- A tax deduction reduces your taxable income and therefore the amount of tax you need to pay. They can help you to get a tax refund.
- A tax offset on the other hand directly reduces the amount of tax you owe by the amount of the offset. A tax offset is also known as a tax rebate.
Tax-deductible expenses must be:
- directly related to you earning your taxable income,
- incurred by you in the financial year in which you’re claiming them, and
- not reimbursed by your employer.
You should also ensure that you have documentation to support any expenses that you claim as tax deductions.
Common examples of tax-deductible expenses are outlined below.
Work-related car expenses
If you specifically need to use your car for work purposes, you can generally claim associated expenses. You’ll have to keep relevant records.
However, it’s important to understand that you can’t claim a deduction for the cost of your travel to and from your home and work.
Work-related travel expenses
If you’re required to travel for your job, you may be able to claim travel expenses as deductions. For example:
- bridge and road tolls,
- parking fees,
- meal and accommodation expenses if you’re away for work overnight, and
- taxi fares.
Work-related uniform or protective clothing expenses
You can claim for the cost of buying and cleaning compulsory uniform or protective clothing that’s necessary for you to do your job.
Work-related self-education expenses
These expenses must be related to gaining a formal qualification that will assist you with your current employment. You can’t claim any education expenses that don’t have a direct connection with your current work.
Other work-related expenses
Examples of ‘other’ work-related expenses include:
- mobile phone, home phone and internet expenses,
- income protection insurance,
- the cost of subscriptions to professional associations, and
- union fees.
Low-value pool deductions
This includes the depreciation on any low-cost assets valued at under $1,000 that you may have used to earn your taxable income.
Interest deductions can include:
- interest on loans used for income-producing investments (such as rental properties),
- bank account-keeping fees for accounts that earn interest, and
- investment adviser fees.
Dividend deductions can include:
- interest on loans used to buy shares that have generated dividend income for you,
- investment adviser/management fees.
- any costs of managing your share-based investments, such as subscriptions to investment websites or magazines.
Gifts or donations
Gift or donations to registered charities are tax-deductible.
The cost of managing your tax affairs
The cost of using the services of an accountant or tax agent to provide you with advice or to prepare and lodge your tax return is tax-deductible.
Personal superannuation contributions
Any voluntary personal super contributions that you’ve made from your after-tax income are now tax-deductible. This change was introduced for the 2017/18 financial year. Prior to that, generally, only self-employed people were entitled to claim a tax deduction for their voluntary super contributions.
However, it’s important to understand that the compulsory 9.5% superannuation guarantee paid by your employer on your behalf is not tax-deductible, nor are any salary sacrifice arrangements you may have in place.
It’s also important to understand that:
- you need to have submitted an ATO form to your super fund to be eligible to claim a tax deduction for your voluntary contributions.
- your contribution/s will count towards your non-concessional contributions cap. This cap limits the annual amount of non-concessional contributions that you can make to your super fund. It is currently $100,000.
Common examples of tax offsets are outlined below.
Private health insurance rebate
If you have private health insurance, you may be eligible for a government contribution towards the cost of your premium. Your eligibility depends on your income.
Low and middle-income tax offset
This tax offset is available to you if your income is below $126,000. If you earn between $48,000 and $90,000, you’re entitled to a full offset of $1,080. If you earn less than $48,000 or between $90,000 and $126,000, you’re entitled to a partial offset.
If you’ve received share dividends from Australian companies, you can use franking credits to offset the amount of tax you owe. Unlike most rebates, they can also be used to generate a tax refund.
Seniors and pensioners’ tax offset
This tax offset is available to you if you who meet the following eligibility criteria:
- you are age-eligible to receive the age pension, regardless of whether you actually receive it or not.
- you pass an income test. Depending on your income, you may be entitled to either a full, partial or no offset.
Superannuation income stream tax offset
If you’re currently receiving an income stream or pension from your super fund, you may be eligible for a tax offset on part of the amount you’ve received this financial year.
Superannuation contributions on behalf of your spouse
If you’ve made super contributions on behalf of a spouse who has a taxable income of less than $40,000 for the financial year, you’re entitled to a tax offset of up to $540.
There are also a range of other tax offsets for specific individual circumstances.
How we can help
At Qi Wealth, our team of Certified Practising Accountants (CPAs) can help you to legally maximise your tax deductions and offsets. It’s important to understand that tax minimisation is legal, tax avoidance is not and results in heavy penalties.
If you’ve bought and sold assets during the financial year, we can also advise you on any capital gains tax obligations you may have, or how you can carry forward any capital losses to offset against future capital gains.
We’ll take the time to understand your individual circumstances so that we can provide you with the best tax advice. We develop long-term, trusted relationships with our clients.
And as you now know from reading this article, our fees are tax-deductible!
Contact us today to find out how we can help you!