One of the most common questions asked to any Tax Accountant is “can I claim this as a deduction?” The answer always varies but luckily the tests remain the same to determine what can be deducted and what can’t.
If the expense was incurred to produce or gain assessable income and it will not be reimbursed by the employer, it will most likely be deductible. However, there are a few exceptions to this which would result in a non-deductible expense.
Is the expense Capital in Nature?
If your expense is Capital in Nature it is not deductible. Although your first question was probably, ‘how on earth do I know if my expense is Capital in Nature?!’ – as a basic rule “Capital Expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to reoccur every year” (Vallambrosa Rubber Co Ltd vs Farmer 1910). Common examples include buying shares and purchasing properties, which are classified as Capital Expenditure, but the maintenance costs or management fees involved would be Income Expenditure which would be deductible.
Is the expense for Private or Domestic Use?
Expenses that are incurred and used for personal use are not deductible, however that does mean it can’t be proportioned with work and personal use. For example, a $300 phone bill which is used 50% for personal use and 50% for work use can be claimed as a deduction for the work use proportion, so $150 is deductible.
Was the expense incurred in producing Exempt Income or Non-Assessable Non-Exempt Income?
Exempt Income and Non-Assessable Non-Exempt Income are not classified as taxable income. As such, the ATO will not allow you to claim a deduction in relation to income that is tax free. Common tax-free income would include carers payments, disability support pension and Austudy payments.
Is the expense prevented by another Act?
A taxpayer cannot claim a loss or outgoing if there is another Act that prevents it from being deducted. The restricted deductions are specific and as such aren’t all that common, however the few that would be the most relevant for an individual would include Penalties (parking fines, speeding tickets), the first $250 of certain self-education expenses and payments made to reduce student debts.
Hope this helps and stay tuned for more tips!
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