following financial year.

This strategy can be used with any expense that is allowable provided the proof of purchase is attached. When adopting this strategy, it is essential to ensure you monitor your cash flow to ensure spending does not outweigh the benefits. For example, leaving you with no cash flow.

We have created a handy tax calculator to help estimate your return.



Table of Contents