There are two certain things in life: taxes and death. While both are inevitable, especially the latter one, we can try to educate ourselves to legally minimize the former one. Remember, legally minimizing, not avoiding, paying taxes which can be illegal.

In today’s blog, let’s look at some deductions we can claim to reduce our taxable income and lower our tax liability. After all, as the old saying goes, savings are also another form of earnings.

In principle, to decide whether a loss or outgoing is tax-deductible, we need to consider the following:

Two positive limbs: Section 8-1(1) of ITAA97 states:

You can deduct from your assessable income any loss or outgoing to the extent that: (a) It is incurred in gaining or producing your assessable income; or (b) It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

Four negative limbs. Section 8-1(2) states:

However, you cannot deduct a loss or outgoing under this section to the extent that:

1. It is a loss or outgoing of capital or of a capital nature; or
2. It is a loss or outgoing of a private or domestic nature; or
3. It is incurred in relation to gaining or producing your exempt income or your non-assessable, non-exempt (NANE) income; or
4. A provision of this ACT prevents you from deducting it.

It is beyond the scope of this blog to look at each of the above in detail because that is basically the interpretation of the law. However, we will try to look at some popular items which normally allow us to claim deductions to reduce our taxable income. Please note this list is not exhaustive, and it intends to give you some general information only. There are specific rules and eligibility requirements under each category, and you need to consult with a qualified accountant if you have any doubts or questions.

1. Interest expenses. If you borrow money to purchase shares or borrow money to purchase an investment property, interest expenses on these loans are normally tax-deductible. You are probably very familiar with the concept of negative gearing. It is a commonly used term used to describe a situation where expenses associated with an asset (including interest expenses) are greater than the income earned from the asset.
2. Repairs. Expenditure for repairs to premises or depreciating assets that are held or used for the purpose of producing assessable income is deductible in the year that the expenditure is incurred, provided it is not capital in nature. Where the item repaired is only partly used to produce assessable income, only that portion of the repair cost is deductible.
3. Borrowing expenses. Section 25-25 of ITAA 97 allows a deduction for expenditure incurred in borrowing money where the money is used by the taxpayer for the purpose of producing assessable income. Expenses eligible for a deduction under s.25-25 are deducted over five years or the length of the loan if it is less than five years. The cost of borrowing is the cost of establishing a loan. For example, the cost of borrowing includes expenditures on legal expenses, valuation fees, survey fees, and stamp duty incurred to establish the loan.
4. Deductions for car, transport, and travel expenses you incur in the course of your work. As an example, transport expenses incurred for travel between workplaces where assessable income is earned in both workplaces and one of the places is not the taxpayer’s main residence are normally tax-deductible. In terms of car expenses, you can consider using the Cents per Kilometre (5000km or less) method or the Logbook method.
5. Deductions for tools, computers, internet, stationery, books, and other items you use for work.
6. Deductions for clothes, glasses, protective gear, and other items you wear at work.
7. Deductions for expenses you incur to work from home, such as stationery, energy, and office equipment. From 1 July 2022, there are 2 methods available to calculate your claim: the revised fixed rate method, actual cost method.
8. Deductions for self-education, conferences, and training. You can’t claim children’s school fees or care.
9. Deductions for union fees, professional memberships, working with children checks, agency fees, and commissions.
10. The expense of managing the taxpayer’s income tax affairs (these are normally fees paid to your accountant to lodge your tax return).
11. Personal super contribution. You can boost your super by adding your own personal contributions, which are the amounts you contribute directly to your super fund. If you claim a tax deduction for them, they are concessional contributions and are effectively from your pre-tax income. They are taxed in the fund at a rate of 15%. Remember, personal contributions are subject to contributions caps that apply to concessional and non-concessional contributions.
12. Income protection premiums.
13. Charitable donations to qualifying funds or institutions.

If you have any questions in relation to any of the above, I strongly recommend that you consult with your accountant. It is a great idea to keep track of all your expenses throughout the year, including receipts (if any), even if you are not sure if they are deductible or not. This exercise will help you save a significant amount of time when the tax time comes. As always, if you know of other types of potential deductions, please comment below so we can all learn from each other.

Thank you and stay tuned until our next post.

Disclaimer: The information provided in this blog post is for educational purposes only and should not be considered as financial or legal advice. Readers are advised to consult with qualified professionals before making any financial decisions based on the information presented here. The author of this post is not responsible for any issues that may arise from the use of the information for personal financial decisions.