As we head into August, we are now well and truly in the thick of individual tax return lodgements for the 2017 financial year, so now is the perfect time to think about what deductions you may be eligible to claim in your tax return.

Generally, any expenses incurred in relation to earning your income for the financial year are deductible (either immediately or over a period of time). Claiming deductions has the effect of reducing your net taxable income, which will ultimately reduce your tax bill for the year. Provided you only have income from salary or wages and your employer withheld the right amount of tax, claiming deductions will normally result in a tax refund.

In order to be able to claim deductions there are conditions that need to be met. You have to show that:

• The expense was incurred directly in relation to earning your income; and
• The expense is not private in nature.

The ATO is vigilantly checking deductions being claimed by individuals, with a particular focus this year on work-related deductions, making it imperative to only claim what you have actually incurred and are legally entitled to, and to ensure you meet all the substantiation and record keeping requirements.

Work related car expense

If you use your own car for work-related travel and you are not reimbursed for this by your employer, you can claim a deduction for the work-related portion of your car expenses. The two methods to claim this deduction are:

Logbook method
This method is based on a business use percentage which is worked out through keeping a log book of all trips over a consecutive 12 week period. You also need to keep written records and receipts for all expenses related to the vehicle (such as fuel, car services, registration, insurance etc). The amount claimable is your total car expenses for the year multiplied by your business (work-related) use percentage. This method requires significantly more record-keeping, but can be worthwhile if you have a large amount of work-related travel.

Cents per Kilometre
This is a simplified method based on the amount of work related kilometres you travelled during the year. The claim is based on the ATO’s cents per km rate (currently 66c / km), up to a maximum claim of 5,000km. There is no need for written evidence; however you need to be able to demonstrate how you have reasonably determined your business kilometres claimed.

Note that travel from home to work and back is generally personal in nature and cannot be counted when calculating your work-related kilometres for either the cents per km or log book methods.

Travel Expenses

Expenses relating to work-related travel (domestic or international) that are not reimbursed by your employer and are not private are deductible. Work-related travel might include:

• Travelling between places of work (e.g. where you have more than one worksite or office)
• Travelling between work and another site for work-related purposes (e.g. travelling to a client’s premises for a meeting, or travelling to a work conference or seminar after work)
• Travelling domestically or internationally overnight on a work trip.

Travel costs can include:

• Public transport
• Taxi fares
• Parking fees
• Airfares
• Accommodation (for overnight stays)

There are strict rules around substantiation of your travel costs, which dictate what records you must keep in order to be able to deduct the travel expenditure.

Self-education Expenses

The self-education expenses deduction is relevant if you incur costs in undertaking studies that lead to a formal qualification in connection with your employment.

Self-education expenses are deductible if:

• The expenses are not reimbursed or paid for by your employer; and
• The course has sufficient connection with your current employment (not a future job); and
• The course either:
  • maintains or improves the skills or knowledge you require in your current employment; or
  • will (or is likely to) result in an increase in your income from your current employment.

Self-education expenses can include things such as:

• Course fees;
• Cost of travel between your place of employment and the course venue;
• Books and resources required to complete the course; and
• Depreciation of equipment used by you for the course.

Clothing, laundry and dry-cleaning expenses

You can claim a deduction for the costs you incur when you buy, rent or clean your work clothing.

Work clothing eligible for the deduction includes:

• Compulsory uniforms
• Items of clothing with your employer’s logo on them.

General work clothing such as suits, pants or shirts are considered to be private and are not deductible, even if you are required to wear a specific colour or design.

Protective clothing can be deductible if purchased for work-related activities and are not paid for or reimbursed by your employer.

Protective clothing includes things such as:

• Safety-colour vests
• Non-slip shoes (in certain work environments)
• Rubber boots
• Steel-capped boots
• Gloves, overalls and heavy-duty shirts and trousers.

The cost of washing, ironing and drying the above eligible work clothing or protective clothing (including dry-cleaning) is deductible. You must have evidence (such as a diary) and receipts if the amount being claimed is greater than $150, or if your total deductions exceed $300.

If no written evidence is required, you are able to work out your deduction based on a reasonable amount set by the ATO:

• $1.00 per load for only works related items; or
• $0.50 per load for a mix of work related and personal items.

Home Office Expenses

If you work from home at any time during the year, you may be eligible to claim a deduction for the use of your home and furniture for work related activities. There are two methods to calculate your home office expense:

Cents per hour
This method is based on a set rate of 45 cents per hour, for every hour you have worked from home. You need to be able to show the basis for how many hours you have worked from home, for example by maintaining a diary.

Running Costs Method
This method takes the total eligible expenses you pay to run your home and apportions them based on the floor area of the space you use as a work station as a percentage of the total floor area of your house. Receipts must be kept for all items over $10, and a diary must be kept for all expenses under $10 (total of which cannot exceed $200). Generally, the cents per hour method is a much more practical option.

Internet and Telephone Expenses

The work-related portion of telephone and internet expenses is deductible. This is worked out by multiplying your total telephone or internet expense by your work-related use percentage. All invoices/receipts must be kept, along with a diary that captures your work related use over a minimum four week period. Unless you have more than one plan, the ATO will generally not accept that your phone or internet usage is 100% work-related!

Other Work Related Deductions

Other expenses you personally incur in producing your salary or other income can be deductible, such as:

• Subscriptions to related magazines or journals;
• The work-related portion of tools or equipment used for work (e.g. phone, laptop or tablet) – either immediately or over time;
• Purchase of virus protection for a work computer or tablet
• Stationery or office supplies; and
• Work-related professional association fees (e.g. Membership fees for industry-based institutes, professional registrations, union fees).

Other deductions

The following expenses are specifically deductible:

• Fees paid to an accountant or tax agent to manage your tax affairs;
• Donations to charities that are endorsed as a deductible gift recipient (DGR);
• Income protection insurance premiums (unless paid through your superannuation fund); and
• Superannuation contributions you make personally (not from your employer) in certain circumstances.

Record Keeping

While you are not required to submit documentation to the ATO with your tax return to support your claim, it is absolutely essential to maintain records to substantiate work-related and other expenses. These records need to be kept for five years from when you lodge your tax return. This can be done digitally or maintaining a folder with physical invoices for the financial year.

The ATO can request to see your records and it is not un-common for them to do so!