When it comes to preparing your tax return, knowing what you can or can’t claim as an expense for a deduction can be tricky. What counts as an expense? Is there a threshold amount you can claim up to? What methods are available when it actually comes time to making your claim?
To better understand what can be claimed when lodging a tax return – especially if you’re predominantly working remotely or from a home office – we spoke with Craig Whiteman, a partner at EY and their tax service line leader for South Australia.
Whiteman explained that “with a vastly improved data analytics capability, the ATO have more information than ever to assist them with income tax compliance activities.”
“Make sure you have the appropriate documentation to substantiate any deductions you intend to claim to the extent your total deductions are greater than $300. The ATO will undertake compliance activities in targeted occupations.”
Work-related travel expenses
Claiming expenses accrued for work-related travel can be a bit tricky, as there are a few caveats when it comes to what you can or can’t claim. According to the ATO, “You generally can’t claim for normal trips between home and work as this is considered private travel.”
If your job requires you to carry bulky tools or equipment, deliver or collect items, or attend any work-related meetings that are away from your usual workplace, you are able to claim this as a work-related travel expense. A full list of what you can or can’t claim can be found here.
To keep track of your travel expenses, you’ll need to keep track of your receipts for things like petrol. The best way to do this is by keeping a logbook of your work-related records. Another claim method is the “cents per kilometre”, which uses a set rate of 68 cents per kilometre – up to 5,000km.
Mobile phone and internet costs
If you’ve been predominantly working from home this year, you have probably increased how much you use your mobile phone and internet for work-related reasons. For the most part, you can claim your usage provided that you’re the one paying for your phone and internet bill, and their use is directly related to you earning an income.
To correctly determine how much you can claim, you’ll need to work out the percentage of work-related use compared to private use. A record of your usage is also required. You aren’t able to make a deduction claim if you’re using a phone that was provided to you by your employer.
If you’ve donated to any charities within the financial year, you might be able to write off this amount as an expense. To be able to claim a tax deduction, the charity you donate to needs to be classified as a “Deductible Gift Recipient.”
However, not all charities are DGR eligible, meaning you aren’t able to claim any donations you’ve made to these campaigns. One of the more recent examples of non-DGR charities are those that use crowdfunding websites. You can check if an organisation is DGR eligible here.
What are the available methods for claiming home office expenses?
There are three methods you can use – each with their own set of rules.
The “actual cost method” is exactly what it sounds like. As the year progresses you’ll need to keep track of your expenses and receipts. The major caveat for this method is that you need to have a dedicated work area. You can find more information regarding what can or cannot be claimed via the ATO.
Instead of calculating the actual cost of your home office expenses, you’re able to use the “fixed rate method”. According to the ATO you can, “claim a deduction of 52 cents for each hour you work from home for the work-related expenses you incur for additional running expenses.”
If you do plan on making a fixed-rate claim based on your current home office set up, you will need to be able to provide the ATO with some evidence should they request it. “You need to be able to justify the home office use by either keeping a record of all hours worked,” Whiteman explained, “or keeping a diary for a representative four-week period.”
Just note, this fixed rate doesn’t cover everything. You’ll need to separately calculate your expenses when it comes to phone and internet, computer consumables and stationery, and the decline in value on your computer.
The ATO have also introduced another way to calculate expenses called the “shortcut method.” It’s similar to the fixed rate method, but instead you can “claim 80 cents per hour for each hour you work from home during the period 1 March to 30 September 2020.” The shortcut method covers phone expenses, internet expenses, the depreciation of equipment and furniture, along with electricity and gas that is used for heating, cooling and lighting.
How can you make sure you’re correctly claiming your expenses?
If you’re unsure of how to properly identify deductions for your tax return, there are professionals who are more than willing to help. EY is one of the leading tax authorities, with a team of professional accountants who will make sure you get the best possible tax return.
EY want to give you the best experience possible, that’s both convenient and free of complex tax jargon. Their new app, EY TaxChat, is a service designed to help shoulder the burden of financial stress by giving you direct access to professional, easy to understand tax advice.
By accessing EY TaxChat you’ll be allocated one of EY’s many tax professionals, who will help to streamline and explain your return in an understandable manner, free of impenetrable tax jargon. They’ll let you know what you can or can’t claim on your return.
You don’t need to make an appointment, and will be provided with a reasonable price quote after entering some information regarding your return. A dedicated consultant will help you work through your return, making sure you get the best possible refund.
“Income Tax is complex,” Whiteman told us, “so it makes sense to get guidance from a professional who has the relevant experience to assist you to identify expenses you can legitimately claim as a deduction, but just as importantly, items that are not deductible to ensure your tax return is correct.”
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