Know Your Tax Deductions What You Can and Can’t Claim
The Australian tax system depends on taxpayers to perform self-assessment. This means you are responsible for working out the amount to declare and claim on tax returns. You are also supposed to know how you get to these figures because sometimes you may have to provide written evidence. Considering the cost of bookkeeping and accounting service is deductible, it makes sense to work with an accountant in order to take the full advantage of tax deductions in Australia.
How Tax Deductions Work
When doing your tax return in Sydney, you are able to claim most of your business’ expenses as tax deductions. This helps reduce the total taxable income. The Australian Taxation Office (ATO) calculates taxable income using the below formula:
Assessable income – tax deductions = taxable income
Most of the money you get from operating your business is considered assessable income and is thus subject to tax. With the tax deductions, you will only be able to claim work-related part for expenses. You need to consider the following when determining if you can claim an expense:
- Was the expense directly related to your income-generating activity?
- Did you spend that money and you were not reimbursed?
- Do you have official records of the expenses such as bank statements or receipts?
There are special situations where the expense can be both for personal and business use. This is more so if you have a home-based business. In this case, you may need to consult with a tax accountant Sydney. This is for the simple fact that in this case you need to determine the portion of expenses that are related to work or income-generated activity.
But how exactly do you know what you can and cannot claim as tax deductions? The answer is both to work with tax agents near me as well as familiarize yourself with the tax deductions you can claim. You will be able to claim the following as tax deductions:
- Home office expenses
Due to the prevailing coronavirus crisis, most people are working from home. What you may not already know is there are a couple of home office expenses you can claim as tax deductions. They include the following:
- Internet and phone expenses
- Computer consumables and stationary
- Home office equipment including printers, computers and phones.
All in all, you have to remember that most people are not able to claim:
- Home expenses such as rent, and mortgage rates
- Cost of general household items like milk, coffee and tea
When it comes to tax return in Sydney, there are several considerations that have to be made when claiming an amount for a home office expense. It is also good to remember that your ability to claim tax deductions depends on personal circumstances. Working with a tax agent will help with the calculations.
Here are additional expenses you can claim:
- Motor vehicle expenses
- Business travel expenses
- Maintenance, repairs and replacement expenses
- Depreciating assets and other capital expenses
- Worker’s wages, salaries and super contributions
For more information on what, when and how you can claim tax deductions, you should go to ATO’s Business tax deductions. An experienced accountant in Sydney will also help you understand your options and how, as a consultant or contractor, your personal services income can affect your tax deductions.
Records You Have to Keep for Deductions
To be able to prepare tax return as well as support your claims, you have to keep careful records. The records you have to keep will depend on your unique situation. It is, however, good to keep too many records than to have insufficient records.
Keeping good records will help you and your tax adviser do the following:
- Provide written evidence of all your sources of funds and expenses
- Help with the preparation of tax return
- Ensure you claim all deductions
- Reduce the risk of tax audits and adjustments
- Improve communication with ATO
- Avoid being exposed to penalties
- Resolve issues pertaining to disputed assessments and/or adjustments
The key reason you need proper bookkeeping Sydney is to reduce the cost of managing all your tax affairs. When you have organized and accurate records, you will even be able to manage your tax affairs on your own using the ATO Online Services. Moreover, when using a tax agent, having accurate and organized records enables them to save time sorting through your records. This means you will get what you are entitled to faster.
How Long Should You Keep the Records
You need to keep any written evidence for a minimum of 5 years from the date you lodge tax returns. There are also unique situations that determine how long you can keep the records:
- If you claimed deductions for a decline in value, you need to keep the records for 5 years from the last date of the claim.
- When you dispose or acquire an asset, you are required to keep the records for 5 years after it is certain no capital gains tax event can happen.
Format of the Records
Your business records can be in digital or paper format. If you make copies, ensure the copies are as clear and true as the originals. All documents have to be written in English unless the expenses were not incurred in Australia. The records should be put in these categories:
- Payments you received
- Expenses that are related to the payments you have received
- Asset disposal or acquisition like rental property or shares
- Tax-deductible donations, gifts and contributions
- Disability aids, aged care expenses or attendant care
There are other categories your accountant in Sydney can help you with. You may also elect not to keep certain records for example if you expect to claim a small amount of your business travel. You should, however, note that if you travelled extensively but don’t have records, you will not be able to claim for the extra travel.
It is always wise to keep all income and expenses records. When it is tax time, you can choose what to include and what to omit when claiming deductions. If your expenses were for private purposes, it is a must that you have records that demonstrate how you calculated the amount you are claiming.
Can You Claim Tax Deductions Without Receipts?
Tax deductions offer one of the best ways of improving your tax refund. Deductions are meant to add fairness in the tax system. If you spend more money to earn a living, you can get something back for that. However, the ATO recommends that you keep receipts of all the expenses you want to claim. But what if you don’t have the receipts or what if the receipt is illegible?
The Australian Taxation Office is stricter now when it comes to claiming tax deductions. However, you might still be able to claim some items even without the receipts.
For starters, it is imperative that the expense you want to claim be allowable. This means you have to answer yes to all these questions:
- The expense is related directly to your occupation and was needed?
- You paid the expense yourself?
- You did not get any reimbursement for the payment?
Second, you must have a bank statement or credit card statement that shows the transaction for the specific item you bought. In rare cases, when you don’t have receipts but have credit card or bank statements to prove the purchase, the ATO may accept the deduction. All in all, this is not a situation you want to put yourself in. If the deduction is disallowed, you may be the one paying money to the ATO.
Claiming with a receipt will be more complicated if the items include those you are allowed to claim and those you are not. You must have a way to distinguish between work expenses and personal/un-claimable items.
Here are some items you may be able to claim without a receipt:
- Union Fees or Membership Fees. These are itemized in the PAYG summary or the Income Statement or any other summary. If you have these documentations, you are not required to provide a receipt.
- Petrol/fuel with a logbook. A properly kept car logbook for at least 12 consecutive weeks over a period of 5 years can be used to file a claim for vehicle expenses without receipts.
- If you don’t have a logbook, ATO will allow a claim of 68c per kilometer for a maximum of 5,000 kilometers.
- With a credit card statement for the purchase of computer items or stationary, you may be able to file a claim for a purchase if you make a note against it. Make sure you take a photo of the packaging or receipt too.
It is good to remember that when filing for a tax return in Sydney, the ATO will not accept the following as proof for deductions without a receipt:
- Paying for something in cash. Saying you don’t have records because you paid in cash is not an acceptable excuse.
- Using items with a price tag attached but with no evidence that you purchased it will not be accepted.
- A catalogue or advertisement that has a price of the item you purchased but with no evidence that you purchased it will not be accepted.
Without a receipt but with proof that you purchased a work-related item, you can claim up to a maximum value of $300.
Knowing what you can claim and what you cannot is not enough. For your claim to be allowed, you must keep records of all your work-related expenses. Getting professional services in bookkeeping Sydney can guarantee that all your records are accurate and organized. This will make it easier for you to claim deductions.