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How do tax deductions work

Most allowable deductions are expenses you incurred to earn revenue. Costs that meet defined rules can reduce taxable income and therefore tax on taxable income. There are some different kinds of deductions you can claim:

  • Work-related expenses– costs you had to pay as part of your employment/earning income. There are three main rules to claiming work-related expenses – you must pay for the expense yourself (i.e. not reimbursed by your employer), it must relate to earning income, and you have to have records to prove it. Work-related expenses might include items like laundryhome office and car and travel
  • Investment expenses – These might include costs you incurred to earn interest, dividends or rent income. Some costs of starting or buying your investments might not be deductible, be sure to check our website for handouts to help you with your claim
  • Donations – if you’ve made a tax-deductible donation to charities or groups, you might qualify for a tax deduction.
  • Cost for your accountant to help with your tax affairs are deductible if your accountant is a registered tax agent like Accountants 2 Business.
  • Other deductions – some Capital costs you pay to earn income are claimed overtime.
  • Business expenses – costs incurred in the course of you earning your business income.

For example:

A taxpayer earned $55,000 (their assessable income) in the 2019-20. During the year, they had costs of :

  • uniform expenses $80
  • donations $100
  • work-related mobile phone $70
  • tax agent Accountant $99

Taxable Income is $ 54,651   ($55,000 -$80 -$100 -$70 -$99)

Tax On Taxable Income is $ 9,142

LAMITO & LITO   $1,260

Medicare Levy  $ 1,093

If Tax Paid is $9,650

Tax refund expected $ 675

Material on this website is general in nature and does not take into account your particular circumstances. Before you make any financial decision based on this advice, you should consider, with an adviser, whether it is appropriate to your individual financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Every effort has been made to check the accuracy of the information contained on this page and on this website, Accountants 2 Business, its officers, representatives, employees, and agents disclaim all liability, for any mistake or omission contained in this website for any loss or damage incurred by anyone relying on the information.

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