What work related expenses can you claim?
- Work related expenses can be claimed every year
- A tax accountant can maximise your claim amounts
- Not everything can be claimed as a work expense
Every year the Australian Tax Office (ATO) issues updates or warnings about various work related expenses that can or can’t be claimed. There are also hundreds of news stories online about work related expenses that can be claimed. Although it is important to decipher what is generic content being created by news websites or blogs vs what is actual facts. That is why it becomes a very smart decision to use a tax accountant to help navigate this area when doing your tax returns each year to maximise the amount you can claim.
The accounting team at Fitzpatrick and Robinson do this for hundreds of businesses every year and make sure that any changes to the ATO’s regulations or rulings are adhered to so that everything is submitted correctly & there is little change of an audit or risk review request.
What does a work related expense mean?
In the context of Australian taxation laws, a work-related expense refers to any cost incurred by an individual in the course of performing their job or employment duties. These expenses can be claimed as deductions when filing an individual income tax return, effectively reducing the individual’s taxable income. To be eligible for a work-related expense deduction, the expense must meet specific criteria set by the Australian Taxation Office (ATO). Here are the key factors that determine whether an expense qualifies as work-related:
1. Necessity: The expense must be necessary for performing the individual’s job duties. It should be directly related to earning assessable income or maintaining existing skills relevant to the individual’s employment.
2. Incurred for Work Purposes: The expense must be incurred as a result of the individual’s employment activities. It should be related to the individual’s work tasks or responsibilities.
3. Records and Documentation: To claim a work-related expense, individuals need to maintain accurate records and documentation, such as receipts, invoices, and relevant documents, to substantiate the expense. This is crucial in case of audits or inquiries from the ATO.
4. Proportionality: If an expense has both a work-related and a private component, only the portion directly related to work can be claimed as a deduction. For example, if a mobile phone is used for both work and personal purposes, only the work-related portion of expenses can be claimed.
5. Personal Benefit Test: An expense must not provide a significant private benefit to the individual. If the primary purpose of the expense is personal, it may not be eligible for a deduction.
Examples of common work-related expenses that can potentially be claimed as deductions under Australian taxation laws include:
- Work-related travel expenses: Travel costs incurred while performing work duties, such as travel between different work locations, conferences, or client meetings.
- Home office expenses: Costs related to maintaining a home office for work purposes, including internet, phone, and utilities expenses.
- Work-related clothing: Expenses for purchasing, repairing, or cleaning clothing that is required for work and not suitable for everyday wear.
- Tools and equipment: Costs of purchasing, repairing, or maintaining tools, equipment, and work-related devices required for the individual’s job.
- Professional development: Expenses related to professional development, courses, seminars, and workshops that enhance skills relevant to the individual’s current employment.
- Union or professional association fees: Membership fees for unions or professional associations that are directly related to the individual’s employment.
It’s important to note that eligibility for work-related expense deductions can vary based on individual circumstances, occupation, and specific employment agreements. Consulting with a qualified tax professional or referring to the latest guidance from the Australian Taxation Office (ATO) is recommended to ensure accurate interpretation and application of work-related expense deductions in accordance with Australian taxation laws.
What can be considered work related expenses?
Below are the categories that can be considered as a work related expense. As you can see they are quite extensive and this is why using a professional tax accountant makes a lot of sense. They know all of these inside and out which means they can quickly determine what may be suitable for you to claim or even suggest ones you hadn’t considered.
Cars, transport and travel
Deductions for car, transport and travel expenses you incur in the course of your work.
Tools, computers and items you use for work
Deductions for tools, computers, internet, stationery, books and other items you use for work.
Clothes and items you wear at work
Deductions for clothes, glasses, protective gear and other items you wear at work.
Working from home expenses
Deductions for expenses you incur to work from home such as stationery, energy and office equipment.
Education, training and seminars
Deductions for self-education, conferences and training. You can’t claim children’s school fees or care.
Memberships, accreditations, fees and commissions
Deductions for union fees, professional memberships, working with children check, agency fees and commissions.
Meals, entertainment and functions
Deductions for meals, snacks, overtime meals, entertainment and functions.
Personal grooming, health and fitness
Deductions for medical assessments, vaccinations, COVID-19 tests, gym fees, cosmetics and personal grooming.
Gifts and donations
Deductions for gifts or donations you make to deductible gift recipients, and the records you need.
Investments, insurance and super
Deductions for investment expenses, income protection insurance, personal super contributions and foreign pensions.
Cost of managing tax affairs
Deduction for expenses to manage your tax affairs, such as lodging with a registered agent.
What records do you have to keep for work related expenses?
The only way you can justify any type of work related expense is to have accurate records kept. Records are written evidence of your income or expenses, these can be either paper or electronic, you need to keep records that support the claims you make in your tax return.
For most expenses you need a receipt or similar document from the supplier, an acceptable record shows all of the following:
- the name or business name of the supplier
- the amount of the expense or cost of the asset
- the nature of the goods or services you buy
- the date you buy the goods or services
- the date the document was produced.
In some specific circumstances, there are record keeping exceptions.
The type and format of records you need will differ depending on what they are for, find out what records you need for:
Can Xero accounting software track work related expenses?
Xero accounting software has the capability to track work-related expenses. Xero offers features that allow businesses to manage and track their expenses efficiently. Within Xero you can set up automatic rules that will process transactions according to the source of the expense or the value so that each item is then recorded against your chart of accounts correctly. This can be done for employees as well depending on the modules being used within Xero.
1. Expense Tracking: Xero provides tools for recording and categorising expenses. You can enter details of expenses incurred for business purposes, such as office supplies, travel, meals, and more.
2. Receipt Attachments: With Xero, you can attach digital copies of receipts to expense transactions. This feature helps maintain proper documentation for expense claims and compliance purposes.
3. Expense Categories: Xero allows you to create custom expense categories that align with your business’s needs. This ensures that expenses are properly classified, making it easier to analyse spending patterns.
4. Bank Reconciliation: Xero’s bank reconciliation feature lets you match recorded expenses with corresponding bank transactions. This ensures accuracy and helps identify any discrepancies.
5. Expense Reports: You can generate expense reports in Xero to gain insights into your business’s spending trends. These reports can be useful for budgeting, decision-making, and tax preparation.
6. Tracking and Reporting: Xero enables you to track expenses by project, client, or department. This feature is particularly beneficial for businesses that need to allocate expenses to specific projects or activities.
7. Integration with Receipt Bank: Xero integrates with Receipt Bank, a receipt and invoice management tool. Receipt Bank allows you to capture expenses using photos of receipts, which are then automatically uploaded to Xero for easy expense tracking.
8. Mobile App: Xero’s mobile app lets you capture expenses on-the-go. You can use your smartphone to take photos of receipts and immediately record them as expenses in the app.
9. User Permissions: Xero provides user permission settings, so you can control who has access to expense-related information. This is important for maintaining data security and privacy.
10. Integration with Third-Party Apps: Xero integrates with various third-party apps, such as expense management tools and mileage trackers. These integrations enhance the capabilities of Xero’s expense tracking features.
Xero accounting software offers robust features for tracking work-related expenses. Whether you need to record individual transactions, generate expense reports, or integrate with other tools for seamless expense management, Xero provides the tools to efficiently track and manage your business expenses.
What things can't you claim for work related expenses?
There are quite a lot of things you can’t claim when it comes to work related expenses. For example personal grooming for most people cannot be considered a work related expense, the exception might be if you are a model or a performing artist. Gym fees is another cost that can’t be claimed, although there are lots of examples where people take their chances and include unusual things like holidays, new furniture or other items.
The silliest things we have seen that people wanted to claim include a wedding and even socks. Although the ATO makes it pretty clear what can or can’t be claimed. You definetily can’t claim a deduction for a watch or smartwatch, or gifts to family and friends, or the cost of food and drinks.
You simply run the risk of being asked to do a risk review or a full audit by the ATO.
How can you maximise your work related expense claim?
You can get the most amount of money for claiming work related expenses by using a tax accountant that understands all of the ATO rulings intimately. The other way is to purchase items from the 1st July so that they are used for the full financial year. There are so many different methods available to claim work related expenses which an accountant can use to determine the maximum amount you can claim. Having the appropriate records, logs and usage information can make this process much easier as well.
The ATO rulings on work related expense can change each year, so to maximise the amount you are claiming & ensure it is within the correct categories you should use a tax accountant that is experienced & qualified.