Everyone wants to increase their tax refund (or reduce their tax payable). But without professional advice, you could easily fall into a “tax trap” and spend more than you save.
Tax saving strategies generally involve you spending money on “something” which creates for you a tax deduction. The “something” you spend your money on could be an expense, an asset, or an investment-related payment (like superannuation or prepaid interest on an investment loan).
However – please don’t fall into a common trap of spending money just to get a tax deduction. You only save tax based on the marginal tax rate proportion on the amount you spend, NOT the full amount you spend.
For example, if you earn say $85,000 a year, your marginal tax rate (including Medicare levy) is 34.5%. This means any extra dollar you earn will be taxed at 34.5%, and any extra dollar you claim as a deduction will save you 34.5%.
So, if you spend $100 on something that you can claim a deduction for, you will get back $34.50 from the ATO. But it will still cost you $65.50. So only spend money on what you NEED, not just to create extra tax deductions for yourself.
Deductions you can claim
According to the Australian Taxation Office (ATO) website, there are 4 things you need to claim a work-related deduction:
- You must have spent the money yourself and weren’t reimbursed;
- It must be directly related to earning your income; and
- You must have a record to prove it.
- Employees are now entitled to claim contributions to superannuation against their salary income.
The ATO allows you to claim up to $300 for work-related expenses without having kept any receipts – but you must have spent the money and it must be related to your employment.
If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.
If the cost of any item is over $300, it will have to be depreciated (a portion of the cost claimed each year over its effective life).
Links to more information about specific deductions
If you want to have a look at some of the specific deductions you can claim, here are links to the ATO website:
- COVID-19 test expenses
- Clothing, laundry and dry-cleaning expenses
- Gifts and donations
- Home office expenses – including “shortcut method” during COVID-19
- Interest, dividend and other investment income deductions
- Self-education expenses
- Tools, equipment and other equipment
- Vehicle and travel expenses – including travel between work and home
- Other work-related deductions – including phone, internet, seminars etc.
- Other deductions
For further information and expert assistance with your tax, contact our KMT accountants today!
Download Items to Consider for Your Tax Return 2022 here.
Check out KMT Free Resources to download more tax guides and deductible checklist.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or professional advice from a qualified accountant at KMT Partners.
