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Tax deduction

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Tax deduction will reduce the income that is able to be taxed, and is commonly occurred as a result of expenses, particularly for those expenses which are incurred to produce additional income. The difference between deductions, exemptions and credit is that deductions and exemptions both reduce taxable income, while credits reduce tax.

Tax deductions are one of the few tax topics that generate some excitement. While nobody likes to pay taxes, everybody loves to use deductions to lower their taxes. To put it plainly, a tax deduction lowers your taxable income, which therefore lowers your tax liability.

Allowable Deductions

Most of the business related expenses are tax deductible. Individuals could claim these deductions in the annual tax return for business or, if he/she is a sole trader, in his/her personal tax return.

Expenses That can be Claimed

Individual can only claim expenses that are directly related to earnings of his/her assessable income. If the individual makes a purchase or uses an asset for both business and private purposes, in that situation he/she can only claim a deduction for the business portion of the expense. If individual uses an item in his/her business for only part of a year, then he/she may need to restrict his/her claim to the period it was used for the business.

To claim a work-related deduction

  • The individual must have spent the money out of their own pocket and weren't reimbursed;
  • It must be related to his/her job;
  • The individual must have a record to prove it.

Below are the specific deductions that you can claim

  • Work-related car expenses: For 2016 there are only two methods to calculate car expense claims on individual tax return which are the logbook method and the cent per kilometre method.
  • Tax deductions for tradies: Individual can get valuable tax deductions for tradies with work-related expenses, including (clothing, work related laundry/cleaning, tools and equipment, training courses, licenses and certifications, union fees);
  • Deductions for specific industries and occupations: Individual may be able to claim deductions for expenses that directly relate to his/her work as an employee like - (Adult industry workers, Australian Defence Force members, Lawyers, Journalists, Airline employees, etc.);
  • Self-education expenses: There can be great tax deductions for university students who are already working in their field of study. To legally claim tax deductions for university students on tax return, individuals must first ensure they meet one of the four eligibility criteria set by the ATO;
  • Tax Deductions for Aged Care Professionals: If you work in the aged care industry from time to time you probably pay for work related purchases out of your own pocket. Anytime you pay for work-related item, you need to keep careful track so you can re-claim some of that money as an aged care tax deduction. Aged care jobs include registered nurses, disability support worker, aged care assistant, community support worker, and other aged care professionals. Some of the typical costs you can claim are agency and membership costs, union fees, laptop and computers used for work, industry magazines, journals and subscriptions.

Some other tax deductions:

category: general tax topic

topic: Payg Withholding-Things You Should Know

One system of taxation in Australia is the Pay as You Go (PAYG) withholding. This entire PAYG takes place without definite knowledge of the taxpayer, therefore people have some confusion about the system. Given below is a detailed discussion about the basic idea of the PAYG withholding.  

Under this method, the employer keeps a portion of payments from your income throughout the financial year for the employee's expected tax liability at year's end. The PAYG system is based on weekly, fortnightly or monthly wage payments being inferred into a quarterly income level from which a likely tax liability for the year is estimated according to personal tax rates.  The employee will get a 'payment summary' form his/her employer at financial year's end, which will contain the records of the total amount that the employer withheld as tax from you.

To make PAYG payments, an employer needs to register his/her business for PAYG withholding. Depending on the size of the company it will be decided as to how often the PAYG will be paid. At the end of the tax year the employer will need to give the Tax Office a payment summary annual report which will include details about the tax that has been paid as PAYG. Both electronic and a personalised PAYG payment summary statement are available to fill in the details.

The actual tax liability is worked out from your final tax return, and the payments withheld during the year are credited against your taxation. After calculating the tax payable if your PAYG withheld is higher than tax payable than you will get a refund, if the tax payable is more than the amount withheld as PAYG than you need to pay more tax.

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