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If you are a pay tax as you go employee then knowing what you can legally claim can help to bring your annual tax bill down. It’s a bit trickier for PAYG employees to claim tax rebates than for businesses or contractors so you’ll need to make sure you are up to speed on the latest allowable deductions.
Work-related expenses
PAYGE employees can claim a tax rebate for expenses related to their job. The Australian Tax Office (ATO) position is: “As a PAYGE employee you can claim deductions for work-related expenses you incurred while performing your job.”
The ATO considers work-related expenses to be incurred when:
- you receive a bill or invoice for an expense that you are liable for and must pay
- you do not receive a bill or invoice but you are charged and you pay for it.
If your work-related expense include goods and services tax (GST), the GST is part of the total expense and so is part of any allowable deduction. There is more information the “deductions and losses” section of the ATO Tax Pack For Individuals.
Sole traders deductions
If you are running a business then the rules are a bit different. Sole traders use their individual income tax return to report their business income and deductions, as well as any other personal income and deductions. Deductions for costs incurred to run your business are allowed as long at the expenses are not of a private, domestic or capital nature.
Partnerships and trusts also have various allowable deductions but, unlike a sole traders, must lodge a tax return that shows how income was distributed.
In all cases you will need to:
- calculate your assessable business income
- calculate your allowable business deductions
- lodge an annual income tax return
- keep the necessary records
Tax record keeping
It may seem like a hassle but once you have a system in place keeping appropriate records is a great way to ensure you legally maximise your allowable deductions, based on an accurate calculation of your assessable income. A word of warning – you need to keep your tax records for five years after the return was prepared, goods were obtained or transactions completed (which ever was the later date). This is in case the ATO decides to do an audit of your return.
Records to keep a record of include:
- sales and expenses invoices
- sales and expenses receipts
- cash register tapes
- credit card statements
- bank deposit books and cheque butts
- bank account statements, and
- records relating to employees, such as your copies of tax file number declarations, wages books and time sheets.
You may also need to keep the following specific income tax records for each financial year:
- motor vehicle expenses, including logbooks
- debtors and creditors lists
- records of depreciating assets
- stock-take records, and
- records relating to assets for capital gains tax purposes.
If you use any business purchases for private use, you must have records that show how you calculated any private use component.
You can store records in either paper or electronic form. However, all your business records should be readily accessible and available in English.
