Tax deductions for employees

A common misconception is that a $1,000 deduction puts $1,000 back in your pocket. It doesn’t. A deduction reduces your taxable income, so it’s worth your marginal tax rate. If your top dollar is taxed at 30% plus the 2% Medicare levy, a $1,000 deduction cuts your tax by about $320. Still worth having — but it’s a discount on the expense, not a refund of it. Never spend money purely to get the deduction.

The ATO applies the same three tests to every work-related claim:

1. You spent the money yourself and weren’t reimbursed.
2. The expense directly relates to earning your income.
3. You have a record to prove it.

If an expense is part work, part private (a phone, say), you can only claim the work-related portion. Get any one of these three wrong and the claim can be denied on review.

• Working from home. You can use the ATO’s fixed-rate method — 70 cents per hour worked from home, covering electricity, gas, phone, internet and stationery — as long as you keep a genuine record of the hours you actually worked from home across the year (an estimate isn’t enough). Alternatively you can claim the actual work-related portion of each cost.
• Car and travel. Not your normal commute, but travel between two workplaces, to a temporary work site, or trips you make for work during the day. The cents-per-kilometre method lets you claim a set rate per work kilometre up to a yearly cap without keeping fuel receipts.
• Tools and equipment. Items you buy for work — a laptop, tools, a desk. Items costing $300 or less can be claimed in full immediately; more expensive items are claimed gradually as they depreciate.
• Self-education that directly relates to your current job — a course, conference, or professional development that maintains or improves the skills you use now.
• Union fees, professional memberships and subscriptions relevant to your work.
• Work-specific clothing and laundry — a compulsory uniform with a logo, occupation-specific gear, or protective clothing (not plain clothes you could wear anywhere).
• The work portion of phone and internet, and income protection insurance premiums (where the policy is held outside super).

• The normal daily commute between home and your regular workplace.
• Conventional clothing — a suit or plain black clothes — even if your employer requires it.
• Anything your employer already reimbursed you for.
• Private portions of a mixed expense, and everyday personal costs like childcare or coffee.

If your total work-related claims come to $300 or less, you don’t need written receipts — but you must genuinely have spent the money and be able to explain how you worked out the claim. Once your total goes over $300, you need proper records (receipts, invoices, logbooks) for the whole amount, not just the part above $300.

The easiest way to stay ready is to keep records as you go. The ATO’s myDeductions tool in the ATO app lets you photograph receipts and log trips through the year, so nothing’s scrambled together at tax time.