Tax Return - Tax Information & Deductions

The following information has been created as a guide for our clients to assist them with
understanding their basic entitlements and obligations under tax law. The following information
does not apply to everyone and your personal circumstances should be considered on a case by case
basis.

1) Income

You must declare all income you received during the financial year. Common types of income that must be declared in your tax return are:

Employment income
Pensions, annuities and government payments
Income from investments such as dividends, interest, managed funds and rent
Income from the sale of capital assets (i.e. shares, real estate etc)
Foreign income
Income from partnerships and trusts
Business income

Certain items are specifically excluded as income (i.e. you do not have to declare these in your tax return):

Prize winnings and proceeds from gambling are not considered income
Money made from hobbies are not considered income. To be treated as income your hobby activity must have the characteristics of a business. Factors that should be considered in assessing whether or not your hobby is a business are things like the size and scale of the activity, the commercial nature of the activity, intention to profit, business record keeping procedures etc

2) Deductions

There are several types of deductions you can claim to help reduce your taxable income. However to claim a tax deduction the expense must have the relevant nexus with your income (i.e. be work related or sufficiently connected with the income you received) and you must have evidence of the payment of the expense (i.e. tax invoice). The following expenses are possible deductions you may eligible for:

Motor Vehicle Expenses :

If you use your motor vehicle for work or business related purposes then it is likely you will be eligible for a tax deduction. However when assessing the amount of work related use of your vehicle it is important to note that you cannot claim the cost of travel between your work and home unless you carry bulky items (i.e. a tradesmen who needs to take his tools to and from work every day or a musician who need to carry a large musical instrument to work every day). There are four methods of which you can claim motor vehicle expenses:

Log book Method – Total up all your expenses you spent on your motor vehicle i.e. Fuel, rego, insurance, repairs, interest and depreciation. Then claim a percentage of work related use. Under this method you must have kept a log book for 12 weeks over the last 5 years to establish your work related use
Cents per Kilometre Method – Using reasonable logic you establish an estimate of the kilometres you travelled during the year. Then depending on the size of your vehicles engine you claim a set tax rate set out by the ATO for each kilometre travelled
One Third of Motor Vehicle Expenses Method – Same concept as the log book method but instead of keeping a log book you simply claim one third of your total expenses. To use this method you must have travelled over 5000 business kilometres
12% of original cost method – You claim 12% of the original cost of the vehicle. To use this method you must have travelled over 5000 business kilometres

Self Education Expenses :

If you incurred expenses in relation to your education and those self education expenses were directly connected to your current income earning activity or they were necessary to maintain, improve or increase your current income earning potential then you can claim a tax deduction for the cost of those self education expenses.

Work related Expenses :

Deductions are available for all expenses relating directly to employment or business activities. Things like union fees, registrations, phone or internet (if you use these for work) etc.

Clothing and Laundry :

If you wear a compulsory uniform, protective clothing or occupation specific clothing then you can claim a tax deduction of $150 without receipts.

Donations :

All donations to deductible gift recipients are tax deductible. Generally art unions and prize draws are not donations and are therefore not tax deductible.

Expenses in Relation to Tax Affairs :

Expenses in relation to administering your tax affairs are tax deductible i.e. fees to accountants and tax agents.

Investment Expenses :

Expenses incurred in relation to any investment activities are fully tax deductible. For instance bank charges and interest incurred on margin loans or line of credits where the funds were used to invest.

Rental Properties :

All expenses incurred in renting out an investment property are eligible for a tax deduction. For instance rates, insurance, interest, bodycorp etc.

Specific Occupation Deductions

The following are merely suggestions of common deductions that are claimed by particular occupations. The lists are by no means exhaustive and there may several other deductions you may be entitled to. The lists also do not mean you are automatically entitled to the deduction as you must still satisfy the basic tax deduction conditions to make the claim (see above).

1) Teachers

Registrations and professional fees
Home office expenses if you work from home. You can use a rate of 26 cents/hour for the running costs of your office (i.e. to cover lighting, air con etc)
Union fees
Travel expenses for overnight trips
Motor vehicle for school trips (other than to and from work)

2) Australian Defence Force Workers

Uniform and protective clothing expenses
Laundry
Tools of trade. If a piece of equipment costs over $300 it will have to be depreciated
Motor vehicle if you use your car for work other than travelling to and from your place of residence
Education expenses if they relate to your employment

3) Hospitality Employees

Costs of uniforms
Laundry
Union fees
Motor vehicle for travel between different jobs
Memberships to industry specific organisations
First aid courses and blue card fees
Gaming licences
Cost of making up cash bag and till shortages

4) Nurses

Nurses registrations
Union fees
Nurses uniforms and related clothing
Non slip shoes
Nurses watch
Pagers
Fob watches
Courses and professional development

5) Retail Assistants

Uniforms
Laundry

6) Business Professionals

Laptops and computers if used for work. If they cost over $300 they will have to be depreciated
Home office expenses if you work from home. You can use a rate of 26 cents/hour for the running costs of your office (i.e. to cover lighting, air con etc)
Professional association fees
Self education expenses relating to your occupation

7) Tradesman

Motor vehicle if you use it to transport heavy materials or tools of trade
Protective clothing such as work boots, heavy duty clothing etc
Laundry
Work tools. If these are over $300 you must depreciate them
Union fees
Phone Expenses if you use your phone for work

Common Tax Offsets and Rebates

Low income offset for low income earners
Zone offset for people who live in remote areas
Medical Expenses offset – Calculated at 20% of all out of pocket medical expenses over $2000 (starting 1 July 2010 – used to be $1500)
Overseas forces offset for defence force personnel in specific localities
Mature age workers offset for mature aged people who are still in the work force
Senior Australians Tax Offset
Spouse/dependent rebate for single income families who are not eligible for family tax benefit part B

Other points of interest and tips

If you are a high income earner without private health insurance please note you may be liable for the medicare levy surcharge. Pretty much all Australians pay the compulsory medicare levy on their tax returns each year (which is 1.5% of taxable income) however high income earners without private health insurance are at risk of being charged an extra 1% surcharge. If you believe this may concern you then it may be worth your while to take out a basic private health insurance policy as the cost of this can often be cheaper than the surcharge itself. It is worth getting advice if this concerns you.
If you are in the defence force it is unlikely you will have to pay the medicare levy as most members of the defence force usually have their medical costs covered by the government.
If you are a temporary resident it is also unlikely that you will have to pay the medicare levy as you are not normally entitled to medicare benefits here in Australia. If this applies to you, you do however need to apply for the exemption through a form that can be obtained on the ATO website.
Be wary of working more than one job at the same time. We often see people payable on their tax returns because they are claiming the PAYG tax free threshold on both jobs. When you start a second job be sure to fill out your PAYG declaration correctly by not claiming the tax free threshold twice otherwise you will have too little tax taken out throughout the year which will possibly leave you payable at the end of the year.