Millions of Aussies missing out on $830 tax deduction: 'Nothing'
Soon everyone in Australia will be on the lookout for the same thing: deductions. The more you can deduct, the less you pay in tax and the larger the refund the ATO will send you.
But you do not want to go overboard. Only some things are allowed to be deducted. And the taxman uses algorithms these days — if your deductions are out of line for someone in your job, the algorithm raises a red flag. So it is important to know what is and is not normal for someone in your position.
This article uses the ATO 2 per cent sample file for 2021-22, a unique dataset to give real insight into what Aussies are deducting. This anonymised dataset of 2 per cent of Australia's taxpayers in that financial year reveals some astonishing things. Like there was one Australian who made $500,000 in tax deductions in that year. I do NOT recommend you do the same!
On the other hand, as the next chart shows, 25 per cent of Aussie taxpayers made no tax deductions. Nothing? You can't find even one work-related receipt? The median is a deduction of a bit over $830.
A tax deduction doesn't directly reduce your tax. What it does is reduce your taxable income. If your total income is $110,000 and you have $5,000 in tax deductions, your taxable income falls to $105,000. That's five grand you don't pay tax on, saving you 30 cents on every dollar, which adds up to $1,500. That's money you will get back from the ATO (if you paid PAYG throughout the year).
Tax deductions are mostly for money spent on the costs of earning money. Example: you need a uniform for your work. That's not money you spent for fun, so you get to spend that money from untaxed income.
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Here's a graph of all the spending on uniforms and safety gear for work. We see office workers are less likely to have deductions in this category, but trades workers often do.
Likewise costs of driving to certain worksites. You spend that as part of your work so you don't have to use after-tax income. Instead you can claim it as a tax deduction. Note that I said worksites. If you have a regular workplace or two, there's no deduction for driving there! But if you do sales or inspections and you're constantly moving around, the deduction is allowed. Why? Not for any great reason but probably because it could encourage people to do gigantic super commutes and would be wide open for rorting.
Here's a chart of all the spending on work related car expenses.
Another way of getting a tax deduction is donating to charity. Most Aussies don't do that, as the next chart shows.
Tax deductions, you'll notice, always involve you spending more money than you save in tax. If you spend $100 on work travel, and you subtract that from your income, the ATO gives you back only the tax saving. Even at the highest tax rate of 45 per cent that's only $45. Tax deductions are not a magic money machine!
Where people do try to save extra money is by claiming money they would have spent anyway. For example, there's always someone trying to claim the fuel for their weekend away as work travel, and someone trying to claim their scuba diving gear as vital work safety equipment.
That's against the rules. The ATO might not spot you doing it this year. But one day they might flag you, and then go through all your past tax returns in detail and make your life very unpleasant.
Of course, moves like the petrol and scuba gear are relatively subtle. There's also stupid moves that will definitely get you caught.
'One of the most bizarre claims involved a taxpayer attempting to deduct the cost of their pet dog's Botox treatments,' said H&R Blocks director of Tax Communication, Mark Chapman. 'He argued it was necessary for the dog's appearance in a client-facing role!'
Chapman noted that while expenses for working dogs — such as those used in farming or security — can be deductible, this particular claim was rejected by the ATO.
My hot tip is to not worry too much about deductions — there's no point spending $100 just to save $45. And make sure you keep your receipts.
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