It is that time of year again when we start to consider tax returns. Part of planning and understanding your tax return is knowing what your work-related expenses are. Many employees and business-owners (such as those who are self-employed) are able to claim deductions in their tax return as work-related expenses (WRE). But, there is certainly some confusion on what really can be claimed.
What is a work-related expense?
As an employee, there are three “golden rules” for determining a work-related expense:
- You have spent your own money on something and you haven’t been reimbursed in any way
- The expense is directly related to earning your income
- You have receipts/proof to support your claim
If you run a business, you can claim tax deductions for most costs that you incur when running your business. These tax deductions are then used to reduce your taxable income. It is important to note that when you are claiming items as tax deductions for your business, you will need to ensure you have complete and accurate records.
As a business owner, it’s also important to give your employees the right advice and they understand what they can and cannot claim as a work-related expense in their tax return.
What can be claimed as a work-related expense?
There will be times when you have paid for items, goods or services as a work-related expense, but it is also used for personal use. For example, you may use a mobile phone to complete your work on, but you use it outside office hours to send personal emails or make personal calls. In this case, you can only claim a deduction for the work-related portion. This may be calculated as a percentage of the overall costs.
Some of the most common expenses include:
- Travel and vehicle costs
- Laundry, dry-cleaning and clothing expenses
- Home office expenses
- Self-education costs
- Equipment, tools and other assets related to your work
For most cases, having an accurate record of the deductions you are claiming is a must. This could be travel records, kilometres driven, dry-cleaning receipts or phone bills. So long as your expense is directly related to your occupation and is not paid for via other means and you have sufficient evidence of the cost, you may be able to claim it as a tax deduction.
What can be claimed as a work-related expense for your business?
When you’re running a business, there are often a lot of costs involved in keeping your doors open. That’s why it’s even more important to know what you can (and can’t) claim as a deduction.
In general, you can claim:
- Operating expenses throughout the year incurred (such as staff wages and office stationery)
- Capital expenses over a longer period of time (such as equipment costs and machinery)
Operating expenses are usually those costs that are incurred whereby it is a legal obligation for you to pay for the goods or service. You don’t necessarily have to have an invoice for those expenses, but you will need to have a record of the expense.
What cannot be claimed as a deduction?
There are a number of items that aren’t tax-deductible. These include, but aren’t limited to:
- Traffic fines and entertainment expenses
- Childcare fees and clothing for your family (private and/or domestic fees)
- Expenses for non-assessable income, such as money earned through a hobby
- GST on a purchase made if you’re claiming it as a credit on your business activity statement
If your earnings are classified as personal services income, your deductions could be limited, so it is best to check a professional when you’re in doubt.
Who can claim expenses?
All employees can claim work-related expenses in their tax return. This includes those who are employed on a casual basis.
Anything else I should know?
The end of the financial year is June 30. From the 1st of July through to October 31, you will need to lodge your tax return for the previous year. If you use a registered tax agent, you may be able to lodge your return after October 31. Always be sure to double check on any tax law changes via the Australian Tax Office.
If you need assistance understanding more about work-related expenses, Diverse Business Consultants can assist you. Give us a call today to discuss your business needs.