Finance 101: your simple guide to tax write-offs and deductions

In this series, we break down finance jargon plain and simple. Here, we tackle tax write-offs and deductions – and how they can potentially save you money if you’re smart about it.

What are tax deductions?

Tax deductions are an way to reduce the amount of income that is subject to tax, which lowers your effective tax rate. Imagine you’ve got expenses that help you earn your income. Tax deductions let you subtract these expenses from your income, and by lowering your taxable income, you can potentially pay less in taxes. 

A common misconception is that tax deductions are automatically deducted from the tax you pay. This is not true – it only reduces your taxable income.

What are the rules?

Tax rules can be complicated and are always changing, so it’s best to consult the ATO or a tax agent for the most up-to-date advice. However, there are three simple rules to know when considering a tax deduction: 

1. You must have spent the money yourself.

2. It must be directly related to your income or business.

3. You must have a record to prove it.

What are instant asset write-offs?

These let businesses immediately deduct the cost of eligible assets, which can be a game-changer for cash flow. However, there are eligibility rules and limitations to what you can claim, so make sure you check with the ATO.

Why should you care about tax write-offs and deductions?

If tax time fills you with dread – tax write-offs and deductions can lessen this feeling.

Put simply,they are a great way to cut down on what you owe on tax, leaving more cash for you to stash or splash. Plus, they can encourage you to do good things like donating to charities or boosting your career with training or studies, by rewarding you with savings.

What can you claim?

Work uniforms and equipment: Bought a snazzy uniform? Invested in tools or equipment that you need for work – whether that be part of your uniform, mobile phone or laptop bag, these expenses might be claimable. Yes – your $300 work bag is deductible, as long as you only use it for work.

Work travel: That stale airport muffin is at least tax deductible when you travel for work. Parking fees and toll fees for a work trip may also be eligible to claim.

Studying and memberships: If you’re hitting the books or doing a training course or workshop to boost your career, or if you are part of membership, agency or union related to your work, some of those costs could be deductible.

Donations: Gifts and donations might get a deduction for your good deed. These can only be claimed when given to a charity with the status of a Deductible Gift Recipient and can only be money or property. 

Working from home essentials: WFH? The ATO has two methods where you can claim expenses like electricity, internet and stationery: Fixed Rate Method (an amount (70 cents) per work hour for additional running expenses) or Actual Cost Method (the actual expenses you incur as a result of working from home). These methods are subject to change by the ATO – so keep across any updates. You can only claim the portion where you incur expenses for work purposes (as opposed to your private use). 

Investing and tax fees: If you’re paying fees to manage investments or get financial advice, these might be eligible for a deduction. You can also claim certain costs associated with preparing and lodging your tax return and activity statements.

Personal super contributions: Whether you’re employed, self-employed, unemployed or retired, depending on your age you might be eligible to claim a tax deduction on your after-tax super contributions. Just remember to notify your super fund first.

Sunscreen: If you work outdoors and exposed to the sun for prolonged periods, you may be able to claim the cost of your sunscreen, as long as it’s approved by the Therapeutic Goods Administration (TGA).

Depending on your industry or occupation, you may be entitled to more tax deductions. Check the ATO for more detail and it’s best to consult with your certified tax agent for personalised advice before making a claim.

What can’t you claim?

Personal expenses: Groceries, rent and your endless television streaming subscriptions usually don't qualify as deductions because they're not directly related to earning your income. 

Gym fees: Unless you’re a trapeze artist or have another niche athletic job that requires you to have an extremely high level of fitness, you won’t be able to claim your pilates classes or gym membership.

Commuting costs: Train and bus tickets are not going to fly with the ATO. Getting to and from your regular workplace is typically not deductible, as they're considered personal travel. Fines or penalties are also not eligible.

WFH snacks: Coffee, tea, milk, entire blocks of chocolate (no judgement!) and other household items are not tax deductible, even if your employer may provide these at work.

Watches: Just because you read your work emails on your smart watch, doesn’t mean you can claim it. Watches are considered a personal expense, even if you require one as part of your job. The only exception is if your watch has special characteristics that you use for a work-related purpose, for example, a nurse can claim the cost of their fob watch. 

Entertainment and functions: Stuck talking to Gary from sales at your latest work function? Unfortunately you can't get that time back, and you also can’t get any money you spend back either. Events, dinners, dances and cocktail parties are not deductible, even if they are attended exclusively by your work colleagues, you discuss work at the functions and they are compulsory. 

Grooming and cosmetics: They may make you look like a million bucks, but you can’t claim any of your bucks back for beautifying treatments. Haircuts, beard trims and your make-up are not tax deductions.

Keeping a clear distinction between personal and work-related expenses is crucial to ensure you’re compliant with tax laws and regulations. Always check the ATO or with a tax professional to get the most accurate advice for your situation.

How to keep records of your expenses

Knowing about tax write-offs and deductions can be a real game changer for your wallet. In order to claim deductions legally, you need to keep track of all your receipts. Sifting through a box full of fading receipts doesn’t really cut it anymore – level up by using expense tracker apps or simply taking a photograph on your phone of all your receipts and keep them in an album for tax time. AMP’s Expense Calculator is a great way to get a better understanding of your expenses. As rules are always changing, stay in the loop with the ATO and a tax agent to make sure you’re getting all the write-offs and deductions you're entitled to.