One of the most common discussions around this time of the year relates to claimable tax deductions and that child care should be tax-deductible as it is an expense incurred to earn your income.
This statement makes sense, but it's not necessarily correct. According to the rules, you can claim a tax deduction for an expense you directly incur to earn assessable income on your return.
Why childcare isn't typically deductible
You might incur childcare expenses to earn your income. However, the law states that you cannot claim a tax deduction in the following cases:
- The expense is capital in nature
- The expense is a private or domestic expense or
- There is another specific provision in the Tax Act that prohibits it.
This is where things get tricky. The Australian Taxation Office (ATO) considers childcare expenses to be of a private or domestic nature.
Generally, most taxpayers associate their home expenses with a private or domestic nature and don't qualify for taxation deductions. However, an exception exists if someone uses part of their home for income-producing activities, and it takes on the character of a "place of business."
Child care does not typically fall under this category of exception.
Other non-deductible expenses
Another item that commonly catches people out on their income tax return and is considered an expense of a private or domestic nature is clothes that are not a specific uniform. For example, if working as a waiter requires you to wear black pants or a PT instructor wears generic gym clothes, these are not claimable.
Travel to and from work is also considered private and domestic (whether by car or public transport). As a judge in the UK once stated, "You are not driving to work and back home again; instead, you are driving away from work and back to work again. It is your private decision to live away from work."
So what can you claim?
You're entitled to tax deductions for most business expenses, provided they directly contribute to generating your assessable income.
- Routine operational costs include utility bills (electricity, water, and internet), rent or lease payments for business premises, salaries and wages paid to employees, costs incurred on marketing and advertising campaigns, and everyday office supplies like paper, ink, and stationery.
- When buying goods or services for your business, deductible expenses can range from purchasing inventory or stock for resale, hiring contractors or consultants, subscriptions to industry journals or software-as-a-service tools, and professional fees for services like legal advice or accounting.
- Some deductible capital expenses often revolve around the depreciation of assets. Examples include vehicles primarily used for business operations, computers, and other IT equipment crucial for daily tasks, machinery used in manufacturing processes, office furniture pieces such as desks, chairs, and filing cabinets, and, in the case of restaurants or cafes, commercial-grade kitchen equipment.
Need expert help?
Many other expenses may or may not be claimable on your tax return this year, so why not start a conversation with us so we can assist you with working out what applies to you?