Tax Tips for Employees

With the introduction of myTax in 2016, some individual taxpayers made the decision to start lodging their tax returns themselves, without the help of an accountant or a tax agent.

However, the ATO continues to highlight the increasing rate of genuine errors made on individual income tax returns, which means not only are people making mistakes, but they could be missing out on valuable entitlements.

Income and PAYG withholding – how it works

Under Pay As You Go (PAYG), the employer withholds tax from salaries and wages and pays it to the Australian Tax Office (ATO). Under Single Touch Payroll (STP) reporting, most employers report information on income and PAYG withheld electronically to the ATO. This information can be prefilled when you prepare your tax electronically. If you use a tax agent, this information can be prefilled by them as well. Once your tax return is prepared and lodged, if the tax payable is less than PAYG withheld for the year, you will receive a refund otherwise you will be required to pay the balance.

Deductions

You are allowed to claim certain deductions against the income you have earned to calculate the taxable income. The bulk of these deductions are related to your work, hence they are known as work related expenses.

The most common deductions are:

Work Related Car Expenses

You are allowed to claim a deduction for motor vehicle expenses if you use your private car for work related purposes and your employer does not reimburse you for the expenses.

There are two methods to calculate your work-related motor vehicle expenses. They are

• Logbook method - You need to maintain a logbook for period of three months to calculate the business use percentage of the motor vehicle.
• Cents per kilo metre method - Using this method, you can claim motor vehicle expenses based on a rate provided by the ATO.

You can claim all expenses related to the motor vehicle such as depreciation, fuel, maintenance, insurance, registration etc apportioned by the business use percentage.

Whichever method you use, travel from home to work and back is considered private and not work related, even if you do minor things such as collecting mail and purchasing stationery and office supplies on the way. The only exceptions to this are:

• You have to carry bulky items to work such as tools and there is no secure place at work to store them
• You are travelling to an alternate work location such as a work site or customer site
• You are on call and you start work prior to the travel such as a doctor on call

All travel to client meetings, seminars, training and between various worksites are claimable work-related travel.

Other work-related travel expenses

You can claim deductions for all work-related travel by public transport such as taxis, rideshare, buses, trains and ferries, as well as work related interstate and overseas travel.

However, it’s important to note you cannot claim a deduction for travel if you choose to live in a different location to where your workplace is or for travel to and from work.

Work related uniform, occupation specific clothing, protective clothing and cleaning expenses

You can claim a deduction for work uniforms, occupation specific clothing, protective clothing and cleaning expenses of the same.

Work related self-education expenses

You can claim a deduction for self-education expenses if your study has sufficient connection to your current work. This might exist if:

• The study would improve your skills and knowledge to perform your current job
• It will or likely to increase your income from your current job

You may also be able to claim self-education expenses if you receive a bonded taxable scholarship.

Other work-related expenses:

• Home phone
• Mobile phone
• Internet
• Depreciation of equipment
• Home office expenses
• Stationary
• Books and trade\professional journals
• Professional memberships
• Home office expenses
• Union fees

Phone, Mobile and internet expenses would have to be apportioned to reflect business use percentage.

Substantiation requirements

If your total deduction for work related expenses exceeds $300 you need to have written evidence for all the expenses (not just for the amounts exceeding $300)

The $300 limit does not include car expenses, meal allowance, award transport payment allowance or travel allowance expenses. The written evidence rules for these expenses are different and it is beyond the scope of this article to discuss them. Please speak to us if you have these expenses.

Donations and costs of managing your tax

Lastly, don’t forget that you can claim a deduction for donations of $2 and more made to Deductible Gift Recipients (DGR) and costs of managing your tax affairs (for instance fees paid to tax agent/accountant). Receipts from DGRs will indicate that they are tax deductible.

 

The list above is an overview of deductions for employees. If you believe a particular expense relates to your work, but are not sure whether it is an allowable deduction, please contact us for a free initial consultation. Here at TaxAssist Accountants our expertise and experience will ensure you get it right.

Date published 15 Apr 2021 | Last updated 15 Apr 2021

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.