In addition to Capital Gains changes, the government has also announced some changes to how you claim deductions in your tax return. These are set to commence from the F.Y. 2027 tax returns onwards. This short article provides an overview of tax deductibility and some of the changes.
Firstly, what does it mean to be tax deductible? A simple explanation is that they are:
1. personal expenses incurred in order to generate income, and
2. in acknowledgement of the direct effect these provided in being able to create income, the A.T.O. allows these to be subtracted from your taxable income.
An example of a common tax-deductible expense is Personal Protective Equipment, like high visibility vests or safety glasses. Many worksites mandate the use of P.P.E. to maintain a safe working environment; therefore, to be able to work, workers may need to purchase P.P.E. as an out-of-pocket expense. This expense can be claimed as a deduction against taxable income in that year’s tax return.
Important things to remember when making a tax deduction are:
1. it was incurred in the course of generating income; not for personal use,
2. receipts are generally required to substantiate the amount of the expense, and
3. where estimating costs (such as fuel) A.T.O. rulings need to be used: e.g. in the F.Y. 2026 tax return, under the cents-per-km method, one can claim 88 cents per kilometre travelled.
Changes being made to tax deductions:
Currently, individuals can receive a tax deduction of up to $300 without substantiation of receipts; next year this will increase to $1,000. However, the $150 laundry exemption (which allowed one to claim $150 without providing workings) will no longer exist: the A.T.O.’s calculation rates of $1 per load or 50 cents per mixed load are to be used instead.
Addressing a Common Misconception:
A tax deductible expense is not refunded during tax. It may result in a refund if you are already up to date with your Pay As You Go payments, but by itself it is not a refund. Rather, a tax deductible expense is deducted from your taxable income used to calculate the amount of tax you must pay based upon the tax bracket you fall under. It will reduce your tax debt, but not by as much as the cost of the expense. Therefore, you can’t game the system to essentially get heaps of stuff for free: the value of each expense is greater than the deduction from your tax debt. It is still worth claiming tax-deductible expenses, but trying to game the system will leave you out of pocket.
What We Can Offer:
If this article has raised any questions for you about your own tax-deductible expenses, please reach out to us and one of our accountants can answer any questions you have.