If you earn money – whether that’s through a job, an investment or any other type of income - you may need to pay tax. But are you paying more than you need to? You’ve worked hard for your money, so it’s a good idea to make sure you’re doing all you can to reduce your tax bill – and stress levels – at tax time.
The amount of tax you pay depends on how much you earn, and any deductions you can claim. Making sure you’re claiming as many tax deductions as you legitimately can, is one of the easiest ways to reduce your tax bill.
You can claim a wide range of expenses, including work-related expenses, working from home expenses, union fees, charitable donations and the cost of managing your tax affairs – paying an accountant to do your tax return, for example. You can get a full list of tax deductions on the ATO website.
Depending on the type of work you do, work-related expenses are one way you may be able to save plenty on tax. You may be able to claim certain:
It doesn’t stop there. If you work from home, you may be eligible to claim certain working from home expenses too, and any tools or equipment you use to do your job including:
You have two options when it comes to calculating your deductible work-related expenses. We break it down for you below:
This method simplifies tax returns using an hourly rate. It’s designed to make it easier for those working from home to claim working from home tax deductions. You only qualify to use this method if you worked from home and incurred extra tax deductible expenses as a result – occasionally checking emails or taking phone calls doesn’t count.
The fixed rate method is pretty simple: For every hour you work from home, you can claim a $0.67 (67 cents) tax deduction for additional running expenses. The hourly rate deduction covers everything from your phone and internet expenses and your utility costs. You can separately claim the decline in value of your work equipment and furniture. Apart from these, you can't ‘add on’ any other work expenses you incurred.
To use this method, you’ll need to keep a record of the hours you worked from home - a timesheet, diary or roster for example. Because it’s an hourly rate calculation, you won’t need to calculate the costs of specific items or keep receipts.
For more about the fixed rate method you can visit the ATO website.
With the actual cost method, you calculate your working from home tax deductions based on the actual costs you’ve paid for. Under this method, you’ll need to keep a record of the hours you’ve worked as well as a complete breakdown of your expenses and your receipts. If you work in a shared area (for example your kitchen), this method takes into account the work-related portion of expenses, such as cleaning, heating and lighting.
For a summary of this information see Working from home deduction.
Depending on how much you earn each year, you could be paying tax at a rate of up to 47% on your income including the Medicare levy. But when you earn money from your super savings, the tax you pay is generally a maximum of 15%.
The government creates these tax incentives to get you saving for retirement. But there is a way to save on tax – by making extra contributions into your super through personal deductible contributions or a salary sacrifice arrangement with your employer. A tax rate of 15% applies to these contributions (known as concessional contributions) that are made from your pre-tax salary, which could potentially reduce the amount of personal tax you have to pay. Additional 15% tax may apply to all or part of your contributions if you are a high-income earner with income over $250,000 in the financial year.
You can also make extra contributions to your super from your after-tax pay (known as non-concessional contributions) and how much tax you can save from it will depend on your marginal tax rate. Here’s an example showing the difference if you made a $10,000 contribution into your super from your after-tax pay compared with a before tax contribution. This is assuming that your marginal tax rate is 39%, including Medical levy.
| After-tax contribution | Before tax contribution | |
|---|---|---|
| Contribution | $10,000 | $10,000 |
| Tax rate | 39% | 15% |
| Tax payable | $3,900 | $1,500 |
| Net benefit | $6,100 | $8,500 |
If you want to get started with before tax contributions, you should talk to a financial adviser. If salary sacrificing is right for you, you’ll need to ask your employer to make a regular direct payment from your pre-tax salary into your super fund. Otherwise, you may make personal deductible contributions. Find out more about salary sacrificing, visit the ATO website or speak with your financial adviser.
Remember there are annual limits on how much you can contribute to superannuation and there are different contributions tax rates for high income earners.
One of the best ways you can get ready for tax time – and make sure you’re ready to claim deductible expenses – is getting organised early. Here are a few tips to help you prepare:
1. Gather the information you need ahead of time so you have enough time to chase up any essential details and paperwork, including:
2. Take photos of paper receipts – things can get confusing when you have both paper and digital receipts for your expenses. Take a photo of your paper receipts and store them together with your digital receipts so they’re all in the same place if you need them. Taking photos also means you have a back up if the paper receipts are damaged or lost.
3. Take advantage of tools and technology– an Excel spreadsheet can work wonders for at tax time. Setting up columns for each month and expense category and using formulas can save you time and prevent you from making mistakes when calculating deductions.
There are also plenty of apps to help you organise your receipts. You can also use the myDeductions tool in the ATO app to help keep track of your work-related expenses and general expenses and upload these records or share them with a registered tax agent at tax time to make lodging your tax return easier.
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