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Tax offsets also sometimes referred to as rebates, directly decrease the amount of tax to be paid on your own taxable income.

Generally, offsets are effective in reducing your tax to be paid but by themselves they cannot get you a refund.


Health Insurance

Your entitlement to a private medical insurance rebate or tax offset depends upon your income. If you have private medical insurance:

•    the amount of private medical insurance rebate you have entitlement to receive is reduced in case your income is more than a specific amount

•    we will calculate how much private medical insurance rebate you have entitlement to receive when you lodge your tax return.

Most of the times this offset is directly claimed from your health fund provider. If you haven’t done so, we will then claim it when working on your tax returns.

If you receive Government Benefits

The beneficiary tax offset is available if you receive certain Australian Government allowances and payments.

You usually pay no tax for the year if you:

•    only receive any qualifying benefits and allowances, and

•    you have no other taxable income.

•    do have other assessable income you might still need to pay some tax.

•    have no tax payable, the beneficiary tax offset is not available for use.

If you maintained an invalid or invalid carer

You might be entitled to a tax offset if you have maintained an invalid career who was either your spouse or child aged 16 years or older or sibling aged 16 years or older or or spouse’s child aged 16 years or older or spouse's sibling aged 16 years or older or parent or spouse's parent and they should have received one of the following:

•    a disability support pension under the Social Security Act 1991

•    a special needs disability support pension under the Social Security Act 1991

•    an invalidity service pension under the Veterans’ Entitlement Act 1986.

Income tests

Income tests are commonly used to work out an individual's eligibility for a variety of tax offsets and benefits, which often can reduce the amount of tax you may have to pay.

We use numerous items from your tax return when applying income tests. You need to make sure that you complete all items that apply to you in the income tests section of your return.

A number of offsets, advantages and obligations are evaluated using a family income threshold. If you have a spouse, you should incorporate your spouse's income within the relevant section of your tax return.

Based on your circumstances, any of the following tests may be used to evaluate your entitlements:

•    Adjusted taxable income (ATI)

•    Rebate income

•    Income for Medicare levy surcharge purposes

•    HELP and SFSS repayment income

•    Super income tests

Low income earners

You might be eligible for tax offset if you are a low-income earner and you are an Australian resident for taxation purposes.

You do not need to claim this offset. We are going to work it out for you when you lodge your taxes. The offset are only able to decrease the quantity of tax you pay to zero and it does not reduce your Medicare levy.

If your taxable income is less than $66,667, you will get the low income tax offset. The maximum tax offset of $445 applies if your taxable income is $37,000 or less. This amount is reduced by 1.5 cents for each dollar over $37,000.

If you are under 18 as at 30 June of the income year and you have unearned income, your low income tax offset cannot reduce the tax payable on this income.

Medical expenses

The net medical expenses tax offset is being phased out.

From 2015-16 until 2018-19, claims for this offset are restricted to net eligible expenses for disability aids, attendant care or aged care.

Net expenses are your total eligible medical expenses minus refunds from Medicare, National Disability Insurance Scheme (NDIS) and private health insurers which you or someone else, received or are entitled to receive.

This offset is income tested. If you are eligible for the offset, the percentage of net medical expenses you can claim is determined by your adjusted taxable income (ATI) and family status. The period you lived in a zone in the current income year must include the first day of the income year.

There are 3 more offsets and rebates which are Senior Australians and Pensioners, Super related tax offsets and Zones and overseas forces. We will be discussing these in our next blog.

Call Tax Accountants Cranbourne at 1300 300 106 today to your tax returns.


This checklist is a guide only. The results may vary dependent on individual situations.


Income Tax Assessment Act 1997 (ITAA97) categorises income tax deductions into general deductions and specific deductions.


Largely, in accordance with s8-1 of the ITAA97, a tax deduction may only be claimed if:
• the expenditure has been sustained in producing the person’s assessable income, or incurred in carrying on a business for the purpose of producing assessable income, and
• it is not personal (domestic) or capital expenditure, and
• it is not capital in nature, and
• a explicit provision of the ITAA97 or Income Tax Assessment Act 1936 (ITAA36) does not exclude the expense from deduction, and
• the individual holds the relevant written proof where compulsory.
NOTE: How much of the expense proportion is permitted as an income tax deduction will be contingent on the extent the expenses are sustained in producing the person’s assessable income.
Note: All section and division references are to the Income Tax Assessment Act 1997 (ITAA97) unless otherwise stated.


Tax deductible?


Admission fees: For legal & other professionals. Excluded as capital cost. No
Airport lounge membership: Tax deductions to the degree used for work-related purposes. Yes
Annual practising license: Relates to professionals and other freelancers who must pay an
annual charge to practice in their chosen field. Yes
Bank Fees: Tax deductions are permitted if account earns interest. Not private transaction bank fees. Yes
Bribes to government officers and foreign government officers: Also excluded from the cost base
and reduced cost base of CGT assets and cost of depreciating assets. No
Briefcase: If used for work and/or business purposes the price is fully tax deductible. Yes
Calculators and electronic organisers: If used for work and/or business purposes the cost is fully tax deductible. Yes
Child care fees No
Cleaning: Of protective apparel and uniforms. Yes
Clothing, uniforms and footwear
• Compulsory uniform: Uniform should be distinctive and specific to an organisation (eg. corporate uniform). Yes
• Non-compulsory uniform: If on a record kept by the Department of Industry, Science and Tourism. Yes
• Occupational specific: The outfit identifies a particular trade, vocation or profession eg. chefs and nurses. Yes
• Protective: Must be used to protect the individual or their conventional clothing. May include sunscreen. Yes
Club membership dues No
Coaching classes: Permitted to performing artists to sustain existing skills or obtain related skills. Yes
Computers and software: Software is tax deductible. Yes
Conferences, seminars and training courses: Permitted if intended to maintain or increase employee’s knowledge, skills or ability. Yes
Conventional clothing No
Depreciation: Tools, equipment, and plant used for work purposes. Yes
Donations: See ‘Gifts’.
Driver’s licence: Fee of obtaining and renewing. No
Dry-cleaning: Permitted if the cost of the clothing is also deductible. See also ‘Laundry’. Yes
Election expenses of contenders: No limit for Federal, State and Territory.
Limit of $1,000 for local government. Yes
Employment agreements: Existing employer (see TR 2000/5).
Not available for new business/employer. Yes
Entertainment expenses No
Fines: Imposed by court, or under law of Commonwealth,
State, Territory or foreign country (s26-5). No
First Aid course: If it is directly related to occupation or business activities. Yes
Gaming licence: Hospitality and gaming industry. Yes
Gifts of $2 or more: If made to approved ‘deductible gift recipient’ body or fund.
See ato.gov.au for a full list. Gifts to clients are tax deductible if employees can demonstrate a direct
connection with producing assessable income. Yes
Glasses and contact lenses (prescription): These would qualify as medical expenses
Deductible if ‘protective clothing’. No
Glasses and sunglasses: Protective only. Yes
Personal grooming No
HELP/HECS repayments No
Home office expenses: Utility expenses (for example, heat, light, power and depreciation on depreciating assets). Yes
Occupancy expenses: For example, rental, insurance, rates and land tax. Deductible only to the degree that home or study is used for income producing purposes. Yes
Income continuance insurance: Permitted only if the proceeds are assessable. Yes
Insurance – sickness or accident: When benefits would be assessable income. Yes
Bank Interest: Allowed if money borrowed for work-related purposes or to finance income producing assets.
ATO Interest (eg. general interest charge) is tax deductible. Yes
Fines and administrative penalties are not tax deductible. Interest on capital protected loans is deductible except for non-deductible capital protection component. Yes
Internet and computer equipment: Expenses permitted to the degree incurred in deriving
person’s work-related income, carrying on a business or earning investment income (eg. share
investing). Yes
Laundry and maintenance: Permitted if the expense of clothing is permissible (see ‘Work related clothing’).
Reasonable claims of laundry costs up to $150 do not need to be substantiated. Yes
Legal expenses: Renewal of current employment contract. Yes
Meals
• Eaten throughout normal working day. No
• Meals eaten when travelling overnight for work-related purpose. Yes
• Meals when travelling (not overnight). No
• Overtime meals: If allowance received under award. Yes
Medical examination: Only if from the recommendation of a work-related business licence. Yes
Motor vehicle expenses: See ‘Travel expenses’.
Newspapers: Claims may be permissible in limited cases if the newspaper is directly linked to
income-producing activities. No
Overtime meal expenses: Only if award overtime meal allowance received. Yes
Parking fees and tolls: Includes bridge and road tolls (but not fines) paid while travelling for work associated purposes. Yes
Photographs (performing arts – with income producing purpose)
• Price of maintaining portfolio. Yes
• Price of preparing portfolio. No
Practising license: Applies to professional workers. Yes
Prepaid expenses for tax shelter arrangements: They must be spread over the duration in which
the services are provided. Yes
Prepaid expenses: Non-business individuals and SBE taxpayers claim is fully deductible if services
are to be performed in period not exceeding 12 months.
All other taxpayers must apportion claim over the period of service. Yes
Professional association dues Yes
Professional library (books, CDs, videos etc) Established library (depreciation allowed) Yes
• New books: Yes
Protective gear Includes harnesses, safety glasses, sunglasses, breathing masks, helmets, boots.
Deductions for sunscreens, sunglasses and wet weather gear permitted if used to provide protection from natural environment. Yes
Removal and relocation costs If paid by the employer, may be exempt from FBT, but tax deductible. No
Repairs (income producing property/or work-related equipment). Yes
Self-education Expenses: Claims for fees, books, travel (see below) and equipment etc. only allowed if there is a direct link between the course and the person’s income producing activities.
No claim for the first $250 if course is undertaken at school or other educational institution and the
course confers a qualification. However, that first $250 can be offset against private expenses, eg. travel, child minding fees, etc.  Yes
Seminars Including conference and training courses if sufficiently connected to work activities. Yes
Social functions No
Stationery (notebooks, diaries, log books etc.) Yes
Subscriptions & Publications If a direct link between publication and income produced by taxpayer. Yes
• Professional associations: Yes
• Sports clubs. No
Sun protection: Claims for sunglasses, hard hats and sunscreen permitted for taxpayers who work outside. Yes
Supreme Court library charges Applies to lawyers and solicitors if paid on annual basis. Yes
Tax agent fees (deduction can be claimed in the income year the expense is incurred).
• Travel and accommodation expenditures if for travel to a tax agent or any other recognised tax adviser to obtain tax advice, have returns prepared, be present at audit or object against an assessment. Yes
• Expense of other incidentals if incurred in having a tax return prepared, lodging an objection or appeal or defending an audit. Yes
Technical and professional periodicals Yes
Telephones and other communications equipment (Including mobile phone, pagers and
beepers.) Cost of telephone calls (related to work purposes). Yes
• Installation or connection fee. No
• Rental charges (if ‘on call’ or required to use on regular basis). Yes
• Private telephone number. No
Tools (work related only) Yes
Trauma insurance If benefits capital in nature. No
Travel expenditures such as public transport, motor vehicles and motor cycles, fares, accommodation, meals and incidentals:
• Travel to home and work. No
• Where worker has no usual place of employment (eg. travelling salesperson). Yes
• If ‘on call’ basis. No
• If essentially working before leaving home (eg. medic giving directives over phone from home). Yes
• Transport bulky tools (eg. builder with bulky tools). Yes
• Travel from home (which is a place of business) to usual place of work. No
• Travel from home to alternate work place (for work-related purposes) and return to normal work
place (or directly home). Yes
• Travel between normal work place and alternate place of work (or place of business) and
return (or directly home). Yes
• Travel between two employment places. Yes
• Travel in course of employment: Yes
• Travel with a relative (may be permissible if relative is also carrying out work-related duties). No
Union and professional association fees Yes
Vaccinations No
Union levees No
Watch: Except job specific such as a nurse’s job watch. No


Substantiation Rules


Claims for work-related expenses, car expenses, and travelling expenses incurred by an individual must be substantiated if the claims are to be allowed (Division 900 of ITAA97). As well as the requirement to incur
deductible expenditure, the ‘Substantiation’ rules impose a strict evidentiary requirement that must be
satisfied if claims are to be allowed.
Under the primary test in s8-1, the taxpayer must be able to show that they incurred the relevant expenses and
that those expenses were incurred in earning their assessable income, or were incurred in carrying on a business.
Once the primary test has been satisfied (i.e. the expense has been incurred and is allowable) the ‘substantiation rules’ impose a mandatory level of record keeping. If those records are not kept, the claim may be disallowed unless the relief rules apply (see below).


Records


Substantiation records must be retained for five years from the later of the due date for lodging the relevant return
or when it is lodged. As a general rule, employees are not required to substantiate:
• employment related expenses where the total claim is less than $300
• laundry expenses, up to a maximum of $150. Note: This amount forms part of the $300 limit
• sunscreen, sunglasses and hats if their job requires them to work in the sun
• reasonable travel claims where a travel allowance has been received
• overtime meal claims up to $27.70 in 2013-14 (TD 2013/16) for allowances paid under an Industrial Award
note that 2014-15 claim amounts are yet to be released at the time of writing, or
• some car expenses
Even though the strict substantiation rules do not need to be satisfied for the above expenses,
employees must be able to show that those expenses were incurred and how they calculated their claims.


WARNING! Self-employed persons, partners and individual trustees must have written evidence to prove
all of their claims.


The five-year period can be further extended automatically if any of the following are unresolved when the five
years ends:
• an objection
• a review or appeal arising from an objection, or
• a request for amendment.
The extended period lasts until the dispute is resolved. The Tax Office can require you to produce your records.
The Commissioner must give you 28 days’ notice to comply, but you may be allowed additional time.
If you receive such a notice you must produce in English:
• the required written records (or documents), and
• a summary containing this information:
-- a cross-reference to the written evidence
-- a summary of the particulars of the written evidence, and
-- the amount of the expense in Australian currency (if the expense is in a foreign currency).
The claims will be disallowed if you fail to produce these records.

Call Tax Accountants Cranbourne at 1300 300 106 for further information.


Self-education is an excellent method of making sure you keep up to date with advancements and techniques about your industry along with the added benefit of making you appear amazing to the potential employers.

To inspire employers and employees equally to embark on educational courses, there are a variety of self-education income tax deductions available, including programs undertaken at colleges and universities (regardless of whether resulting in a formal qualification or not), participation at work-related training seminars or conferences, self-paced studying and study trips (abroad or within Australia).

The costs for self-education may be tax deductible provided there exists a direct and provable connection between education and your income earning activity.

Usually you will have to fulfil any of the subsequent tests to be eligible for an income tax deduction:

  •     the cost has an appropriate link to your existing income generating activities (for example. the course should be related or incidental to the way you derive your assessable income)
  •     the self-education program being undertaken allows you to retain or enhance the skills or know-how essential to perform your income earning activities
  •     the self-education results in, or will probably lead to, a rise in your earnings from the existing income earning activities in the foreseeable future.

Tax deductions for self-education expenditures are usually not permitted if the course of study is intended to:

  •     gain work in the new industry (e.g. a chef studying nursing to become a nurse)
  •     gain work or get a qualification that allows you to get into a restricted industry (such as. getting an education in order to practice as a surveyor), or
  •     start new income generating options in the foreseeable future (regardless of whether running a business or perhaps in your existing job) as they are incurred "at a point too soon" to be considered as being borne in generating your assessable income.

Tax-deductible expenses:

  •     lodging and food (if staying away from home over night)
  •     laptop or computer consumables
  •     program fees
  •     decline in value for depreciating assets
  •     buying of equipment or technical tools
  •     equipment maintenance
  •     fares
  •     home office operating expenses
  •     interest
  •     internet use (not including connection charges)
  •     vehicle parking charges (limited to work-related claims)
  •     telephone calls
  •     postage
  •     stationery
  •     student union costs
  •     student services and amenities costs
  •     text books
  •     industry, professional, or academic publications
  •     travel to-and-from place of education

Non Tax-Deductible expenses:

  •     any HELP repayment
  •     home office occupancy costs
  •     food bought during regular travel between residence and an educational institution, and
  •     travel costs between residence and an educational institution where the individual works.

In some instances, courses may have both tax deductible and non-deductible components (such as. a plumber who operates their own business who undertakes a business administration program where by completing the program will allow the plumber also to operate as a qualified business administrator).

In this scenario, the deductibility of your costs is determined by the intent when the course was undertaken. If you're able to demonstrate that the course is incidental and related to your current income earning activities, the expense is tax deductible. Development of other opportunities does not matter, provided that it was not the reason that you undertook the course. Conversely, if the course was undertaken with the particular objective of changing the taxpayer's income generating activity, the tax deduction will not be permitted.

When the expenditures would otherwise be tax deductible in the legislation, a deductibility limit is applicable (section 82A ITAA36, if you want to look it up). Only expenses in excess of $250 could be claimed.

Below are some tools from the ATO to assist you to determine your self-education expense claims:

    Self-education expenses eligibility tool

    Self-education expenses calculator

For further information please contact our expert accountants Lynbrook and tax agents Lynbrook us on 1300 300 106 or via our contact page

Below are a few misconceptions about deductions that a lot of taxpayers generally consider for being claimable, but they are usually refused by the Tax Office. Although some are clearly not tax deductible, they've all been tried to be claimed - and in most cases rejected by the ATO.

Even though the ATO may possibly refuse the examples below in the beginning, individuals who believe that there is a “reasonably arguable position” must seek advice from their tax agent or accountant.

Driver’s License

Motor vehicle expenditures made when earning assessable income are tax deductible - for example vehicle repairs, maintenance, interest on car finance, and so on. But the expense of an ordinary driver’s license will not be - even when it is a condition of your occupation. Having said that any additional cost on the expense of a “standard” license might be tax deductible (a type of “reasonably arguable” instances). The expense of defending a driving charge, even where an individual's occupation is depending on retaining a license, will not be tax deductible.

Vaccines

A tax deduction is normally not allowed for vaccine against diseases a worker might encounter while at work; for instance, airline personnel. Some disease protection, such as for cattle-borne Q fever, might be permitted.

Child Care Expenses

Expenditures for child care during work hours are certainly not tax deductible, even if that is needed to secure work growth. However, the child care rebate is available through Centrelink for eligible parents.

Travel To and From Work

Traveling between work and home is not usually tax deductible, even where incidental work duties are carried out en route. Specific situations might permit a tax deduction, for example transporting heavy tools and equipment in circumstances where the tools and equipment cannot be stored securely at the taxpayer’s workplace (for example trades).

Grooming Expenses

Despite the fact that a very high standard of physical appearance may be needed at some jobs, costs such as hairdressing or cosmetic makeup products will not be normally tax deductible. Not even Defence Force workers get a tax deduction for proper grooming, even when this is usually to fulfil military regulations. Any individual continuously in contact with chlorinated water (like a hydrotherapy assistant) may have a case for claiming moisturisers and conditioners.

Moving Costs made by an employee

Costs from changing job, for example expenses of relocating or meeting a work agreement, are usually not tax deductible. The rationale provided is the fact that expenditure occurs “at a stage too soon” to be viewed as being incurred in attaining assessable income. A similar explanation is used to refute individuals on unemployment benefits; a tax deduction for costs such as moving to secure work.

Police Clearance and Record Checks

Any outlay that is needed to fulfil prerequisites to obtaining specific job, like police clearance certificate or record check, is not tax deductible. The main reason provided here is quite similar, that these particular cost is made “at a point too soon”.

Phone “Silent Number” Charge

Even though the work-related percentage of phone expenses may be tax deductible, the expense of keeping a “silent” land line number for privacy (for instance, to protect a police officer’s family and home members) will not be allowed as a tax deduction, since it is regarded as a personal expense.

Meal Expenses

Generally, the price of meals is not tax deductible since it is a personal cost. There are a few scenarios in which meal expenses are tax deductible.  The tax payer will have to show that the spending contains a satisfactory link to their income earning activity. For instance, the expense of meal incurred by a worker who has to travel away from home on an overnight business trip would in most cases will be tax deductible.

The expense of setting up your business

A number of expenditures of setting up a business are considered to be having made “at a point too soon” for being linked to producing assessable income and so are non-deductible. Similarly, preliminary expenses (viability research etc.) can't be claimed.

Volunteer Work

Tax deduction is not allowed to cover expenses incurred while volunteering for a charity or any other not-for-profit organisation.

Call Tax Accountants Cranbourne at 1300 300 106 for further information.

An area accountants and tax agents come across where people make the wrong decision as employees is with regards to claiming work-related travel expenditures.

The lack of definite guidelines can tend to make claiming travel expenditures hard as frequently the deductibility of these expenses could be determined by the type of occupation, the time period spent away from your home and whether or not an allowance is provided to pay for these expenses. The necessary invoices and paperwork needs to be acquired and retained to make a tax claim.

Furthermore, the prerequisites about the use of the ATO's acceptable travel amounts without the need to maintain written proof could be confusing.

Why must I focus on travel expenditure deductions?

The deductibility of overnight work-related travel costs, such as transportation, lodging and food, is on the ATO radar.

Our expertise shows that the ATO continues to be notably active in focusing on and, in many cases, amending previous year assessments for excess claims for those people whose occupations need them to regularly travel and stay away from home. Tax Agents have gotten enquiries with regards to the income tax matters of clients who work as academics such as teachers, fly-in, fly-out (FIFO) employees and medical professionals.

When are travel expenses permitted as a tax deduction?

Being an employee, you are eligible for claim a tax deduction for travel expenses, that may include lodging, food and transport to the extent that the expense is borne in earning employment income and it will not be of a capital nature, personal expense or associated with earning exempt income.

Generally speaking, travel expenses incurred are tax deductible for a person if you can adequately establish that the expense is incurred while carrying out employment tasks and aren't personal in nature.

Accommodation paid by a worker on short business trips are generally tax deductible, however, the income tax treatment is significantly less distinct where by an employee is needed to work away from home for a prolonged period.

Whether or not the person is regarded as “living away from home” (LAFH) or “travelling” (as part of their employment) is actually a crucial factor in deciding the tax deduction of travel expenses.

What is the big difference among “LAFH” and “travelling”?

When an employee is “travelling” on work trip on behalf of the employer, travelling costs are incidental for the job performed and will not be a personal or domestic expenditure. This sort of expense is usually tax deductible.

In some instances, employees could also get a travel allowance from the workplace to pay for their LAFH or travelling expenses (typical for FIFO workers and certain itinerant employees).

The ATO provides the following comparisons to assist you to establish the difference:

LAFHA (Living Away from Home Allowance)                                                                     

This is given where by a worker is taking up short-term residence away from their home in order to perform the job at a new, but short-term, place of work. There's a change of employment place pertaining to paying off the allowance. Where an employee is living away from home, it is usual for the worker to be accompanied by their partner and kids.
They are paid for a longer period (more than 21 days).


Travelling allowance

This is given due to the fact a worker is travelling while carrying out their employment.

  • Job location is unchanged.
  • Usually not accompanied by their family.
  •  Paid for short time periods.

The ATO emphasises that these particular indicators are pointers only, no single indicator alone should be counted on, to ascertain the character of the allowance. For instance, a travel allowance could be given to a professional traveller, or travelling performer almost regularly, while another might get a LAFHA for just 30 days.

There might be scenarios when a worker is living away from their main residence for a short period that it might be tricky to decide if the worker is living away from home or travelling. The ATO states that for a practical basic guideline, where by the time period away doesn't surpass 21 days, the allowance is going to be treated as being a travel allowance instead of a LAFHA.

How are travel allowances subject to taxes in comparison to LAFH allowances?

An allowance that fulfils the definition of a travel allowance will be assessed as assessable income and tax deductions for travelling expenditures incurred can be claimed against that allowance.

In compare, a LAFH allowance, to the degree it qualifies as a “LAFHA fringe benefit” for FBT purposes, would not be treated assessable income. Travelling costs incurred would certainly not be tax deductible if you're an employee and you're living away from home.

What documents should I maintain to be able to claim a tax deduction? What is the “substantiation exception”?

All tax deductible travelling costs need to be substantiated with proper evidence and travelling documents (for example bills and travel journals) or else claims are going to be rejected.

A “substantiation exception” is available which enables you to claim travel expenditures without having to maintain written documents if you have received a ‘bona fide’ travel allowance.

If entitled, you are able to claim tax deductions for travel costs up to the ATO recommended acceptable amounts for that relevant year without the need to maintain written proof.

We do nonetheless suggest that you retain your bills regardless to substantiate your travel claims.  It will give you peace of mind in case of an ATO audit. This is really a confusing part of the law, please contact us if you require assistance.

For any further information, please contact our expert accountants Cranbourne and tax agents Cranbourne on 1300 300 106.

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