Your essential EOFY checklist
No one wants to pay more tax than they need to or face unnecessary risks.
We’ve compiled a list of our top tips for you:
If you are going to donate to charity, now is the time. Any donations you make to deductible gift recipients can be deducted this year. Remember, if you received something in return for the money, like goods purchased at a charity auction, you may not be able to claim a deduction for the full payment. There are special rules dealing with this situation that need to be taken into account.
2. Work-related deductions
You can claim a deduction for business expenses you have incurred that have not been paid by your employer. But be careful, you need to be certain that what you are claiming is a legitimate business expense and able to be claimed. For example, you cannot claim the cost of dry cleaning the clothes you wear to work unless it is protective clothing, a uniform required by the business, or occupation-specific clothing (like the checked pants some chefs wear).
To be legitimate, the expense must be for something you need to do your job. Items like laptop bags have been in the news lately because some handbags can be used to carry laptops. This does not mean that your Gucci bag is suddenly deductible. It is really up to you to justify the deduction that you are claiming, keeping records of the actual usage of the item can help with this.
3. Home office expenses
If you work from home as part of your employment, you may be able to claim items such as phone expenses, running costs for your home, and equipment. Just bear in mind that expenses need to be in proportion to your use of the home for work purposes. If your home is a place of business and you are entitled to claim a deduction for interest expenses or rent, then this will generally impact on your ability to claim the full main residence exemption from CGT when you sell the home.
4. Earning extra cash from Airbnb style services
The tax treatment of what you earn by renting all or part of your house through Airbnb and similar services is the same as any other residential rental property arrangement. You must include the rental income in your income tax return, but you can also claim tax deductions for expenses associated to the rental, such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, and insurance. Expense claims need to be in proportion to the rental, that is, how much of the house is used and for how long. Also, beware that this type of activity can restrict your ability to claim the CGT main residence exemption when you sell the property if it is or has been your home.
If you drive for Uber or a similar service, the income you earn needs to be declared on your income tax return. Plus, you need to be registered for GST. You can claim expenses for your car that relate to transporting passengers (relative to the kilometres travelled with passengers).
6. Danger zones
Expense claims that are high on the Australian Taxation Office (ATO) hit list include:
- Travel expenses – Problems arise when people make claims for expenses that they did not actually incur. Typically, this happens when someone receives an allowance for travel but does not spend it (they might stay with family or friends instead). While the ATO publishes some reasonable rates each year for food and accommodation expenses, these only provide limited relief from the full recordkeeping rules. You cannot claim a deduction for the ATO reasonable rate amount if you spent less than this on food and accommodation.
- Self-education expenses – Any study you claim as self-education must be connected to the income you are currently earning (either to maintain or improve your specific skills or knowledge) or is likely to result in increased income from existing income-earning activities. Merely doing a course while working full time does not make the course deductible. Be careful of excessive claims for travel overseas and luxury courses. You need to prove that these expenses are essential to your current work.
If you are a property investor, you can generally no longer claim the cost of travelling to and from your investment property.