As an Australian resident for tax purposes you are liable to pay an income tax on your taxable income which is calculated by subtracting allowable deductions from assessable income. The greater the deductions that you can claim, the smaller will be the taxable income and, consequently, you pay less tax. Understanding what deductions are allowed is crucial to minimise your tax liability.

Essential Tax Deductions Explained

Many taxpayers do not understand the basics of the tax system and are quite overwhelmed by the regulations related to taxation law. To minimise your tax bill you should recognise amounts that are deductible, record those amounts and claim deductions to which you are entitled.

You are entitled to claim deductions for some expenses that are directly related to earning your income. The expense must not be a private, domestic or capital nature; or to earn exempt income; or where legislation specifically denies a deduction (eg. penalties or fines). If the expense was both work-related and private or domestic, you can only claim a deduction for the work-related portion.

If you are an employee you can claim the deductions that are generally be expected to take place in carrying out the duties of employment. For example, subscriptions to trade, business and professional associations; expenditure on compulsory uniform; cost of cleaning and maintaining clothing used in employment etc. However, you cannot claim a deduction for expenses you incur if those expenses are reimbursed to you by your employer. If you receive income from a rental property you are able to claim landlord expenses such as council and water rates; interest on money borrowed to purchase the property; repairs and maintenance cost etc. Where you receive income from business you can claim expenses that have direct connection to your assessable income. You are not required to ascertain particular expenditure to a certain amount of assessable income. It must have contributed to the overall of your business income.

Once you have identified the expenses that incurred in earning your assessable income you can claim a deduction but only if you obtain and keep written evidence of expenditure.   You are not required to keep written evidence of claiming expenses which are less than $10, and the total is less than $300 for the financial year. If it is unreasonable to expect you to obtain a receipt (eg. parking or toll tickets) you are allowed to keep a diary entry providing the total of these expenses is not more than $200.

Properly claimed allowable deductions can significantly reduce your tax liability.  To ensure you’re getting the maximum tax refund from your return, speak to an accountant at The Quinn Group. Submit an  online enquiry here or call us on 02 9223 9166.